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Getting a financial checkup
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June 23, 2000: 4:23 p.m. ET
The Miloffs have set some plans in motion, but are they the right ones?
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Checks & Balances runs weekly on CNNfn.com. People with questions about financial planning are invited to write in explaining their financial picture and short- and long-term goals. See the bottom of this article for specifics. For those selected, financial planners will review the details and suggest ways to meet those goals.
The Miloffs make a little more than $100,000 as a two-income, two-kid household. Eileen Miloff works as a clerk in a New York school district, while Mike Miloff is a telecom engineer.
"I feel as though we never have much cash on hand," Eileen Miloff, 49, writes. "It's clear to me that we don't have that much self restraint."
They have made substantial plans for retirement. Mike Miloff, 54, has around $80,000 in his 401(k) alone -- the exact amount varies with the market. He pays 10 percent of his salary into that and has a 3 percent employer match.
 On top of that, Eileen Miloff is building her 403(b) plan, putting in $160 every two weeks. They invest all their retirement money "pretty aggressively," according to Eileen Miloff, eschewing bonds. She also pays $400 into her credit union through work every two weeks. But they use that money to cover impulse purchases and vacations.
Situation subject to change
Mike Miloff, who is American born but of Russian descent, sometimes goes by his original Russian name, Misha. He works for a company that was recently taken over. That means that much of his compensation -- such as the bonuses, stock options and benefits he has received in the past -- is in flux.
He does have some options from his prior employer. It is hard to calculate what they are worth because he has yet to exercise them, and the figure changes with the ups and downs in the market. But they are likely worth somewhere between $150,000 and $175,000, minus the exercise price, according to Eileen Miloff.
They used to live in New York City and Mike Miloff still works there, but Eileen Miloff took a big paycut when they moved out to Goshen, N.Y., soon after they had kids. That's where they still live.
Saving for sons' education
Before they had children, Eileen Miloff managed to set aside $100 every two weeks in savings bonds. When Greg Miloff, their oldest son, was 4, Eileen quit her job and found another closer to home. She took a big pay cut and stopped buying the bonds. But they set that savings-bond money aside for Greg Miloff's future education.
Greg, now 17, will be a junior when school restarts later this year. The Miloffs expect that he'll go on to a two-year trade school or college. That, they think, will set them back around $10,000 per year. "But I may be in la-la land thinking that's what the final tab will be," Eileen Miloff said.
They have not set aside much for their other son, Andrew Miloff, 10. He and his brother both have small savings accounts from their birthday money and other gifts. The Miloffs put $50 for each son into the New York State College Savings Fund.
They have bought $150,000 in life insurance for Mike Miloff, on top of the coverage they have through his work -- which would pay one-year's salary. Eileen Miloff has $50,000 in term life insurance, on top of three times her annual salary through work.
Debt driving her crazy
They have 13-and-a-half years left on their 20-year mortgage. With insurance and property taxes, their home bill is $1,770 a month. They also have $530 a month they pay on a home-improvement loan and $170 a month in a home-equity loan.
They have unfortunately built up a balance of $3,500 on their credit card, but it charges a relatively low interest rate of 7.9 percent. Sometimes they end up adding to that, despite their efforts to pay off $200 to $300 of the debt each month.
"We just started carrying a balance at the beginning of this year," Eileen Miloff said. "It's really driving me crazy that we're doing this. That low interest rate makes it too easy to say 'charge it.'"
She has been thinking hard about their financial situation. It only recently began to bother her. "Where are we in terms of retirement?" she asked. "What more can or should we do for college funds for both boys? Do we concentrate on Greg, who will be headed for college in two years, or on Andrew, who is severely underfunded?"
What the planners say:
"They're in pretty good shape actually," said Russell Hall, a certified financial planner with SunAmerica Securities in Wichita, Kan. The Miloffs are in better shape than probably 80 percent of Baby Boomer couples, he said. "They haven't said anything that would make me run up any red flags."
The roughly $300,000 that they have in their retirement plans stand them in good stead. If they add $15,000 a year and assuming a conservative 8 percent return, they will have at least $876,000 to retire on, Hall says.
