What Would You Do? #5

Aug 22, 2013 by

dice with question marksAfter reading my August 01 post “How Much Savings is Enough?“, Money Counselor reader “John” dropped me a note to ask my view on his family’s situation. He writes:

I’m 55 years old. Kids are grown and educated – debt free. Our only debt is our house which we should have paid off in 2 years (given no unforeseen catastrophes). Spouse and I have a combined retirement fund of $750,000. We can live on $40,000/year easily (including traveling) once the house is paid off. We should be getting (eventually) about $25,000 (combined) in social security. Our financial planner thinks we’ll be able to retire once our retirement funds are at $1M. I’m thinking we’re going to need more like $2M – given the cost of nursing homes etc. Our parents/grandparents all lived into their 90’s and spent many years in nursing homes. What do you think our # ought to be? Thanks much.

I sent John my thoughts, but I also suggested he might benefit if I turned his question into a post and let other Money Counselor readers give him their feedback. He said okay.

More Details on John’s Situation

Through a couple of email exchanges, John volunteered a few more interesting tidbits about his situation:

  • John’s currently invested 60% stocks/40% bonds. The allocation is set to adjust as he ages.
  • John plans to retire at age 65 (10 years from now) and his wife aims to retire at 62. Their combined annual income today is $172,000.
  • Neither John or his wife plan to take on any paid employment, at all, once retired.
  • John and his wife’s intent is to live in their current home until death or deteriorating health forces them to move. Their home is currently valued at $375,000.
  • John’s wife wants to stop for one year her significant 401(k) contribution—the first 6% of which is matched by her employer—and throw the money at the mortgage. Combined with other resources, the aim would be to pay off their ~$100k mortgage balance in one year.
  • Like many “retail” investors over the past 15 years, John says he’s taken a couple of big hits on his investments with damage in the six figures. Apparently that hasn’t made him stock-shy, as he’s still 60% invested in equities. Or perhaps the losses weren’t in stocks, John didn’t specify.

What’s Your Advice for John?

John’s initial question was whether I agreed with his financial planner’s thought that a $1 million nest egg is sufficient. John foresees the potential for a long life with high end-of-life expenses, so he’s concerned that $1 million isn’t enough. What are your thoughts?

What do you think of John’s wife’s proposition that she suspend her 401(k) contribution for a year to help pay off the mortgage faster?

And what do you think of a 60% stock/40% bond asset allocation when one is 10 years from retirement and has no plans for any non-passive income in retirement?

Thanks for your help.

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