Juggling two professional careers and the soccer, baseball and other activities of three young children leaves precious little time for Mary and Ed Friese to contemplate their financial future.
Between their work in the health-care industry and investment income, they’ll bring in about $153,000 this year. So while the couple can comfortably pay their bills and contribute to savings plans, they worry about soaring college costs and shudder to imagine what they will be when their children are ready to go.
According to a T. Rowe Price calculator (www.troweprice.com; click on “Individual Investors,” then “Investment Planning and Tools”), the total needed to put their three children through four years at a public college would be a cool $517,000, including tuition, room, books and some other miscellaneous expenses.
Already, the Mundelein couple spends about $8,000 a year in private school tuition for sons Nathaniel, 8, and Zachary, 6. Daughter Meagan, 1, starts in 2010. The couple is committed to their choice and expects to continue it through high school for all three.
That’s an ambitious plan, and it may mean they’ll have to compromise on their goal of footing the entire college bill.
“We’ve talked quite a bit about what the right thing to do is,” said Ed, 43, purchasing director for a Chicago health-care-services provider.
“Mary’s parents paid for her entire college, and that’s initially what I thought I wanted to do, too, but we may come out somewhere in between,” said Ed, who lived at home and worked to pay for college.
Enter Gary Mandell of the Mandell Group, a financial planner in Chicago who looked over the couple’s situation and made recommendations to help put them closer to their goals.
“Yours is not an unusual situation,” Mandell told the Frieses. “You’ve got young kids; you’re getting used to a certain lifestyle and starting to think about all the things you’d like to have in the future. You’ve got definite goals but not concrete plans for reaching them.”
With retirement accounts worth about $183,000, the couple is on the right track to retire by their early to mid-60s, Mandell said, but they need to start filling other savings buckets.
Mandell challenged them to start saving specifically for college in tax-advantaged 529 savings plans, setting aside about $1,100 a month to start. The children have modest accounts that hold money from relatives, but the family has a long way to go to put a dent in the $517,000.
“My monthly number is on the low side of what they’ll need to put away, but $13,000 a year is not an insignificant number and is at least a good start,” Mandell said.
For several years, Mary, 39, has been participating in a discount stock-buying plan at the health-care manufacturing company where she works as a quality analyst. Although an attractive program, it has diverted funds from their regular taxable savings, which is sitting in a low-interest checking account.
“I’d like to get our money working for us,” she said.
With the stock-purchase plan coming to an end next year, the couple’s main goal should be plowing as much extra savings into building an emergency fund of three to four months’ worth of expenses, Mandell said. Then they should continue building taxable investment accounts, now worth about $30,000, as much as possible.
Ed said that is going to be difficult, as expenses for the family seem to climb every year.
“We’ve never really curtailed spending. If we felt like going out to dinner, we did,” he said. “When we’d get extra money, it was like it was burning a hole in our pockets.”
This year is no different. Much of the surplus between income and expenses this year will go to building a new garage. Prior years’ excess went to new cars and furniture.
As for their overall portfolio, Mandell gave them each a 25-question test to help assess their investment-risk tolerance.
“Ed looks to be a bit more aggressive in his ability to take risks, although you two were not that far apart,” Mandell said.
Nearly 60 percent of their portfolio is invested in cash and bonds, with the remainder mostly in large U.S. stocks and heavily concentrated in Mary’s employer’s stock, Mandell said. Their ages and risk attitudes indicate they should be more diversified, he said.
Although the employer stock represents an outsize portion of their nest egg now, he said, as other investments grow and the purchase plan winds down, that concentration will diminish.
He gave them each a target asset-allocation recommendation based on the results of the quiz and their conversations. For Ed’s assets, he suggests a portfolio made up of 42 percent large U.S. stocks, 10.5 percent small U.S. stocks, 17.5 percent international stocks, 12.5 percent investment-grade U.S. bonds and 17.5 percent high-yield and emerging-markets bonds.
For Mary, he suggests 36 percent large U.S. stocks, 9 percent small U.S. stocks, 15 percent international stocks, 25 percent investment-grade U.S. bonds and 15 percent high-yield and emerging-markets bonds.
Meanwhile, Mary should roll an old 403(b) retirement plan from a previous employer into a self-directed individual retirement account to widen her investment options, Mandell said. She should inquire what her options are for her small pension from that employer and perhaps take it as a lump sum.
Finally, the couple needs to update Ed’s will, and Mary needs to write one, and they need to consider forming a living trust and review their disability insurance plans, Mandell said.
So how are they holding up in the face of a long to-do list?
“This whole process has given us a wealth of experience,” Mary said. Ed said it also prompted some productive discussions with family and friends about how to accomplish all of life’s financial goals.
“We know a lot more now about what we’ll need in the future,” Ed said. “In order to get to where we want to go, we’re going to need to make some sacrifices.”
That may mean hitting garage sales next time they need furniture or keeping the cars a few more years while they build up the cash in their non-retirement accounts, he said.
“But I’m confident we’ll get there.”
———-
Janet Kidd Stewart is a Your Money columnist.
Looking for help?
Looking for free financial planning help? Your Money wants to help you get your finances on track.
Write or e-mail us with your story, including a brief description of your financial goals and challenges. We will select candidates to receive financial-planning services worth several hundred dollars from personal finance experts.
Your financial information and the experts’ recommendations will be printed in the newspaper, along with your picture, if you are chosen.
Write to:
Your Money,
435 N. Michigan Ave.,
Room 400,
Chicago, IL 60611
Or e-mail: yourmoney@tribune.com
