Get With The Plan: October 12, 2008

Brianna earns a healthy income, and as a single woman, this 50-year-old has taken advantage of her ability to put together a sizable nest egg. She’s now taking stock of her retirement plans and she hopes she can share her wealth.

‘‘My main goal is retirement, and I would also like to be able to assist three nieces/nephews in college,’’ Brianna says. ‘‘I would also like to purchase a vacation home.’’

Brianna, whose name has been changed, has saved $355,908 in 401(k) plans, $50,000 in an annuity, $124,308 in a brokerage account, $14,000 in CDs, $35,000 in a money market, $70,000 in savings and $10,000 in checking. In addition to fully funding her retirement account, she saves $1,000 a month in her brokerage account.

The Star-Ledger asked Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield, to help Brianna evaluate her prospects.

‘‘Her current capital base of nearly $1 million will provide a total return of $49,392 per year, under the assumption of a 5 percent pretax rate of return,’’ Papetti says. ‘‘This, combined with her other income sources, will be enough to cover her needs and allow her asset base to remain stable.’’

Papetti’s analysis of Brianna’s retirement needs as- sumes she’ll retire at age 60 in January 2015. She’ll continue her current lifestyle expenses, experience 3 percent inflation and receive a 7.91 percent rate of return pre-re- tirement and a return of 5 percent post-retirement. Over- all, she would still have funds left at age 90 — $2.476 million, or in today’s dollars, $829,400.

This doesn’t mean Brianna’s plan isn’t without hic- cups, though. Based on income and expenses, she’ll have a cash-flow deficit in the next few years of $8,311 and $3,862, respectively. She’ll be back in the black in 2010, with excess cash of $2,956 in 2010 and $1,708 in 2011.

Her goal to purchase a second home in retirement may be a challenge if she’s not careful with her resources. Based on the current cash-flow analysis, it doesn’t appear she has the excess funds for an additional monthly mortgage and housing payment, Papetti says. But the retirement analysis indicates that if she can achieve a 5 percent pretax rate of return after she retires, she should be able to afford an additional monthly payment of $1,500 to $2,000 by using her non qualified funds.

Therefore, Papetti recommends a mortgage of no more than $200,000, assuming a 20 percent down payment and a total purchase price of $250,000. For this analysis, he assumed a 30-year fixed rate mortgage at 7 percent interest. He also assumed Brianna would incur additional housing expenses, such as utilities and maintenance, of $2,000 a year.

If she wants to make this goal happen, Papetti says it’s not realistic to help her nieces and nephews with college costs at this time.

Another area to examine is Brianna’s risk tolerance. She says she’s fairly risk-adverse, but her investments are 83.8 percent in stocks and 16.2 percent in bonds and cash.

‘‘Her overall allocation would be characterized as aggressive growth, which may not be appropriate as she nears her retirement years,’’ Papetti says.

With the portfolio, she has 33 percent of her 401(k) and 25 percent of her total portfolio in her employer’s stock — far too high a concentration, he says.

She’s also lacking disability insurance.

If Brianna was to lose her income because of a disability, her income would be short by an average of $8,721 per month for the first five years and about $6,000 per month after that. To protect against that risk, Papetti recommends she consider disability insurance.

Brianna does have a long-term care policy, which would cover nursing home daily benefits of $200 a day with a 90-day elimination period, and $120 a day for home health care, or $150 a day for an alternate care facility. Overall, if Brianna needed care for five years starting at age 80, this would lead to a shortfall of $484,000 after the insurance payments, or $215,000 in today’s dollars. She should have sufficient assets to cover that shortfall, Papetti says.

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