Get With The Plan: August 3, 2008

Pat and Perri, both 52, are planning for retirement and for their 14-year-old child’s education.

‘‘In retirement, we would like to spend at least three months in Florida or another warm climate, preferably on the water,’’ Pat says. ‘‘We would like to keep our current home at least until our child is gone from home.’’

Pat wants to leave work in 2015, and Perri in 2009 — or sooner, if they can afford to do so.

The couple, whose names have been changed, have ac- cumulated $214,907 in deferred compensation accounts, $80,020 in traditional IRAs, $28,490 in a brokerage account, $25,867 in mutual funds, $46,050 in gold bullion, $29,590 in money markets, $5,000 in savings and $3,000 in checking. For college, they’ve saved $18,482 in Roth IRAs earmarked for college, $32,315 in 529 plans and $14,150 in other savings vehicles.

Pat and Perri also expect to receive pensions. Pat’s is estimated to be $68,034 a year at age 59, and Perri would receive a reduced pension of $38,165 if she retires early at age 53.

The Star-Ledger tapped Andrew Novick, a certified financial planner with Condor Capital in Martinsville, to help the couple see if they’re on track to reach their goals.

‘‘The results indicate that their investment portfolio, combined with their pensions and Social Security, will likely be able to provide a maximum gross annual income of $114,666 in today’s dollars during retirement up to age 100,’’ Novick says.

Still, he recommends they spend less because income taxes will have to be paid from that annual sum. In fact, a significant portion of their portfolio consists of tax-de- ferred accounts, so most withdrawals will be taxable income.

Assuming a combined average deferral and state tax rate of 20 percent, they’d be left with about $20,000 less a year than they spend today. But that shouldn’t be a problem, Novick says.

‘‘Their current budget includes nearly $7,000 a year in mortgage payments, which will be paid off by the time they retire,’’ he says.

Novick says if they cut back on a few budget items, they would give themselves a bit of a cushion. Working a few more years could likewise improve the results, as would saving more today. Plus, if the couple downsize as they think they might down the road, their projections would improve more.

Their portfolio could use some shifting, though. Pat and Perri call themselves moderate investors, but their portfolio is clearly conservative, with just 24 percent in equities and the rest in fixed income.

‘‘While investing conservatively minimizes risk, it also offers limited growth opportunities,’’ Novick says. ‘‘Research shows they may not have enough equity exposure to stay ahead of inflation and taxes over the long term.’’

He recommends they move to a 35 percent equity and 65 percent fixed-income portfolio, which he says, is still conservative. To get there, they should eliminate all their single stock positions and consider only diversified mutual funds and exchange-traded funds.

Turning to college, the couple have earmarked several accounts, including a 529 plan and Roth IRAs, to pay for their child’s education.

‘‘We feel that they should not use the Roth IRAs for college expenses,’’ Novick says. ‘‘Since these accounts grow tax-free, they are extremely valuable retirement ac- counts and should certainly be kept for their own retirement.’’

Based on College Board tuition data, Novick estimates college for the couple’s child will cost about $140,583, assuming a college inflation rate of 5 percent. If they add $283 a month to the $313 a month they’re already saving for college, Pat and Perri should be able to cover the costs. Those savings should be added to their 529 plan, he says.

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