Utilities: $800 a month Frank Furbeck was taught at an early age that even if he didn’t have a lot of money, he should still set some aside for savings. He kept to that motto and is also teaching his sons Josh, 17, and Jake, 13, to follow the same direction. “[A man] told me that every time I get a raise I should put that money into my deferred compensation, and I will have something,” Furbeck said. “He was right.” Frank started working for the state of Illinois when he was 19. Now a systems analyst making $83,000 a year, he puts the maximum contribution of $15,500 a year into his deferred compensation, which has grown to about $227,000. Deferred compensation is like a 401(k), where an employee defers some portion of his income to a savings plan. It’s not matched by his employer, but the money is only federally taxed upon withdrawal. Frank’s fiancé, Trudi Morris, also a state employee, is an office coordinator in the payroll division for the Illinois Department of Human Services. Trudi had not started saving aggressively until she met Frank. She earns $36,000 a year and contributes almost half her pay to her deferred compensation by setting aside the maximum $15,500. She has saved up about $40,000. “We don’t live extravagantly or poorly,” Furbeck said. “I call it comfortable in my standards.” Frank and Trudi carry no credit card, auto or home debt. “I saw my mother struggle with credit cards, and I didn’t want to go that way,” Frank said. He owns all three of his cars and only pays property tax of about $100 per month for his home. Frank and Trudi have also saved $2,500 in a money market account bearing 3.9 percent interest. Frank also has $2,000 in a Roth IRA, $2,000 cash in a regular savings account and $2,000 in CDs. Trudi plans to set up a Roth IRA, but she hasn’t decided when. Frank set up 529 plans for both of his sons with about $6,000 each. But when Josh decided to enlist in the army, Frank transferred his full balance into Jake’s account, which now has $16,400. Frank started investing in a brokerage account for Josh with $1,500 in mutual funds. When Josh is employed, he will transfer the money to a Roth IRA. “It’s never too early to start saving for retirement,” Frank said. Although Frank stopped contributing to Jake’s 529 for now, he plans to fund 75 percent of his college education. Frank’s ex-wife sends a child-support check of $475 every month for both sons. Frank gives $200 to Josh and $50 to Jake. They both tithe 10 percent of their allowances, save half of what they have left and use the rest for whatever they want. As state employees, Frank and Trudi’s health and life insurance are covered by the state. For auto insurance, Frank pays $525 for liability every six months for Josh’s car and $300 for full coverage on the other two cars. Frank’s house, which he built himself, sits on 32 acres of land in rural Illinois. He spent about $50,000 on construction and another $4,500 on a small barn and fencing. The land and house currently have an estimated value of $250,000. Each month, Frank and Trudi spend around $800 on utilities, $350 a month on groceries and around $320 on gas. Frank tithes $400 a month to his church. As a hobby, Frank raises cattle and makes between $500 and $750 for each cow. He also saves on groceries since he butchers some of the meat for himself. His sons have their own cattle. Jake sold a cow and put the $850 he made into a brokerage account. With the extra cash they have in a month, Frank and Trudi like to go out to dinner at local restaurants. They use coupons and end up spending around $25 altogether. They also save on gas by carpooling to work everyday. As for wedding plans, Frank said, “We’ve both been married before, so the second time around is going to be us going away. No tuxes, no dresses, or any of that other stuff.” They plan to get married next year, but have not set a specific date yet. Frank plans to retire at 53 ½ after 35 years of state employment, which makes him eligible to receive a pension for 56 percent of his salary. He also has one year worth of sick time that he’s using toward retirement and hopes to reach millionaire status by the time he’s 60. Trudi plans to retire by the time she turns 58. “I live well below my means,” Frank said. “So when I leave state service, I will basically get a pay raise from what I’m used to bringing home.” Our expert’s takeFrank and Trudi are well on their way to millionaire status, according to Ric Martin, a Certified Financial Planner at Steinhaus Financial Group. Martin said that Frank can retire at age 53 ½ and Trudi can retire at 53. Both of them will have accumulated $1,910,378 of investment assets by Frank’s age goal of 60. According to Martin, Frank and Trudi could increase their standard of living to $53,250 per year in today’s dollars and still have enough money to last through age 95. Assuming a return rate of 8.5 percent, this would equate to $73,000, adjusted for inflation, at Frank’s age of 54 and Trudi’s age of 53, Martin said. Martin said Frank should boost his college savings for Jake to between $3,700 and $7,200 a year depending on what percentage his 529 is making and assuming the cost of college today (between $20,000 and $30,000). Frank can afford to contribute the maximum $5,000 into his Roth, Martin said. “His Roth should be invested into high growth and/or international investments based on Frank’s risk posture.” Martin also said Frank should add his CD to his money market account. Even though Frank and Trudi have done a good job saving for the long term, Martin said they should build an emergency account covering 6-12 months of expenses of $16,080 in readily available assets, based on their current standard of living. “They have almost no liquidity. Frank should get a line of credit against the house just for liquidity and emergency use,” he said. A bank will likely give them no more than 80 percent of the equity in their house or $200,000, according to Martin. Frank and Trudi also need to consider disability income needs, which at their age may be more important than life insurance, said Martin. “In the event that something happens to them, they would likely get 60 percent of their pay, which is then taxed,” he said. “Their after-tax cash flow may not be enough to sustain savings and the standard of