$400,000 can't support you and spouse for decades

Dollars & Sense

November 30, 2003|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE LOS ANGELES TIMES

My wife is 35 and I'm 40. We are selling a group of apartment houses we own, realizing a net profit after taxes of about $400,000. The problem now is that we don't want to go back to work.

I have a family history of short lives, and my expected life span is 51 years. I want to enjoy the last 10 years with my wife without working.

We have monthly expenses of about $3,500. We want to invest the $400,000 in a way that enables us to live off the interest. We expect to dip into the principal only when something unexpected comes up. We have retirement accounts totaling about $60,000, invested in mutual funds. I expect these accounts to grow enough in value over the next 20 years to help support my wife after I die.

We don't have extravagant lifestyles, and I would like there to be money left for her after I'm gone so she doesn't have to go back to work.

Any suggestions?

You're probably going to live a lot longer than you think, and you don't have nearly enough money to stop working even if you do keel over at 51.

At today's interest rates, you can expect your nest egg to throw off $8,000 annually, more or less, if you don't touch your principal. If you have to dip into the principal to pay living expenses, the money might last until the year you think you're going to die - leaving your wife to face several decades of an underfunded retirement. That's not something you want to do to someone you love.

Just how did you come up with that life expectancy, anyway? The fact that other members of your family have died young doesn't mean you will. More likely you'll be the living embodiment of the bumper sticker that says, "If I had known I was going to live this long, I would have taken better care of myself."

So, unless you've been told you have a terminal medical condition, you're going to have to get back out there and find a job, or learn to live on a lot less than you are now.

There is, by the way, a whole movement of people who are doing just that - radically reducing their expenses so they can work a lot less, if at all. The bible of this group is Your Money or Your Life, by Joe Dominguez and Vicki Robin (Penguin, 1999). You might find strategies in the book to help you with your goal. But make sure your plan has a reasonable chance of succeeding before you start.

Years ago, I advised my daughter not to take any of the many offers she would receive in college from credit-card companies. I told her that credit cards were dangerous. She listened to me.

Now she's a young adult who has been employed by the same company for three years in a managerial position. She has her own apartment and manages her cash very well. What she doesn't have is a credit card. She just gets an immediate "no" when she applies because she has no credit history. What now?

You meant well - you really did. And you were right that credit incorrectly handled is dangerous. Too many students are graduating with enormous credit-card debts (usually supplementing their enormous student loan debts).

But it's a rare person who can get along entirely without using credit. Most homebuyers can't pay cash for their houses and need mortgages, which require credit histories. Your credit history also can be used by employers, landlords and insurance companies to evaluate you and determine whether you get the job, the apartment or the coverage.

On top of that, it's never easier to get a credit card than when you're a college student. Credit-card issuers are much pickier once students graduate, perhaps because parents are a lot less willing to bail out graduates who get into trouble than they are college students.

It's not too late for your daughter, though. There are plenty of ways to establish credit. She can get a small loan from her bank or credit union and repay it over time. She can apply for gasoline or department store cards, which are typically easier to get than major credit cards. She can get a secured credit card, which would give her a credit line equal to the amount of money she deposits with the issuing bank. You can add her as an authorized user on one of your credit cards.

When she gets some plastic, she should be sure to charge a little something every month, but not so much that she can't pay off the balance when the bill comes. She doesn't need to pay interest to establish a good credit history. One or two years of on-time payments should be all it takes for her to qualify for a regular credit card.

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