The Coulters purchased a home in early 2007 after returning to Washington state from a yearlong job relocation in Texas. They have a 30-year fixed rate mortgage at 5.875 percent, and have a significant equity stake thanks to a large down payment and continued appreciation in the healthy housing market of the Pacific Northwest.
Their only other debt is a car loan at 3.74 percent that is scheduled to be paid off in another year.
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Pete and Linda always pay their credit card balances in full, utilizing credit card reward programs to net additional cash from routine household expenses.
Because Pete is the sole breadwinner, a larger-than-usual emergency savings cushion is prudent. They have this, to the tune of nearly 11 months' worth of expenses, as well as an open home equity line of credit without a balance. Linda uses Bankrate.com to shop around for the highest yielding money market accounts to hold their emergency savings. Regarding the line of credit, Linda says, "If we waited until we needed it, we wouldn't be able to get it." Good thinking.
Although they are good about saving, they have never created or used a budget to track monthly expenses.
Linda has educated herself on many investing concepts and they both definitely buy into the notion that retirement savings should be a priority.
In fact, Linda and Pete place retirement as their top financial priority. Linda recites an often-used expression that, "Your kids can borrow to go to college, but you can't borrow money for retirement."
Linda and Pete put themselves through school and feel their children should be largely responsible for their own educations. Although they're not going to sacrifice their retirement dreams for the kids' college, they do want to help them with the cost. To that end, Linda has opened Section 529 college savings accounts for each of the children and funds both accounts with regular monthly contributions.
Once retired, both will qualify for Social Security, but neither will receive a pension of any sort. Therefore, the burden of retirement savings is squarely on their shoulders.
Pete began contributing 10 percent of his gross pay to his current employer's 401(k) as soon as he became eligible earlier this year. A rollover IRA housing the 401(k) from Pete's former employer is entirely in cash, an oversight that Linda knows needs to be fixed.
They each contribute to an IRA, doing so after year-end when filing their taxes. Although Linda has long contributed to an IRA, Pete has just begun contributing in the past few years. Some years he has contributed to a Roth IRA, and some years to a traditional IRA. They are eligible to make Roth IRA contributions, but are unlikely to get a tax deduction for traditional IRA contributions in this or future years.
They have two term life insurance policies on Pete, the smaller of which will expire next year and the larger that has eight years remaining. However, even this policy will expire while the kids are in high school and a large mortgage balance remains. Therefore, Pete and Linda should look at a term policy that would extend coverage at least until the kids are grown, and perhaps even a few years beyond just as a protection for Linda as she does not currently plan to rejoin the work force.
Pete has disability insurance through his employer that, coupled with a Social Security disability benefit, would carry the household in the event he was unable to work.
One aspect they will also need to address as they prepare for retirement in the years ahead is health insurance, particularly during the years before they become eligible for Medicare. The reality for many people is that health care is as much a part of retirement planning and financial security as an investment portfolio. |