living they are accustomed to now.” Frank should also review his life insurance because Martin thinks it may not be enough. He also recommends Frank’s deferred compensation should be a diversified portfolio of funds, iShares and some internationals sectors. Martin said Trudi should diversify her portfolio as well and include some international sectors. “A Roth is always advisable, but as you can see, they are already saving more than enough to exceed their retirement goals,” Martin said. Instead, they could put that money towards their liquid assets. Frank said he has a will and is setting up a trust, but Martin said he should consider getting a QTIP trust (Qualified terminable interest property trust), which allows assets to be transferred between spouses. It also keeps assets out of the estate of another person if the grantor dies first. “In the event of his fiancé passing thereafter, the estate does not pass exclusively to his fiancé’s family and not to the Frank’s two sons,” Martin said. - By Keisha Lamothe, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com.Filed under 401(k), Blogroll, Uncategorized, ira, millionaires, personal finance, retirement, saving
Auto expenses: $820 combined per month After receiving an inheritance about two years ago, Justin and Emily Bergman weren’t sure what to do with an extra $50,000 they now had. Sure, they could have splurged on something they really wanted, but instead they looked for help on how to invest the money. After a transfer from Georgia, the Bergmans wanted to use the inheritance for a down payment on a new house in Connecticut, where Justin is stationed with the Navy. They decided against buying, however, because the cost of living was much higher than they expected, so they currently rent a house on the base. They owned their house in Georgia and sold it before they moved. After making a $25,000 profit, they put $10,000 in their mutual funds and used the rest to repay credit card bills. Around the same time, they consulted a financial planner and invested the money Justin inherited from his father. Justin started up a Roth IRA and 529 college savings plans for their daughters. They paid off credit card bills, kept $2,000 for themselves and used the rest to pay other expenses such as cremation fees, legal fees and travel expenses. They also put a $21,000 down payment on a brand new car. The Bergmans started 529 plans for their daughters Hannah, 5, and Sariah, 1, because they plan on covering at least 50 percent of their college tuitions. They now contribute $50 a month to each 529 plan and have saved about $4,800 for Sariah and $3,700 for Hannah. They also have about $15,200 in mutual funds, earmarked for a down payment on a house they plan to buy the next time they are relocated. “I don’t think I was as crazy about saving in the past because I didn’t make enough,” Justin said. “But now that I make more in the Navy, I try to keep my sights on being a saver.” Justin, whose salary increases at a different rate every year, currently makes around $28,000 after a housing allowance that includes utilities is subtracted tax-free from his salary. He contributes 10 percent of his base salary into a Government TSP (Thrift Savings Plan), which is similar to a 401(k), except the money is not matched because his savings are not taxed. He’s allocated 100 percent of his money into a Lifestyle 2040 fund, which automatically adjusts his mix by currently investing in higher-risk mutual funds. As it gets closer to 2040, the investment shifts to more conservative funds. Emily makes $800 a month working for her father at a Maryland-based computer consulting and testing firm. The Bergmans save on babysitting costs because Emily works from home; however she does not contribute to a savings plan. The Bergmans discussed opening a Roth IRA for Emily, but decided against it since they have not yet maxed out their $4,000 contribution to Justin’s Roth IRA account. They also have an emergency fund of about $2,300 in cash that they keep in a high-yield online banking account, earning 4 percent a year. Most of the Bergmans’ expenses come from their cars. Emily drives a 2006 Honda Odyssey that they bought brand new with a $21,000 down payment. They pay $440 a month and expect it to be paid off in eight months. Justin pays $230 a month for a used 2005 Toyota Corolla, which he plans to pay off in almost four years. For gas, the two spend about $150 a month together. Their monthly expenses also include $360 on food by shopping at the on-base commissary, $50 for cable, about $75 a month on tap lessons and soccer sessions for Hannah, $50 on dinner outings, and about $100 on clothes for their daughters. They also tithe more than 10 percent of their monthly income to their church. For life insurance, Justin pays $26 a month for a $400,000 policy that also covers his wife. Justin has been in the Navy for seven years and plans on staying for another 13 years so he can receive a pension. On top of working in the repair facility for submarines, he takes night classes at the University of New Haven. He’s majoring in mechanical engineering, and his tuition is covered by the military. Looking ahead, the Bergmans would like to buy a house in about two years and possibly have more children. Justin plans to get a civilian job in engineering when he retires. They would also like to live in Maryland, where Justin and Emily will both be closer to their families. Even though they don’t stick to a strict budget, Justin’s grandparents served as an inspiration for wanting to save because they lived right after the Great Depression. “They weren’t always into buying flashy things and I learned from them that you don’t always have to have the best of the best,” he said. Our Expert’s Take: The Bergmans are on the right track to reach millionaire status by the time they retire and should keep up the momentum, said Joseph Montanaro, a Certified Financial Planner at USAA who specializes in military savings. Montanaro suggests that after the Bergmans pay off Emily’s car, they can increase their savings plan. “Once that loan is paid off, they should shift that $440 per month immediately into Roth IRA contributions for Justin and Emily. Even then they’ll have room to grow these contributions since each would be able to put $5,000 each into their Roth IRAs beginning in 2008,” he said. Although Toyota won’t be paid off for few more years, Montanaro said if they are not already maxing out their Roth IRA, they can invest that money towards that. “I would recommend they use future pay raises and or elimination of expenses or debts as an opportunity to increase their savings and investments,” he said. In terms of their life insurance, Montanaro suggested that the Bergmans should reevaluate their current coverage because it doesn’t seem adequate. Instead, they could fill this gap with a 20-year level term policy, he said. The Bergmans also need to increase their contributions to their daughters’ 529 plans if they want to cover at least 50 percent of their college education, according to Montanaro. He said that at their current savings rate, they’ll only be able to cover 25 percent of Hannah and Sariah’s schooling. Montanaro said their contributions should increase to $75 a month for Sariah and $115 a month for Hannah to reach their goals. For the Bergmans’ “housing fund”, they should start to position their savings in stable investments, such as a money market fund, according to Montanaro. “Right now it’s in a mix of stock and bond mutual funds taking more risk than they should with a short two-year time horizon,” he said. The Bergmans should also work to build up their emergency fund and continue to increase their all of their savings, Montanaro said. After Justin exits the Navy, he’ll be able to make a lot more with a civilian job in engineering and can increase their savings even more, he said. “With the TSP and Roth IRA start-up [from the Honda car payment] the Bergmans will be on track to have a nest egg of over $300,000 when they retire the first time - at 41,” Montanaro said. “With the same savings strategies, they should achieve millionaire status in their 50s.” – By Keisha Lamothe, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com.–Editor’s note: A previous version of this story referred to Justin as a “Navy officer.” He is a “Navy non-commissioned officer.” CNNMoney.com incorrectly stated that Emily Bergman earned $1,600 per month. She earns $800 per month. The article also incorrectly stated that the Bergmans tithe $300 per month to their church and that Justin used a reenlistment bonus to pay off Emily’s student loans of $12,000. The Bergmans tithe $450 per month and the reenlistment bonus was used to pay off a debt consolidation of $12,000.
Goals:
Assets:
Growing up working class near St. Louis, Tracy and David Seim hoped that education and hard work would turn them into millionaires by age 40. Well, almost. Now 41 and 43, respectively, they have a net worth just shy of $750,000 - not a mill, but a very respectable sum. Still, measuring themselves against their more free-spending friends, the Seims don’t feel flush. They wonder if they’ll be able to afford college for Gabi, 13, and Gracie, 9, a comfortable retirement and, as Tracy puts it, “some fun along the way.” The couple, who run a small company that sells industrial fasteners and other supplies, paid themselves $103,000 last year. They have no credit-card debt, have lived in the same house (worth about $300,000) for 14 years and don’t drive fancy cars. They’re so frugal compared with certain friends, in fact, that they wonder if they’re missing something. “Everybody’s passing us by,” Tracy says. “What are we doing wrong?” Where They Are Now The Seims have a total of $300,000 in retirement accounts, and they max out their Simple IRAs, adding $10,500 each last year. They’ve also been diligently salting away money for their daughters’ education - $52,000 so far, stashed mostly in custodial UTMA (Uniform Transfers to Minors Act) accounts, to which they added $1,200 in 2006. They also have about $15,000 in bank CDs. Like most investors, Tracy and David had some setbacks. At the advice of a financial planner, they invested a rollover 401(k) from David’s previous job as a salesman into individual stocks. That was in 2000, right before the market tanked; the account lost more than a third of its value. The Seims have since switched advisers, moved their stash into blue-chip mutual funds and recovered most of their losses. “The only one who made any money was the adviser,” David laments. What They Should Do The Seims’ financial situation isn’t nearly as bad as they seem to think, says Jim Reding, a financial planner at Paradigm Wealth Advisors in Des Peres, Mo. College and a comfortable retirement on a seven-figure nest egg are well within their grasp, as long as they take some practical steps now. Fix the investment mix. The fact that they no longer hold individual stocks doesn’t mean the Seims are diversified. To avoid ups and downs and maximize returns, Reding recommends that they add funds that hold foreign stocks, mid-size growth stocks and a few other asset classes. What’s more, between the 1 percent annual fee they pay their current financial adviser and the expense ratios on the funds they own (some top 2 percent), David and Tracy are shelling out way too much. Switching to funds with lower costs would wring more profit from their portfolio. Make college savings work harder. Reding suggests that the couple open 529 plans and put new savings there. The money will grow tax deferred, and the Seims will get a state income tax deduction. To cover 75 percent of projected tuition costs, the Seims should ramp up their current rate of saving to $235 a month for Gabi and $289 a month for Gracie. Don’t judge progress by looking at other people’s stuff. Just because a neighbor owns a vacation house or drives a Jaguar doesn’t mean he’s smarter with his money: He may be living scarily above his means. The Seims need to stick to their own plan and stop worrying about what everyone else is doing. Assuming they make the changes that Reding suggests - including increasing their retirement saving by 3 percent a year - he predicts that the couple’s net worth will hit the $1 million mark within a decade. –By Yuval Rosenberg. This article appears in the October issue of Money Magazine. Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com.Filed under Uncategorized
Ages: Aris 38, Maria 36 Money isn’t just a means for Aris Magtibay of San Antonio, Texas – it’s a full-time obsession.
