Get With The Plan: September 21, 2014

Will and Mandy are in their early 50s and they have a freshman and a sophomore in college. They hope to get through the college years without taking on any debt, all while setting up their retirement — which they hope is around age 60 or 62 — with never becoming a financial burden their children.

“We want to ensure we can continue to maintain the lifestyle which we have created while also being prepared for retirement,” Will says. “And we want to have the resources to assist our children as needed and be prepared for any emergencies which might occur.”

One of their challenges is that their risk tolerance is on opposite ends of the dial.

Mandy is extremely conservative and “would prefer to bury our money in the yard,” Will says, while he prefers to be fairly aggressive with investments.

So far, the couple has saved $330,000 in 401(k) plans, $233,000 in IRAs, $43,000 in a brokerage account, $29,500 in mutual funds, $5,300 in savings bonds, $150,000 in money markets and $5,000 in checking. They also have $182,000 in 529 Plans for their children. Plus, Mandy will receive an annual pension of $44,000 at age 65.

The Star-Ledger asked Brian Kazanchy, a certified financial planner with RegentAtlantic Capital in Morristown, to help the couple get through their working years so they can retire with confidence.

“Will and Mandy are at an imperative point in their life because any changes to their employment compensation or lifestyle can affect their long-term retirement goals,” Kazanchy says.

Kazanchy took at look at their expenses and how that will change in retirement. Right now they’re in very good shape.

He used a Monte Carlo analysis, which looks at the couple’s probability of success under thousands of different variables. Right now, they have a 99 percent probability of success, which is the highest confidence level that they can have.

“This means that out of 10,000 possible future market simulations, they have a 99 percent chance of not running out of funds in retirement,” Kazanchy says. “This means that Will and Mandy have the opportunity to increase their lifestyle during retirement in several ways.”

He says they can increase living expenses, retire earlier, reduce their portfolio risk, increase vacation spending, increase home renovation spending or simply choose to leave a greater amount of assets to their loved ones when they pass.

“Will and Mandy have put themselves in a great position to fund a long retirement,” Kazanchy says. “Now is a great time for them to discuss how they wish to improve their lives because of the favorable position they have made for themselves.”

They have many options.

Kazanchy says their retirement plan remains viable even if they change their retirement date and spending assumptions to the following:

Will can at age 58 and Shelly can retire at 57 in year 2020 and they’d have an 86 percent confidence level. Or they could increase retirement living expenses by $18,000 a year and both retire in 2023 with 79 percent confidence.

Another option is to double vacation spending and have Will retire at age 60 and Mandy at age 59 in 2022, which has an 84 percent confidence level. Or they could double home renovations and retire in 2020 with an 82 percent confidence level.

Kazanchy recommends they continue to pay their car loan and mortgage at the current schedule. Also, they only need $44,000 in their emergency fund, which is about six months of living expenses. The rest they can invest in their portfolio.

On the portfolio, he says they’re already at the recommended asset allocation of 70 percent stocks and 30 percent fixed income, which they should pare back to 60 percent stocks when they retire.

Because they have enough money saved in their children’s 529 Plans, they can stop their current contributions of $10,000 a year to the plans and switch these contributions to a taxable account to invest in their portfolio until retirement.

When it comes time to take Social Security, Kazanchy says they should use the “claim more later” strategy, which would give them more than $400,000 more in benefits over their lifetime compared to if they took benefits earlier.

Will would begin collecting at age 70. Mandy would collect half that in spousal benefits from age 66 to 70, and her own benefit would grow about 8 percent a year for those four later years.

Kazanchy says they should also see an estate planning attorney to update their documents.

“The current documents were enacted when kids were born, and they’re now over 18 years old,” Kazanchy says. “Will said they have an advance medical directive, good POA, and executors are still with them, but it is still recommended to review documents.”

Get With the Plan is designed to illuminate personal finance concepts and isn’t a substitute for actual financial planning or dedicated professional advice. You can reach Karin Price Mueller at bamboozled@njadvancemedia.com.

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