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WALL STREET, CALIFORNIA | Money Make-Over / Southern
Californians Learning How to Succeed in Personal Finances

Planning Ahead Brings Happy Predicament in Retirement


Carl and Ruby Hoffman are middle-aged, they're healthy, they have a significant nest egg and retirement income, and their ancestors lived long, long lives.

So what's the worry?

Something all of us would like to be in a position to worry about: deciding on a strategy for preserving wealth and for providing well for the generations after them. For that, they wanted to get some advice from a professional.

Tim Kochis, a fee-only financial planner in San Francisco, confirmed that Carl, 64, and Ruby, 57, are indeed in great financial shape and that, barring any great catastrophe, should be able to count on being comfortable into their mid-90s.

It wasn't all luck that put the Orange County couple into this happy predicament. Yes, they were fortunate enough that Carl, who has a doctorate in experimental psychology, had a well-paying career. They also benefited from having bought their four-bedroom home in Orange in 1969, for $42,000, which the couple estimate is now worth around $250,000.

In fact, the single-most important thing the Hoffmans did was not leave the future to chance.

That was a precept Carl learned as a teenager from his father, who had lived through the Great Depression and saw the importance of investing to provide for a family's needs down the road. The elder Hoffman gave his son a few shares of utility stocks to get him started.

And in the early '60s, when Carl was starting his own family, he began to get serious about saving and investing, participating in a savings plan at Rockwell, where he worked as an engineer, and starting a portfolio of stock mutual funds.

In 1980, when he joined Aerospace Corp., their two children were in college, and, said Carl, "I was getting older--I realized I had to start to build a retirement." He kicked his savings plan into high gear, setting aside the maximum allowable of his pretax income into the plan--around $750 to $800 a month--into a tax-deferred 403(b) retirement savings plan offered through the then-nonprofit defense research laboratory in El Segundo. He directed the bulk of his 403(b) savings into money market mutual funds.

After Carl retired from Aerospace in 1994, he rolled his 403(b) money into individual retirement accounts now invested in a mix of seven Putnam Investments stock mutual funds, worth about $420,000 today. They are: Fund for Growth & Income (five-year average annual return: 19.4%); International Growth & Income (five-year average annual return: 19.1%); two growth funds, Vista (five-year average annual return: 20.2%), and New Opportunities (five-year average annual return: 25.9%); and three funds less than 5 years old: International New Opportunities and Capital Appreciation, both growth funds, and New Value, a growth-and-income fund.

Carl also has an annuity with Canadian Life.

Ruby, for her part, did some part-time work when the couple's son and daughter were young, but she thought it important that she stay home while they were growing up. In 1980, she went back to work as a bookkeeper, staying with General Accident Insurance Co. until she lost her job when the company moved away. Over that time she contributed to the company's 401(k) and opened an IRA.

She now has accumulated about $150,000, invested in four funds: General Accident Insurance Co. Income Fund (five-year average annual return: 7.41%); Fidelity Equity-Income II (five-year average annual return: 19%), a large-cap stock fund; SteinRoe Special (five-year average annual return: 16.5%), a mid-cap stock fund; and Vanguard Windsor (five-year average annual return: 19%), a growth-and-income fund.


But even well-informed, prudent investors such as the Hoffmans can make mistakes, and Carl acknowledges a few missteps along the way. In the late 1970s, hoping to make a fast buck, he acted on some tips from friends and neighbors. He put $6,000 into an oil-drilling venture and ended up losing about $4,000; he had only broken even on an investment in a Maui time share by the time he sold out 10 years later; he did even worse on a San Antonio apartment house, ending up with just $1,000 on his initial $15,000 by the time he exited that venture.

"I did some dumb things," Carl said. But "I figured I had a certain amount of discretionary money I could play with," he said, meaning that he knew the risks involved with each venture and that he never sank more into them than the family could afford to lose.

As for today, conventional wisdom would have the Hoffmans starting to shift their growth-oriented investments into safer, fixed-income vehicles such as bonds now that they're of retirement age, and that was on their minds in seeking the advice of an independent professional.

Whether that course would make sense for the Hoffmans, though, needs to be considered in light of this question: What kind of income can the couple already count on in retirement?

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