Aris has documented all of his spending in Microsoft Money since graduation. If he buys a $3.99 value meal on his debit card at McDonald’s, it goes into the books. He says he takes no offense to the teasing he gets from coworkers and friends about his obsession. “Although I must admit: if I spent as much time trying to make money as tracking the money I have, I’d be a rich man,” he jokes. Aris’s big indulgence is the lottery - $7 in tickets each week. He calls it his investment that hasn’t paid off just yet. He and his wife, Maria, were both born in the Philippines, although his family moved to Virginia when he was 3 years old. Maria spent most of her life in the island nation before the couple married in 1993. Aris met Maria while vacationing there, and she moved to the U.S. just three weeks before their marriage. They have a son, Jared, who’s 13. The couple has built up $14,000 in a 529 college savings plan. They’re adding $100 a month, hoping to reach $20,000 by the time Jared is ready for school. Aris and Maria earn a combined $115,000 a year before taxes. He works as a pricing manager for a telecom company, and she’s a manager at a bank. They each sock away 10 percent of their salaries in 401(k)s, putting in a total of $1,150 a month. Their employers match add an additional $500. They also put $50 per month into their Roth IRA. The Magtibays bought a new home in San Antonio early this year for $315,000 with 20 percent down, spending some of their emergency savings to make the down payment. They pay $1,500 a month towards a 30-year fixed-rate mortgage at 6.25 percent, and expect to pay it off in 21 years. “The goal is to pay the mortgage off before we begin dipping into our 401(k)s and IRAs,” said Aris. After buying the house, their emergency savings are down to $3,000 in cash. They also have $1,200 in a bond exchange traded fund (ETF). Aris handles his own investments wherever possible and says he prefers ETFs and individual stocks over mutual funds. Maria’s Roth IRA is also in the aggressive growth Janus Orion Fund. Aris is trying learn more about investing and has recently started to trade options. They can take years to learn and can be risky. The couple owns a 2006 Nissan Pathfinder and a 2006 Nissan Altima, both of which they lease for a total of $850 a month. “I think that’s our Achilles heel,” said Aris. “We’re the type who wants to drive something brand new every five years.” Each month, they spend $600 on food, $500 on utilities, and $700 on taxes. They’re also paying $700 a month on $11,000 in credit-card debt. For security, they have two term life insurance policies for $500,000 each, plus homeowner’s insurance for 120 percent replacement value. The couple’s goal is to have $1 million in assets, including home equity, by the time that Aris reaches age 50. After their retirement, they’d like to have $100,000 a year in income to live on. Our Expert’s Take: The Magtibays are in pretty good shape, and on track to be millionaires by age 50 - but they could do better, said Greg Gardner, Certified Financial Planner with Gardner Group wealth management. “They need to really beef up their savings account so they have six months worth of emergency liquid savings,” he said. In addition, Gardner estimated that they are currently saving enough to withdraw only $93,000 annually in retirement - short of their $100,000 goal - assuming they live to 95. In order to make up the budget gap in retirement, he listed three options. “They can buckle down and work one year beyond the typical retirement age of 65, or they could choose to save $850 more per month now, or adjust their spending down at retirement,” he said. “But they’re definitely going to be able to save a lot more money once Jared leaves the house,” said Gardner. For their emergency fund, they should have $20,000 to $30,000 – essentially six months worth of expenses – at the minimum. It should be completely liquid, in an interest-earning account like a money-market fund, says Gardner. Finally, they should purchase larger life insurance packages, he said. “They’re a little bit underinsured at the moment,” said Gardner. “If one gets laid off, there’s not enough money in the emergency savings or the taxable investment accounts to draw on. If you were forced to liquidate money from the 401(k)s and IRAs, you’re talking taxes and penalties to get to those funds.”
Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com.
401(k): $100,000 Fixed rate home equity loan: $41,000 owed Amy and Jesse Dickinson love their games. At their San Leandro, Calif. home, they challenge friends to Warhammer, a fantasy role-playing contest of knights and warlocks. But when it comes to financial planning, Amy doesn’t play around. Amy, a technical writer, began investing during the dot-com bubble, putting her money in hot stocks. But she found the market too volatile, and decided to shift her savings over to mutual funds. “I got the need to gamble out of my life early on,” said Amy, who still enjoys penny-ante poker games with Jesse and friends. Her work provides the couple $71,000 a year, and Jesse’s part-time job as a crossing guard brings in around $15,000. The couple also gets $600 in monthly rental income from a boarder. Amy uses auto-deductions, which do a lot of the heavy lifting in her weekly budget and savings. She puts $10,000 into her 401(k) every year, and her company puts in another $3,000. She deposits $230 a month into a bond fund that’s intended for emergencies and puts $2,150 a month into a money market fund to earn interest on the money she pays toward her mortgage. Much of her savings are in stock funds. Amy says she prefers an aggressive investing strategy. “I know I have a good 20 or 30 years to recoup losses,” she says. The only individual stock she owns is that of her employer, Integrated Device Technology. When the couple found their home in April 2002, she sold some mutual funds in order to put a $54,000 down payment on the $360,000 home. They now make payments of $2,150 per month toward their mortgage and home equity loan and expect to pay off the home in 13 years. The house was recently appraised at $490,000. “I feel very, very fortunate,” said Amy. “Any stock can crash, any market can have a problem - but you can always live in the house.” The couple keeps their budget balanced with real dedication to thriftiness – Amy has declared Jesse “a professional scrounger.” He’s learned to make his own shirts after buying the fabric, and she says the couple tries to prolong the life of all their belongings. Amy budgets $400 a month for food and saves money by shopping at Costco and taking advantage of sales at grocery stores. The couple’s gaming hobby is a moderate expense. The miniature battles that incorporate tiny painted figurines are games of “fantasy as opposed to recreation.” House payments aside, their expenses total roughly $1600 a month. As far as insurance goes, Amy has taken out a $300,000 life insurance policy in addition to the $120,000 policy she has through work. Jesse also has a small life insurance policy. Looking ahead, Amy says she’d like to retire a little later than most people and be sure to have the house completely paid off. Down the line when they’re close to paying off their mortgage, the Dickinsons would like to add solar panels and an additional room for gaming to their home. They’re considering adopting a child in the future, but aren’t making the decision just yet. “I don’t consider my budget strict, but others would,” she said. “I think of money as a tool to help you get everything else you need.” Our Expert’s Take: The Dickinsons have gotten a good start on retirement savings but need to take further steps to protect themselves against possible outcomes, said Lee Pence, a Certified Financial Planner at Pence Financial Advisors. “Protect yourself first, and then invest in further opportunities,” he said. “I’m concerned that because so much of their wealth is in their home, they’re underdiversified. All it would take is for the real estate market to go south, and they’d be in a difficult situation.” Also, based on their monthly expenditures, said Pence, they’re spending over 50 percent of their monthly income on their daily expenses, mortgage and home equity loan combined – above the recommended level. “Banks recommend that you spend less than 36 percent of your monthly income on expenses,” he said. If they need to take out a bank loan, they’re going to face higher rates because of that. They should work to either increase income or cut down further on expenses, he said. They need to come up with a specific estimate of what they’ll need each year when they retire, he said. He projected that, with an average 8 percent growth in the stock market, the Dickinsons’ savings will reach $4.2 million in 26 years, when they are at retirement age. He emphasized that they need to consider the potential costs of long-term care, which average over $75,000 a year. “People are retiring earlier and living longer. What happens if they live to be 100? The house will be paid off, but you can’t eat a house,” he said. He also said they should have an umbrella insurance policy of at least $2 million in order to supplement their other policies. He said they need to keep their emergency money in a bank, not a bond fund. “Bond funds can kill you if interest rates rise,” he wrote in an email. “The cash emergency fund is critical. I have seen people lose their homes because of unforeseen medical expenses.” They need a minimum of six months’ worth of income in a secure cash account, he said. –By Rob Kelley, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.comNote: A number of changes needed to be made to this story: Amy Dickinson does have a life insurance policy outside of work. It’s for $300,000. The Dickinsons have a fixed rate home equity loan, not a home equity line of credit as previously stated. The couple makes a total of $2,150 in mortgage and fixed rate home equity loan payments, not mortgage payments of $2,100 per month and home equity line of credit payments of $400 per month as previously stated. The Dickinsons do not have a cash emergency fund of $7,000. They do have $7,000 in a bond fund. The couple plans to hold off on installing solar panels or adding a gaming room until after they pay their mortgage. The Dickinsons’ monthly expenses total $1,600, not $1,200 as previously stated.
