Financial Planning

Debt Management and Retirement Planning
It is very important for Howe to pay all their debts and free themselves of the liability since a lot of loan like credit card loan, car loan, student loan, are hampering Howes to save up more. If they have plans for retiring in 22 years, they need to free themselves of all the loans and credit they have on them, thus saving up the interest money that goes out monthly. They can use that money for other expenses and purposes. In short term they might feel like they have lesser funds but they can have the relief that they don’t own anything to anyone and focus on saving for their future. There will be one more debt addition because of Pat’s college education, so it’s better they slowly focus on paying off the loans first and then proceed to making progress with the savings once the loan of Pat is also paid off. Since the additions of newer debts will again make them stuck in a loop of being more in debt to pay off the existing ones. It’s better to get rid of debts in the first place. This will also help in saving up the money, they need for retirement due to interest payments on loan and secondly, because they can solely focus on the saving part as well.
Once the debt is paid off, they can become more financially stable and can make decisions independently. They can direct themselves to other goals since there are so many premium payments of insurance, monthly expenditures and future considerations like retirement plan.
Even previously they weren’t able to pay the bank, for which they had to make a short-sale on the house they were living incurring a loss because of which they had to move to a rental place. Getting into debt and accumulating more debt over the years creates a never-ending spiral and drastic measures such as these has to be taken in desperate times.
Education of children is getting expensive with the passing time and corporations are requiring competitive degrees for the jobs they are offering. Since Brett is still in his sophomore year with not that much earning and a credit card debt and PAT can’t have that scholarship he was striving for before, they need to save up for their children and have more free funds available to assist them with their expenses along with the education since they currently get $225 and $100 respectively.
The college tuition fee has witnessed the highest price hike till 2014 compared to all the other consumer services of about 260% than 120% on other items.[footnoteRef:1] Which shows that the hike hasn’t stopped and can grow more, so it’s very important for Howe’s to clear themselves of the debt and save up their interest money for their children’s educational needs while also assisting them to become more stable and independent in their lives. [1: Solution, I. D. (n.d.). How To Set Financial Goals: 6 Simple Steps. InCharge Debt Solution.]
Moreover, these saved up funds from paying off the liabilities can be used for investment purposes where Howe’s can get the returns, helping them with increasing their cash on hand for education, expenditures and so many other options, while also giving them chance to save it up for future purposes.
So paying off debts saves Howe from the spiral of taking more loans in the future to pay off the existing ones as economic condition might vary and Howe doesn’t have a lot of available funds to assist themselves in the time of crisis, while the college education fee and other expenditures adds up to more of a negative balance. It’s better for Howe to pay off the credit card debt and other loans. Since they can do so by cutting expenditures like moving to a smaller rental unit, it will help save them money to pay off the loans while they have available funds like saving account that can be used for this purpose.
Investment Recommendation for Retirement
It is recommended to Howe to transfer all the investment money i.e. 401Ks, IRAs to one Traditional IRA account. This is also known as IRA Rollover and has certain benefits attached to combining your retirement accounts to one Traditional IRA account. Firstly one account helps you direct your investments easier than having multiple accounts which creates a hassle. Secondly, you save up custodian’s fees by getting just one account as most custodians charge an yearly fees for handling the accounts’ withdrawal, contribution etc. Even the transaction fees reduces as having one account will help you have less total sales and purchases. IRA doesn’t charge taxes on the gains from the investment so whatever you earn or gain due to the investment with that amount, no tax will be levied on that, which again gives more room for investment and consequently, returns. Due to so many advantages of having one account and that too, traditional IRA, it is highly recommended for Howe to take this step. This will also free them up of the hassle of receiving emails and notifications and keep track of them in the future when they are old. Also helpful for the beneficiaries; Brett and Pat, to have easier access to account after the death of their parents.
The recommended fund for them to invest in is Vanguard Intermediate Term Treasury bond (VFITX) which has a steady annual return of 5.91% since 1991. Not only this, it also has a reduced risk of default since these bonds are directly issued by the government. The fees is lower as compared to similar bonds, because it gives a steady return with no default risk due to its backing by US or other linked governmental agencies. The only risk is of interest rate risk which causes the prices changes, but this form of investment is the most stable and sustainable in the future. This will ensure Howe a steady annual return helping them with their retirement plan.
