The Evanses: Making their money last

They've made the right moves and have a healthy nest egg. This makeover gives them the growth they still need without sacrificing safety.

By Josh Hyatt, Money Magazine senior writer

NEW YORK (Money Magazine) -- At first, Ramon and Anne Evans were confident that they were well prepared to meet the financial challenges of retirement.

After all, Ramon, 62, a former programmer at an oil company, took an early retirement package from his firm seven years ago. Since then, he and Anne, 61, who works part time as a teacher, have mainly lived off the savings in their brokerage accounts without touching any of the $1.1 million they have built up in IRAs.

The Evanses: Even with $1.4 million to carry them through
retirement, this couple must not play it too safe.
The Evanses: Even with $1.4 million to carry them through retirement, this couple must not play it too safe.
The Retiree Portfolio: This stock and bond blend should
give young retirees like the Evanses the growth and safety they need.
The Retiree Portfolio: This stock and bond blend should give young retirees like the Evanses the growth and safety they need.

But now the Yorba Linda, Calif. couple are down to the last $20,000 outside their retirement accounts. As a result, Ramon has become concerned about whether his IRAs will fund a comfortable life for the next 30 years. "I don't see myself going back to work when I'm 80," he says.

Where they are now

Ramon has just begun collecting $17,000 a year from Social Security, and for now Anne makes about $8,000 teaching.

The couple own a rental home that brings in $3,600 annually and a second investment property that they are in the process of selling for $300,000. They'll add that cash to their savings, which need to fund the rest of their $60,000 in yearly expenses.

Since retiring, Ramon has taken up golf. But it's his other new hobby that could prove costly: spending up to two hours a day managing his money online and trading the occasional stock.

So far, "it's a hobby that pays off," he says, noting that he earned 23 percent last year juggling some 25 investments. But if Ramon's picks go sour, the Evanses' retirement savings are on the line.

Plus, their overly complex portfolio is filled with everything from ETFs to a Canadian oil trust and a currency fund.

The Evanses need to withdraw about 3 percent a year from their portfolio to fund their current lifestyle, calculates Phillip Cook, a financial planner in Torrance, Calif.

At that rate of withdrawal, their money should last - but to keep ahead of inflation, they still need the steady growth only stocks can provide.

Right now the Evanses have two-thirds of their IRAs in bonds and preferred stock, which pay fat dividends but offer little growth potential.

What they should do

For starters, Cook suggests the Evanses keep 49 percent of their money in stocks and cut bonds to 43 percent.

Another problem: When Cook analyzed the stocks within the couple's funds, he found that 35 pecent of their holdings were financial service firms. "If interest rates move up," warns Cook, "he'll take a big hit." (Use the X-ray tool at morningstar.com to ferret out overlaps in your portfolio.)

The Evanses have enough large- and small-cap funds in their portfolio but almost no midcap stocks, so Cook suggests replacing two funds that are heavily weighed in financials with Aston Mid Cap (CHTTX (Charts) and Meridian Growth (MERDX (Charts).

The couple should also boost their international stock allocation by adding Oakmark International (OAKIX (Charts) and T. Rowe Price International Discovery (PRIDX (Charts).

Finally, since Ramon enjoys managing money, Cook would rope off 3 percent of the portfolio for whatever he pleases.

If they need extra cash, Cook adds, they could raise the rent on their investment property, currently rented by Anne's sister. But Ramon says that's one move he won't be making, ever.

"I still want the freedom to be a nice guy," he says.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.