401(k): $150,000 Home Equity Line of Credit: $15,000 owed Keith Bevelacqua remembers the exact dollar amount of his first retirement savings: $48 a month, or about $1.50 a day. Just out of college, he wasn’t saving what he wanted to - just what he could. As his salary grew, he hiked his contributions. Twelve years later, his strategy is paying off. He and his wife, Elizabeth, of Knightdale, North Carolina, have a net worth of about $280,000, with $150,000 tucked away in their 401(k). The Bevelacquas have managed to do it without scrimping on their day-to-day lives. They enjoy frequent road trips to the mountains and the beach with their four kids, aged two to seven, all on a combined annual salary around $70,000. “Our best asset is our planning,” says Keith. “If we’re going on a trip, we begin squirreling away money months in advance. I don’t want to deprive my kid of an ice-cream cone just because we haven’t planned.” The millionaire mark is within reach for the family, due to their early start and savings habits. At one point, both Keith and Elizabeth were both putting 15 percent of their salaries into retirement funds. They now save 9 percent of Keith’s salary since their kids were born. The couple made sure not to overstep their means when they spent $150,500 on a two-story home outside Raleigh in 1997. “We moved into something a little more modest because we knew we wanted to start a family,” wrote Keith. The couple has refinanced their mortgage several times in order to get it down to a 15-year fixed rate of 4.875 percent. They expect to pay it off in nine years. The Bevelacquas have no debt besides the mortgage and $15,000 owed on a home-equity loan. They’re considering a larger home, but they aren’t sure about the potentially expensive move. Elizabeth was earning the majority of the couple’s combined income as a physical therapist, but after her first child, she drastically reduced her hours so she could take care of her kids. She now works about 10 hours per week but plans to return to work full time in 2010 when all the children are school-aged. The couple’s long-term goals revolve around family and travel. “When I’m 60 or 65, if my kids are in California, I want to be able to have the option of getting on a plane and visiting them,” says Keith. They don’t have a specific retirement date planned or a dollar amount in mind for what they’ll need per year, but they believe their discipline will get them a healthy nest egg. Our Expert’s Take: The Bevelacquas have shown that you can build solid retirement savings if you start early and adhere to your plan, said Diana DeCharles, a Certified Financial Planner with AIG Financial Advisors. “It doesn’t take a lot - it just takes time,” she said. “Obviously they started a ways back, because he’s only 35, and they already have $150,000 in their 401(k).” But their plan would be even stronger if they had a goal for how much they needed each year, she said. “If they want to count on living off of both of their incomes each year in retirement, Elizabeth is really going to have to save a lot when she returns to work,” said DeCharles. “She has about 22 years until retirement, so she should be putting away about 10 percent of her full-time salary.” Even today, putting away more than 9 percent of Keith’s salary would be ideal, she said. “It’s important because they’re not getting the amount that Elizabeth would be able to contribute.” But DeCharles said that the decision to have Elizabeth be a stay-at-home mom could actually work out, given the potentially high care costs for four children. In case of an emergency, Keith said he can obtain $22,000 he’s already paid toward his home-equity loan, rather than having a more traditional cash account. But DeCharles would like to see the couple have substantial cash savings to protect against the event of an emergency. “Money that you’ve put towards a home equity loan isn’t an emergency fund, because you’ll eventually have to pay it back,” she said, “They should have enough cash to cover them if someone were no longer working.” Ample life insurance policies covering both Keith and Elizabeth would also be good, she added. Finally, DeCharles said that the couple’s goal of a new home could entirely change the retirement equation. “Depending on how much house they want to buy, it could really take a chunk of their retirement income,” she said. “They need to make a decision: do I want my money to be in a house, or do I want to retire at 60 rather than 65?” –By Rob Kelley, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.comAges: George 39, Wendy 33 Retirement accounts - IRA and 401(k): $263,000 Getting on track to becoming a millionaire is a great feat. Getting there with a family of seven children is a testament to serious planning and determination, and George and Wendy Cicotte of Kennewick, Washington are on the way to making it happen. The Cicottes have seven kids ranging from 4 months (not pictured) to 15 years old, and they expect to have at least one child in college every year from 2009 to 2029. Despite the expense of raising children, the couple is on track to beat the millionaire mark, thanks to George’s thriving law firm and a dedication to regularly socking away money. George owns his own practice in Kennewick. Last year he earned $175,000, of which the couple put $25,000 into their 401(k) and IRA accounts. The Cicottes expect their investments to appreciate at 9 percent annually, which would put them over $4 million by the time George retires. Coming out of college and graduate school, the couple was saddled with big student loan debt. George says they owed $13,000 from their