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Money makeover

With planning, helping friends still affordable

By Lynn Asinof
Globe Correspondent / December 13, 2009

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When some friends lost everything but their cats when their boat sank off the coast of Mexico, Cathleen and John Banister-Marx didn’t think twice: They checked the balance in their bank accounts and sent money.

The couple sometimes provide extra cash to family members who are having a tough time making ends meet. They have even volunteered to fund the college educations of four boys - godsons who are children of friends in Colorado and Mexico - who might not otherwise be able to afford tuition.

“We’re teachers and we don’t have children,’’ said Cathleen, a speech pathologist with the Gloucester public schools, explaining that their ability to help others is an important part of their life.

But with retirement starting to loom large, John, 50, and Cathleen, 48, decided it was time to take a closer look at their finances. The Byfield couple, who live in school housing at The Governor’s Academy where John teaches biology, said they are proud of their frugal lifestyle, which includes regular trips to the consignment shop. But they wanted to make sure their savings would support their retirement needs. So they applied for a Boston Globe Money Makeover, saying they needed some unbiased professional help in setting financial priorities.

Their list of questions was long. Could they afford to retire at 55? How could they best put their savings to work? Should they invest in real estate? How would they come up with tuition money for their godsons? And since they eventually want to move back to Arizona, how would the timing of such a move affect their finances?

Financial projections run by fee-only financial planner Jill Boynton of Newington, N.H.-based Cornerstone Financial Planning provided some straightforward answers. In order to retire comfortably at 55, the planner told them they would have to save more than $166,000 a year to maintain their current lifestyle. Not possible, the planner said, given their combined salaries of just over $110,000.

But delaying retirement to age 62 would reduce their needed annual savings to a more manageable $34,000, or roughly the amount of annual surplus cash the couple has after vacations, charitable contributions, and support for their godsons.

“I was really hoping for 55,’’ said Cathleen when she saw the figures. “I have six different friends who retired in their 50s. How do they do it?’’

Tackling the real estate question also didn’t take much time. When John took a job at Tufts in 1998, the couple decided to rent their Sedona, Ariz., home rather than sell because they eventually plan to return to Arizona. But since they hate the hassles of being landlords, Boynton said it didn’t make much sense to buy more rental property, particularly when the historical return on real estate is only 6 percent. “You can get that in a good bond fund,’’ she said.

So, where should the couple put their money? Into their retirement accounts, Boynton said. By fully funding their Roth IRAs and workplace 403(b)s, Boynton said the couple would soak up all of their surplus cash and put it to work. She recommended an investment mix that boosted the couple’s equities exposure to 65 percent from its current 59 percent and included more international and small company stocks. “You need the power of those equity returns,’’ she said.

John had allocated a large portion of his 403(b)s to a socially responsible mutual fund, fully aware that the fund’s returns would be lower than other options. Yet even compared with other socially responsible funds, this investment was lagging, Boynton said. To get a wider choice of investments, she recommended he roll his Tufts 403(b) into an individual retirement account so he could invest in better performing funds.

Turning to education, Boynton said that funding for the boys’ educations would take a $48,000 chunk out of the couple’s retirement savings just as they were looking to maximize savings. “This is the classic conflict,’’ Boynton said. One solution: Rather than funding tuition directly, she suggested the boys take school loans that the Banister-Marxes could help them to repay after graduation.

“I like that,’’ John said, “I would like them to be a little bit more responsible about their college education.’’

Perhaps the most complex part of the makeover was crafting a strategy for getting maximum funding from the couple’s pension plans. Cathleen has pensions in both Massachusetts and Arizona. The pension dollars that Cathleen will receive, however, depends not only on when she retires but where she’s living at the time and how she treats each plan.

After making a chart of the various scenarios, Boynton concluded that the couple’s finances would benefit most from remaining in Massachusetts until retirement. Cathleen, for example, would get $43,656 a year from her pensions if she continued to work in Massachusetts, retired at 62, and rolled her Arizona pension into the one she’ll get from Massachusetts. But if she moved to Arizona next year, retired at 62, and rolled her Massachusetts plan into her Arizona pension, she’d get $5,700 less a year. And that, said Boynton, is something the couple needs to factor into their planning as they consider their return to Arizona.

A longtime reader of this column, John said the makeover process had “really been fun.’’ It also had at least one unintended benefit. Once the Banister-Marxes start tucking their extra cash into their retirement accounts, they’ll no longer be the go-to source of financial assistance for friends and family.

“It will be a relief,’’ said John. “We can say that we don’t have it anymore. That it’s all tied up.’’ Unless, of course, it’s for something already in the budget.

To be considered for a Money Makeover, fill out the application at the “Your Money’’ section of boston.com/business, or call 617-929-2916.

CATHLEEN AND JOHN BANISTER-MARX
Goal: Building a financial future that includes helping others Recognizing that they want to be able to continue to help friends and family, the Banister-Marxes also wanted to make sure their savings will support their retirement needs.
Recommendations from fee-only planner Jill Boynton: ■Fully fund retirement accounts, including Roth IRAs and workplace sponsored 403(b)s.
■Boost life insurance by buying 20-year level-premium term policies.
■Increase investment options by rolling over a previous employer’s 403(b) into an IRA.
■Consider the impact on pension plan distributions before moving back to Arizona.