Ask Ric: Don from Solvang, CA
If It’s Not Broken, Don’t Fix It
Ric Edelman: You're listening to The Truth About Your Future. Let's take a telephone call up to Solvang, California. Don is with us on the air. Hi, Don. Welcome to the show.
Don from Solvang, CA: Hi, Ric. Thank you for talking to me today.
Ric: Oh, it's my pleasure. What can I do to help you?
Don: Well, my wife and I are such sophisticated investors that we have a little over $100,000 in a simple savings account at a local bank earning 0.01% interest. I'm already retired. We're living on my income. I have Social Security, I have a PERS retirement, and then I have another small retirement. She is putting everything she earns into another savings account when she retires at the end of this year. She'll have a retirement fund of little over half a million dollars plus. We have a half dozen deferred comp accounts. All in all will have about $1 million to put somewhere so that we, number one, don't lose any money, but still have money left over to have a reasonable lifestyle after she retires. All of our accounts are in very conservative accounts that are all guaranteed interest with very little risk.
Ric: And is that the way you've operated throughout your entire careers?
Ric: Your age is?
Don: I'm 70. She will be 67 in November.
Ric: Got it. And how much money do the two of you spend on a monthly basis?
Don: All in all, a little over $10,000 a month.
Ric: Okay. And what are your sources of income going to be once you're both in retirement? Where is the money going to come from?
Don: We are living on my income now. We are planning on holding off her Social Security until she is 70.
Ric: Now, when you say that you're living off of your income, you mean your investment income?
Don: Yes, my PERS, my Social Security and the other one.
Ric: So you have a pension?
Ric: And how much is that pension?
Don: About $4,700 a month.
Ric: And does your wife qualify for a pension where she works?
Don: Well, she does. It will be about $5700 a month.
Ric: So will you both get Social Security in addition to this?
Don: Yes. Yes.
Ric: Okay. So between the two of you, you're already at the $10,000 you're looking for. You're closer to $12,000 in monthly income just from Social Security and pensions. That's even before we take a look at the million dollars you have in retirement accounts and deferred comp accounts, right?
Ric: The two of you have achieved the American dream. We haven't even bothered to talk about your house. What's your house worth?
Don: Well, we have about $1.7 million in equity. We've been our home for a little over 22 years.
Ric: So you've got $2.7 million in assets in addition to your pension and Social Security income. The two of you are in outstanding financial condition, and there's really no reason for either of you to take any more investment risk than you're taking right now. What I want you to recognize, which I think you already do, is that due to inflation, you're actually losing money on all of your savings and retirement accounts because inflation is 7%, your money is being invested at less than 1%. But so what? You can afford it. You're not going to run out of money over the course of your life. That's what really matters. That's what you're predominantly concerned about. Your risk averse. You've never invested in the stock market or in volatile investments. There's no reason to start now because you don't need to take the risk. Investing is all about achieving goals. Your goal is to generate the income you need to support your lifestyle forever. You can afford to do it. Why take any more risk than is necessary? It's not going to improve your lifestyle. Frankly, it could risk that lifestyle. So I think the two of you should just keep doing what you're doing. I think you and your wife have done a remarkably good job in your careers, accumulating wealth, and you now have, I believe, as much wealth as you're ever going to need to support yourselves. That's fabulous. I'm really proud of you.
Don: Thank you very much, Ric. Thank you for your time. Also.
Ric: Don, thank you for calling you. Really appreciate it. That was Don from Solvang, California. You can do what Don did. Contact us with your question. I'm happy to address it. AskRic@thetruthayf.com.