The biggest single change Caves suggested was for Aida to liquidate more than $240,000 in a Lincoln Life annuity in a 403 (b) account from a previous job, pay off a $40,000 loan against the account, and roll the remaining proceeds into an IRA account to be invested in stocks that will add diversity to the couple's portfolio.
He suggested she buy $97,000 of T. Rowe Price International Stock Fund (five-year average annual return: 14.9%;  638-5660), which is invested about 80% in international large-capitalization stocks and 20% emerging-markets issues; $39,000 of Vanguard Index 500 (five-year average annual return: 20.2%;  662-7447), a large-cap U.S. stock fund whose holdings are based on the Standard & Poor's 500-stock index; $40,000 of Managers Special Equity (five-year average annual return: 21.1%;  835-3879), a U.S. small-cap fund; and $28,000 of Acorn International, ( 922-6769), an international small-cap fund that is less than 5 years old.
For the rest of their portfolio, Caves suggested an overall re-balancing to maximize diversification. He told the Tolentinos to keep 10% of their retirement savings in fixed-income instruments, including U.S. government-guaranteed bonds, international bonds, quality corporate bonds and high-yield bonds.
Right now, the Tolentinos' entire balance of about $500,000 in retirement-fund investments is in U.S. equities, about $375,000 of it in large-cap stock funds and $58,000 in medium-cap funds. Leo also has $44,000 in shares of Parsons, a previous employer.
Caves recommended that the couple reduce the proportion of their portfolio in U.S. large-cap-stock funds, and add holdings in funds investing in foreign stocks.
Thus 25% of their current assets and future savings would be in large-cap stock funds, split between an actively managed fund and an index fund; 18% in a small U.S.-stock fund; 18% in large international-stock fund; 5% in small international stocks; and 4% in international emerging markets stocks. Their U.S. medium-cap and individual stock holdings would be maintained in their current proportions, about 18% of their total portfolio.
Once the portfolio is reconfigured, Caves said, the Tolentinos simply have to contribute about $16,000 a year to their workplace-sponsored retirement plans. He also recommended that for the next five years they put an additional $7,200 a year into their savings accounts, to build up a cash cushion for emergencies. That plan, which is close to their current savings pattern, will give them a surplus of about $15,000 over what they would need at retirement to ensure four decades of financial security.
The Tolentinos, who were both born in the Philippines but met in California, said the spending and saving outline seems suitable. The couple, married since 1971 and U.S. citizens since the mid-'70s, said it's likely their only indulgence after retirement will be an annual vacation.
"I keep telling Aida, 'If I retire and we have the ability, I want both of us to retire at the same time,' " Leo explained. "Right now, Aida works in the nighttime, I work in the daytime--we're not together. I said, 'If I retire, you retire.' "
That day isn't far off.
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This Week's Make-Over:
Investors: Leopoldo and Adelaida Tolentino
Ages: 55 and 48
Occupations: Leo, engineer; Aida, medical technologist
Combined annual income: $102,000
Financial goals: Be able to retire in 10 years
Total net worth: About $1.1 million
* Home: Worth about $595,000, with $384,735 remaining on mortgage
* Rental properties: Duplex worth $200,000 on which they owe $77,620, house worth $190,000
* Assets Include retirement accounts worth about $500,000 invested in annuities, large-capitalization company stocks and medium-cap stocks, and Parsons and Union Pacific stock.
$52,000 in savings accounts
* Buy disability insurance.
* Sell duplex in five years.
* To retire in five years, even earlier than their goal, put $16,000 a year into retirement accounts. Sell annuities that can be sold now without an early-withdrawal penalty. Diversify portfolio by reducing percentage of investments in large-stock funds and adding investments in international-stock and emerging-company funds.
* Save an additional $7,200 a year for five years to build up emergency fund.
Meet the Planner
Preston Caves is a fee-only investment management consultant, financial planner and Chartered Financial Analyst in Manhattan Beach. He works with companies on compensation, fringe benefit, pension and financial planning, and with individuals.