Get With The Plan: February 8, 2009

Simon and Edie, both 45, have goals common for families their age. They’d like to afford to pay for college for their 16-year-old child and have enough for a comfortable retirement. They’re on an accelerated schedule, though. Simon wants to stop work in three short years.

‘‘Our main goal is to ensure that we are able to pay for our son’s college education,’’ Simon says. ‘‘Depending on the cost of college, I might have to work two more years or until he is finished with school so my monthly retirement check doesn’t go all for his schooling.’’

The couple, whose names have been changed, have saved for those goals. They have $323,247 in 401(k) plans, $22,308 in a brokerage account, $26,500 in college savings, $3,500 in Certificates of Deposit, $15,000 in savings and $8,000 in checking. Both Simon and Edie are expecting pensions of varying amounts based on their retirement dates. And there’s debt. In addition to a mortgage on their home, they have a home-equity loan worth $95,000 that was used to pay for a boat, and they also have out- standing credit card debt.

The Star-Ledger tapped Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights, to help the couple see if their goals are realistic.

‘‘The couple’s cash flow as submitted would indicate they should have an additional $46,789 available to save,’’ Maye says. ‘‘The excess cash flow is not real and the couple is likely spending closer to $113,000 a year rather than $70,000 a year.’’

Also, Simon and Edie have credit card debt and they took a loan to buy their boat, which wouldn’t have happened if they really had extra cash flow, he says.

So the first move for this couple is to get their budget in working order. They need to closely track their spending and cash flow and see exactly where all that extra money is going.

While the goal of paying for their child’s college is admirable, they should first get their debt under control. Their certificates of deposit are earning less in interest than Simon and Edie are paying on their credit cards, so those funds could be used to pay off the plastic with money to spare.

Simon and Edie have set aside $26,500 for college tui- tion bills. If they want to fully fund the school their child is eyeing — at $24,000 a year — they’d need to save an aston- ishing $3,400 per month. That’s not a realistic goal, even if they are able to find a lot of excess cash in their budget. Maye says they will probably have to pay the extra costs out of income when the time comes, or they can consider loans and other college funding options.

For retirement, Simon and Edie both have pensions, which will make a big difference in their golden years. Simon can receive $75,228 a year at age 48, or $85,148 at age 53. And at age 60, he’ll receive a separate pension of $650 a month. Edie will be eligible for a yearly pension of $16,752 to $30,331 depending on when she retires between the ages of 55 and 65. Unfortunately for the couple, the pensions may not be enough if they retire on the early side.

Simon would like to retire at age 48 — a goal Maye says is too aggressive. If they want to give it a shot, there would have to be some trade-offs.

‘‘If Simon does decide to retire at age 48, in order to make his plan work, he will need to get a part-time job paying $35,000 a year until age 55,’’ Maye says. ‘‘This would essentially give him close to his current earnings base.’’

To increase earnings, Simon and Edie could work longer or plan on more part-time income.

Even more important, Maye says the couple should first clean up their credit card debt and get a better understanding of their spending. The way things stand today, they’d be entering retirement with blinders on, unable to truly account for how much money they require to pay living expenses.