6 years to retirement, too many expenses

Jo Ann and Mike Nahirny 49 and 58, Crescent City, Fla. She's a teacher and he is an ex-financial analyst.

(Money magazine) -- Jo Ann and Mike Nahirny feel the classic sandwich-generation squeeze.

They're juggling three homes: their own and two they bought for their son, 18, and daughter, 21, to live in during college. They also supply meals and run errands for Mike's 92-year-old father, taking him twice weekly to see Mike's mom, who has Alzheimer's, in a nursing home 50 miles away.

All that, plus their jobs. The couple commute an hour each way to work: Jo Ann has a $52,000-a-year position as a high school English teacher; Mike, a retired Army reservist and financial analyst at HUD, the U.S. housing agency, now works part-time as a security guard. That leaves little time to enjoy their lakefront home.

"We're taking care of everyone's needs but our own," says Jo Ann. "We're exhausted."

The couple would like to stop working in six years when Jo Ann marks 20 years in Florida's public school system.

Though they have only $93,000 in Roth IRAs, the Nahirnys have two factors working in their favor: a habit of careful budgeting and a generous amount of guaranteed income. Mike gets $34,000 a year from his HUD pension and in two years will add $6,000 a year from a U.S. Army Reserves pension. Another $9,600 comes from a fixed annuity they bought after their savings dropped 22% in the financial crisis.

THE PROBLEM

Six years from now, that $50,000 or so of guaranteed income would be less than half their current intake. Jo Ann will have a pension, though she can't tap it -- or Social Security -- until age 62. (Mike won't collect Social Security from his government job.)

THE NAHIRNY'S FINANCES

Income: $112,000

Assets: $93,000 in IRAs, $25,000 in cash; $44,000 in pension and annuity

Goal: Retire in six years

THE ADVICE

Pay off the home loans. The Nahirnys are paying nearly 7% interest on their $35,000 home-equity credit line and the $30,000 mortgage on a house their daughter lives in.

Rather than fully funding their Roth IRAs, Jacksonville financial planner Carolyn McClanahan advises them to use the next three years of contributions to pay off what's left of the loans.

That strategy makes sense, she says, because their loans are too small to refinance and don't offer tax benefits (it's not worth it for them to itemize). Paying them off will provide a guaranteed return and eliminate $900 a month in debt payments just as they hit retirement.

Plus, after their children graduate, the couple plan to rent both homes, bringing in an estimated $1,000 a month after expenses.

Lower investment costs. The Nahirnys' Roth IRAs are in actively managed funds with an average 1.1% expense ratio.

Switching to exchange-traded funds will give them almost an extra percentage point of return a year, McClanahan says. She recommends putting 75% of their money in the Vanguard Total World Stock ETF (VT) and splitting the rest between an intermediate-term corporate bond ETF and Vanguard Total Bond Market (BND).

That's a lot of stocks for near retirees, but their guaranteed income allows them to take more risk, and if stocks have a good run, they'll get to enjoy the extra funds.

Plan for long-term care. Mike's family has a history of longevity -- and Alzheimer's. An ongoing stay in a facility would demolish their IRAs quickly.

Tampa insurance consultant Mark Maurer says a long-term care insurance policy covering $200 a day in care (just under the current cost of a Florida nursing home) for three years, adjusted for 3% a year inflation, will run them $2,538 annually.

How they can boost returns. By cutting expenses -- from 1.1% to 0.13% -- and taking some extra risk, the Nahirnys could see as much as a two-percentage-point gain in their savings over the long term.

FIXING THE NAHIRNY'S INVESTMENT MIX

Stock/bond mix: 50/50

• Long-term return: 8.9%
• Worst one-year loss: -18.3%

Stock/bond mix: 75/25

• Long-term return: 10.2%
• Worst one-year loss: -30%

NOTE: Stock and bond returns are annualized returns from 1926 to 2011. SOURCE: Ibbotson Associates

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