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I thought the Horror Story discussion was interesting. Let's do another.

58 yr old Mr. Blenis, took early retirement package from GTE, four years ago (1998). His nest egg of $500K has declined in value to about $300K.

He has a 72(t) distribution plan paying $2K per mo from his plan.

His wife, 55 yo, earns $29K as an office manager.

He has returned to work as auto parts delivery driver at $10.50/hr about one-half his pre-retirement rate.

At retirement he took a lump sum payment, about half of which was his own contribution to company retirement program. He could have taken $1K/mo annuity. Financial adviser advised lump sum. They were concerned about the future of the company after merger with Bell Atlantic. He has had a heart attack and was advised that lump sum would ensure his wife got funds in the event of his death. Annuity would otherwise stop at his death. He was calculated to need 20 years of annuity payments to recover the $250K offered as a lump sum.

He is concerned that his current situation allows nothing for the unexpected. He is managing to save $100/wk in a credit union savings account.

He has a meager mortgage on their home: 15 yr fixed at 5.1% interest. Payments on their car (2000 Chevy Monte Carlo) and truck (1998 Dodge pickup) were recently rolled into the mortgage to make interest deductible. Their $25K trailer counts as a second home. Its interest is also deductible. The two bills together total about $1000/mo.

Their living requirements are modest. The eat out about twice a week. Their favorite place has a $7.95 early bird special. They enjoy taking the grandkids to bluegrass festivals where they also camp. He would like to have more time to camp.

Recently the quarterly premium on his health insurance increased from $150 to $400.

What would Fools recommend for this one? What should he have done?
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I would have rolled the money into a laddered bond portfolio where I knew it would be safe. There's no growth but I could have lived comfortably on what I got with maybe a part-time job on the side. He just plain got bad advice and probably didn't seek out more than one recommendation. The financial advisor, putting Mr Blenis into a variable annuity with a good portion of it exposed to market risk is unthinkable.

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There seem to be some inconsistencies here. So I wonder if Mr. Blenis fully understood his choices.

I am surprised at the $250K cash value of an annuity paying $1K/mo. I would think something like $100-150K is more likely. Therefore, portions of that $250K were probably severance pay or 401K funds.

Secondly the annuity probably could easily have been designed to pay for a minimum number of years, or to pay half to his spouse, or to pay full amounts to either him or his spouse. All of these things cost, but they cover the uncertainty in the case.

Mr. Blenis' big problem seems to be living expenses. In describing his lifestyle, he implies that he could live comfortably on $1k/mo, plus $1K for his house and trailer payments. Add say $6K for income taxes and those are numbers he and his wife can probably expect to collect from Social Security and perhaps small pensions. Then his nest egg provides a nice buffer, and he will probably do fine.

If this is the case, he should be able to live off his wifes income while she is working and bank or reinvest his 72(t) payments. (Low stock market is a great time for 72(t) in that case because he is paying income taxes on depressed values).

His income prior to retirement was close to $70K. The $500K implies major participation in a savings plan or 401K (unless he inherited), so his living expenses are likely to be something like $60K.

With his new job paying $20K, $24K in 72(t) distributions, and $29K wife's income his total income is $73K. Since he is only able to save $5K per year, his spending appears to be out of control.

Perhaps he has allimony, child support, or major uncovered medical bills we don't know about, but he faces the inevitable.

He will never be able to retire unless he figures out how to cut his expenses!! Otherwise, whenever he can no longer work, he will blow through his savings and be forced to adopt a much more meager life style.

Its a classical situation. To retire, he must get spending under control.

I question whether Mr. Blenis ever really planned to retire. His payments are sustainable only if the stock market continued to rise from 1998 levels. Otherwise, he had not hope of sustainable income.

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