Jacqueline Jackson is part of the “sandwich generation,” a generation squeezed between the demands of their children and the responsibility they feel to their aging parents. She and her husband, Kim, both 37, have a household income of $85,000 and own a home in Powder Springs, Georgia. Jacqueline works as an underwriting consultant for Aetna Insurance Co. and Kim serves as a field engineer for Fuji Medical Systems. Whereas many couples in their situation fail to plan, the Jacksons have strong financial goals for their family, which include building an emergency fund (six month’s worth of living expenses) and financing a college education for their 8-year-old daughter Paris.
But when Jacqueline’s parents, who lived in Nashville, Tennessee, became ill, the Jacksons’ financial plans were sidetracked. “My mother was already in a nursing home, having suffered a stroke. My father, who had been living in the family house where I grew up, started having health problems. We moved him into assisted living,” says Jacqueline. “Because I am an only child, he deeded the house to me.”
Jacqueline’s father had begun renovating his home and was in the process of adding two additional rooms. In order to complete the project, the Jacksons secured a $39,000 home equity loan on the 40-year-old house, $27,000 of which was used to make renovations. The couple has since completed a bedroom, bathroom, and two-car garage. Since the home was paid for, Jacqueline planned to rent it out for extra income. The couple used the remaining $12,000 to pay off their credit card balances. In addition to their monthly mortgage of $928, they now have a $360 monthly payment on their home equity loan. Until they find a boarder, they must also pay utilities on the family home. Another added burden: Jacqueline’s father’s $7,000 car note. “To reassure my father that he wouldn’t spend all of his Social Security on his living expenses, we took over the loan on a new truck he purchased last year,” says Jacqueline, whose mother passed away in October 2002.
Further complicating matters, the home repairs have actually cost $39,000, which means the Jacksons have a $12,000 shortfall. Jacqueline says she may have to dip into her father’s savings for half the money and will sell her stock options, which are valued at $3,700, only if she absolutely has to. She is adamant about not borrowing against her 401(k), which is currently valued at $12,000. She has $3,700 in stock options, a $1,195 stake in an investment club, and shares of Home Depot and Aetna stock that are valued at $1,000. Kim has almost $15,000 in his company’s profit-sharing plan, but he won’t be fully vested until August 2003.
“We have two households to take care of,” says Jacqueline. “Like most people, family circumstances took a toll on our finances.”
THE ADVICE
To help get their financial plan back on track, BLACK ENTERPRISE asked Sterling Laylock of Atlanta-based Sterling Financial Advisors to consult with the couple. In addition to suggesting that the couple add their $2,000 contest award to their emergency fund, which has dwindled down to $4,600, Laylock recommends the following:
OBTAIN AN INTEREST-ONLY MORTGAGE
The couple’s first mortgage of $126,500 has an 8% Adjustable Rate Mortgage (ARM) rate. The home equity line on their inherited home has a 9.5% ARM rate and a $39,000 balance. To maximize their wealth, the Jacksons will have to faithfully make payments on their first mortgage and home equity loan (currently $928 and $360, respectively, per month) until August 2003, when their credit score should improve enough for them to refinance both loans to interest-only mortgages. Interest-only mortgages
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allow borrowers to pay interest, but no principal, through the life of the loan, which is usually 15 years. The result: lower monthly payments. Should they meet the credit score requirements for this option, the Jacksons’ two mortgage payments will total approximately $690 per month. The downside to an interest-only mortgage? If the Jackson’s property lost value, they would have to make up the loss against the original mortgage if they wanted to sell the property (but they’d have to do the same with a traditional mortgage).
USE POSITIVE CASH FLOW TO INCREASE SAVINGS
If they are able to reduce their total mortgage payments from $1,448 to approximately $690, the Jacksons will have positive monthly cash flow equal to $758 (or $9,096 per year). Were they to invest that money at 8% over the next 20 years, the value would be $551,000. This would enable the Jacksons to begin contributing $250 a month to a Roth IRA and to add to the 529 college savings plan they opened for Paris in September 2002. They could also contribute regularly to their savings account. Laylock suggests that when the Jacksons refinance their inherited home this summer, they should take out additional funds to eliminate Kim’s $16,000 student loan, Jacqueline’s father’s $7,000 car note, and any remaining home-repair costs.
RESTRUCTURE INSURANCE
The couple is paying $1,535 annually for a $539,000 insurance policy for Jacqueline, a $321,000 policy for Kim, and a $20,000 policy for Paris. They should reduce those costs by getting a combination of permanent and term life
DRAFT LIVING WILL AND OTHER LEGAL DOCUMENTS
The Jacksons only have a simple Power of Attorney to protect Jacqueline’s father’s wealth, which she can inherit. In order to avoid probate and its inherent financial costs (court costs, legal fees, travel expenses, and time off from work), Laylock suggests that the following legal documents be prepared by an attorney: a Pour-Over Will, which identifies any assets outside of your Trust; a Living Will, which outlines your wishes should you be placed on life support; as well as a Durable Power of Attorney for Healthcare and a Durable Power of Attorney for Assets, which designate medical and financial decisions for you. BE
Winner No. 36 Jacqueline & Kim Jackson
Financial Snapshot:
HOUSEHOLD INCOME
|
HOUSEHOLD INCOME |
|
| Gross Income | Â $85,000 |
|
ASSETS |
|
| 1st home | $145,000 |
| 2nd home | 125,000 (Market value after improvements are completed) |
| Personal items | 29,000 |
| Retirement plans | 27,611 |
| Autos | 25,000 |
| Stocks | 5,915 |
| Savings | 2,900 |
| Total | $360,426 |
|
LIABILITIES |
|
| 1st Mortgage | $124,009 |
| Home equity line | 39,000 |
| Student loan | 16,000 |
| 2nd home repair costs | 12,000 |
| Auto loan | 7,000 |
| Total | $198,009 |
| Net Worth | $162,420 |
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