The Boston Globe Money Makeover: A plan for getting by, working less profiles single, 50-year-old Malden, MA resident Phyllis Werlin who is currently unemployed after her second layoff in 12 months. With another job hunt in front of her, Phyllis wondered – can she afford to look for part-time work and use her extra time to pursue other interests? If she did semi-retire now, would she outlive her money?

Levit, of Paragon Financial Advisors in Newton, crunched the numbers, looking at Werlin’s expenses, the expected return on her investments, and the size of her Social Security payments once she reached full retirement age. The one thing she didn’t factor in was Werlin’s life expectancy. Rather than risk Werlin outliving her money, Levit said, “I just plan for you never to die.’’

The bad news, Levit said, was that her portfolio – built from savings and an inheritance from her father – just wasn’t big enough for her to retire now. If she started taking money out of the portfolio today and wanted it to last, she could take only $34,000 a year, adjusted for inflation – not enough to support a lifestyle that currently costs $41,000. To comfortably make ends meet, however, the former tech-support staffer only had to earn between $7,000 and $12,000 a year for the next 16 years. After that, Social Security would kick in, providing Werlin with the extra funds needed.

“That’s lower than I thought,’’ said a pleased Werlin, noting that Levit’s numbers give her real flexibility in making her next professional move. “Can I find a job that pays $12,000 a year? Yeah, I think I can.’’

Levit’s projections, of course, were based on assumptions, including an inflation-adjusted 6 percent rate of return on Werlin’s portfolio, 3 percent inflation, Social Security payments of at least $12,000 a year, and a continuation of Werlin’s frugal lifestyle. Just how risky were those assumptions?

Once again, a money makeover that leaves out all of the important numbers! It would have been really nice to know just how much Phyllis’ nest egg is (her savings plus the inheritance).

The social security number had me intrigued. Spending the next 16 years earning much less will not impact her final qualifying payout? Or can someone who earns only $12,000 per year for 16 years prior to benefits payout still qualify for a benefit that will basically equal the yearly earnings for the most recent decade plus of history? The article does say that she currently qualifies for $18,500 a year – it would be nice to know what her recent salary has been.

Finally, I would have liked a clearer picture of her current budget. It says she is living on $41,000 per year. How much of that is going toward housing, utilities, food, transportation, entertainment, taxes, insurance, etc? Does she own her home or is she a renter? Sometimes I wish they would just obscure the name and give us all of the details!

What did you think of this Money Makeover?

Labels: Money Stories

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