Get With The Plan: April 12, 2009

Retirement and college savings are the most common goals of Get With The Plan participants, and Ethan and Ava are no different.

“Our largest money concerns right now are preparing for our 31⁄2-year-old’s college education, and we’re having another baby in October, thus we will need to add another 529 plan for the new baby,’’ said Ethan, 36.

The couple also want to prepare for what they call ‘‘an abundant retirement,’’ and they’d like to see how their plan could change if Ava leaves work to stay home with the children.

Ethan and Ava, whose names have been changed, have set aside $117,998 in 401(k) plans, $16,621 in IRAs, $1,800 in a brokerage account and $25,000 in a money market. They’ve also saved $7,739 in a 529 plan for their child, age 3, and they’re mortgage-free.

The Star-Ledger asked James Ciprich, a certified financial planner with RegentAtlantic Capital in Morris- town, to help the couple plan their money future.

‘‘They are a great couple and in really good shape financially based on their modest spending and aggressive savings,’’ says James Ciprich, a certified financial planner with RegentAtlantic Capital in Morristown.

He says their lack of home mortgage debt is a strong part of their plan. The couple made bi-weekly payments on their 15-year mortgage starting in 2001, and they took some tech stocks off the table before they tanked and used the proceeds to pay down some principal.

Given their modest estimated spending of $4,000 per month (the couple spend less than 25 percent of their gross monthly income) and their aggressive savings plan, Ciprich says they’re in the enviable position of achieving all their long-term financial goals, even if they increase current spending.

Ciprich examined several scenarios, and the couple’s plan would work under any of them:

  • Scenario 1 — Base spending: At current spending levels, they would be successful retiring at 60 while fully funding their children’s college educations regardless of the amount of equity in their portfolio.
  • Scenario 2 — Maximum spending: If they increase spending to $112,000 a year, they’d need more equity exposure, but they’d still find success.
  • Scenario 3 — Ava stops working: Taking Ava’s income and 401(k) contributions out of the equation, the couple could still spend $85,000 a year.
  • Scenario 4 — Vacation home: If Ava leaves work and the couple buys a vacation home worth $500,000 (in today’s dollars) in 10 years, the couple could afford to spend $70,000 a year.
  • Scenario 5 — Early retirement: If Ava stops working, the couple buys a vacation home and Ethan retires at age 55, the couple could afford to spend $60,000 a year without running out of money.

‘‘The moral of the story is that they can accomplish all of their long-term financial goals as long as they stay within their budget,’’ Ciprich says.

Taking a look at their portfolio, Ciprich says they’re very heavily concentrated in global large-cap stocks, with 72.9 percent of assets invested in this class. He recommends they diversify, with more equity asset classes, diverse fixed-income and alternative asset classes, too.

For college, Ethan and Ava save $450 a month for their one child, and they want to save for their pending second baby. Ciprich says their current contributions will be enough to fund a public college for their child, but if they have their eyes on private schools for both kids, they’d need to save approximately $700 per month per child.