Prepping for the holy grail of retirement

Photo: mensatic/

Matt, 59, and Janey, 56, have their eyes on retirement, but they have some big bills to consider.

They have $28,500 in college loans from their two adult children, and more than $100,000 in home equity loans in addition to their mortgage. They’d also like to contribute $15,000 to wedding costs for one of the kids next spring.

At the same time, they’re thinking about how soon they can leave their jobs. They’d love to stop working before age 65.

“We’d like to downsize to a townhome and maybe spend two or three months a year in Florida,” Janey says.

The couple has saved $775,300 in 401(k) plans, $47,500 in IRAs, $217,700 in brokerage accounts and $57,000 in cash accounts.

Kim Viscuso, a certified financial planner with Stonegate Wealth Management in Oakland, reviewed the couple’s goals and resources for

“Overall, the couple is doing well saving for retirement,” Viscuso said. “Their focus should be on reallocating their investments in order to build up a larger nest egg which would allow for increased retirement security.”


Viscuso took a close look at the couple’s retirement plans. She assumed a conservative inflation rate of 4 percent (inflation is historically 3.2 percent), with 5 percent for medical costs.

She also assumed a life expectancy of age 100 for both Matt and Janey.

As part of her calculations, Viscuso assumed all the couple’s expenses would continue indefinitely, except for car payments, which would cease at 88. She also increased vacation expenses by 100 percent once retirement begins to account for their desired time in Florida each year. Medicare premiums were also factored in, starting at age 65.

Paying the college loans and helping with their child’s wedding were also included.

And finally, Viscuso didn’t add in a mortgage cost when they downsize, but she recommends they get a home equity line of credit “for any unforeseen future financial emergencies, allowing invested assets continue growing both before and post retirement.”

Viscuso performed a Monte Carlo simulation to test the strength of the couple’s plan. Because it’s difficult to accurately predict annual return rates, the analysis randomizes return rates within normal ranges each year. Monte Carlo performs this analysis multiple times to simulate a number of possible financial outcomes.

“For example, the actual return in an account with an average rate of return of 8 percent may vary to some degree over time,” Viscuso said. “Monte Carlo analysis allows us to randomly project an account’s returns forward assuming that in some years the account will produce a return lower than the average, say 4 percent, and in other years the account will produce a return higher than the average, say 12 percent, for an overall average of 8 percent.

She said allowing for this variability in returns affects the overall plan and the probability for success.

Two scenarios were entertained for Matt and Janey.

In the first scenario, they both retire at age 65, and in this case, they had a 98 percent chance of not outliving their savings.

In the second scenario, they both retire in February of 2018 when Matt is 62 and Janey is 60. An added health insurance expense of $800 is assumed for both Matt and Janey, starting at retirement and ending age 65, which is when they’re eligible for Medicare. In this scenario, they had an 83 percent chance of not outliving their savings, Viscuso said.

“They do need to diversify their investments, but they have ample savings to retire at age 65 or possibly slightly earlier if their spending stays on track,” Viscuso said. “Anytime we arrive at a Monte Carlo score of 80 percent or higher, we generally consider that a favorable outcome.”

But that doesn’t mean there’s no work to be done. Viscuso said she advises clients of the risks that can impact retirement, such as poor returns or unexpected events and expenses, sequence risk (a risk related to poor returns in the first few years of retirement), the state of the Social Security system (possibly impacting those who are presently younger than 50-55 years of age), the rising costs of health care expenses and increasing life expectancy due to medical advances.


Picking the right Social Security benefit strategy is important for any couple.

Viscuso used a specialized software program to find the best strategy for Matt and Janey.

The strategy known as “file and suspend” showed the best projection.

To do this, Matt would file and suspend benefits based on his earnings record in April 2025 at age 69 and 2 months, which would make Janey eligible for spousal benefits at age 66 and 8 months.

Then Janey would file a restricted application for spousal benefits only, getting estimated amount of $1,667 in April 2025 at age 66 and 8 months.

Matt would begin his benefits again, estimated at $4,441, in February 2026 at age 70. Then Janey would switch to benefits based on her earnings record, estimated at $3,260 in August 2028 at age 70.

We asked Viscuso to explain exactly how the file and suspend strategy works, and why it does.

“File and suspend is a Social Security strategy that can increase benefits for couples through the use of delayed retirement credits,” she said. “Both husband and wife must have reached full retirement age or above.”

The rules are very specific, but she offered this hypothetical couple as an answer.

Take John and Mary, a married couple who are both at full retirement age, 66 and 2 months. (The strategy will work slightly differently for spouses who are not the same age.)

John’s lifetime income was larger than Mary’s, so he files for his full retirement benefits of $2,000 a month, but suspends this payment immediately. This allows him to accrue delayed retirement credits. Every year that he keeps his payments in suspension, until age 70, they’ll be approximately 7 percent higher when he starts collecting them.

