She Must Rein In Spending to Get a Shot at Early Retirement

Robyn Zander wants to retire early. But if the 37-year-old corporate executive doesn’t learn a lesson from the Enron debacle, she may not be able to retire at all.

Zander, a fervent horseback rider who hopes to put herself out to pasture in 10 years or so, has the bulk of her retirement savings invested in the stock of her former employer, Boeing Co.

Employees at Enron Corp. learned the perils of concentrating too much of their nest egg in their employer’s stock. When the Houston-based energy company collapsed in December, it took many of its employees’ savings with it.

Regulators estimate Enron’s 401(k) plan lost $1 billion as the company’s stock plummeted from $90 to less than $1 a share. Some workers, much of their savings invested in Enron stock, lost almost everything.

Boeing, the big aircraft maker and defense contractor, has had its own problems lately--its stock, though up 16% this year, is down 35% from its 12-month high. But no one is predicting it will become another Enron.

Still, San Luis Obispo-based financial planner Judith Martindale said Zander is taking a big risk by having almost 80% of her retirement savings in Boeing shares.

“It’s a recipe for disaster,” Martindale said. “All sectors have their vulnerabilities, and a diversified portfolio is the best protection against catastrophic losses.”

A lack of diversification isn’t the only roadblock standing between Zander and an early retirement. Not only is her Roth IRA concentrated in Boeing stock, there’s not much of it.

She’s put aside only $50,000. And with the days of fat double-digit returns in the stock market apparently over for the foreseeable future, it will be tough to see significant growth in that account--even on her annual salary of more than $100,000.

But the early-retirement dream dies hard.

“I don’t think I should have to stop living now just because I want to retire early,” Zander said. “And anyway, I’m pretty careful about spending. I really am fairly frugal.”

One of her more costly indulgences is horseback riding. For nearly two decades, Zander has owned a horse of her own, which she keeps at a Los Angeles-area stable--at a cost of $500 a month.

“When I’m out riding her, it’s my ‘safe’ place,” she says of her horse, April. “It’s pure enjoyment.”

During the week, Zander is acting general manager at Dynatek Inc., which makes ignition systems for motorcycles. She’s also vice president of Dynatek’s general partner, WW Zander Inc., and her income is divided almost equally between the two.

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Encouraged to Live Within Her Means

For Zander to seriously consider retiring early, Martindale said, she must either cut her spending and increase her savings drastically, or find part-time employment in retirement to supplement her savings.

“I’m always a little cautious when people tell me they can live much less expensively than they’re living now,” said Martindale, noting that Zander is carrying $10,000 in credit card debt. “She’s making double what she says she needs to live on, but still has debt and isn’t saving.”

Zander has about $100,000 in equity on her 1940s-era Pasadena home, which is valued at about $330,000.

The house is in need of some repairs, such as electrical upgrades and work on the plumbing system. Zander says she also may add a bathroom to the house before she eventually sells it and trades up.

Zander says she’s willing to work on a limited basis after her retirement to help pay for any unforeseen expenses, and she has an impressive array of credentials with which to do so.

Besides a real estate broker’s license and her experience as a corporate executive, Zander holds a bachelor’s degree in psychology from Oregon State University and a recently completed MBA from Pepperdine.

Some might say she’s perfectly positioned to shift her career into high gear instead of looking for the exit sign. But Zander disagrees.

“I’ve done nothing but work, go to school or both for my whole life,” she says. “I’ve lived for my family and for my career but not for myself. I want to do something for me, and I don’t want to wait forever to do it.

“My mother died last September at 58, and she had worked her whole life without taking much time off. I don’t want that to happen to me.”

Financial planner Martindale says the first order of business for Zander is to focus on what she wants to do and, more important, how she intends to do it.

“She mentioned that she’s very tired and that she’s never taken a vacation. I suggested that she plan a vacation as soon as possible to enable her to reflect on her life plan.”

Then comes the tough part, the planner said.

“She currently doesn’t have any savings other than her Roth IRA, and ... I’d like to see her build a cash reserve.

“I like people to have 10% of their adjusted gross income available, which in her case should be at least $10,000.”

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Putting More Into Her Roth IRA Account

Martindale said Zander should be able to save $500 a month toward her Roth account and still pay down her credit cards at $500 a month, paying them off in about two years.

When the debt is out of the way, she should shift that $500 monthly payment to the Roth IRA, boosting her annual contribution to $12,000 a year.

By the time she’s 50, assuming a 7% annual return, the sum would have grown to more than $300,000. That’s a nice appreciation, but not nearly enough to retire on.

The bottom line: Zander needs to work at least part time after she turns 50 so she’ll have enough money to live on while her Roth IRA continues to build and she waits for her Boeing pension ($6,000 a year beginning at age 60) and Social Security ($16,680 a year at 62) to kick in.

Zander conceded that she may have to settle for a partial early retirement.

After age 50, she could continue serving as vice president of WW Zander (where she’s making about $50,000 a year as vice president) just by “popping in” occasionally to check on its various divisions.

“I hope to have enough money to travel, play golf and ride horses occasionally,” she said. “I may have to give up sushi on Friday nights, though.”

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Moving Into Mutual Funds and Bonds

Now, about that Roth IRA. Martindale applauded Zander’s decision to roll over the 401(k) she had at Boeing into a Roth IRA after she left the company.

But having 79% of it--or nearly $40,000 of the $50,300 account--still tied up in Boeing stock is a problem.

“She’s open to mutual funds, and my bias strongly favors index funds due to the lower costs and the diversification,” Martindale said.

Martindale suggests a portfolio that would be 80% equity funds and 20% bonds.

The equity portion would have 40% in large-cap U.S. stocks, 20% small-cap U.S. stocks and 20% in foreign stocks.

The bond portion would have short-term bonds to best ride the inflation cycles in the market, Martindale said.

“Although some of the investments I’m recommending are not in favor now, she would be well-diversified for whatever the world brings us.”

And where does Zander see herself when she turns 50?

Zander isn’t ruling out adding a significant other to her portfolio at some point, but children probably aren’t on the agenda. Waterfront living may be on the horizon, however.

“I want a house with a dock right out on the water,” she said. “But wherever it is, I think my future is bright.”

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(BEGIN TEXT OF INFOBOX)

This Week’s Make-Over

* Subject: Robyn Zander, 37, single, corporate executive

* Annual income: More than $100,000

* Goals: To pay off debts, increase retirement savings and scale back on work by age 50

Current Portfolio

* Roth IRA: $50,300; 79% in Boeing Co. stock; the rest in individual stocks such as Cisco Systems Inc., Service Corp. and Biomet Inc.

* Other assets: $100,000 equity in Pasadena home

* Debts: $10,000 in credit card debt at 10% interest

Recommendations

* Establish a budget and live by it. Use a computer program such as Quicken or Microsoft Money to track spending.

* Sell stocks in Roth IRA and invest proceeds as follows: 40% in Schwab 1000 Index fund, 20% into Schwab Small Cap Index fund, 20% into Schwab International Index fund, 20% into Schwab Short-Term Bond Index fund.

* Invest a minimum of $500 a month in Roth IRA.

* Devote at least $500 a month toward paying off credit card debt. When debt is retired, shift the $500 a month toward Roth contribution.

Meet the Planner

Judith Martindale is a fee-only certified financial planner in San Luis Obispo. She specializes in planning for middle-income clients.