undergraduate education and $30,000 from his law school, all of which they’ve paid off. Their mortgage is their only other debt, and they expect to pay off the $100,000 balance in seven years. The Cicottes say their Mormon faith has been instrumental in keeping them disciplined financially–the tenets of the religion encourage the minimizing of debt. You could say it’s easy to become a millionaire on a salary of $175,000 per year, but then you have to consider education costs for seven kids. The Cicottes believe that a combination of affordable schools and income from their kids will reduce the financial dent. “We believe that if the kids have to contribute a portion of their tuition, they’ll appreciate their schooling more,” George says. But he admits that his lack of a tax-advantaged 529 college savings account is a potential hole in his financial planning. The couple took a big risk when George launched his solo practice five years ago, but they took steps to protect themselves. They saved up enough money for a whole year, anticipating that they’d have to live off savings. George’s business did better than expected, however, and money was not as much of a concern. The Cicottes plan on drawing $200,000 per year from their retirement funds starting in 2027 when George turns 60. They want to increase it to 5 percent per year after that. George would also like an extended vacation before he turns 60–a six-month sabbatical where he could hand over the reins at work. “I’d love to travel someplace cool, or hike the Appalachian Trail as a family,” he says. Our expert’s take: The Cicotte family is on a path to very healthy retirement savings, said Frank C. Boucher, president of Boucher Financial Planning Services. But the need for college tuition for their seven children is coming up, even if the kids pay for the bulk of the balance. “If he’s going to do his college funding on a pay-as-you-go basis, he may not be able to maintain the contribution level that he’s currently using for his 401(k) and IRA,” said Boucher. Expenses are likely to drop a lot, however, once the kids cycle out of the house and complete college, so George could eventually put away even more income. Cicotte currently invests the bulk of his retirement savings in a target mutual fund designed for people retiring in 2045. He chose the fund because its allocation is more aggressive than one designed for people leaving the workforce in 2035. But Boucher said that, at George’s age, the family would be better served by a slightly more conservative fund. “If he really wants to put his investments on cruise control, he should go with a 2035 fund–it’s going to be less volatile,” said Boucher. Even the sabbatical is a realistic goal, given what George has earned so far, but he’s going to have to put away about half a year’s salary–or $80,000–to do it with complete confidence, Boucher said. The family’s emergency fund–$15,000 in a savings account– should be larger, Boucher said. He recommended having $50,000 on hand in case anything happened to George’s income. Overall, Boucher said this benefits lawyer and his family are on a very good path: “He’s done a very good job in planning his savings and can really have the best of both worlds in paying for his kids’ expenses as well as his retirement.” –By Rob Kelley, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com
Government Thrift Savings Plan: $107,000 Her friends say her commitment to her finances borders on obsession. Her neighbors may chuckle when she drops $400 on bulk detergent and toilet paper in a single shopping trip. But Jeanette Courts’ budget-minded habits have put her on track to becoming a millionaire. Courts, a 38-year-old single mother and information technology specialist at the Pentagon, has stashed away $113,000 towards retirement and has built up $190,000 in equity in her 3-bedroom townhouse in the Washington D.C. suburb of Bristow, Va. The road to financial security, however, was not always easy. After splitting with her husband nearly four years ago, Courts had to juggle a career, a mortgage, and her then-3-year-old son, Carlito. It didn’t help that she was thousands of miles from her family in Puerto Rico. “I had to believe in myself that I could do this,” she says. She’s looked for - and found - opportunities to minimize her expenses, such as buying clothes in the off season, bringing her lunch to work every day and buying everyday household items by the car load. Courts also puts pretax dollars into her flexible spending account to cover day-care costs, rides the bus to work from Bristow and takes advantage of free activities like going to the park or a museum. She’s also made an effort to put away as much as she can in her government Thrift Savings Plan, a federal employee’s equivalent of a 401(k). Courts is debt free and has $6,000 in her Roth IRA account and $10,000 in her ING Direct online savings account, which is earmarked for her son’s college education. If she puts in 30 years of service, her estimated gross pension payment during retirement would be $2,250 per month. Assuming she continues to stash away pretax dollars and that the Social Security Administration is still financially solvent, she is likely to have a solid income stream during retirement. Ideally she hopes to sell her home and join her extended family in Puerto Rico after she calls it quits. “I would like to be able to retire worry-free,” she says. Our expert’s take: Courts wants to retire when she hits 58. But if she can wait 4 years and continue socking away 15 percent of her pay, she’d have just over $1 million in today’s dollars in her Thrift Savings Plan alone, assuming an annual 8 percent return, says Gail Fialkow, a certified financial planner at Fairfax, Va.