Get With The Plan: March 23, 2008

Otis, 55, and Bea, 52, are government employees who have worked hard to give two kids a comfortable upbringing and get them through college. Now, the Union County couple are turning their attention to their future, and to each other.

‘‘Our main goal is retirement,’’ Bea says. ‘‘We would like to redo the bathroom. Current estimates run between $11,000 and $25,000.’’

The couple, whose names have been changed, have so far saved $221,000 in a deferred-compensation 457 plan, $158,000 in IRAs, $82,000 in a brokerage account, $21,000 in money market funds, $9,000 in savings and $8,000 in checking. Otis is expecting a $60,000-a-year pension when he retires at 65, and Bea will get a $20,000-a-year pension when she’s 65.

The Star-Ledger tapped Nick Spagnoletti, a certified financial planner with MACRO Consulting Group in Parsippany, to help the couple see if they’ll be ready to retire.

‘‘They are doing well,’’ Spagnoletti says. ‘‘They both enjoy defined-benefit pension plans that should combine to meet most of their basic monthly living expenses.’’

Spagnoletti says people with good defined-benefit plans have a tremendous advantage in that they have less investment and longevity risk. No matter what the market does, they are guaranteed a monthly check, he says, which takes tremendous pressure off their assets to produce income.

Their spending appears to be within their means, he says, noting people usually spend a bit more when they first retire, then their spending decreases over time. Spagnoletti says as long as Otis and Bea don’t take up any expensive hobbies, they should be able to afford the lifestyle they want.

Otis is considering a partial retirement to start, for which he would leave his current job at age 60 or 62 and take a position that would pay less. If he makes this move, it’s likely the couple will have to be more conservative with their budget in retirement, but it’s not an impossible task. The couple also have considered relocating out of New Jersey, and if they do that, the cost-of-living decrease they would see in most places will only help their budget.

There are some moves the couple can make to streamline their investments.

Otis and Bea have most of their stock investments in large-cap domestic stocks, and nearly half are invested in large-cap growth.

‘‘While growth may have outper- formed value this past year, they suf- fered through some poor markets for growth for a good six years before that,’’ Spagnoletti says. ‘‘I’d recommend a balanced allocation that spreads their equity exposure out a bit more evenly.’’

The couple also should increase international equity exposure and do something about the extra cash in their portfolio. Several years ago, Bea sold a mutual fund in her IRA that hadn’t been doing well and she put the proceeds in cash. Those funds haven’t been re-invested, but Spagnoletti says it’s time to reallocate.

As Otis and Bea contemplate retirement, there are a few other items they should keep in mind. First, increasing health insurance costs may be a problem in future years, Spagnoletti says, advising the couple also look at long-term care insurance in the future. Additionally, neither has an up-to-date will, and they need to get to work on that so their assets are properly distributed when they die.

For the bathroom renovation, Otis and Bea can use some of their non- qualified stock investments, which would have a very small tax effect, since some shares have no gain and others are at a loss.

‘‘They also have some savings they could tap into,’’ Spagnoletti says. ‘‘If that was the case, I’d encourage them to carve out some money from their budget to repay themselves over some time period before they retire.’’

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