That means his full retirement age benefit of $2,000 becomes approximately $2,640 at age 70, plus any cost of living adjustments made over the life of the suspension.

When John filed for his benefits, he enabled Mary to apply for the spousal benefit. A spouse, whether they ever worked or not, is entitled to a benefit equal to up to one-half of the other spouse’s retirement benefit. So Mary can collect $1,000 a month.

At the same time, Mary is not taking her own retirement benefit, so she will also accrue delayed retirement credits that will increase her own retirement benefit when she applies for it at age 70. This is basically $12,000 a year that the couple will have while waiting for their increased benefits to begin.

File and suspend can also have an additional advantage, Viscuso said. If John lives to age 70 but predeceases Mary, her survivor benefit will be equivalent to John’s full monthly payment, including his delayed retirement credits.

But there is a potential negative. If the person suspending dies prior to age 70, he/she will have missed out on the retirement benefits that he could have collected. For this reason, the health of the person suspending benefits should be considered, Viscuso said.

“It is also important to monitor cash flows to be certain that expenses can be covered during the time period a couple awaits the their delayed benefits,” she said.


Matt and Janey are also concerned about their current asset allocation, and rightly so.

Viscuso said overall, there is no real estate, natural resources, or international bonds included in their investment portfolio. There also isn’t an adequate amount of either large- or small-cap international stock.

Matt’s current retirement plan, to which he’s contributing 10 percent of his salary and getting a company match of 4 percent, should include global/international, she said. Plus. the small-cap holdings should be decreased by $25,000, Viscuso said.

The couple describes themselves conservative/moderate, so Viscuso recommends a portfolio as follows:
• Stocks-large/mid-cap: 31%
• Bonds: 27%
• International bond: 6%
• Real estate: 8%
• Stocks-International large: 9%
• Stocks-International small: 3%
• Convertible bond: 5%
• Stocks-small-cap value: 4%
• Natural resources 7%

She recommends they consider using low-cost investment vehicles such as exchange traded funds (ETFs) and index funds.


To reduce the risk to their savings, the couple should consider purchasing long-term care insurance.

Viscuso said long-term care insurance isn’t for everyone because it’s costly and you may never need to use it, but going without coverage can be risky.

“Making a decision as to whether or not to purchase this insurance involves weighing the value of the assets you want to protect if you are to become ill in the future,” she said. “Long-term care needs could diminish your savings quickly.”

She said your chances of needing long-term care are greater if you have a family history of heart disease, strokes, Alzheimer’s disease or Parkinson’s disease.

And right now, premium increases for this insurance are on the rise and should be considered, as should the fact that the cost of care could continue growing faster than inflation.

“The couple can afford to pay a premium, but other unknown factors should be considered: current health, family history, how they feel about the possibility of being placed in a state sponsored institution versus a private care facility and whether they wish to leave their children an inheritance,” Viscuso said.

If they do decide to get a quote, Viscuso recommends they look for a minimum daily benefit of at least $200 to $250 per day, a waiting period of 100 days and that the policy provides coverage for five years. The policy should also provide for home health care and all benefits should be inflation adjusted, she said.

Viscuso also recommends they consider finding a pro to help with investment advice going forward.

And they should also be sure to pay attention to their spending.

“Whether they intend to retire at age 65 or prior, it is imperative that they monitor their cash flows to be sure that they remain on track to achieve financial security in retirement,” she said.

This story was first posted in August 2015.
Money makeovers offered by should be treated as general advice about personal finance and money decisions. Before you make any changes to your personal financial plan, see a professional who can consider your entire financial situation. If you’d like a free money makeover, email .

Net Worth:


[list type=”icon” style=”none” icon=”angle-right”]

  • Checking: $7,000
  • Savings: $50,000
  • IRAs: $47,500
  • 401(k): $775,300
  • Brokerage Account: $217,700
  • Primary Home: $650,000
  • Personal Property: $300,000
  • Autos: $19,000
Total Assets: $2,066,500


  • Mortgage: $170,500
  • Home Equity Loan: $104,000
  • Car Loans: $13,850
  • College Loans: $28,500
Total Liabilities: $316,850
Total Net Worth: $1,749,850


Annual Income:

  • Salary: Matt: $125,000
  • Salary: Janey:: $100,000

Monthly Expenses:

  • Income Taxes: $3,620
  • Housing: $2,790
  • Home Equity Loan: $450
  • Utilities: $690
  • Food: $1,000
  • Education: $634
  • Personal Care: $800
  • Transportation: $1,405
  • Medical: $757
  • Insurance: $233
  • Entertainment: $170
  • Vacations: $350
  • Charity: $100
  • Gifts: $200