For a little higher risk, investment in Vanguard Long-Term Treasury Fund Investor Shares (VUSTX) since it susceptible to more interest rate risk as it has a longer average duration. Again, assisting them in earning more returns on a long-term Fund that has a zero default risk rate.
It is also recommended for Howe to join the brokerage accounts assisting them with their financial goals. A joint tenancy brokerage account gives them more efficient options of investment where they can jointly use the account, being the accountholders of that account. It will also help them if any one of them passes away, the other accountholder gets the full authority of that account. Furthermore, it will be convenient to one account that is used for investment purposes and a single person like Chris or Dayna can make decisions for the entire account as well. Since both, Chris and Dayna have same financial goals, they can jointly use them to better utilize the opportunities and fulfil their goals.
These recommended investment options are necessary for them to attain financial stability in future, also ensuring those returns, cost and tax advantage. These measures mentioned above will help Chris and Doyle to secure their retirement tenure through efficient allocation of their assets while giving them cost effectiveness and lesser risk while providing them with effective and stable rate of return. A little risk is taken due to long term investment which will also have a slightly higher rate of return. It’s a sustainable and secure plan for Chris and Dayna’s future which will help them decide for their plans of buying, securing and other activities that they can use their saved up money for.
Future of Howe’s
Howe’s still have 22 more years to earn and save for their retirement plan, other than just investing. If Dayna manages to work as RNA; certified Registered Nurse Anesthetist, she can earn an average of 135k which is more than 4 times the amount she is earning right now, giving her more available funds to reduce the debt burden, invest and save for their future retirement plan. She still has got 22 more years for that earning which might increase in the future given the rise in income levels and economic factors. Since relocation to a smaller rental place can get Chris the job he deserves as currently in the place they are residing has only management level jobs for Chris. But since he’s getting a full vested 401K and also remain with the previous employers’ 401k, considering the opportunity cost of shifting the job should be taken in consideration. For the year 2018, there has been a wage increase of about 2.5%-3.1% ranging from private to government organizations.[footnoteRef:2] So accordingly, these are the estimates that might go up in the future increasing the annual salaries of Chris and Dayna, again giving them the chance to have more financial benefit. [2: Doyle, A. (2019, May 14). How much is the average wage in America. The Balance Careers. Retrieved from https://www.thebalancecareers.com/how-much-is-the-average-raise-in-america-4582795]

They can save the money not just for their daily expenditures after retirement but also for certain other things like experiencing any disease in the future and creating a trust for their kids, providing them with support for their future as their parents did for them through setting up a 529 Plan. This will help their future generations while if anything happens like a sudden illness, the amount can be covered through this saved up retirement amount. Since they’d be living in a small rental place, they can buy a house by paying the down payment from this saving. They can have a lot of ease and comfort because of a saved and secured future they create for themselves now through the following the above-mentioned step like paying off all their debts as early as they can through the available funds putting themselves off the burden while investing in better opportunities that can save up cost and have a promising rate of return with lesser risk. These returns can be saved up or re-invested with a tax free IRA, again assisting their financial goals.
Through Chris and Dayna, having better job opportunities, and a raise over time, they will have more opportunities to plan the retirement saving’s spending like any luxury item for example boat etc. The more funds they’ll have the better they can plan and allocate them for the things in future. They can have more control on their lives due to their financial well-being.
Retirement planning tends to be simple requiring lesser or no hassle so people can manage it well in the future as well while providing you with the peace of mind in the present, since it gives you the relaxation that you have planned and allocated funds for the future. The retirement plan given above is cost-effective and takes into consideration tax benefits, it is the optimal and effective plan that will help Chris and Dayna after they retire after 22 years. It’s better to have a plan as early as possible to direct the funds and process their allocation to investment opportunities to get a more clear and bright picture of the future.
References
Doyle, A. (2019, May 14). How much is the average wage in America. The Balance Careers. Retrieved from https://www.thebalancecareers.com/how-much-is-the-average-raise-in-america-4582795
Solution, I. D. (n.d.). How To Set Financial Goals: 6 Simple Steps. InCharge Debt Solution.