Get With The Plan: October 26, 2008

Matt, 33, and Nikita, 32, haven’t let the market drops change their long-term goals. They’d like to fully fund a four-year private education for their 18-month-old child, and they want to retire at age 59. Their retirement won’t involve a lot of sitting around.

‘‘For retirement, we want to have the ability to travel and live part time in our native country and in the states,’’ Matt says. ‘‘We want the ability to maintain our lifestyle to be able to live independently in both places.’’

The Passaic County couple, whose names have been changed, have so far saved $92,400 in 401(k) plans, $23,000 in IRAs, $19,300 in a brokerage account, $58,500 in certifi- cates of deposit, $16,140 in savings and $23,552 in savings. They’ve also saved $3,000 in a 529 plan for college.

The Star-Ledger asked Douglas Duerr, a certified financial planner and certified public accountant with Duerr & Duerr in Montville, to help Matt and Nikita plan for the future.

‘‘The greatest advantage they have for their goals of retirement and college savings is time,’’ Duerr says. ‘‘Their son is only 18 months old and they are 25-plus years from retirement.’’

He says the couple should be commended for trying to save as much as possible toward their retirement. Most young couples today do not focus much, if at all, on retire- ment savings until they are older, which tends to be a huge mistake, he says.

Matt and Nikita are each contributing 12 percent of their income to their 401(k)s. With this, Matt will save the max and Nikita, $6,240. They should try to increase her contribution as much as possible, especially if the couple want to retire at age 59, their stated goal.

If they continue to save as they are saving today, Duerr says, Matt’s account could be worth $1.675 million at age 59, assuming an annual rate of return of 7 percent. Nikita’s account would be worth just over $500,000 at age 59 at the same rate of return. If the couple increases Nikita’s savings to $7,500 a year, the account could be worth $600,000, and with $10,000 of contributions, she would have $780,000.

‘‘As the years progress, they will need to re-evaluate whether they are able to retire at 59,’’ Duerr says. ‘‘Depending on how their investments perform or if they are able to save more they may be forced to work an additional year or two.’’

But of course, retirement is years away, Duerr says. Given their history for saving, they should be able to contribute more over time, for example, as they earn more money.

Matt and Nikita also want to fund 100 percent of tuition at a private university for their child. Today, they’re saving $200 a month into a 529 plan. Duerr applauds their efforts, but says it won’t be enough to foot the entire bill.

‘‘By the time their child is old enough to be in college, the total projected cost of a private college will be approximately $415,000,’’ Duerr says. ‘‘This assumes that the current cost of education increases annually by 6.5 percent.’’

At today’s savings rate, the couple would have about $84,000 for college, or a $330,000 shortfall. Any increase in their savings rate for college will get them closer to their goal.

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