paying for their sons’ college educations. They haven’t started saving, but will likely sell property to help cover the tuition bills. They also aim to pay off at least four of their mortgages within the next 10 years so they can divert those payments to their childrens’ college funds.
But more immediately, the Olds are on a mission to come up with a better retirement savings strategy, pay off the $13,000 car loan for Corey’s 2001 BMW X5, and pay down a big chunk of the mortgage on their primary residence, which is an interest-only, 30-year adjustable-rate loan currently at 4.875%. The couple chose this mortgage to have smaller monthly payments over the first five years. “The rate changes in two years,” says Corey. “We want to pay as much as we can to reduce our balance so when the rates go up, it won’t be a big shock.”
The Advice
Walt Clark, a registered investment adviser and president and CEO of Clark Capital Financial in Columbia, Maryland, discussed the Olds’ finances with them. Highlights of his plan:
Buy life and disability insurance. Although the Olds have enough life insurance to cover current liabilities, excluding investment properties, Clark estimates that given the projected rise in college tuition costs, they would need at least an additional $400,000 in coverage. In addition to life insurance, because Corey is the sole income source, Clark says he should purchase a disability insurance policy to cover their household expenses in case he suffers an injury. For guidance on disability policies, visit the Insurance Information Institute Website, www.iii.org/individuals/disability.
Draft a will. Because the Olds have nine properties, it would be prudent to set up a revocable living trust. Under the current tax laws, any asset worth more than $1.5 million is subject to federal tax, which could be as high as 50%. This trust will enable his assets to be transferred to his beneficiaries and avoid probate tax.
Establish a college plan for children. Clark thinks the $2,000 contest winnings should be used to establish a Uniform Gift to Minors Act account. “I would use all proceeds from the contest toward the oldest child’s account, and if they have additional capital, establish an automatic investment account for both children through any mutual fund family,” says Clark. But because UGMA account balances are an asset of the child, as their sons approach college age the Olds should investigate whether the accounts should be transferred to avoid affecting financial aid eligibility.