Get With The Plan: June 15, 2008

Ron and Kristin, both 39, would like to make some changes to their lifestyle. As parents to two children, ages 8 and 4, they would like to watch their kids grow up from the front yard, not the front office. At least Kristin, anyway.

‘‘Our primary goal is to see if we can afford for me not to work and still have enough to save for retirement and possibly college,’’ Kristin says.

The Mercer County couple, whose names have been changed, have so far saved $102,469 in 401(k) plans, $7,525 in money markets, $1,700 in savings and $5,000 in checking. They’ve also started saving for college, and they’ve set aside $4,600 in a mutual fund. Additionally, Kristin can expect a pension at age 65, and the amount would depend on the average of her last five years of employment. She’s working part time now, but was full time for 17 years before that, amounting to a $12,000 annual pension if she left today.

The Star-Ledger asked Mary Ellen Nicola, a certified financial planner with RegentAtlantic Capital in Chatham, to help the couple examine their financial options.

‘‘If Kristin were to leave the work force and their annual lifestyle expenses are at the $106,000 level, our analysis indicates that they would not have any asset remaining at age 90,’’ Nicola says.

For this couple, spending levels, more than the question of whether or not Kristin leaves work, are the big question.

Nicola ran several scenarios to see how the couple would fare. All scenarios assumed the couple would pay for their kids’ college educations, worth $15,000 a year in today’s dollars, based on today’s cost of a state university.

The first scenario assumed both Kristin and Ron would continue to work until age 65 and live on after-tax spending of $76,000 a year in retirement. The second scenario assumed Ron would work until 65, Kristin would stop work and the couple would spend an after-tax $86,000 a year in retirement. The third and final scenario assumed the couple would both work until 65, but they would have a higher spending level of $106,000 a year in retirement.

The results were all about spending. In the first two scenarios, which had moderate spending, the couple had a 99 percent chance of not running out of money during their lifetimes. These scenarios all worked, whether their portfolio was invested 80 percent, 60 percent or 40 percent in equities.

But the final scenario shows the couple won’t have any money left at age 90, which could be fine, if they’re not concerned with leaving money to their heirs.

To improve the success rate, Kristin should up her 401(k) contributions to the maximum $15,500 a year, from her current 6 percent salary contribution.

‘‘We would also recommend Ron begin to make non- deductible contributions to a traditional IRA,’’ Nicola says, adding if Kristin stops working, Ron would be able to make a deductible IRA contribution of $5,000 a year, as would Kristin.

A few other suggestions: Nicola also suggests the couple review their wills, powers of attorney and health-care proxy documents to make sure they reflect their wishes.

Finally, she says the couple should use a 529 plan for their college savings.

‘‘The investment will grow tax-deferred and upon distribution to pay for college there is no federal tax,’’ she says. ‘‘In addition, they can always redirect the funds between their children if one were to decide not to attend college.’’