Thursday, June 18, 2009

General Motors Corp.’s troubles have derailed the retirement plans of many Americans, especially investors in the automaker’s once-prized bonds.

Bobby Work, 87, bought GM bonds with her husband 30 years ago and dearly misses the $20,000 they once yielded each year. Teresa Durhone, 50, put the profit from the sale of her house into the bonds so she could quit work and care for her sick mother. Now she’ll need to find work again.

The list goes on.

After GM’s bankruptcy filing on June 1, these and many other bondholders were forced to cut back on their expenses and find other ways to pay their bills. They hadn’t plan to do that in retirement, but the largest industrial bankruptcy in U.S. history got in the way.

“I’m very, very distressed,” Ms. Durhone said. “It’s as if the law has changed.”

Bondholders thought their retirement dreams were safe. After all, they had bought bonds, not stocks.

While the stock market is where many investors take risks to haul in lots of money, the bond market tends to attract people who want to preserve their wealth. Bondholders get their money back along with periodic interest payments (the yield) - or at least they’re supposed to.

While they generally don’t reap double-digit gains as some stockholders do, bondholders can expect a steady stream of income from the interest payments as well as a lump sum of money when their bonds mature.

Retirees bought GM bonds thinking that pattern would be unbroken.

John Linville, 64, spent his career as a pilot after working for a year on a GM assembly line. Thanks to his early memories of GM’s manufacturing might, he invested in the company thinking it would never fail.

“I felt that they were the bedrock of our economy. They were a Fortune 500 company,” Mr. Linville said. “I figured there was no way that GM would leave our economy behind in the dust.”

Other retirees shared Mr. Linville’s faith in GM. Instead, they lost investments that had been intended to fund children’s educations, medical expenses and, especially, their retirements.

What follows is the last part of a four-part series, focusing on some GM bondholders who are finding retirement to be a lot less cozy than they had ever imagined.

John Linville

Family: Wife, grown children, grandchildren, mother

Date of purchase: Early 2000s

Percentage of portfolio that were GM bonds when purchased: Less than 25 percent

Reason for purchase: Worked for GM

Reason for holding after downgraded to junk status in 2005: Thought GM was a bedrock company that wouldn’t go bankrupt

Original investment goal: Retirement and grandchildren’s college funds

John Linville spent 30 years flying private planes for an insurance company, but he grew up close to the land on a farm in Missouri.

“When I left the farm, I was 18 years old and I started working for GM in the assembly line for about a year before going to college to learn how to fly,” Mr. Linville said. Mr. Linville’s brother also worked for GM until he retired.

Mr. Linville, 64, lives with his wife in Kansas City, Mo., and supports his 92-year-old mother. He also contributes to his grandchildren’s college funds.

A heart condition forced Mr. Linville to retire early 10 years ago, so he invested $600,000 in GM bonds to provide a steady income after he left his job. He said he invested in GM because “it is an American icon.”

Since GM filed for bankruptcy, Mr. Linville’s GM bonds are worth only 10 cents on the dollar, reducing his $600,000 investment to roughly $60,000.

“[The GM crisis] is an unfortunate happening,” he said. “We’re just ordinary people just trying to make it on our own.”

Bobby Work

Age: 87

Residence: Leawood, Kan.

Occupation: Retired executive secretary

Household income: About $50,000

Family: Widowed

Amount invested in GM bonds: $20,000

Date of purchase: 1980s

Percentage of portfolio that were GM bonds at purchase: 10 percent

Reason for purchase: Stable investment and interest income

Reason for holding after downgraded to junk status in 2005: Stability

Original investment goal: Retirement

Bobby Work was a secretary for a Kansas City drug chain. She has lived comfortably on her savings and an annuity since her husband’s death 20 years ago. But now she’s worried.

“I’ve lost half of my investments since June 2008,” Mrs. Work said. “I only have about $20,000 in GM bonds, but I was making a fairly decent yield, and losing $20,000, $30,000, is a pretty big deal.”

Mrs. Work is not facing destitution, but she said she won’t spend like she has in the past.

Her bills are current, the house is paid off and she has no debt. She knows she can manage without income from the bonds, but she’s angry about how bondholders have been treated during the bankruptcy.

“Heaven knows I’ve saved all my life and I understood the bond market was as safe as you could get,” Mrs. Work said. “Here I thought the bondholders were supposed to be taken care of, but it seems there’s nothing left.”

Teresa Durhone

Age: 50

Residence: Ocala, Fla.

Occupation: Retired paralegal

Household income: Relies on bonds

Family: Mother

Amount invested in GM bonds: Not known

Date of purchase: Not known

Percentage of portfolio that were GM bonds when purchased: 10 percent

Reason for purchase: A secure investment

Reason for holding after downgraded to junk status in 2005: Needed the income

Original investment goal: Retirement and mother’s care

To say Teresa Durhone has lived a hard life is an understatement. Five years ago, when she was working as a paralegal, Ms. Durhone found out her sister had a brain tumor. To be with her family, she went on sabbatical. During that time, she lost her sister and her father. It was then that she knew she needed to change her plan.

“I sold my house and invested so I could retire and care for my mom full time,” Ms. Durhone said.

One of those investments was in GM, a company she thought was safe and secure.

Ms. Durhone relies on the money from her investments to allow her to be home with her 87-year-old mother. She received what may be her last check from GM on April 15.

“There is some risk in bonds. Obviously I’m not expecting to be made whole again, but it would be nice if others weren’t suddenly ahead of my claim, which is supposed to be, as finances go, superior,” she said.

Whatever comes next, Ms. Durhone said, her plan will remain the same: She will stay close to her mother and continue to care for her family.

Richard and Willa Woodard

Family: Three grown children

Date of purchase: 2004

Percentage of portfolio that were GM bonds when purchased: 60 percent to 75 percent

Reason for purchase: Safe investment in a solid company

Reason for holding after downgraded to junk status in 2005: Thought there was no way GM would go bankrupt

Original investment goal: Retirement

Richard and Willa Woodard are an optimistic couple who live in Georgetown, Texas, with their dog, Daisy. Their children are grown and they have been enjoying retirement for four years from careers as a pilot and postmaster.

As a source of additional income, the Woodards invested $170,000 in GM bonds when they sold their house in 2004. They used the money for medical insurance, travel and taxes.

“It’s not like we live frivolous,” Mrs. Woodard said. “[A disposable income] is something we tried to provide for ourselves.”

The Woodards put their money into GM bonds because they thought it was a secure company and an investment in their country. Their assumption that GM would never go bankrupt was bolstered by their belief that, if it ever did, they would be treated fairly and according to the law.

But they aren’t sure it has worked out that way.

William Ehart, Sarah Riordan, Amanda Baker, Katherine Timpf, Andrea Billups and John P. Krudy contributed to this report.#John Linville

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