Get With The Plan: October 9, 2011

Ming and Mandy have started their retirement countdown. Ming, 60, hopes to leave his job this year, but he will continue to work in the family business. Mandy, 55, plans to retire at age 59.

Their biggest question is how they can juggle their primary residence in Bergen County and a house at the Shore.

“What should we do with the secondary home at the Shore? Do we sell or rent? We realize the market is bad,” Ming says. “We can pay the mortgage now. However, when Mandy retires we anticipate more difficulty in meeting payments.”

Ming and Mandy, whose names have been changed, have saved $248,000 in 401(k) plans, $66,500 in IRAs, $12,100 in annuities, $10,000 in a brokerage account, $15,500 in savings and $2,000 in checking. There’s also $40,800 in a business checking account.

When she retires at 59, Mandy can expect a pension of about $44,000 a year, and Ming will receive a pension of $25,000 a year.

The Star-Ledger asked Douglas Duerr, a certified financial planner and certified public accountant with U.S. Financial Advisors in Montville, to help the couple see if they’ve saved enough for retirement.

“They have done their best to set aside funds for retirement, but like most individuals have helped pay for their various expenses for their children. This includes college, cars, and helping them get out of credit card debt,” Duerr says. “As a result they were not able to put aside as much as they would have liked for their own future.”

The couple’s Shore home was also purchased at a higher price than it’s worth today.

They need to look at their finances and goals in stages to determine what may be best for them.

Duerr says the couple needs to look at the next 15 years and make several decisions. He recommends looking at this time frame in five-year increments.

“For the next five years they need to determine if they can save any additional funds for retirement,” Duerr says. “They also need to decide if they want to maintain both homes or rent the Shore house.”

In years six to 10 they need to decide if they really want or need both homes. They should consider selling one, probably their primary residence, and moving permanently to the Shore home, which has cheaper expenses.

During that time, they need to also decide how much longer Ming will work in the family business. If he leaves, he’d probably sell his share for between $100,000 and $150,000 — money that would help them in retirement, Duerr says.

For the remaining five-year increment and beyond, Duerr says the couple should decide if they want to stay in New Jersey or move to a lower income tax state.

Ming will leave his primary employer this year and stay with the family business, and fortunately his medical insurance will be covered by his former employer.

“This is a major expense they will not need to be concerned about,” Duerr says.

Ming says he would stay with the family business for at least five years, and maybe as long as 10 years. Duerr says that’s a smart move, and it will help to pay the bills and allow Ming and Mandy to leave their retirement assets more time to potentially grow and recover to levels prior to the market crash of 2008.

The couple will receive pensions totaling $69,000 a year at age 60, and then Social Security will be close to paying out. At 66, Ming would receive $26,400 a year and at 62, Mandy would receive $18,000.

“Their gross income at that point, not including possible earnings from their business or retirement plan distributions, would be approximately $113,000,” he says. “If they are able to delay taking Mandy’s Social Security until she is eligible for full benefits at 66 and 4 months, her Social Security would increase by $7,200 per year.”

That all sets up the decision-making.

The Shore house is a considerable expense for the couple, and they’re thinking of renting out the property, but they’re concerned about being landlords. Duerr says rental income would be a help in paying the bills to maintain the home, but they need to decide if it will be worth the possible headaches. Plus, they like to use the property, which they can’t do if they have a tenant.

“If they are concerned about being landlords, I would suggest that the best thing to do would be to continue to have the two homes for now, but realize that they will need to sell either the Shore home or the primary residence when Mandy retires,” he says.

This gives them four years to decide where they’d want to live, and hopefully the housing market will improve before they sell.

When Ming works solely in the family business, they should consider making retirement contributions for him. He has several different self-employed retirement plans to choose from, and while Mandy is still working, she should save as much as possible in her plan.

The couple has enough life insurance at this time, but long-term care insurance should be a consideration. But Ming has a health condition and he may not be able to qualify for a plan. Even if he did, Duerr thinks the couple couldn’t handle the premiums as long as they own both homes. They should take another look after they sell one of the properties, he says.

“They need to consider and give serious thought to the various options they have. This way they can make a truly informed decision that they have thought long and hard about,” he says. “Once they are fully retired and sell one of their homes, their expenses will drop significantly. Once this occurs they should be able to live the frugal retirement they are longing for.”