Can they retire early and still live well?

Duane and Paula Okazaki of Fountain Valley have plenty of money for exotic vacations and indulging in the Southern California good life.

They recently spent $18,000 to resurface their lap pool with smoke-colored pebbles to give it a more natural look in their otherwise unadorned backyard. Later this year, they’re headed to Shanghai on holiday.

But as they settle into middle age, the Okazakis are starting to dream a new dream: early retirement. He’s 51 and she’s 44. Why not call it quits at 60? There’s just one catch.

“I’m just not willing to sacrifice our lifestyle,” Duane says over sips of red wine after a long day at work.

Can the Okazakis continue their free-spending lifestyle and still retire early? That was the question they put to Eileen Freiburger, a Manhattan Beach-based financial planner.

Freiburger said the couple was smart to seek help now. Many people come to her just a year or two before they want to retire, when there isn’t enough time to develop a strategy. As Freiburger reviewed the couple’s finances, it became clear that there would have to be trade-offs.

On the positive side, the Okazakis have a combined income of $173,000 annually. Duane works at Gulfstream Aerospace Corp. in Long Beach, where he oversees the procurement of imported silk, wool carpets, gold-plated faucets and other goods used to trick out the cabins of private jets. Paula is a sales representative for Grupo Bimbo, the large Mexican bakery company that owns Oroweat and other brands.

The two always wanted children of their own, but, Paula says, “it didn’t work out.” Instead, they lavish affection, gifts and support on a niece and three nephews, who are frequent guests in their 2,400-square-foot home.

Not having children has helped their bottom line. “When I work with clients who don’t have kids, they are always more financially successful,” Freiburger says. But the Okazakis have found plenty of other ways to spend their money.

“We are gadget freaks, so we buy electronics,” says Duane, who recently built his home computer from scratch, using two monitors, for $4,000.

“I know we’re going to get yelled at,” Duane said before the first meeting with the planner. He expected to be accused of “spending like a bad dog.”

Many of these purchases end up on credit cards. Duane carries more than $3,000, and Paula nearly $5,000, in charge card balances. For the privilege, they both pay close to 10% in interest.

Freiburger said that the Okazakis share a habit common to many couples: They don’t talk to each other much about how they spend their discretionary money. That may help them retain a sense of independence within the marriage, as Duane says, but it also makes planning a budget more difficult.

In addition to credit card debt, the couple owes $29,000 on a home equity line of credit and an old $18,000 student loan of Duane’s.

In determining whether the Okazakis could afford to retire early, Freiburger looked at their income and expenses -- with an eye toward ensuring they would have the same income in retirement they have now.

Many planners say people should aim for 80% of their income in retirement, but to Freiburger, that’s not enough.

“If they’ve never had to before, can they suddenly pull back the reins?” Freiburger asks. “I don’t just assume people can adjust to another lifestyle.” Health costs ramp up in retirement and, as primary homes age, repair bills may too.

If clients show they can and will reduce spending in retirement, Freiburger helps them plan accordingly. But the Okazakis don’t want to cut back. “I still want to be able to have enough money to travel and to support my niece and nephews,” Paula says.

On the expense side, the couple’s $1,500-a-month mortgage won’t be paid off until Duane is 70. For planning purposes, the Okazakis have no intention of selling their home or otherwise drawing equity out of it. They also calculate they will need $1,500 a month for medical insurance and other health-related costs.

The couple spends about $8,000 a year on home repairs and improvements and saves about $4,000 a year for a long vacation every two years. Taxes and other living expenses -- including food, transportation and travel -- work out to nearly $11,000 a month, and they also sock away nearly $2,200 a month in 401(k) and other retirement accounts.

The couple has amassed $320,000 in those accounts, most of which is invested in blue-chip and international stock funds and bonds. An additional $30,000 percolates at much lower levels of return in checking and savings accounts.

To determine their ability to retire, Freiburger calculated the couple’s income using two scenarios -- one with Duane retiring at 60 and one at 65. Paula would retire at the same time as Duane, at either 53 or 58.

At age 60, the couple’s retirement savings would be $840,000, assuming annual returns of 8% on their investments and subtracting projected taxes and fees. But Duane would not yet be eligible for Social Security payments. Moreover, his company -- which capped his pension plan -- could not immediately say what his monthly pension payment would be if he retired then.

What is clear, however, is that if he waited until age 65, his pension and Social Security payments would be higher -- an estimated $25,000 a year in pension payments and $36,000 annually from the government.

The extra five years of work would enable the couple to amass $1.4 million in savings, which should allow them to continue spending at their current level until Duane is 100, and possibly beyond, even accounting for projected inflation of 3.6%.

After reviewing their finances, the Okazakis realized that having Duane retire at 60 would require a lot of belt-tightening, such as giving up their expensive vacations and cutting back on support to their niece and nephews. In addition, it would make it tougher for them to afford two types of insurance: earthquake, which costs about $1,500 a year, and long-term care, which costs about $5,000 annually and which Freiburger recommended.

But the Okazakis want to continue traveling abroad and helping to support their niece and nephews. In the end, Duane decided to work until he’s 65, and Paula will keep at it until she turns 58. But they also decided they should look for ways to save money, which would make it easier to change their minds later if they chose.

“I could wash my own car again,” he says. “I could clean my own house. I could iron my own shirts.”

Paula says, “We could cook more.”

Sounding pleased, Duane adds, “There’s a lot of fat we could trim out.”

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This month’s makeover

Subject: Duane and Paula Okazaki

Combined income: $173,000

Goal: To retire when Duane turns 60

Assets: $650,000 home; $320,000 in retirement accounts; $30,000 in nonretirement savings

Liabilities: $245,000 mortgage at 5.375%; $29,000 balance on a home equity line of credit; $18,000 student loan; $8,000 on two credit cards at 10% interest

Recommendations: Pay down debt, starting with credit card balances. Buy a joint long-term-care insurance policy. Make the maximum allowable contributions to Roth individual retirement accounts (which allow investment income to be withdrawn tax-free in retirement). Diversify investment allocations away from large-capitalization stocks, which make up more than 70% of current holdings. Shift substantial percentages into small-cap, bond and stable-value funds. Form a living trust with the aid of an estate planning attorney. Wait until Duane is 65 to retire.

About the planner: Eileen Freiburger, founder and president of ESF Financial Planning Group, is a fee-only certified financial planner. Based in Manhattan Beach, she focuses on middle-income clients and small-business owners.