Get With The Plan: September 14, 2008

Jason and Brenna head up a young family. While they enjoy the ride of parenthood, they’re concerned about paying for college for their kids, ages 4 and 6 months. At the same time, they want to stop working as soon as they can.

‘‘I would like to retire from full- time job in my mid- to late 50s, perhaps taking a part-time job or volunteering, but not for income reasons,’’ says Jason, 38.

Jason and Brenna, 35, whose names have been changed, have made savings a priority since they started working. They’ve set aside $500,000 in 401(k) plans, $48,800 in IRAs, $280,000 in a brokerage ac- count, $94,000 in mutual funds, $20,000 in certificates of deposit, $23,000 in money markets and $3,000 in checking. They’ve also earmarked $20,000 for college savings.

The Star-Ledger asked Anthony Caltabilota Jr., a certified financial planner and president of Calta Tax & Financial Services in Hazlet, to help Jason and Brenna see if they’re on track to reach their goals.

‘‘They’ve done a great job of saving for their financial goals at such an early age,’’ he says. ‘‘Unfortunately, many couples wait until they are in their 40s and 50s before they even start thinking about saving for such financial goals as retirement and college.’’

Caltabilota says by that age, for many, it can be a tough road to put away meaningful amounts of money.

While Jason and Brenna have done a great job of saving for retire- ment, their goal of retiring by age 55 is going to be very difficult based upon a few factors many pre-retirees and retirees are realizing today, he says.

Their first challenge is longevity risk. He says there is an excellent chance that if the couple retire at age 55, one or both of them will live well into their 90s. That means a 40-year retirement, or 10 years more then their current working lives.

‘‘They would need to have about $5.5 million at the start of their retirement just to maintain about 70 percent of their current lifestyle,’’ Caltabilota says. ‘‘The only way to accomplish this is to either work longer or seriously scale back how they live. Many times, couples choose a combination of both.’’

The other big risk is inflation risk. Caltabilota offers the example of the postage stamp, which is 1980 was 15 cents. But today, it costs 42 cents to mail that same envelope. He says someone who retired at age 60 in 1980 would today be age 88, and would have witnessed the price of a stamp increase almost 200 percent.

‘‘What I would recommend is that they change their retirement goal to age 62, and then, as they get closer to that age, decide if they are going to need to work longer,’’ he says. ‘‘The longer they wait to retire, the more likely they will not run out of money in retirement.’’

Without a pension at either of their jobs, it will fall to Jason and Brenna to make sure their investments and savings generate the bulk of their retirement income. Caltabilota says because no one is really sure what will happen to Social Security, it is even more imperative Jason and Brenna make sure they have a diversified investment portfolio. It should be designed for growth to get them through decades of retirement, he says.

On the topic of their portfolio, they own many individual stocks, which make up a significant part of their net worth. He says individual stocks are very often speculative in nature, so Jason and Brenna should set up an investment selection approach that is geared toward retirement.

‘‘Right now, the capital gains tax rate is at a low 15 percent,’’ Caltabilota says. ‘‘Since rates are set to expire in January 2011, I would recommend they sell their stocks and invest in tax-efficient investments and mutual funds that are geared more toward long-term retirement.’’

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