Trimming spending to build retirement nest egg

By David Butts
Advertiser Staff Writer

Derek Sakaguchi ignored retirement for 47 years.

Derek Sakaguchi of Enchanted Lake with his wife, Nani, and two of their three children, 16-year-old Michael and 18-year-old Carla. Gregory Yamamoto • The Honolulu Advertiser

Rather than save for retirement, the doting father and husband often spent as much as $400 on dinner for his family of five at John Dominis, Hy's Steak House, Orchids or Aaron's. When his daughter graduated from the sixth grade, Sakaguchi picked her up in a limousine stocked with sparkling cider and shrimp cocktail.

He spent lavishly on friends, too. One Christmas, he took 15 co-workers to dinner at the Captain's Table at the Hawaiian Regent and picked up the $1,000-plus tab.

While the good times rolled, building a retirement fund "was not a top concern," Sakaguchi said.

Then his company sponsored a presentation on financial planning last year and a light switched on in his head.

"It opened my eyes that I was only 15 years from retirement age," said the 48-year-old Sakaguchi.

• He wants to retire at age 65 with an annual income of about $75,000. He figures that would be enough for him and his wife to live comfortably and provide a home where their children and grandchildren can stay anytime.

• He is planning a $150,000 addition to double the size of his 1,100-square-foot Kailua home, adding a master bedroom and family room and updating the kitchen.

• He wants to pay off his credit-card debt that has built up from years of being the generous dad.

• He wants his three kids, ages 16, 18 and 23, to be able to attend the University of Hawai'i and have the option of living at home until they get their own careers going. "When they have children, I will be a happy granddad and spoil their kids," Sakaguchi said.

Those are big-ticket items, but fortunately for Sakaguchi, he has enough income to pay for them if he can rein in his spending, said Audra Butera, a financial consultant at Salomon Smith Barney Inc.

Sakaguchi makes between $75,000 and $100,000 at Craig Wireless, where he manages a staff of 29 people, installing and servicing wireless cable television. His wife of 24 years, Nani, earns between $25,000 and $30,000 a year doing childcare at their home. They own their house outright (it once belonged to Sakaguchi's parents), and they have about $125,000 in retirement funds.

Still to reach all their goals, the Sakaguchis have a long way to go. Butera calculates that they will need to save about $37,000 a year for the next 17 years.

"It takes a huge commitment, focus and discipline," Butera said. "Discipline is the key to building wealth."

Butera began working with Sakaguchi a year ago and her first task was to get him to define his goals. That's when he began focusing on retirement.

Sakaguchi started working at age 9, painting houses with an uncle, and hasn't had a significant break since. He built his career by starting work early, staying late and coming in on weekends.

"Everything I have done in my career has always been for my family," he said.

Now he is thinking about working less and spending more time at home, and he wants to be finished with work when he turns 65. He also wants to continue as the generous provider for his kids and grandkids when they come along. With that in mind, Sakaguchi has been able to resist the spending sprees.

"Going to a fancy restaurant, getting dressed up is not that important to me anymore," Sakaguchi said. When his wife wants to go out on the weekend, "we go to the Cattle Company (Restaurant) for chocolate cake. Something simple." And they cook a lot more at home, with Sakaguchi taking over the kitchen duties on weekends and his wife handling weekdays.

Without spending hundreds of dollars, Sakaguchi still manages to treat his family to touches of luxury. He lets his kids sleep in on the weekend and prepares individual breakfasts to order as they rise.

The money saved from going out less will help pay off credit card debt, which the Sakaguchis ran up in their high-roller years. Butera suggested they pay off credit-card debt before adding money to their retirement funds.

Paying high credit-card interest is a common ways families lose money. If a credit-card company is charging double-digit interest and your savings are earning only single-digit interest, you are losing money. In most cases, you would be better off by using your savings to pay off credit cards.

