Get With The Plan: February 3, 2008

Jerry and Ona, both in their early 40s, are facing the near-term costs of college and the long-term costs of rearing a young child. Jerry has two kids, ages 20 and 17, from a previous marriage, and he’s paying for one college education already. Together, the couple have a 3-year-old, and they have higher-education dreams for their little one.

‘‘Our goals are college planning for our 17-year-old and our 3-year old, and then retirement,’’ says Jerry, 43. ‘‘Ona will likely work part-time once our 3-year-old is in school in September of 2009.’’

The Star-Ledger asked Doug Duerr, a certified financial planner and certified public accountant with Duerr & Duerr in Montville, to help Jerry and Ona plan for these pricey future goals.

‘‘Like most couples, they are concerned about saving enough for retirement and funding college education costs,’’ Duerr says. ‘‘Yet their situation is more unique, because they have one child they are currently paying tui- tion for, one who they will start paying for in the fall of 2008, and their last child, who will be attending college in 15 years.’’

The immediate concern is tuition for their 17-year old this fall. Duerr says from a review of their assets and annual income and expenses, Jerry and Ona should be able to be able to afford this tuition without much of a problem.

Their goal is to provide approximately $25,000 a year for college costs for this child. They are currently paying $750 a month for child support. Once the child reaches age 18 next year, those payments will end, leaving $750 in cash flow available for education. That would account for $9,000 of the $25,000 each year. They can find the additional $16,000 they will need each year from their current earnings and/or investments. Jerry and Ona say they’ve earmarked two of their mutual funds, worth about $52,000, for college.

‘‘They should reallocate some of this money out of equity mutual funds and into more stable investments,’’ Duerr says. ‘‘They will need these funds in a relatively short period of time and, as a result, they can not afford any significant decreases in these accounts due to market volatility.’’

Their youngest child is another story, Duerr says. Jerry and Ona should open a 529 plan, so all of the growth in the account will be tax-free if the funds are used for higher education. To reach their goal of accumulating the equivalent of $25,000 a year in today’s dollars, they would have to save $5,600 a year until the child graduates college, assuming an 8 percent rate of return.

Overall, Duerr says the couple should be commended for staying out of debt and paying down their mortgage. They have a 15-year mortgage, which they’re paying bi- weekly.

‘‘This will save them thousands of dollars in interest over the life of the loan and have the loan paid off in approximately 12 1/2 years,’’ he says.

One big issue is Jerry and Ona don’t have a will, Duerr says, which is something that needs to be addressed immediately. It’s especially critical given they have a young child and nothing in place to state who they would want to care for him should they die prematurely.

For retirement, Jerry and Ona are each saving about $6,000 a year, but Duerr says they should save more if they want to ensure they have enough for retirement.

‘‘It appears they are good savers, so all they need to do is modify how and what they are saving for,’’ he says.

2308