After a quick Google search she met with several candidates before selecting the person who she felt best understood her values and what she wanted out of life.
“I found another strong, independent woman who had climbed the corporate ladder herself,” says Erica. “I felt like she understood my situation of being a single woman in a man’s world and trying to move ahead.”
Confident that she’d chosen the right planner, Erica next had to lay bare her finances. Nearly three-fourths of her assets are in real estate. She owns a home outside of Portland, Ore. and a rental property, both of which she still holds mortgages on.
As for investments, Erica contributes 15 percent of her $98,000 salary to a deferred compensation plan. She has $163,000 in that account. She also has a small Roth Individual Retirement Account (IRA) that she funds with “windfall” funds such as her tax return and $22,000 in an emergency savings account. She also has a Betterment investment account with $7,700 and a $13,000 health care savings account, both of which she plans to use to fund her health care and educational spending after retirement.
Erica’s total assets are $822,000 and net worth, after accounting for liabilities such as the mortgages, is $470,000. Erica’s plan is to be mortgage-free by the time she turns 50, which will substantially augment her net worth. Once she retires she’ll earn a $47,000 annual pension.
Erica agreed to have her portfolio reviewed by Francis Financial. The good news is that Erica’s dreams are within her grasp. She has two big factors to thank for that, says certified financial planner Sharon Appelman, Francis Financial’s director of financial planning and investment management. The first is being fortunate enough to have earned a pension. The second is “she’s frugal,” Appelman says. Erica doesn’t spend beyond her means and she has no credit card liability.
But if Erica lives to the 95 years included in her financial plan, she will have been retired and generating little to no income for longer than she ever worked. That’s feasible only if Erica continues to control her spending and sells her primary residence upon retirement, putting part of the proceeds into her investment account and using the rest to buy a smaller place. This move, while a big one, makes sense to Erica. The house is in a remote location, and as she ages, she’ll want to be closer to an urban area.
Appelman also advised Erica to start to back away from the aggressive investment plan that, to date, has done well for her, but isn’t advisable as she gets older and closer to her retirement age. Currently she is 90 percent in equities. Appelman recommends she change her strategy to 70 percent equity and 30 percent fixed-income investments.
But all told, Erica is in excellent shape to achieve her early retirement goals, says Appelman.
“Frankly she's exemplary in terms of the way she's done things,” says Appelman. “She has lived within her means consistently, saving about 20 percent of income, and being strict with herself. And the pension that she's likely to get is a big piece of why her plan works.”
Those are smart steps anyone can take, whatever their income and retirement plans.