Big family tackles big bills

The Baltimore Sun

Six children - all living at home at least part of the year. Thousands of dollars in college loans and credit-card debt. Variable income dependent, in part, on a declining real estate market.

Is it any wonder Rita and Bob Groark are feeling financially stressed?

"I am slowly going broke, and I worry constantly how I am going to pay my bills every month," Rita, 52, said. "It is just incomprehensible that between the two of us we bring in $7,000 net income per month and we still cannot pay our bills."

Like a lot of couples with older children, the Groarks are wrestling with helping their children pay for college right at crunch time for building their nest egg for retirement. They have been walking such a tightrope that some unexpected twists - like $2,200 in dental bills and a work interruption for Bob last year - have boosted their spending beyond their income, leading them to take on more debt.

But, if they can put some difficult limits on spending and redirect that money toward retirement, their goals might not be out of reach.

Rita, a detail-oriented legal assistant for a large Chicago law firm, keeps scrupulous household finance records at home, so the problem is not ignorance about where all the money is going.

Rather, it is simple math, said Derek Lenington, a financial planner with the Financial Planning Place in Los Angeles, who agreed to help the Groarks modify their finances.

Supporting eight people - six of them adults - is simply unsustainable, he said. The couple's children are Martin, 24; Mary, 23; Colleen, 21; Michael, 19; Teresa, 17; and Dennis, 13. Colleen and Michael are away at college but come home on school breaks. Mary is living at home, working part time and attending community college. Martin lives at home and works full time.

The adult children, including Colleen and Michael, pay many of their own expenses and a portion of their college tuition bills, but Rita and Bob have tallied up college loans of $22,000 and incurred $59,500 in other debt as they struggle to pay some of the college bills and other household expenses.

A setback came last year as Bob, 56, wrestled with a health scare and lost some time from his work as a real estate agent. That absence meant a lower income, and the softening real estate market is no comfort.

In short, it's time for a family meeting, Lenington said.

But first, he said, Bob and Rita need to address some of their own money issues with each other.

"Rita has been doing a fantastic job managing the family's finances and contributing to her employer's savings plan," Lenington said. In fact, Rita encourages her young co-workers to get into the plan as soon as they're eligible, because she has seen how it grows. Her account is worth nearly $250,000.

But the couple needs more of a team effort when it comes to dealing with their money, Lenington said.

Their system of having Rita guide all household budgeting has left her feeling overwhelmed, and it makes Bob withdraw. During the makeover process, in fact, Bob revealed he has an additional $5,000 in a checking account that Rita didn't even know about.

Both spouses agree something needs to change. While Bob said it's going to be difficult to not provide as much for their older kids, he reluctantly agreed to start setting some limits.

"We probably should have done something about this 10 years ago," he said. But Lenington told them it's not too late to make a difference in how - and when - they'll retire.

Lenington urged the couple to agree on what they'll be able to pay for in the future, and to tell the children upfront about the new expectations. At a minimum, they should set a dollar limit on their contribution to college tuition, stop paying for miscellaneous expenses for adult children (like car repairs) and charge rent for adult children not in school but living at home.

Next, with three children in college and two more to go, the couple needs to start working more aggressively with college financial aid offices to take advantage of as much help as possible, Lenington said.

The couple has also been investigating the idea of hiring a college funding specialist to maximize their chances of receiving aid and loans. That is fine, Lenington said, but he encouraged them to interview two to three experts before committing. Find out exactly what services the experts will provide and how much they will charge, he said. Given the fact that the family is knee-deep in college costs and doesn't have the luxury of years to save, investigate exactly how much the advisers will be able to do, he said.

Once the college and children's expenses are reduced, Rita and Bob should redirect that money for retirement, Lenington said. He wants Rita to boost her 401(k) contribution from $11,000 to the maximum $15,500, plus a $5,000 catch-up contribution because she's older than 50. The additional $9,500 a year will add another $150,000 to their retirement accounts in 10 years, given an 8 percent return.

He also recommended Rita rebalance her 401(k), which has become heavily weighted to small-capitalization stocks in the recent bull run for smaller companies.

As for Bob's individual retirement account, he should contribute the maximum allowable contribution this year and try to pay off the credit-card debt incurred during his illness last year.

Then, next year, he should open a simplified employee pension IRA for self-employed workers, which will allow much higher contributions as he approaches retirement age. His minimum goal for 2008 savings: $10,000.

The adviser also recommended Rita liquidate an IRA and a stock-fund account held at a brokerage and move them to a low-cost mutual fund supermarket with minimal fees. Invest those funds in a target-date maturity fund that automatically rebalances, he said.

So what's the bottom line? Will the couple be able to retire, as they dream, when Rita is 62?

Without big changes, no, Lenington said. Continuing with their current level of savings will mean retirement at least four years later, he predicted.

Retirement at age 62 is possible, however, if Rita contributes the maximum allowable amounts to her retirement accounts beginning this year and continuing until retirement. Bob would also have to contribute $5,000 for the 2006 tax year and for 2007, as they get their debt down, and then at least $10,000 annually in a SEP-IRA until 2016, Lenington said.

To do all that, they'll have to rein in spending and keep their income up to previous levels, despite the real estate downturn.

Both of those might be difficult, but Bob has another plan.

"I'll probably never retire. I can't stay at home, because Rita would kill me," he joked.

Janet Kidd Stewart writes for the Chicago Tribune.

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