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Money Makeover

Assets don't add up to 2-home lifestyle

A professional couple learn that they may have to downsize their retirement dreams.

December 16, 2007|Ann Marsh | Special to The Times

For Marc Levy and Susan Gaer, retirement is looking like a well-stocked buffet that will tempt them to overeat.

The Torrance residents have done well financially and, for the assets they have accumulated, their retirement dreams seem modest: a house in Big Bear and a town home in Paso Robles, Calif., where the wine-loving couple would like to spend three to four months a year.

It's the kind of estate that most folks would envy.

But Levy, 55, and Gaer, 51, may not be able to enjoy as much of the good life in retirement as they had hoped, said financial planner Carl Camp, who nevertheless praised them for living below their means.

"They've done a lot of things right," he said.

Until they sat down with Camp in his Fullerton office, Levy and Gaer didn't have a clear understanding of their assets and what they might be able to do with them.

Although they sock away a lot of money, they spend a lot too. Despite substantial savings and combined income of nearly $240,000 a year, Camp said, they should probably forget about that town home in wine country.

Their $1.8-million net worth includes $1.1 million in real estate in two states and $600,000 in retirement accounts. An additional $136,000 sits in checking and savings accounts. Their credit cards are paid off, so their only debt is $445,000 in mortgages.

So, what's the problem? They've worked so hard that they've left their finances untended to and didn't realize that, based on their current lifestyle, they may not have enough to do everything they wanted. They need a plan.

"I deal with so many numbers at work, I don't need to deal with others at home," said Levy, an engineer who builds ground equipment to test satellites for Northrop Grumman Corp.

He's so uninterested that Gaer has had no idea what her husband's bank accounts contain or what his properties are worth.

This is partly the legacy of first marriages that proved costly to both. They have kept their money separate since they were married four years ago. They expect to combine their assets in retirement.

The couple's coffers are full largely because they save automatically through programs run by their employers.

Their comfortably worn, four-bedroom home in Torrance is worth about $600,000 and carries a $200,000 mortgage. It sits in a small, gated community that acts as an oasis from the heavy traffic and bumper-to-bumper parking outside the walls. Rush-hour alone would make a mountain retreat appealing.

The couple already owns a place in Big Bear and another plot of land there with an old cabin they would like to demolish to make way for a new primary home.

The rest of their real estate collection includes a town house rental in Diamond Bar and two pieces of land in Colorado, all of which are paid off, and a town house rental in Colorado Springs that has a small mortgage on it. After taxes, repairs, housing association dues and mortgage payments, they net $5,000 a year in rental income on the Diamond Bar property but lose $5,000 a year on the Colorado Springs town house.

As for wage income, including overtime, Levy brings in close to $140,000 a year and Gaer almost $100,000.

She has spent more than 20 years on "my passion," teaching English as a second language. For the last 11 years, Gaer has been a professor at Santa Ana College, where she also helps oversee information technology systems.

In her free time, Gaer maintains online communities where her students discuss a variety of issues, including the cost of living around the world and herbal home remedies for common ailments.

Of the couple's $600,000 in retirement savings, $84,000 is Gaer's. She would have had more by now if it weren't for a bankruptcy a decade ago after her divorce.

"I know how easy it is to become homeless," she said.

The experience has inspired her to help other women. In their retirement, she and Levy hope to do volunteer work helping disadvantaged single women and mothers make better use of the Web to find employment and services.

Given the bankruptcy, Camp said he was impressed that Gaer had done this well.

He calculates the couple has $736,000 in cash and retirement funds, of which they should keep $52,000 in a cash account and invest the rest.

Camp laid out two scenarios for their retirement, based on when they want to retire and when they should, realistically.

Overall, he estimates that they could save a combined $40,000 a year over the next five years and build their net worth to $1.24 million -- or, if Gaer works longer, $1.65 million over nine years. Levy said his plan to retire in five years at age 60 was nonnegotiable.

Camp based his estimates on a 7.5% return.

In five years, the couple could begin to draw an annual income of $103,018, including Levy's $41,000 a year pension and Gaer's $32,388 a year from the California State Teachers' Retirement System.

Six years later, when Levy turns 66, he will begin drawing $24,000 a year from Social Security. Because Gaer will receive a government pension, she will get only nominal Social Security income.

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