For most, retirement no million-dollar quest

Q: A financial adviser told a friend that no one should retire unless they have at least $1 million in financial assets and no mortgage.

I am 66, a recent retiree, and have about $900,000 in financial assets. I also have income from two pensions of $2,000 a month, Social Security of $1,400 a month and annuity payments of $3,000 a month.

My home is almost paid for and is valued at$170,000. I have no debt except two car payments. I am considering selling my home and buying another where I would have a $150,000 mortgage.

Does this seem reasonable to you, and what do you think about the $1 million and no mortgage? If this is accurate, I would think very few people in this country could ever retire.

A: The size of the nest egg we need in retirement depends entirely on the standard of living we hope to maintain .

That $1 million figure is just plain silly. Whatever the visible affluence of America, it remains that most people have modest incomes and modest savings. They won't "need" a million dollars to retire.

Using replacement-rate figures from the Georgia State University Retiree Income Replacement Project, for instance, I calculated that a $50,000 earner with a non-earning spouse would need a nest egg of $385,000 to maintain their purchasing power in retirement.

Only after family working income exceeded $80,000 a year did the nest-egg requirement hit a cool million. That's a good thing because few Americans have it.

With $5,000 a month in pensions and annuity payments, you have the income equivalent of a $1 million bond portfolio in addition to your $900,000 nest egg. Since you have so much fixed income, it is entirely reasonable for you to have a fixed mortgage.

Basically, the $150,000 mortgage you expect to have will "neutralize" or offset a portion of your pension and annuity income.

Having the mortgage will allow you to add the equity from the house you sell to your financial assets, giving you a better hedge against inflation. Bottom line: You're in great shape.

Q: At what level of net worth would you consider it reasonable to drop health insurance? At some point those households with significant wealth (but not more than $10 million) would be better off investing those premiums and assuming the risk themselves.

A: Health insurance is different from most other forms of insurance in that the liability can be so enormous. For that reason, a wealthy person should buy it, but go with policies with larger deductibles.

People with limited incomes and assets should have low deductible because they can't afford losses.

Many people with income and assets own older cars. They may decline to buy collision insurance because they can afford a loss of, say, $5,000 or even $10,000, if it occurs.

With health insurance, however, losses can be much, much greater. That's why you'd raise the deductible and lower the premium — but you wouldn't drop the insurance.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.