When it comes time to send Greg to college, the $12,000 they have saved in bonds will probably cover half of the two-year program the Miloffs envision, Hall said. Greg Miloff is in an excellent position, he said, because the demand for skilled technical workers is high. The $10,000 tuition bill that Eileen Miloff has in mind is probably accurate, Hall said.
Miloffs better off than they realize
Carol Lee Royer, a certified financial planner with Waddell & Associates in Memphis, Tenn., believes it will be less. She researched two-year colleges in New York and found that in-state tuition ranges from $2,200 to $3,900 a year. So if Greg Miloff stays close to home, he should be able to meet his expenses.
"You may be better off than you realized with Greg's college plans," she writes. She encourages the Miloffs to study the issue more carefully and scout around on the Web to get a clearer picture of the tuition costs.
In any case, recruiters are offering incentives to prospective employees, including signing bonuses and scholarships. So Greg Miloff should be able to pay back the rest of his education when he signs for a job, Hall said, even if he has to fund the rest of his education through student loans.
As a result, Hall said that the $100 a month that the Miloffs are splitting between their two boys should be directed only to Andrew. Again, with an 8 percent, conservative return, and adding $100 a month for eight years, the money will grow to a little over $15,000 by the time Andrew Miloff is ready for college, Hall said.
An index fund, to be more aggressive
Since that is not enough, Hall suggests that the family add an extra $200 a month as of now. "Andrew's situation is clearly more critical from a funding standpoint," he writes.
Royer agrees with Hall's $200 calculation. But she points out that they have some time to save. For example, the State University of New York-Binghampton charges $4,100 per year, according to their Web site, she points out.
Assuming Andrew, 10, goes there eight years from now, the Miloffs need to invest about $190 a month, Royer said, given the money they've already saved for him.
She encourages them to continue paying $100 a month into the New York State College Savings plan that they are already using. Because it is conservative, she said, the Miloffs should cash in Andrew Miloff's savings bond and invest it in a mutual fund.
They should pick an index fund, and TIAA-CREF has some with very low expenses, Royer points out. They should then try and pay $100 a month into that, she suggests.
Lose that debt, already
Hall says the Miloffs should pay off their credit card as soon as they can. They should also continue to pay it off at the end of every month if they can, according to the planner.
"Carrying a balance seems to really bother her [Eileen], and even at 7.9 percent it is nearly twice the prevailing savings account rate of interest," he points out. "They should keep the card, but not carry a balance."
Royer also said the Miloffs should attack their debt. She has some words of caution, considering that the Miloffs' cash seems to slip through their fingers.
They need to control their expenses. Mike Miloff also needs to get with an accountant to address his options, according to Royer. If they're unqualified options, he has to classify the difference between the exercise price and the market value as ordinary income. That would require planning on how and when to exercise them.
One way they can reduce their annualized gross income -- which the options would increase -- is to make sure they are maxing out their retirement plans, Royer continued. They should qualify for a Roth IRA each, too, since their combined AGI is less than $150,000.
Eileen Miloff is correct that they need to cut out their overspending, Royer says. She encourages them to break out what they have spent over the last six months to come up with a cash flow and budget. Royer believes they have around $10,000 in unexplained spending, according to the numbers they submitted.
"You are spending more than you make," she said. "If this continues, it will compromise your ability to address your savings goals for college and retirement."
They are in a good position, Royer said. But if they can eliminate this excess spending and turn it toward their debts, they could make it even better.
Without debt, "your flexibility and peace of mind increases. You have more options to increase your savings or enjoy life a little more, since you are in control," she said.
* Disclaimer
Got questions about financial planning? Need some advice? CNNfn.com has organized a panel of outside experts to answer your questions. If you want to be considered for the "Checks & Balances" column, where professional planners suggest ways you can manage your money, send us an e-mail at checksandbalances@cnnfn.com. Include information about your age, occupation, income, assets and monthly expenses -- imagine you're providing a full income statement and balance sheet. Also, share with us any short-term and long-term financial goals you may have. And don't forget to leave your phone number. 
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