By Gene Meyer

Apr. 27, 2008 (McClatchy-Tribune Regional News delivered by Newstex) --
Jerry England's retirement plans unraveled quickly last year when a longtime relationship with the woman he lived with ended abruptly.

The breakup was complicated, because the parting wasn't amicable and the laws concerning division of assets are murkier for unmarried couples than for married ones.

By the time courts signed off on the mediated settlement the couple eventually reached, the 54-year-old railroad supervisor had refinanced the nearly paid-off Kansas City home he and the woman shared to buy out her interest. He also used up many of his liquid assets complying with the agreement or paying legal costs associated with it.

"My original plan was to pay off the house and retire in six years before I hit a brick wall," England told a financial planner. "Now I've got a 30-year mortgage and I don't know what to do."

One of the first things to do is take another look at the available choices, said Carolyn Schutte, a certified financial planner in Excelsior Springs who worked with England on the Money Makeover project. England's choices aren't as bleak as he feared, Schutte found after analyzing his situation.

England will be eligible for a better-than-average railroad pension that Schutte calculates potentially will provide him about 85 percent of his current $61,000 income stream at age 62. That's only two years later than the retirement date he was thinking of originally.

Second, he will have additional income from an individual retirement account now valued at $113,000.

"But I haven't put any money in that in at least 10 years," English said.

"You haven't pulled any money out either, and that's what matters more," Schutte said.

Finally, England will have additional money coming from a four-unit apartment building he owns in Parkville, the planner said. She didn't include it with the railroad and IRA income calculations because England hasn't decided whether he'll keep the fourplex -- and the future equivalent of a conservatively estimated $27,000 additional annual income -- when he retires or sell it and bank the proceeds. England's income calculations will need to be re-examined once he decides whether to keep the property or sell it, she said.

England said he's planning to sell someday. Being a landlord and dealing with the hassles of repairs and maintenance and slow-paying or nonpaying tenants or eating the cost of temporarily empty units doesn't square with his retirement plans of spending more time around his family's original home in southern Missouri.

When that happens, he said, will depend on when he decides to end his hands-on investment management style and what market conditions are like around then.

In any case, "because your retirement plans looks like it already meets your needs, I'd recommend using more of your money to reduce your debts," Schutte said.

England's debts aren't crushing. He basically owes $70,000 on a commercial mortgage on the apartment complex, $165,000 on his recently refinanced home mortgage, and nothing on credit cards, which he pays off monthly. The interest rates and other investment costs on his commercial mortgage appear to be in line with current markets. But his new home mortgage, even though it's only a few months old, is a full percentage point higher than current interest rates, Schutte said.

"Refinancing again would save you thousands of dollars in interest costs," she told England.

But when they explored just how many thousands he might save, plus how much to shorten the mortgage so that England won't be making payments into his early 80s, England saw a problem.

The most attractive potential refinancing deal would cut his nearly 7 percent mortgage rate to 5 percent, roll in closing costs for the new loan and still cut his total interest costs by more than $100,000, he said.

"But I would have to pay points (upfront payments equal to 1 percent of the loan for each point) to that rate and my payments would still be $300 a month more than the $1,300 I'm paying now," England said.

"That's a lot of money," he said. "I could pay it, but then I might be short of cash if I wanted to buy something for the house or take a little trip or if something unexpected came up.

"We may have to put than on hold for a while," England said.

Postponing the refinancing also will provide a greater opportunity for England to build a bigger emergency fund, specifically one big enough to cover at least three months, or preferably six months, of living expenses.

Having an adequate cash reserve is especially important now that he is living alone, Schutte said, because without a second income in the home, there is nothing to cover his living expense in the event of an accident or illness until insurance or other resources kicked in.

Chunking more money into savings also provides a good reality check as England thinks about precisely when he might want to retire, Schutte said.

"In fact, I'd recommend starting about five years before you think of retiring to put all your raises into savings," she said.

"It will be good practice for living on a fixed income," Schutte told England.

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NEED HELP?
To find a member of the Financial Planning Association of Greater Kansas City, call the chapter at 913-381-4458 or visit its Web site at www.fpakc.org. The national Financial Planning Association Web site at www.fpanet. org also provides contact information.

WANT A FREE MAKEOVER?
Nearly 300 families have received free financial help through the Money Makeover series since 1994. If you're interested in a makeover, send e-mail to MoneyWise editor Steve Rosen at srosen@kcstar.com or call him at 816-234- 4879. Include your name, address and telephone number.

Newstex ID: KRTB-0102-24816679