Retirement is no bargain

DALLAS — Delores Jones is worried her money will run out.

"I'm either too old or too fancy," she told Dr. Phil after her divorce in 1983.

But living well isn't Jones' weakness. Living too long is what the former ad copywriter from Wichita Falls, Texas, needs to worry about. She's still going strong at 71, and longevity runs in her family.

"I wanted to be certain that I wouldn't outlive what I have to live on," she said.

If Jones doesn't act quickly, she will outlive her money, said Lynn Lawrance, a certified financial planner at Financial Network Investment who came up with an action plan for Jones.

Portfolio needs work

Jones has a nice nest egg, but her investment portfolio needs tweaking. She doesn't have debt, and her monthly spending is under control.

But she needs to look closely at her two home businesses, because one of them is losing money, Lawrance said.

Jones does personal-services work and sells jewelry. The jewelry business is her passion but isn't adding luster to her finances.

"You need to generate another source of consistent and reliable income ASAP," Lawrance told Jones. "At this point, you are at serious risk of running out of money."

Jones, lives in Richardson, Texas, with her 93-year-old mother in a house owned by her brother. She pays $500 a month in rent. Her main sources of income are $653 a month from Social Security, $750 in alimony and a small amount from her businesses.

Her monthly income totals $1,403, but her monthly expenses average $2,352, leaving her almost $950 in the hole.

The difference has to come out of her nest egg, at a higher withdrawal rate than financial planners advise for retirees.

Money losers

Worse, Lawrance said, Jones is spending more money on her jewelry sales than the income it's generating.

"You indicated that your jewelry sales are projected to be approximately $6,000 for 2006," Lawrance said. "This is before expenses. Your jewelry business is not going to meet your need for additional monthly income.

"You're following a love and a passion, but you're at a place where you don't have the luxury."

Jones sells closeout jewelry. She often travels to military bases, hospitals, women's clubs, high schools, churches and bazaars to sell her goods.

"Given your need for consistent, additional income — when you combine the long hours spent on your jewelry business, coupled with its physical demands and the potential security risks to you — it doesn't seem to make sense to continue your jewelry business," Lawrance said.

She advised Jones to increase the visibility of her personal-services business, especially to senior citizens and others who need someone to take them to doctor's appointments, buy their groceries and perform other chores.

"She doesn't have the luxury of building a business without seeing some pretty quick cash flow," Lawrance said. "She needs money."

Jones' situation is common among retirees and pre-retirees. "There's a tendency for people to grossly underestimate what it'll cost in retirement," Lawrance said.

With people living longer, a person who retires at 65 could live an additional 20 or 30 years — the equivalent of a second career. What's more, with traditional pensions disappearing, the difference between a comfortable retirement and living hand-to-mouth increasingly hangs on a person's savings.

A major source for sustaining Jones' retirement will be her investment portfolio, which Lawrance said is out of whack with her investment objectives and the conservative investor she is.

Jones is overloaded in just a few stocks. About 43 percent of her investments are in Oracle, the business-software company; Praxair, an industrial-gases supplier; Geron, a biopharmaceutical company; Cisco Systems, the network-equipment maker; and Prudential Financial, the financial-services firm.

Looked at another way, 51 percent of her portfolio is in large-capitalization growth stocks.

"This is way too aggressive for your risk tolerance and circumstances," Lawrance said.

Like most people her age, Jones should choose investments that would provide a small but steady return.

"You really need a more moderate portfolio designed for someone in the distribution phase of their life," Lawrance said. "This type of portfolio should provide you with less volatility and better downside protection in the event of a market correction."

To get there, Jones needs to sell some of her stocks to diversify her portfolio.

Although not an extravagant spender, Jones needs to watch her expenses. "During the first 11 months of 2006, you have spent $1,672 on your pets — six cats [which she rescued] and a dog," Lawrance said. "This is double what you spent on your own health care."

While Lawrance isn't advising Jones to get rid of her pets, she said the rising costs add to her need for more income.

"You need to be very mindful and deliberate about your spending," Lawrance said. "Where possible, cut back on spending, especially until you have another source of consistent monthly income. Looking forward, you need to pay attention to any way you can either increase your income or reduce your expenses."

One thing Jones can do to help her better track her spending is to delink her checking account and credit card from her brokerage account, Lawrance said.

As things stand, her income goes into her brokerage account, and bills are also paid from that account.

"You have too many moving parts," Lawrance said. "It's really easy to lose sight of what's really going on."

If Jones unbundled her checking account and credit card from her brokerage account, she would get a clearer picture of her finances, she said.

"By having to physically write a check to pay your bills, you will pay more attention to what's going on with your finances," Lawrance said.

Jones admits she hasn't paid close attention. Much of that was due to grief over the death of her daughter, Sheila, in 1994.

"I was so numb. I relied so much on the broker and the CPA I used at that time."

To get back on track, Jones said she plans to hold a going-out-of-business sale of her jewelry inventory and beef up her personal-services business.

"I knew I had to continue working before we began our meetings," she said. "I did not know how much I was taking, with daily living, from my savings.

"After thinking about it, for me to earn $1,000 a month is laughable. The only way to earn near that amount is to build my personal-service business, which I think is possible," Jones said.

But she admits being apprehensive about the future.

"I'm scared," Jones said. "I don't want to repeat my mistakes but I don't know how not to. It's amazing how much one spends without knowing. I can see I must make changes. I can't afford myself."