Get With The Plan: June 22, 2008

Joe, 43, and Madge, 38, have three kids, ages 11, 9 and 6, and they factor big time into the couple’s budget. The children’s activities take up a lot of discretionary cash, but the Essex County couple, whose names have been changed, want to save enough for college and retirement — without having to tell their children ‘‘no’’ today.

‘‘I have four years left, then I can retire with 65 percent pay and health benefits for life,’’ Joe says of his government job. ‘‘Then I will take off six months and then get another job.’’

He’s hoping his pension will pay all the bills so he can use the salary from his new career for college savings or retirement savings.

The Star-Ledger tapped Jeffrey Nudelman, a certified financial planner with AMG National Trust Bank in Parsippany, to help Joe and Madge reach their financial goals.

Joe’s ability to find work after retiring from his first career will be a big ‘‘if’’ in the couple’s success. He plans to work in another field until age 60.

‘‘He needs to earn roughly 70 percent of his current salary through that period of time to retire comfort- ably,’’ Nudelman says.

While this will help with retirement, they still will have a difficult time fully funding all of their children’s college costs, he says. They have $12,200 saved for college, and depending on the assumptions used for college costs, they may need to use a combination of savings, cash flow and student loans if they want to cover the entire bill.

They will be able to contribute, though.

‘‘In running our retirement model, if Joe were able to find work making 70 percent of his final base salary through age 60, it appears that they would be able to cover $20,000 per year for each child,’’ Nudelman says. ‘‘As you know, depending on what college they attend, that may not be enough.’’

There are some other steps the couple can take. Nudelman says while they have an attractive rate on their home-equity loan at 4.625 percent, he says they should pay it off with cash from their money market account, which is only earning 0.85 percent per year. They still will have enough cash left over for their emergency fund that should be able to handle three to six months of living expenses, he says.

Paying off the home equity also will help their retirement savings. Joe is contributing only about 1 percent to his deferred compensation plan. Nudelman would rather see him increase the amount to 10 percent of his base salary.

‘‘If they pay off the home-equity loan and reduce their federal and state withholding, their cash flow should be able to handle the additional contributions,’’ he says.

Nudelman says in reviewing their tax returns, Joe and Madge seem to get large refunds every year.

‘‘This is equivalent to lending the government money,’’ he says. ‘‘If they increase their withholding, they will reduce their refunds and be able to use the additional cash flow to increase the deferred comp contributions.’’

One other thing jumped out at Nudelman: Joe and Madge don’t have wills. Based on their net worth, he says a simple will is really all they need, naming guardians for their children, an executor and trustees. They also should have health care and financial powers of attorney along with a living will, he says.