Getting It Right The Second Time Around

Early retirement proved costly for Shirley Malone

cruise twice a year and … my dream trip to Africa.”

THE ADVICE
BLACK ENTERPRISE had Michael Smith, a certified financial planner with ProFocus Inc. in Phoenix, assess the financial standing of our 50th financial fitness contest winner in order to determine if she could realistically retire in 2014. Smith says the good news is that Malone is “no longer depleting her savings to maintain her lifestyle,” but her challenge now is to get more aggressive about saving for retirement and her son’s college education. Moreover, Malone’s mother has had knee and hip surgeries. “Should she require long-term care, [Malone] will have to decide whether to place her in state care or provide in-home care,” says Smith.

Much hinges on Malone’s fortitude: how long she can work two jobs without burning out again. “Having to care for her mom and the cost of living in Southern California may prolong [the number of years she has to work], but her financial future is above average — she’s a saver.”

Malone still has around $300,000 earmarked for retirement and roughly $25,000 in a variety of savings vehicles and checking accounts. But retiring in 10 years, while possible, won’t be easy. Smith says she’ll need at least $700,000 in retirement assets by the time she’s 62. Based on a 6% return and a 4.5% payout, she could receive $31,000 annually from her retirement funds and an estimated $14,000 per year from Social Security, giving her $45,000 in future income.

How can she achieve that? She needs to save $1,050 per month for the next 10 years. “It’s a stretch, but with her employer matching contributions in her 401(k) and tax breaks, it’s worth shooting for,” Smith says. Smith also recommends the following strategies:

Get a home equity line of credit. Smith would like Malone to “take out a home equity line of credit of $25,000, pay off credit card debt, and use the remainder to assist in the purchase of a new vehicle.” Doing so would lower her debt repayment obligation, and the interest is tax deductible. She has two late 80s model Mercedes that are high maintenance and low in value. And her van is more than 9 years old. “Sell the van and one of the Mercedes,” says Smith.

Max out on her 401(k). Once Malone becomes eligible for SBC’s 401(k) again, “she should invest both her contribution and the employer match into mid-cap value and moderate allocation mutual funds. She needs diversity; a good share of her retirement assets are in fixed annuities and annuity contracts,” says Smith.

Establish a living trust to manage mom’s affairs. Malone’s mother needs a durable power of attorney for health, one for property, and a living will (or directive of physicians). And Malone needs to take inventory of all her mother’s assets, says Smith. This would help avoid probate if her mother becomes incapacitated and allow Malone to ensure that her mother’s wishes are granted.

Set up a 529 plan for Jeffrey. Malone should put away at least $150 a month toward her son’s

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