Retirement Planning Case Study #1

» Posted by on Sep 19, 2011 in Retirement Planning | Comments Off on Retirement Planning Case Study #1

George and Dorothy are 64 and 63 years old respectively.
They have heard most of the conventional wisdom that was being passed about regarding how much money Baby Boomers who don’t have a pension would need to retire. People have been saying that you would need at least $1 Million or more.

(The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

They’ve been married over 40 years and for about 20 of those years, Dorothy was a stay-at-home Mom. She then took on a job as an administrative assistant, which she still has.

George had a somewhat successful career and started funding an IRA account after their kids finished college. It seemed that they would be able to acquire an adequate nest egg until an in involuntary career change came upon George while he was in his mid 50’s (he is now self-employed). Then the IRA contributions stopped and their combined IRAs hold about $186,000.

They asked us to run an analysis of their current retirement outlook. When we first addressed the subject, their expectations were not very positive.

Below are some important things about their current situation:

  • The mortgage on their house will be paid off in early 2014 and they have a small second mortgage (the second mortgage was taken when George was starting his business and  will also be paid in 2014).
  • They don’t have car payments and are accustomed to buying good used cars that will last for several years.
  • They live a moderate life style – they go out to dinner with friends occasionally, but don’t take expensive vacations and don’t have expensive hobbies.
  • George can work in his field beyond age 65, and doesn’t mind the prospect of working a few more years. He hopes that Dorothy can retire from her job before age 65. Dorothy would like to dedicate her time to being a grandma and to volunteer work.


First Step

We ran a Social Security timing analysis and learned that the greatest payout from Social Security for George and Dorothy would be to turn on full Social security benefits for both of them would be when George is 68 and Dorothy is 67. The resulting lifetime payout with this strategy would generate over $113,598 more income in Net Present Value Dollars than the least beneficial strategy, which would be to turn on Social Security benefits when they each reached their 62nd birthday. Because George can keep working until age 68, the best strategy can work for them.


Second Step

We entered George and Dorothy’s projected Social Security income information and the information about their current retirement funds into our Computer Model, which produces a calculated projection of the retirement outlook of a couple or an individual. We also entered their living expense information, including adjustments for projected inflation and the expense changes that will occur when their mortgages are paid off.


Third Step

We ran the computer model with the assumption that George and Dorothy would need 100% if their current income, adjusted for inflation and paid off mortgages to receive a projection of how their retirement funds would hold up for the rest of their lives.

Fourth Step

We asked the computer model to throw curve balls at George and Dorothy’s retirement plan. The curve balls included

  1.  Another Great Depression like the one we had in the 1930s
  2. George enters the nursing home at age 80 and stays there until his life ends at age 84.
  3. George dies before age 70.

The Outcome

George and Dorothy were surprised to learn that they would be able to live at their current lifestyle even with inflation, on their Social Security Income with several hundred dollars per month to spare.

They certainly didn’t expect that!

The surprising good news is largely due to the facts that they’ve stayed on track to be debt free by age 67 and that George can keep working until age 68.

A major economic downturn, even one like the Great Depression, is not likely to effect George and Dorothy’s lifestyle.

Since the income on which George and Dorothy will rely will not be tied to the securities market, a major market downturn will not change their income. In fact, the calculated projection estimates that George and Dorothy’s funds would exceed $1.3 Million if they were to pass away in 2032. This is due to George and Dorothy’s earlier decision to put most of their retirement funds into Fixed Indexed Annuities, which are back-tested to yield over 5% per year growth and are insured against loss of principle. For an explanation of how this works, please click on  The Benefits of Annuities to see our entry on Annuities.

They learned that even if George needed to be confined to a nursing home from age 80 to age 84 and they needed to withdraw some money from their retirement funds, their retirement funds would still be worth over $400,000 (inflation included)

While the nursing home expenses would be quite substantial, George and Dorothy’s earlier decision to put most of their retirement funds into Fixed Indexed Annuities would serve them well by continuing to grow their money by about 5% per year, while insuring their principal from loss during market downturns (to learn more, click on The Benefits of Annuities to see our posting in Annuities.

They learned That if George were to pass away,Dorothy’s income would be more than adequate, assuming that her expenses as a widow would not exceed 80% of their combined expenses.

NOTE: The purpose of the analysis is to determine how George and Dorothy’s current retirement plans will play out. While a discussion of Long Term Care Insurance may be appropriate, we will only have that discussion after a full evaluation of their current plan.

BY THE WAY, we didn’t charge George and Dorothy a nickel for this confidential analysis. We don’t charge anyone for this service. It’s our way of getting to know the right people.

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