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The Zinns' Plan

Going on Instinct

The Zinns don't fret much over money

They have some savings, a home, and almost no debt

They anticipate a worry-free retirement

But do they really have enough to last?

John and Sandy Zinn's basic philosophy is displayed on a slip of paper posted on their refrigerator door: "If you don't intend to do anything about it, worry is silly. If you do intend to do something about it, worry is unnecessary." Even in these turbulent times, the couple's serenity extends to their finances. "We're from the Midwest," shrugs John, 61. "We were raised to be sensible about money." And they have been. With a nearly paid-off home and no other debt, they're counting on their $200,000 in savings, plus at least $2,300 a month in Social Security benefits, to support an untroubled retirement within a few years. John will pursue his prize-winning woodcarving. Sandy, 60, will garden and read. They'll take long nature hikes, travel, contribute to worthy causes, and visit family and friends scattered across the country.

Yet whether and when the Zinns can really pursue such a life is an unanswered question. They're hoping that a little planning now will allow them to continue the free-spirited life together they've pursued since they wed in 1969.

Back then, during the Vietnam conflict, John was a conscientious objector to military service. Sandy was a psychology major in college. Once John's two-year alternative service at a Chicago medical center was done, the duo set off on their 700cc Moto Guzzi motorcycle to tour the United States. They got all the way to Juneau, Alaska, where they stayed for a while, and later hitchhiked through Europe. By 1973, they were ready to plant their Midwestern feet firmly on the ground. A cousin of Sandy's in Elkhart, Indiana, mentioned a local maintenance job that came with free housing—plus there was a receptionist spot for Sandy. The deal was "too good to refuse," says Sandy, so they settled down.

Over the next 26 years, they bought a house and raised two sons. John held several positions as a maintenance supervisor and Sandy worked with at-risk high school students. They stashed money in various retirement accounts and steered clear of credit card debt.

Ten years ago, kids grown, the Zinns moved to Fountain Hills, Arizona, near Phoenix, where they plan to remain. "We were sick of Indiana winters," Sandy explains. John found a job in maintenance management; Sandy began a career coordinating data collection for social research firms.

Even though Sandy's income has sometimes been irregular, they've always kept their spending well within their means. "We cut back when we have less," says Sandy, who takes the lead on tending their money. Sandy would like to retire in two years, at 62. John gives work another five years, till he's 66 and eligible for a full retirement benefit from Social Security.

The Zinns aren't worried that their leisure might not be lavish. "We'll live happily on whatever we have," insists Sandy. "We don't ever want to be a burden to our kids."

The Main Problem

The Zinns face two typical challenges: their savings are limited and much of their wealth is in their home. In 2009 the couple earned more than $90,000 but, after paying down an extra $4,560 on their mortgage, saved only about $6,000. If Sandy were to retire at 62, as she would like to, their spending might drop to about $60,000 a year; and in five years, when their mortgage is paid off and John can retire, their expenses might shrink to only $46,000 a year. Still, without some changes, the Zinns' peace of mind in retirement probably won't last long, warns certified financial planner Matt Buckwalter of MJB Financial Planning in Lincoln, Nebraska. He notes that Sandy's mom is 94 and John's parents lived to 88 and 89. With such longevity in the family, "it's likely they'll run short of cash," he says. "Exactly when depends on what they choose to do."

A Savings Shortage

John puts a steady 6 percent of his income, about $3,000 a year, into his 401(k), and his employer match adds about $750. Sandy, whose contributions depend on her income, plans to add about $2,600 to her 403(b) plan this year. Her employer won't match any of it but, depending on her earnings, she may collect an extra 8 to 10 percent of her pay in profit sharing. The Zinns have invested their $200,000 nest egg in a balanced mix of 55 percent stocks, 45 percent bonds and cash. But it's too small to help support them for long, says Buckwalter, especially if they follow through on retiring at 62 and 66. "With only a few more years to grow their nest egg before they start spending significant amounts, they'll deplete their savings by their mid to late seventies," he predicts.

Living House-Rich

The Zinns' condo has been a good investment. Bought for $142,000 in 1998 (and rented out for a year before they moved in), it would bring about $300,000 today, Sandy estimates, "down from $400,000 a couple of years ago." By accelerating payments, the couple has paid down their $127,000 mortgage to just $43,000 and expects to eliminate it before they both retire, saving them thousands of dollars in interest. Still, says Buckwalter, "mortgage-free doesn't mean cost-free—they still have to pay property taxes, utilities, and maintenance." In fact, the abundant home equity is a mixed blessing. "It's their largest investment, it's not growing, and they're going to need that money," he notes.

In a Rush for Social Security

John and Sandy would much rather retire sooner than later. If John retires at 66, he'll collect around $1,700 a month. Retiring at 62 would give Sandy a reduced early benefit of about $680 a month, rather than the almost $1,000 she'd get at 66. Together, the couple would draw about $28,000 a year, compared with the $31,500 they'd get if Sandy waited. Either way, it's far short of what they need to preserve their nest egg and still support the free-roaming lifestyle they anticipate. They'd have to start drawing down their savings by $10,000 a year at first, then almost $20,000 a year once John retires, says Buckwalter, who also reminds them that "the smaller Social Security check would stop should one of you die, leaving the other spouse even shorter on cash."

The Plan

"The Zinns could wait until they start to run out of cash to change course," says financial planner Matt Buckwalter, "but their options will narrow as the years pass." Standing pat could also leave them more vulnerable to interim setbacks, such as major investment losses or John losing his job—and their health insurance. For the best shot at lifelong security, says Buckwalter, the couple should ponder in advance what adjustments or tradeoffs are most acceptable to them. "The more changes they're willing to make, the longer they'll preserve their financial independence," he says. These are the major changes Buckwalter recommends that the Zinns consider:

Retire together at 66. "If Sandy works until 66 rather than quitting at 62, she could continue to contribute to their savings," says Buckwalter, "and her Social Security benefit would increase." He estimates that this strategy alone would extend the time before the couple's savings run out by five years, to their early eighties.

Retire later and tap home equity. Besides postponing Sandy's retirement, the Zinns could turn their home into investment capital by trading down to a smaller home or a rental within a few years. "Assuming they sell by 2019, net at least $170,000 in current dollars, and reinvest that money, their savings should last until Sandy reaches age 90," says Buckwalter. Selling sooner would unlock their equity for earlier investment, but that advantage might be offset if the local market recovers and provides them future tax-free gains. Of course, prices could also weaken further. "They need to keep an eye on the trends," advises the planner.

Save more and spend less. The Zinns can boost the size of their future nest egg by putting away an extra $10,000 annually until they quit work at 66. "Difficult but not impossible," says Buckwalter, "since they're good at living within their means." That move would produce savings totaling $400,000 by retirement. If they also trade their home for something cheaper and pare back their travel budget as they age, Buckwalter calculates that the odds are good they won't run out of money before they are into their nineties.

Retire at 70, not 66. If John and Sandy wait to retire until age 70, their combined Social Security benefits would total about $40,000. If meanwhile they continued to save at their present rate, they could likely stay in their current home and spend as they wish in retirement without ever running out of cash. "They'd have more income and savings to rely on plus fewer non-working years to cover," says Buckwalter. However, that simple scenario doesn't interest the couple. "Life is for living," Sandy says emphatically, "not just for working. We've got other things to do."

To follow the Zinns progress in their Money Makeover, read updates at the Payoff.

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