In Retirement: Manage Your Money in a Post-Crash World
Don and Sherry Radosevich didn't want to plant themselves in one place when they retired. Their plan was to spend springs and summers in their four-bedroom ranch house in Wisconsin and then, when the weather turned frigid, escape to their condo in Florida. The day after Sherry's retirement party in November 2006, the pair headed straight for the Sunshine State, where they'd paid $268,000 for a brand-new condo the previous year. The skies were clear. Not only had they nurtured their nest egg (then invested primarily in stocks and stock mutual funds) to a healthy $1.5 million, but they also both brought in income by working part time. Don, 70, continued to work at the law firm he founded as a solo practitioner in 1970, and, retirement party or not, Sherry, 66, likes her job as a nuclear medicine technologist and isn't ready to give it up entirely. They felt confident that they would have plenty of money for the dual-state retirement they'd envisioned. "We could see ourselves withdrawing $60,000 to $80,000 a year from savings and retirement money, living comfortably," notes Don. They have no other obligations. They had put three children through college without taking out loans; their youngest, Sarah Beth, has to complete one more year in a five-year program at the University of Wisconsin, but she's covering all her costs with a loan and a part-time job.
Like many Americans, however, the Radoseviches found their sunny retirement vision blown away by last year's financial storm. Don estimates that their investments dropped in value by about $800,000 between December 2007 and March 2009, leaving them with cash assets of about $760,000. And, no surprise, their Florida condo is worth a lot less. So, the couple is doing the same thing you may have had to do in recent months: rethinking priorities and paying for the more important ones while cutting back on the rest.
The Radoseviches are forgoing extras such as their membership in a Wisconsin golf club and their once-frequent restaurant meals. But they haven't settled on a plan that will adjust spending to the new reality, and they may have to cinch their belts even further. Last year, to make ends meet, they withdrew about $35,000 from savings.
The big issues for the Radoseviches include, first, reallocating their assets into a more diversified portfolio that can better weather risk. Right now, about half their money is in stock — one-third in just three companies. A second decision: whether to keep the Wisconsin house, bought in 1980. Real estate decisions have emotional, as well as financial implications, and selling that house is a wrenching possibility for the family. Since a $60,000 kitchen renovation last year, the house is "exactly how we want it," says Don. Other extras are also on the chopping block: airfare to visit children and grandchildren, and a tradition of generous gifts to the kids. (Tracey, 43, works in advertising in the Milwaukee area and has two children; son Michael, 40, a retinal surgeon with two children, lives in Albany, N.Y.; daughter Jenni, 26, works at a fashion magazine in New York City.)
"When times were good, we were spending money like drunken sailors," Don says, recalling days of open tabs at the country club for the kids. Now, even Christmas gifts will be modest, when given at all. "We've given the kids notice," Don says, "that the money train is pulling out." But if they don't get their finances together, they could be left behind as well. While the Radoseviches' financial dilemmas are their own, the solutions may very well apply to you as well.
Jill Schlesinger, MoneyWatch.com editor-at-large and a certified financial planner, analyzed the Radoseviches' finances and says, "They nearly torpedoed their retirement by overloading on stocks. By diversifying their holdings, they'll have a more stable retirement fund."
Click on the links below to see more details on the Radoseviches' game plan.