Get With The Plan: September 27, 2009

92709Rebecca and Seth are planning to get married, but they have some big financial hurdles to cross. After 20 years with the same employer, Rebecca lost her $82,000 a year job in September, 2008, and her severance pay ran out over the summer. She’s now collecting unemployment, her COBRA payments will nearly double in November, and Rebecca still doesn’t have a job.

‘‘We officially became engaged this past February and are hopeful about the future,’’ says Rebecca, 45. ‘‘With luck, I’ll find a job soon and we won’t have to worry about some of this, but it’s hard to avoid.’’

But for now, they are worried. The couple, whose names have been changed, have set aside $157,326 in 401(k) plans, $3,532 in IRAs, $9,948 in mutual funds, $10,948 in Certificates of Deposit, $18,377 in a money market, $13,837 in savings and $4,013 in checking.

The Star-Ledger asked Tom Farrell, a certified financial planner with RegentAtlantic Capital in Morristown, to help the couple get through the short-term and to plan for a successful married life together.

‘‘Rebecca and Seth are in good shape thanks to their emergency fund,’’ said Farrell. ‘‘With Rebecca out of work, the emergency fund immediately helps with cash flow while saving her from running up costly debt.’’

Farrell says their spending is in line with their 2008 income, and now that Rebecca is only receiving unemployment, it’s important for the couple to keep a close eye on expenses.

‘‘They should continue to find ways to trim their spending while Rebecca is out of work, even charitable contributions,’’ Farrell says.

He says using financial software such as Quicken, Microsoft Money or can help track spending on a regular basis.

To keep their debt manageable, Farrell says they should talk to their mortgage lender to see if they’d qualify for interest rate reductions under the federal Making Home Affordable program.

They should continue to pay down their credit card debt, but not all at once, and they should ask their lenders for an interest rate reduction.

Rebecca’s health care is through COBRA, which will run out early next year. Of course finding a job for income is important, but finding a job with health care benefits should be a top priority, Farrell says.

On to long-term savings. Approximately 85 percent of their retirement plan investments are allocated toward growth assets (stocks and alternatives), and 50 percent of Seth’s plan is invested in company stock.

Additionally, the couple describes their risk tolerance as conservative, and their investments don’t match.

Farrell says they should roll their old 401(k) plans into IRAs at a low-cost brokerage firm such as TD Ameritrade, Schwab or Fidelity.

‘‘This will provide more flexibility in terms of investment decisions and beneficiary designations,’’ he says.

They should look for mutual funds or exchange-traded funds with no sales charges (loads) and management fees of less than 1 percent.

Their after-tax investment accounts are all allocated toward growth assets, and there’s no diversification among their handful of global large-cap stock funds.

More diversification is needed. Also, they’re paying approximately 1.5 percent management fees on average, which Farrell says is too high.

They have done a good job of setting aside cash for emergencies, and their savings would cover more than six months of expenses.

Liquidity is very important now, he says, with Rebecca out of work, so they should consider selling off their after-tax brokerage account and mutual fund assets and placing the proceeds in cash equivalents.

‘‘They don’t need these assets exposed to the fluctuations of the global equity markets when they’re paying bills,’’ he says. ‘‘The combination of cash generated upon liquidation and the cash already on hand should provide them with 11 months of cash to cover their expenses.’’

Rebecca and Seth have adequate life insurance, but Seth’s policy is through his employer. If he was to lose his job, he’d also lose his life insurance. It might be prudent to find a separate term policy that would stay with Seth even if he lost his job.