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Saving for Early Retirement, COLLEGE SAVINGS, ETC...

The following is a hypothetical financial planning scenario presented for illustrative purposes only. It should not be construed as an investment recommendation or solicitation. Please consult an advisor to discuss your individual situation prior to making any investment decision. The rates of return do not represent any actual investment and cannot be guaranteed. Any investment involves potential loss of principal.

Saving for early retirement in ArizonaWe’ve heard it more than once and you likely taught it to your children. Save a percentage of every paycheck for a rainy day. For some of us, that savings account was the start of making our biggest dreams a reality – financing college, buying a car with cash, purchasing a first home, wedding expenses, and saving for retirement. And if you’re not the saver, there are a few lessons you can learn from Tom and Lila.

Throughout his career Tom had retirement on his mind. It’s not that he disliked his work as the principal of a local charter school. It was more about having a lifestyle and security for his family. He began saving when he was just 24 years old as part of his employers 403(b) plan. Twenty years of consistent monthly savings and professional financial management of the account has yielded positive results in spite of market fluctuations over time.

Two years ago Tom lost his father, the man who taught him the importance of saving money. His father left an inheritance to be used for the college education of Tom and Lila’s children.

Lila was also raised to be a saver. She had earned college scholarships and her parents had financed the rest of her education. She was fortunate to walk away with a college education and no student loan debt and into a career with earning potential. At the age of 38 she was by most accounts a success in her field of pharmaceutical sales.

Working for more than 15 years has resulted in salary and bonus increases each year including a 15% raise last year. As a result, she is able to maximize the employer sponsored retirement plan plus maxing out her Roth IRA. While she may have started saving later than Tom, she has amassed her own level of retirement savings.

Tom and Lila are committed to their careers as much as they are dedicated to their three children.

When their children were born, Tom and Lila began a tax-advantaged savings account for education. With his father’s inheritance and the savings, they’re hopeful their children will attend college with little to no debt. While they encourage a community college to in-state university debt-free path, they’ve made it clear the choice is up to the children. Should they choose a college that costs more than their budgeted amount, the children are responsible for the balance owed, not Mom and Dad.

Because they’ve worked hard to fund their children’s education and their own retirement, they’ve set two big goals – to retire when Lila is 55 years old and not have to rely on Social Security for income in retirement. That’s not easy feat but they’ve set themselves up quite well from a financial perspective with one exception.

They purchased a new, bigger home near Tom’s school complete with a pool, bonus room for kids, and a 30-year mortgage. When they meet with their financial professional, they understand their plans for extravagant trips around the world may have to wait until the debt is paid off along with a financial checklist that includes:

  • Creating and implementing a financial plan for upcoming working years through retirement.
  • Making an appointment to review all investment accounts including Lila’s employer-sponsored 401k and Roth IRA plus Tom’s 403(b). Rebalance accounts according to their updated financial plan.
  • Reviewing additional options for tax and retirement savings.
  • Assessing emergency savings and non-retirement savings.
  • Calling a real estate professional for a home evaluation. With equity accumulated over time, they may be able to purchase a retirement home for cash.
  • Researching refinancing their mortgage.
  • Reviewing insurance including health, life, and long-term care.
  • Making an appointment with an estate planning attorney to complete wills and trusts.
  • Creating a family budget….and sticking to it.

Their biggest challenge is understanding their personal finances and creating a budget that fits their lifestyle and financial goals. That could mean selling the four of the family vehicles that currently have payments in favor of reliable cars purchased for cash.

Lila admits their house is probably too big for a family with kids ready to go to college but she likes that their house is where the neighborhood kids hang out. At least for now, selling the house is non-negotiable.

She agrees with Tom that they need to track how much cash is being given to the kids. They estimate some months it’s upwards of $1,000 that could either be earned with chores or eliminated now that the kids are all old enough to get jobs. $12,000 a year means they could potentially keep one of their cars, take a family vacation, or pay down the mortgage.

For now, Tom and Lila are career and family focused with an eye on paying down debt and retiring early. It will take focus and work but with the help of their financial professional, they know they’re on the path to meeting their financial goals.

Shanna Tingom uses clear guidance from financial planning and investment management strategies to help you, as her client, achieve your financial goals. The principles she utilizes have been studied by Vanguard with their Advisor’s Alpha research and have been demonstrated to be an effective method to save clients time while adding value.

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