He wants to retire in 15 years, when he turns 65. A financial advisor steps in.

Steven Lynch would like to retire in 15 years when he turns 65. But he wants to make sure he won’t outlive his savings, and longevity runs through his family; he has many parents in their 90s.

He would also like to save money for his 12 year old son and 16 year old daughter.

Mr. Lynch works in the social services of a mental hospital and earns $ 60,000. His wife, Krista Lynch, 52, is a part-time waitress and earns $ 30,000 a year. The couple, who live in Lake Ozark, Missouri, are also receiving $ 500 a month in child care credits thanks to the recent stimulus package.

Together, their two traditional IRAs contain $ 285,000. They have a combined income of $ 15,000 in two 401 (k) and each contributes 3% of their income, which their employer matches. They have $ 15,000 in savings. In addition, Mr. Lynch has a small pension that will earn him $ 325 per month when he is 59 and a half years old.

The couple still owe $ 160,000 on their home, which they say is valued at $ 385,000. They have a 30 year fixed rate mortgage at 3.75%. In order for the mortgage to be paid off when Mr. Lynch retires at age 65, they add $ 300 per month to their minimum requirement of $ 1,100. They owe $ 11,000 on a car loan and pay $ 310 per month on that amount. They have no other debt.

Other monthly expenses include: $ 1,200 for groceries and restaurant meals; a donation of $ 450 to the church; $ 200 for utilities, water and sewers; $ 200 for gasoline; $ 210 for Internet, telephone and cable; and $ 700 for miscellaneous expenses. They pay $ 500 for auto insurance every six months.


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Mr. Lynch pays $ 350 per month for health insurance for himself and the children through his employer’s plan. Ms. Lynch has private insurance that costs $ 300 per month. It would cost $ 250 to add her to the family plan, but Mr Lynch says his plan is better for her and worth the extra $ 50.

Advice from a pro

John Pilkington, a Vanguard Group financial advisor based in Charlotte, North Carolina, recommends that the couple try to save between $ 15,000 and $ 17,000 a year. They saved about $ 9,000 last year.

Mr Pilkington says they should review their spending to find overlooked savings opportunities. When he subtracted their expenses and estimated taxes from their income, he saw a discrepancy of about $ 20,000 that did not include the child tax credit.

He recommends that both spouses open Roth IRAs and each try to contribute the maximum of $ 7,000 per year. If they need to withdraw money in an emergency, their after-tax contributions (not their income) can be viewed tax-free before retirement. And during retirement, withdrawals are tax-free, reducing their liability to road tax.

Another way to save money, says Pilkington, is to rethink the extra mortgage payments they make. Instead, the $ 3,600 per year they spend on additional payments can go into their retirement accounts. Over a period of 15 or even 30 years, the amount they are likely to earn in index funds or mutual funds is more than the amount they will save on interest payments. The Roths could then help pay off the mortgage when they retire.

The Lynches should also shop around for a 15 or 30 year mortgage with a rate lower than their current rate of 3.75%. A lower rate can help them invest even more in their retirement accounts.

Saving for college is a bit of a stumbling block, says Pilkington. He suggests that the couple invest the $ 500 child tax credit in an education savings account of 529, to avoid being entirely dependent on loans or financial aid to fund their higher education. children. They should pay $ 300 per month for the 16-year-old and $ 200 for the 12-year-old.

He agrees that buying private health insurance for Ms Lynch makes sense when it’s better for her and costs about the same price.

Finally, because of the child tax credit, the couple may want to make sure they don’t need to adjust their withholding on their W-2 forms. Since the child tax credit is prepaid, it could impact whether they get a refund or owe when they file income taxes.

Ms. Ward is a writer in Vermont. Email him at [email protected]

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