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Family Planning : For the Wongs, Less Can Be More

December 17, 1996|DEBORA VRANA

Some people guide their lives by money. Others try to satisfy more spiritual needs.

Then there are John and Ling Wong. They've made a religion out of saving.

"We're always broke, because we are saving so much," said John, 41, a budget analyst for an aerospace company. "We used to ski on weekends and go out to dinner. Now for fun we go to the park across the street."

The couple save 14% of their pretax income, far more than the 4% to 6% that most Americans save after taxes, according to government data. And the Wongs are saving some after-tax income too.

But their unusually high level of savings has been a source of friction between the San Gabriel pair. John considers himself an aggressive investor and wants to save more. Ling, 36, an auditor, says she is a conservative investor and wants to spend more.

"I feel like I'm being choked here," Ling said. "What if I die tomorrow? What then?"

Certified financial planner Richard P. Moran has some advice for them that might sound surprising.

"The Wongs are saving too much," Moran said. "Given what they already have, the Wongs can reduce the amount of yearly savings by about $4,000 and still reach their objectives."

Those objectives are:

* They hope to send their son, Nathan, now 22 months old, to a private college--a cost estimated to be about $200,000 in today's dollars by the time he's ready. John, a graduate of USC and Ling, who went to Wellesley in Massachusetts, said education is their No. 1 priority.

* The Wongs would like to have another child but are worried it would be too expensive.

* And finally, the Wongs want to retire early, by the time John is 58, with $1.5 million in hand.

"This is the classic family squeeze," said Moran, a planner in Palos Verdes Estates. "How does a two-career couple plan for an early retirement and put one or two of their children through private school?"

John and Ling, who have been married nearly six years, make a combined $102,000 a year. They have amassed $281,800 in investment assets, which include real estate equity in an income property, the value of what they've been putting into their 401(k) accounts and $25,000 in additional savings, which does not include $3,000 in their monthly checking account.

Besides those accounts, the Wongs also have $7,000 in an annuity for Nathan's college fund and $3,000 in his 40-year gift trust, in which they put $100 every month.

They have a $200,000 three-bedroom home in San Gabriel on which they owe $170,000. They also own a $185,000 three-bedroom home in Lawndale, on which they owe $41,000. They have a 1986 Mazda that is paid for and a 1994 Buick on which they still owe $7,000.

They live very simply. Their monthly take-home pay, which does not include rental income from the Lawndale home, is $4,300. The couple have about $3,800 in regular monthly expenses, including $540 for child care. The Wongs can't seem to account for that remaining $500.

"For people at this income, the money that gets away is typically $500 to $1,000 a month--it's very common," Moran said.

Now, how can the Wongs achieve all their goals but save less, as Moran suggests? First, he said, given that they have amassed an investment portfolio of $281,800, the Wongs are currently saving what they need to in order to retire easily in 17 years and still provide private schooling for two children.

If the couple continue saving as they are and continue to obtain the 8.3% overall return they expect to earn on their portfolio this year, they will easily have almost $1.8 million in today's dollars in 17 years, when they want to retire.

But the Wongs need not save that much to meet their goals, Moran said. If they can boost their portfolio return to 10% per year, sell the Lawndale property, and reduce the amount of pension 401(k) savings to 10% of pretax income from 14%, they could actually have more when they retire, and they would also free up funds to pay for private elementary and secondary education as well as private college for two children, Moran said.

"Finding the right amount to save is a common problem," Moran said. "Most people underestimate what they need for retirement, but others, like the Wongs, can save too much and not enjoy the present as much as they could."

As for having a second child, Ling is right to worry about the expense, Moran said.

Considering food, housing, clothing and education, rearing a child from infancy to age 17 costs a working couple in the Wongs' income bracket more than $211,000, according to a recent report by the U.S. Department of Agriculture. Besides, child-rearing expenses are highest in the urban West.

But there's a bit of good news in those statistics: Studies show that the cost of rearing a second child is less than for the first. According to the Agriculture Department's recent study, a second child, on average, costs 24% less. None of this is to say that each child won't add significantly to a couple's overall expenses, of course.

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