-based Capital Planning & Investments. By waiting until she’s 62, she also gets the benefit of a higher pension. And since Social Security benefits kick in at age 63, she won’t have to worry about digging too much into her retirement nest egg. Courts’ Thrift Savings Plan could also use some spring cleaning, says Fialkow. Instead of having a blend of large cap, small cap, international and a target retirement fund, she should simplify things by putting her entire account savings into a 2030 target retirement fund. Courts should also move her son’s college fund from an online savings account into a 529 savings plan, according to Fialkow. By shifting her money into a reputable 529, like Virginia’s CollegeAmerica plan, her savings would grow tax free and could be distributed tax free when it comes time to paying for her son’s tuition. What makes this 529 an even smarter move, says Fialkow, is that Courts would also be eligible for a tax break. Finally she should consider increasing her emergency cash reserve to $15,000 from its current level of $4,000, says Fialkow. Instead of stashing that money in a savings account, Fialkow recommends putting it into a Virginia tax-free bond mutual fund. The benefit, she says, is that Courts’ money would be sheltered from Federal and state income taxes without losing any of the liquidity of a savings account. The one downside, warns Fialkow, is that the fund is not FDIC insured. –By David Ellis, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.com
Age: Jerry 47, Lynn 46 Achieving financial security, let alone becoming a millionaire, was a distant dream for Jerry and Lynn Moser 14 years ago. At the time, the yet-to-be married South Dakota couple had battered credit ratings and virtually no savings. Lynn was working two jobs trying to pay down a high credit card balance, while Jerry, recovering from a drug and alcohol addiction, was earning just $6 an hour working in an appliance store warehouse. Recognizing how dire their financial situation was, the couple, neither of whom earned college degrees, began studying up on money management, learning the fundamentals of personal finance. While Lynn juggled her job and two daughters (now 20 and 16), Jerry logged 60- and 70-hour weeks, working his way up to his current regional sales manager position. Now the Mosers boast a combined salary of $106,000 and a combined net worth of over $300,000, and they say that their credit rating is in tip-top shape. “We went from disaster to success in a relatively short time,” says Jerry. What’s their saving secret? Nothing fancy, explains Jerry. The couple contributes 15 percent of their pre-tax income into their respective 401(k) accounts and $2,000 each into their Roth IRAs every year. They carry very little outstanding debt (other than the mortgage on their home), rely on coupons and research long and hard before making any big-ticket buys. The Mosers are confident they will reach millionaire status by the time they reach their mid-sixties. “The process is in motion,” said Jerry. “All we need is time for our money to compound.” That goal is well within the Mosers’ reach, and that’s not even including the equity in their home, says Lisa Kirchenbauer, a certified financial planner and president of the Arlington, Virginia-based Kirchenbauer Financial Management & Consulting. In fact, Kirchenbauer recommends they could even scale back some of the aggressiveness in their portfolio - which has large doses of international stocks as well as energy and real estate funds. A more diversified portfolio would better position them to weather a downturn. In addition, says Kirchenbauer, they should set a more ambitious goal . “I think to be able to have the comfortable retirement and especially to provide some inheritance, they will need to shoot for something more like $2 million,” says Kirchenbauer. To do that she recommends that the Mosers increase their retirement account contributions closer to the Federal max - $15,500 for 401(k) and $4,000 each for their individual Roth IRAs. Living in a relatively inexpensive part of the country and with their children almost grown, they have a lot of time to earn and save even more, says Kirchenbauer. –By David Ellis, CNNMoney.com staff writer Are you a millionaire in the making? Tell us why at millionaire@cnnmoney.comTo send a letter to the editor about Millionaires in the Making, click here. CNNMoney.com Comment Policy: CNNMoney.com encourages you to add a comment to this discussion. You may not post any unlawful, threatening, libelous, defamatory, obscene, pornographic or other material that would violate the law. Please note that CNNMoney.com may edit comments for clarity or to keep out questionable or off-topic material. All comments should be relevant to the post and remain respectful of other authors and commenters. By submitting your comment, you hereby give CNNMoney.com the right, but not the obligation, to post, air, edit, exhibit, telecast, cablecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comment(s) and accompanying personal identifying information via all forms of media now known or hereafter devised, worldwide, in perpetuity. CNNMoney.com Privacy Statement.
|
|
Ages: Frank, 43, Trudi, 42
| 
Ages: Justin 25, Emily, 28
Ages: 41 and 43
Since getting his degree in finance in 1991 from Old Dominion University in Norfolk, Va., he’s putting abstract concepts from his education - like asset allocation and the importance of compounding money - to work in the real world.
Ages: Keith 35, Elizabeth 40
Age: 38