The $125,000 the Sakaguchis have in retirement funds is not an option for paying off credit-card debt because they can't tap that money without paying a penalty.

So Sakaguchis are paying off the credit cards a little bit at a time.

"Two months ago I paid one off," Derek Sakaguchi said. "Two weeks ago, another. The key thing is the commitment to do it. I committed to myself and my family that this is what I need."

By the end of this year, the Sakaguchis will make their last $553 monthly payment on Nani Sakaguchi's car, and they have no plans to buy another. That should free up more money to pay down the credit-card debt.

Butera has suggested the Sakaguchis could take out a 15-year or 30-year mortgage on their home to accomplish two of their goals — paying off credit-card debt and remodeling their home. Mortgage rates are near historical lows and, unlike credit-card debt, the interest on a mortgage is tax-deductible.

While remodeling a home could be considered a luxury, Butera isn't suggesting they abandon that plan because she knows it goes right to the core of what Derek and Nani Sakaguchi are about.

These two are not from the kick-the-kids-out-at-18 school of parenting. They want their kids to have a home to return to if things get rough. And Butera realizes that any financial plan could fail if it keeps people away from what they value most.

So the Sakaguchis are planning to upgrade their 46-year-old, three-bedroom, one-bath home. The contractor's original estimate of $100,000 is likely to go up to $150,000 before the job is done, said Derek Sakaguchi.

Butera says that could be paid for with the mortgage. In this case, the monthly payment would be less than what Sakaguchi was paying his parents when he was renting from them and what he was paying monthly on his credit cards.

Butera is also looking for other ways to help the Sakaguchis. She found that they had only $250,000 in life insurance policies, which seemed inadequate, given how much Sakaguchi valued providing for his family. She recommended a policy that would give them $550,000 in coverage with no increase in premium.

But the biggest challenge for the Sakaguchis will be putting away enough money to reach their goals.

They hope to maintain a lifestyle close to what they are now enjoying. They want to help their kids when needed and occasionally travel. When they total it up, the Sakaguchis are looking at a desired retirement income of about $75,000 a year in 2002 dollars.

Butera runs the numbers through a financial analysis that spits out the startling conclusion that the Sakaguchis will need $1.8 million by 2019 to reach their goal, or almost 15 times what they currently have saved.

The sobering number is not meant to be discouraging. It is just a planning tool. It doesn't take into account Social Security benefits. Butera said she leaves that out because "we don't have control over Social Security." Social Security can typically provide about 40 percent of a person's pre-retirement income, said Christian Weller, retirement specialist at the Economic Policy Institute in Washington.

Setting that aside, Butera starts with the Sakaguchis' goal of having approximately $75,000 annual income after Sakaguchi retires when he's 65. She calculates that with 4 percent annual inflation, the equivalent amount of income in 2019 would be about $94,000.

To generate that income until Sakaguchi turns 90 means the couple would want to have a $1.8 million nest egg in 2019. And to reach that goal, they will have to put $37,000 a year into a portfolio that earns an average return of 8 percent.

Put more simply, they would ideally save $3,083 a month toward retirement. The Sakaguchis can cut out a lot of gourmet meals and still not save that much each month. Even if they save $2,000 or $1,000 a month, the important thing is they understand their goals and start moving toward them, Butera says.

"If any part of this becomes unreasonable, they need to re-evaluate what is really important to them and take a hard look at what they are willing to change," Butera said. They could decide that Sakaguchi will work beyond 65 or that they can get by on less than $75,000 a year after retirement.

But before compromising on savings goals, Butera advises clients to "Identify what you value in life and all the money you spend on things that you don't value in life, stop spending money there."

"Identify what you want," she continues, "and commit to it, and you should feel real good about what you are doing."

For Sakaguchi, there is nothing he values more than his family and that's why he's convinced he can reach his goals.

"If they can understand that their father did all of this for them, when I retire, they are going to carry on the legacy," he said. "And if that is the case I will be satisfied."