Protecting Your Nest Egg

Linda Peterson didn't allow her retirement to be downsized with her job

When Linda Peterson, a 27-year veteran account executive for the Los Angeles Times, received an internal e-mail offering employees more than 50 years of age a buyout, she decided not to prevaricate. After observing the nation’s contracting economy and the rampant downsizing in corporate America, the 55-year-old felt it was prudent to act swiftly, especially since the company was only allowing a 45-day window for employees to make up their minds. “When big companies offer packages during downsizing and you don’t have a lot of time to decide, take the first offer because it is usually the best,” she warns. Peterson’s package included full control of the money in her 401(k), pension, a cash payment for unused vacation days, and $300 per month for health insurance until she reaches age 65 and qualifies for Medicare.

As she contemplated the possibility of walking away with a severance package worth $500,000, Peterson realized that she needed to sit down with a financial advisor. Heeding the referral from a friend, she met with René A. Nourse, a Los Angeles-based vice president of investments with Smith Barney. Mapping out a strategy that would provide income for her current and retirement needs was her primary goal by the end of 2001 when the money from her package became available. In January 2002, Peterson’s mother fell and broke her hip, creating a greater financial challenge. Peterson temporarily relocated from Los Angeles to San Diego to become her mother’s caregiver.

Outlining the situation, Nourse says Peterson had to decide whether “to take advantage of the package either as a lump sum or an annuity. Ms. Peterson needed a lot of flexibility because she wanted to work again, but she was determined to take control of her financial life first.” The best way to do that, they decided, was to split the $500,000 into two IRAs (which included $112,000 from her 401(k) that was rolled over). Additionally, Nourse incorporated steps to reduce Peterson’s monthly cash outflow by refinancing her mortgage. They withdrew $30,000 of equity from her house in Northwest Inglewood, California, to pay off debt and lower the mortgage payments by $500 per month.

Currently, Peterson’s portfolio is comprised of 70% income-producing investments, 25% growth investments, and 5% cash. The income-oriented investments include high-grade corporate bonds, such as Halliburton Co. (NYSE: HAL), which pay 6% interest and will mature in 2006; preferred stocks, such as Sears ( NYSE: S) preferred, which pay 7% interest and are callable in October 2003; and Equity Residential Properties (NYSE: EQR), which pay about 8% interest and can be called in October 2005. The growth investments include a multi-cap growth fund [Smith Barney Aggressive Growth (SHRAX)]; a multi-cap value fund [such as Parnassus (PARNX)]; an international fund [such as ING International Value (NIVAX), which is now closed to new investors]; and a gold mutual fund [including First Eagle Gold (SGGDX)]. Last year, the portfolio’s performance was flat in a year that saw the markets drop close to 20%.

With her mother recovered, Peterson now works part

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