$130,000 in employer-sponsored life insurance, only recently did Tonia get $50,000 in coverage.
Though they say they are not where they expected to be at this stage of their lives, Ken says, “Weâ€™re people of faith. Whatâ€™s happened has given us an opportunity to learn.”
Financial Snapshot: Ken and Tonia Chambers Kansas City, MO
Kathy Williams, president of Williams Financial Services Group in Oklahoma City, reviewed the Chambersâ€™ finances and came up with a plan to get them back on track:
Hold off on starting a business. Ken will need to face the reality that there is no way he should retire at 60, says Williams. Conventional wisdom is that one should build a nest egg large enough to produce at least 80% of pre-retirement earnings.
“Currently, Ken is putting $530 a month into his 401(k), but $400 is being paid toward a 401(k) loan with a balance of almost $25,000,” says Williams. He has about $177,000 in his 401(k). If Ken retires at age 60, in order to have an after-tax monthly income of $2,500 (80% of pre-retirement earnings), adjusted for 2% inflation, he will need to generate $2,601. If he continues to contribute to his 401(k) at current levels, assuming a 9% annual return, his account would generate monthly income of only about $1,400. In order to make up the shortfall in just two years, Ken would need to make additional contributions of $213,906.
By waiting until age 62 the numbers change in his favor. Adjusted for inflation, his recommended target for after-tax monthly income is $2,706. Assuming the same rate of return, he could draw $1,701 from his 401(k). Heâ€™s also eligible for approximately $1,300 in Social Security benefits. These sources, minus estimated taxes of $384, would provide him more than $2,600 each monthâ€“much closer to the target of $2,706. To get there, Williams says Ken will need to save at least $60 more each month in his 401(k).
Make investing a priority. When the Chapter 13 repayment is over, those funds should be used to increase Toniaâ€™s retirement savings. She just started with her employerâ€™s plan and has about $2,300 in her account. It will take saving approximately $643 per month at 9% in tax advantaged plans to meet the goal of having 80% of her pre-retirement income by age 65.
Donâ€™t tempt fate. “If Ken or Tonia were to pass away, both would want to provide the other with a yearly income supplement to their current earnings to handle living expenses,” says Williams, “but theyâ€™re not set up to do that.” Ken needs at least $355,000 in life insurance coverage to handle debt repayment, education, and provide additional income. Tonia needs an additional $258,000 of life insurance. “Purchasing a 10- to 20-year term policy will meet their needs and their budget,” says Williams.
Study up on scholarships. Williams doesnâ€™t want to see the Chambers delay their goals in order to provide for their sonâ€™s college education. She recommends they review scholarships and work study options to lower their financial obligations. Williams suggests