Tough problem: What to do with a $1.7-million nest egg?

Judy and Steve Haibach had never dreamed they’d wind up as middle-class millionaires. Now they don’t know what to do with the $1.7 million they’ve squirreled away for their retirement.

Since the high school sweethearts married 35 years ago, they have lived a life of frugality -- sharing one car, taking thrifty camping vacations and eating countless brown-bag lunches.

“Whatever was the cheapest thing we could do, we did,” said Steve, 56, a Southern California Gas Co. technician. Judy, 55, is a nurse.

The Haibachs want to retire early, perhaps next fall. But they are faced with the unusual challenge of how to spend their hard-earned money.

“These guys are ridiculously secure. Even if the Great Depression comes tomorrow, they’ll be fine,” said Brent Kessel, president of Abacus Wealth Partners in Pacific Palisades and author of “It’s Not About the Money.”

“Their problem is that they’re going to die with too much money,” said Kessel, a certified financial planner who considers the psychological and financial aspects of money.

The Haibachs need to live it up a bit more and help those who are less fortunate than they, he said. As extreme savers, they can balance their thrift through more volunteering, charity and pleasure-seeking, he said.

Kessel recommends that they find a new sense of purpose in retirement by giving more of their time and money to worthy causes. Last year the Haibachs gave about $2,000 to battered women’s and homeless shelters and their church. Kessel advises that they start giving away 1% of their net worth rather than see it taken away in estate taxes by Uncle Sam.

“My first thought is: ‘Oh my God. No!’ ” said Steve Haibach. “Then, when I think about it more, it sounds great. We never thought of ourselves as philanthropists, but who knows?”

Kessel also wants the Haibachs to be a bit freewheeling. During their financial planning session, he had them write out what they’d buy if money were no object. Among the items on their wish lists: a motor home to visit the nation’s capital and see the leaves change during a New England fall, a Lexus RX 300 hybrid for Steve and enough money to help their adult son with a down payment on a house.

The couple, who live in Moorpark, also want to move to Nipomo, on California’s Central Coast. They plan to buy a house in a golf-course community where Steve can play golf twice a week and go fishing off the Pismo Beach pier.

Kessel said that if Steve and Judy diversify their portfolio more and stop trading in and out of stocks in their efforts to take advantage of market trends, they’ll have more than enough money to last their lifetimes.

To fund their early retirement, they can begin to spend about $94,000 annually. As they get older, some of that will include $33,000 in annual Social Security payments and $5,400 in pension income that kicks in when they turn 62. Steve also is likely to inherit about $300,000 from his mother’s estate after she dies.

Assuming that their investments earn an average annual return of 8.8% over the next 30 years, Kessel estimates that the Haibachs’ portfolio will grow to $9.4 million by the time they reach their life expectancy at age 85.

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Careful spenders

The Haibachs’ saving habits were developed early.

As an aircraft mechanic in the Vietnam War, Steve sent his paycheck home, where his parents deposited it in a bank account.

After the couple married, Judy would ride her bike to the grocery store, with their toddler in tow, so they could get by with one car. She also tended to her daughter and son during the day and worked at a nearby hospital at night, helping the couple avoid the expense of a second car.

Through the years, the couple stayed true to their savings plan, contributing as much as they could to their 401(k)s, spending their vacations at nearby Leo Carrillo State Beach in Malibu and even repairing their car on their own.

Meanwhile, Judy became schooled in finances. After inheriting about $80,000 from her mother, she took personal finance seminars and became a devotee of the Motley Fool, a financial planning website.

Their efforts have secured their future.

The Haibachs have amassed about $888,000 in 401(k) and IRA accounts, $350,000 in cash and money market accounts and $19,000 in other investments. In the fall, Steve will receive a $430,000 pension payout, which Kessel recommends he take in a lump sum. The couple’s only debt is a $400,000 mortgage on their home, valued at $720,000.

In recent years, they have saved as much as a third of their combined $157,000 salary and have lived modestly on $63,000 in annual expenses.

Kessel recommends that the Haibachs tweak their portfolio, which is heavily invested in large-company stocks and cash. He’d like to see a more diversified portfolio that includes 40% in large and small U.S. stocks, 23% in international stocks, 27% in bonds and the rest in cash and other investments. Kessel believes the remix will improve the Haibachs’ returns by a few percentage points to about 9% annually.

Kessel also admonished the couple to stop taking chances on the market. In 2003, Judy followed the advice of investment guru and market timer Bob Brinker and pulled about $350,000 out of stocks, stowing it in money markets. After the market tanked, she reinvested the money and rode the market’s rise, gaining $200,000 on her investment, a 57% increase.

“It was a fluke,” she said, acknowledging that she could have just as easily mistimed her investment.

Kessel said that on the whole people who try to game the market wind up paying more in transaction fees and taxes. But if the Haibachs remain as disciplined in their investment strategy as they’ve been in their savings, their nest egg will remain secure, he said.

Other suggestions Kessel made included converting some of the Haibachs’ IRAs to Roth IRAs for tax purposes and investing in some socially conscious funds.

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Real estate issues

A notion Kessel dissuaded the couple from was renting out their home when they moved north.

Financially the move is a wash, Kessel said. He also worries that owning a rental property will obligate Steve, a consummate handyman, to care for the property. Because prices for three-bedroom homes in the Nipomo area have plummeted by as much as $130,000, the Haibachs might buy now and rent their current home for a short period and sell it when the Southern California real estate market picks up. Otherwise, they plan to follow Kessel’s advice, including the call to charity.

“I missed all the activism of the ‘70s,” said Judy, adding that she might like to get involved in a political campaign or an environmental cause.

She’s also thought that she and Steve could leverage their money and work skills by donating to and volunteering with organizations such as the American Red Cross or Habitat for Humanity.

Ever practical with his money, Steve said he was holding off on buying a motor home until he could get a lot of use out of it. And Judy said she’d prefer to buy one used.

The pair still pack their own lunches for work. But since meeting with Kessel, they’ve kicked up their heels a bit. Steve’s perusing Lexus brochures, and Judy splurged on a spa weekend with girlfriends.

“This is going to be a lot of fun,” Steve said about his impending retirement. “I can’t wait to get started.”

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(BEGIN TEXT OF INFOBOX)

Hey, live a little

Who: Judy and Steve Haibach

Income: $157,000

Goals: Retire early and buy a home in Nipomo, Calif. Travel and have enough money for a new car and to help with a down payment on a home for their son.

Assets: $888,000 in 401(k) and IRA accounts, $350,000 in cash and equivalents, $19,000 in other investments, $430,000 in a lump-sum pension payout; a home valued at $720,000 and $20,000 in personal property

Liabilities: $400,000 mortgage

Recommendations: The Haibachs can retire early and will have more than enough money to last their lifetimes provided they diversify their portfolio and not move money in and out of the market. They should shift more of their money into small U.S. stocks, international funds and bonds. And they should loosen up, enjoy their money and give more of it away. To ensure a fulfilling retirement, they should volunteer and pursue their dreams, which include buying a motor home and traveling around the country.

About the planner: Brent Kessel is a certified financial planner and is president and co-founder of Abacus Wealth Partners, a fee-only planning firm in Pacific Palisades. Kessel is the author of “It’s Not About the Money,” a book about the psychological, emotional and spiritual aspects of money and financial planning.