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Author: agg97 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308367  
Subject: Re: Me vs. My Parents $40K Debt (Long) Date: 9/7/2004 2:54 AM
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Income
* $77,400 Combined Net Annual Salary ($6450/month)
* No other sources of income
Investments
* None
Retirement Estimates
* Dad: NJ PERS Pension. $30,718/year @ retirement age of 61 (2011)
* Mom: NJ TPAF Pension. $47,427/year @ retirement age of 58 (2011)
* SS: $2600/month
* No 401's, IRA's, Nothing.


If I'm reading this right, they're making $77,400 now, and will be making $109,345/year in retirement (7 years from now, in 2011). It seems like they're going to be OK to me, as long as they get some money management skills in place.

I would set the goal of having all non-mortgage debt paid off by 2011 (without tapping home equity, of course). They could scrimp and save and have it paid off sooner, but they should enjoy these few years coming up as well as retirement, so no need to dig the financial heels in when a light tap on the brakes will reach the same goals. Having gone through the process of getting rid of that debt will give them the skills they need when they do retire.

SeattlePioneer brings up a good point to find out if the pensions are inflation-indexed or not. But since their income is going UP $30k in retirement, they could use that extra $30k for investments to bridge that gap later on if necessary.

I haven't seen this mentioned yet in this thread (but skimmed a few of the replies). The key to a successful retirement is smooth cashflow. That might sound too much like stating the obvious, but it is an important concept to understand. There are many ways to achieve this goal, and arguing over which one is the best will go on as long as the sun keeps rising.

The two main ways to achieve that goal is to either save up a huge nest egg and living on the interest and/or dividends it generates as well as a small percentage of the principal (look up "safe withdrawal rate" or "SWR" over on the Retire Early Home Page.) The other way is to use income-producing means such as buying rental houses and living off the income, or, in your parent's case, pensions. So, just keep in mind that your parents have put all their eggs into the pension and social security baskets, and the risks of those disappearing should be addressed as well.

I second, or third, or whatever, the idea of getting an impartial fee-based certified financial planner to review the books and come up with a plan. For the return on investment and peace of mind, it is some of the best money your parents could spend. Also, I would have them go back to the CFP in about 6 months so that they have some short-term goals to reach. It will also give them somebody else to be accountable to besides you (and themselves, of course).

-Agg97

P.S. BTW, I know what you're going through. I'm 29, my parents are turning 60 and are being forced into early retirement right now. Their "plan" was to keep employed for another couple of years, but some people in India had something to say about that (and they're choosing to "play the victim" rather than seize the opportunities, very frustrating in my book). So, my parents are facing some hard realities right now as well.
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