Early retirement depot.

Former bus driver looks for places to park his pension money

When Duval Sherman landed a job as a bus driver in Los Angles at age 23, he was not thinking about retirement. But as he put in his time, his retirement benefits blossomed and kept growing. During his working years, he got married, then divorced. By the time he reached age 46, he was able to retire with a lump-sum payment of $281,895.38 from his pension. Retirement with such a hefty pension has not meant smooth sailing for Duval, who married his second wife, Sandy, in 1996.

Although Duval retired in October of 1997, he did not receive his first check until April of 1998 because of legal wrangling with his former wife. Under California community property laws, Duval's ex-wife received $51,061 from his lump-sum retirement payment. The remaining $217,000 was rolled over into an IRA account by his financial advisor to reduce his tax burden. "I pay spousal support from that amount to my ex-wife and will continue to do so until March 1, 2000," explained Duval, admitting that he could take home more money each month from his deferred compensation from his former job. The $27,000 that he is entitled to in deferred compensation would, after taxes and the percentage that would go to his ex-wife, leave Duval with a pitiful sum.

While Duval had visions of having a glowing retirement, he has actually been strapped for cash, doling out $850 a month to his former wife in spousal support and attorneys' fees. His current wife launched The Weaver Bird Unique Gift Baskets, which she operates part-time at a loss--because of the couple's combined debt of more than $20,000.

The Shermans find it hard to think about their investment portfolios. They live in Sandy's parents' home and take care of the property's upkeep. In the meantime, Sandy pays one of the attorney's fees for Duval so that he can concentrate on the other two attorneys' fees for his ex-wife.

Duval & Sandy Sherman

Combined Gross Income:                 $56,000
Household/Business Expenses:            $3,177
Investment Portfolio:                 $226,775
IRA:                                    $1,300
Mutual Funds:                           $4,475
Deferred Compensation:                  $4,000
Retirement:                            $30,000
Life Insurance:                       $177,000
Other Insurance:                       $10,000
Debt/Liabilities:                      $21,250

Duval:

Spousal Support:                    $675 (mo.)
Ex-wife's Attorney Fees:            $175 (mo.)

Sandy:

Duval's Attorney Fees:              $400 (mo.)

Combined:

Credit Card Debt                       $20,000

Expert Advice

FINANCIAL EXPERT: Tressie R. Woods, a personal financial analyst in Inglewood, California, who is also a registered principal with Primerica, a subsidiary of Citigroup, based in New York City.

Her Strategy: To provide Duval with a monthly income from his retirement funds and structure the payments to last for the next 40 years.

Woods' Recommendations:

* Protect Duval's pension: Because he retired before 50, his company would have paid him a very small monthly income for the rest of his life. By rolling over his retirement payment to a personal account, Woods was able to devise a modest investment portfolio for Duval, allowing him to invest in a diversified mix of mutual funds. This portfolio earns him $1,800 a month (until he's 87) through 10% compounded interest.

* Solidify Duval's asset allocation: Duval's risk tolerance is very high, and coupled with the diversity in his batch of mutual funds, he's on the right path. His portfolio consists of 15% high-growth, 35% growth and 50% in individual stocks spread out across a variety of sectors, such as blue-chip and mid-cap stocks.

* Prepare for the year 2000: While the rest of the world is caught up in the Y2K systems dilemma, Duval is eagerly awaiting the beginning of March of that year, since he will then no longer have to send money to his ex-wife. Woods suggests that at that time Duval and Sandy complete a new financial needs analysis to eliminate debt and start saving seriously. Sandy should look toward expansion. The $25 that Sandy invests each month through dollar-cost averaging is modest, but because it goes directly into a growth account, she can expect a decent return on her investment.

* Future Goals: When Duval greets March 2000, he can immediately become an active partner in Sandy's firm. This freeing up of funds will enable her to contribute the maximum of $2,000 per year to her Roth IRA, which is a tax-free retirement vehicle.

--Carmen Brown3