Carlos O. Gomez, 38, wants to retire at 55. To that end, the high school assistant principal from Oceanside, Calif., puts $11,100 of his $106,000 salary into retirement accounts that include a pension expected to pay $52,000 a year. With another $68,100 he and his wife, Jessica Grimmett-Gomez, 34, have saved, he's tried all kinds of growth strategies—from cautious (a fixed annuity at 3%) to risky (two Roth IRAs in Ford stock).
He's also bought three rental properties over three years, though he now realizes that using $25,000 to buy the last in July was a mistake. The couple have very little cash. And with Jessica, a former dental assistant, staying home with their two toddlers, they don't have a lot of wiggle room in their income for emergencies. As a result, they've racked up $6,300 on credit cards, partly due to expenses on the rentals. "I was trying to make sure we'd have income in retirement," Carlos says sheepishly, "but I got overzealous."
Here are 4 things the Gomezes can do to get back on track.
1. Keep a Cushion
San Diego financial planner Scott Kilian says the couple's priorities should be paying off credit card debt and saving three months' expenses ($21,000) in cash. They can free up $1,000 a month by trimming retirement savings and reallocating discretionary spending to achieve both in about two years.
2. Sell the Rentals Later
With $78,000 tied up in equity, "another real estate crisis could impact their net worth dramatically," Kilian says. That said, the units are producing $338 in net income a month. So Kilian suggests waiting to sell until they have trouble finding tenants.
3. Mix the Mix
Their nest egg is now 60% in equities, 40% fixed income. Kilian says they can boost returns by going 80%/20%. They can surrender the annuity in his 403(b) at no penalty and divvy the money among stock and bond funds, then sell the Ford stock to buy the diversified Vanguard Total World fund.
4. Delay the Date
To quit at 55, Carlos needs $1.3 million, as his state pension makes him ineligible for Social Security. That means saving $55,000 more a year—which is unlikely. But if they up their annual savings to $33,000, he can quit at 62. Once the cash fund is built and debt paid, they can redirect the $1,000 a month. And if Jessica returns to work full-time—which she said she'll consider—they can hit the goal.