Small budget strategies
July 5, 2001: 7:47 a.m. ET

Single woman in her forties seeks to retire early, live modestly but fully
By Staff Writer Alexandra Twin
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NEW YORK (CNNfn) - Colleen Fitzpatrick wants to retire early so she can do all the things that she didn't get to do while she was getting up and going to work every day. It's a sentiment a lot of people can relate to.

Specifically, the 46-year old legal assistant who lives in Livonia, Mich., a suburb of Detroit, would love to go to Australia. She'd also like to spend time volunteering, cooking and taking more quilting classes, not to mention traveling with her boyfriend.

"I'd like to retire at age 60 with about $40,000 a year available to me," Fitzpatrick said over the phone on a lunch break from her job in Southfield, Mich.

Colleen Fitzpatrick
Born and raised in the Motor City, Fitzpatrick's father worked for Chrysler Corp. Fitzpatrick works at a business law firm, doing transactional, rather than trial work. She is divorced, and the mother of a 22-year old son.

Her paralegal job pays in the low $40's. Fitzpatrick's holdings include a Morgan Stanley Roth IRA worth $5,000, a regular investment account with Morgan Stanley worth $24,000 and a 401(k) with Canada's Manulife worth $35,000. She contributes $2000 a year to her Roth IRA and $400 a month to her 401(k). She also has a small pension coming to her after age 62 of about $100 a month.

Her mortgage is $574 a month, but she chooses to prepay on it, contributing $700 instead. She has five years and $30,000 left to go on her $80,000 house. She lives frugally, has modest expenses and has managed to acquire no debt at all, aside from the mortgage.

She has taken a number of courses on mutual funds and on investing in general. She tries to goad herself to invest more riskily, but sometimes doesn't. While the amounts she can contribute to her retirement accounts are limited, she tries to do as much as she can, as often as she can.

Portfolio Rx is a feature that looks at issues like portfolio diversification and asset allocation. In each article, we review a reader's investments and ask financial experts for advice.

"Congratulations to her on saving over 16 percent of gross income," said Greg Zandlo, a certified financial planner in Coon Rapids, Minn. He estimates that given her current investment vehicles and contributions, and using a straight 8 percent annual return, she would have accumulated about $337,714 by the time of retirement.

"In order for her to sustain this goal and without depleting her principal, her investments must earn an average of 11.8 percent," Zandlo said. "If she would invade the principal for two years (until Social Security and the pension kick in), using $1,100 a month, the remainder of approximately $311,314 must earn an average of 10.5 percent, assuming $ 600 monthly from Social Security and pension."

To do this, he suggests funding her Roth IRA fast, and every year, rather than waiting until April 15. He also suggests she do this before prepaying her mortgage.

More specifically, within her Roth IRA, he suggests that she sell the MidCap Equity Trust (MCFBX: Research, Estimates) and European Growth B (EUGBX: Research, Estimates) funds and replace them with exchange-traded funds, representing the Dow Jones 30 Index and the S&P 400.

"The only cost in doing this is transaction and it would eliminate the high expense ratios on mutual funds," he said. "Any European economic recovery lags a United States economic rebound by six months to 12 months, plus euro zone worries make this area unattractive at present."

In her investment account, Zandlo suggests that she sell American Opportunities B (AMOBX: Research, Estimates) and Information B (IFOBX: Research, Estimates), unless she wants to remain ultra-aggressive.

He points out that Morningstar describes American Opportunities as a large growth fund, yet it holds U.S. treasurys as the two largest positions in the fund. "You can't grow too much that way," he said. He is also not confident about the management of the Information B fund.

Zandlo suggests that she reposition these funds with Dodge & Cox Stock Fund (DODGX: Research, Estimates), a large cap value fund, run by a team of managers with over seven decades of experience. Individual stocks to consider include Johnson & Johnson (JNJ: Research, Estimates) and Philip Morris (MO: Research, Estimates).

As for her 401(k), he suggests that she pare down the number of funds in which she has her money to better diversify and avoid overlap, and to avoid management fees. An average of five to seven funds is common to gain proper diversification, he said.

Zandlo suggests that she:

-- Eliminate Wellington (VWELX: Research, Estimates) and move into T. Rowe Price Equity Income (PRFDX: Research, Estimates).

-- Eliminate AIM Aggressive Growth (AAGFX: Research, Estimates) and T. Rowe Price Science & Technology (PRSCX: Research, Estimates) and move into Franklin Emerging Small Company (FRSGX: Research, Estimates) and AIM All-Cap Growth (LCGAX: Research, Estimates).

-- Eliminate Fidelity Large Cap (FLCSX: Research, Estimates) and Manufacturer Quantitative Equity and reallocate into Putnam Global Equity (PDETX: Research, Estimates), SsgA Growth (SSGWX: Research, Estimates) and T. Rowe Price Blue Chip (TRBCX: Research, Estimates).

"There is a small overlap with a few of these funds," Zandlo said, but they are domestic-oriented, and will benefit from a United States economic rebound, whenever that materializes."

If you would like to be considered for our Portfolio Rx feature, send an e-mail to with the following information: Your full name, age, location, occupation, income, assets, debt and expenses, your retirement goals, such as when you wish to retire and what type of lifestyle you envision. Also include specifics about your long-term savings portfolio: your 401(k) and IRA accounts; which mutual funds, stocks and other securities you own; and information about any other source of retirement income you expect, such as a pension. Please include a daytime phone number so that we may reach you. If we choose your portfolio, we will use your information, including your full name, in an upcoming story.  graphic