Can These Retirements Be Saved?

The WSJ invited readers to tell about the cracks in their nest eggs. Here's a look at several who asked for 'retirement makeovers'—and what the experts recommend.

The WSJ invited readers to share their questions and concerns about their financial future. The responses were painful: Individuals and couples who had worked diligently for decades to prepare for later life now find themselves asking how to start over.

WSJ paired several respondents with financial planners from across the country. Each individual or couple received two assessments. The subjects provided a good look at their income, holdings, expenses and goals; the experts, in turn, recommended investments and steps that our readers hadn't considered.

Donna McCann
Unemployed at 61


BACKGROUND: After getting divorced two decades ago, Ms. McCann worked her way up from drugstore technician to director of a pharmaceutical-billing department wrangling reimbursements for drugs supplied to nursing homes and managing a staff of six. She lost her job in September 2008 following a company buyout. She recently completed a few software and accounting classes.

CHALLENGE: If Ms. McCann hasn't landed a job by April, when she turns 62, can she afford to quit looking for work, and instead draw her income from Social Security and investments? What if she leaves Metuchen, N.J., and moves to North Carolina, where living expenses are generally lower? Meanwhile, how can she jump-start her job search?

BALANCE SHEET: Ms. McCann owes $25,000 on her mortgage and thinks she could sell her house for $250,000. Before she lost her job, her income was $78,000 a year. She has saved about $190,000 in individual retirement accounts and other investments and has about $45,000 in cash. She expects her monthly expenses in New Jersey to be about $3,100 a month; in North Carolina, $1,950. If she starts collecting Social Security at age 62, she expects to get about $1,100 a month.

ADVICE: Moving south is Ms. McCann's best bet. Retiring in New Jersey with her existing assets at age 62 "is simply not feasible," says Cary Carbonaro, a certified financial planner with offices in Huntington, N.Y., and Clermont, Fla. If Ms. McCann can sell her home for $250,000, she can buy a home for a bit more than $100,000 in North Carolina and add $100,000 to her savings after paying off her current mortgage. Then, if she invests that sum at a 4% average rate of return, her monthly income would get a $333 boost.

Even if Ms. McCann lands a job in New Jersey in the same pay range as before and works until she turns 66, she may want to move south upon retirement, Ms. Carbonaro adds. That's because Ms. McCann would still be lacking about $800 a month to meet her expenses, using a relatively high 6% annual withdrawal rate from her investments.

Ms. McCann also needs to simplify her investments. Her five retirement accounts and two brokerage accounts are too much to handle, says Dan Casey, a senior asset manager with Bridgeriver Advisors LLC in West Bloomfield, Mich. Plus, nearly 20% of her money overall is invested in small-cap funds—"a pretty aggressive sector, and one I wouldn't recommend being in at your point in life," Mr. Casey says.

To make the portfolio a bit less risky, he suggests selling $34,000 of those small-cap holdings and replacing them with a diverse group of bond exchange-traded funds. When Ms. McCann retires and wants to start generating income from the portfolio, he suggests tweaking it further to include "conservative investments such as preferred shares, [more] exchange-traded funds and closed-end mutual funds invested in bonds or high-dividend stocks," which he predicts could generate roughly $18,000 a year in income.

Ms. McCann is also holding too much in cash to keep up with inflation, Ms. Carbonaro says. She suggests reducing the cash position to 10% from 35% and raising fixed-income holdings to 55% of the portfolio, from just over 3% currently.

The planners also urged Ms. McCann to ask the Social Security Administration to calculate a monthly benefit based on her ex-husband's earnings record. Divorced spouses generally are eligible for such benefits if they were married at least 10 years and the other spouse is at least 62 and eligible for Social Security. The question for Ms. McCann: Will the benefit based on her ex-husband's earnings record be more than the benefit based on her record? If so, her monthly check could be bigger, too.

As for the job search, Ms. McCann's experience with prescription-drug reimbursement is a valuable asset, according to two veteran headhunters at New Directions Inc., an outplacement firm in Boston. "You should stretch your mind a little bit about this skill set you have," says Samuel Pease, a New Directions vice president. "Hospitals, group medical practices, oncology centers, nursing homes, retirement villages—there are a number of places that are buying drugs for which you would be ideally suited."

One other note: Mr. Casey thinks Ms. McCann should make long-term-care insurance a "high priority," since she's single and recent changes in the law have made it tougher to qualify for Medicaid. He estimates that basic coverage would cost about $1,400 a year. He recommends such coverage for "anybody who's single or widowed," and for most people with more than $300,000 in assets.

Source: Wall Street Journal