A big money decision before retirement

Work/retirement crossroads sign.

Tess Vigeland: And now we tread softly into the Golden Years, as we continue Money Through the Ages, our special report in partnership with The New York Times. Our next story is from Tampa, Fla., where a couple of 60-somethings are heading toward retirement. At least, they hope they are.

The New York Times' Tara Siegel Bernard is back with us. Hi Tara.

Tara Siegel Bernard: Hi Tess.

Vigeland: Tell us a little bit about Jim and Frances Langerfeld.

Siegel Bernard: Fran is 62, Jim is 64. They've raised four children and now they're contemplating retirement. But they have a lot of the same questions that other retirees face, you know, do we have enough money? How much will we really get for our house? Can we afford to do this now? Should we wait? And Fran is a meticulous record keeper. She pulled out a budget book from 1968.

Vigeland: Wow.

Siegel Bernard: Yeah, and she had a stack of them in her garage, it was really fascinating.

Vigeland: So as they went through those records with you, what where they saying about how they had planned for retirement?

Siegel Bernard: If it was up to Fran, she works as a legal processor, she would retire, she would have retired yesterday. Jim, who is an engineer for a construction firm, still enjoys his job, so they think they've come up with the ideal compromise.
They own a vacation home in New Brunswick in Canada. While Fran was trying to come up with a value for their home she came across an ad for a motel. The asking prices is about CAD$225,000, she thought this might be the ideal solution.

Frances Langerfeld: I have never, never once in my life thought about running a motel. And I just, I don't know why, suddenly it just hit me, that's probably a pretty good idea.

Vigeland: To buy and run a hotel?

Siegel Bernard: it would give Jim something to do. He's a master fix-it man, he repairs everything around the house, fixes the cars.

Vigeland: He can move in with me as far as I'm concerned.

Siegel Bernard: Yeah, I know, me too. And she is obviously a meticulous bookkeeper. So they thought they had the skills to do this

Vigeland: Hmm, so let's get back to that plan in a moment and talk about what their financial situation is right now. How much have they set aside for retirement?

Siegel Bernard: They have saved about CAD$720,000. They also own their home in Florida.

Vigeland: Do they still have a mortgage or is it paid off?

Siegel Bernard: It's completely paid off.

Vigeland: Good for them.

Siegel Bernard: Yeah, they do have a tiny amount of debt, you know, considering. They have a 401(k) loan, so Fran is paying herself back, so it sounds like they're pretty well set, financially.

Vigeland: So what is keeping them from going ahead and pulling the trigger?

Siegel Bernard: Well, $700,000 might sound like a lot of money to a lot of families, but once you break that down, it would produce, with Social Security, about $67,000 a year. However, most of their retirement assets are in taxable accounts. So any money they pull out they're going to be paying ordinary income taxes. So that $67,000 then becomes, according to our financial planner, about $50,000.

Vigeland: So who was the financial planner and what were the main suggestions?

Siegel Bernard: Sure, I spoke with Kathleen Rehl, who is a 64-year-old financial planner who's also contemplating a phased retirement. So she discovered their portfolio is comprised of 76 percent in stocks.

Vigeland: Wow, in their 60s?

Siegel Bernard: So that's really risky.

Vigeland: Were the Langerfelds aware of that, or is that something they had just kind of let happen?

Siegel Bernard: Yes, Fran is acutely aware. It sounded like she is making a few bets to bring their retirement nest egg up to speed because they didn't have enough.

Vigeland: Well, was the financial planner concerned at all?

Siegel Bernard: Yes, she was very concerned. She suggested no more than 45 percent in equities and also simplify because they have investments scattered across a variety of brokerage firms. As we age, you know, it just becomes more difficult to manage, so better to just simplify and have it all in one place.

Vigeland: Any other advice that the advisor had in terms of them being prepared to make a big move like this?

Siegel Bernard: Yeah, I mean ideally speaking, she would like to see them work a little longer. She also raised some questions about the hotel: Do you have an exit strategy, it's something that she wants them to be absolutely sure of.

Vigeland: Well, given that Frances wants to retire yesterday, was she crestfallen at this recommendation?

Siegel Bernard: No, I think it was probably what she was expecting, and that's why they're on the fence. They're thinking about it seriously, they're definitely going into it with their eyes wide open

Vigeland: Tara Siegel Bernard is a personal finance reporter for the New York Times. We've been talking to her about this couple in their 60s, Tara, thank you so much.

Siegel Bernard: Thanks Tess.

Vigeland: And once again I'll remind you that we've got all kinds of extras for you at Marketplace Money. And don't miss the outstanding work of our partners over at the Times at nytimes.com/ages.

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