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Wanted: It All

Couple Must Learn to Set Priorities, Stay Committed to Investing

May 13, 1997|HELAINE OLEN

Brooke Lawrence and Michael Reed have lots of plans for their money. At the moment, however, their checklist, which includes everything from a healthy retirement nest egg to a new kitchen sink, remains more of a wish list.

"Obviously, we are going to have to win the lottery or practice delayed gratification," Lawrence said with a laugh.

Delayed gratification is difficult for this kinetic couple. Lawrence, 34, and Reed, 28, met and fell in love last year while biking in the California AIDS Ride. Within months, they had purchased a $216,000 Sherman Oaks home together and began planning for a summer 1999 wedding.

They quickly began making other plans too. Lawrence and Reed want to renovate their house, buy new bikes and make monthlong jaunts to visit Lawrence's sister in Saudi Arabia and Reed's family in Australia.

Reed, a scientist in a postdoctoral research position who has lived in the U.S. for a relatively short time, is still a little perplexed by what he considers a peculiarly American preoccupation with money.

"Money is much more important here," he says. "In Australia, as long as you're getting by and have your mates, it's all fine."

Be that as it may, Reed and his mate--a freelance TV commercial production manager whose income can vary--are determined to increase what they're putting aside for retirement because they are keenly aware that they need to begin investing now if they expect to maintain their current lifestyle in retirement.

Carol Akright, a certified financial planner with offices in Los Angeles and Albuquerque, says the most important decision Lawrence and Reed need to make is to set priorities for their many goals.

"You can do all the things you want to do, but the important thing is when you do them," the planner told them.

Simply put, the couple's wants outstrip their income and assets. Lawrence earns between $80,000 and $90,000 a year; Reed brings in $30,000.

Lawrence's assets include $10,469 in an individual retirement account invested in Fidelity's Contrafund growth-stock mutual fund (five-year average annual return: 17.7%), and $2,100 in another IRA in a bank money market account. She has $3,700 earmarked for travel and emergencies in a Schwab One money market account and about $2,000 in two individual stocks.

Lawrence has followed a somewhat eclectic approach to individual stocks, with decidedly mixed results. She purchased 60 shares of long-distance phone company Worldcom Inc. at $8.125 in 1994; the stock is now trading at about $26. She bought 100 shares of Koo Koo Roo Inc. at $8.56 after enjoying some of the restaurant chain's chicken, but that stock is now trading at about $4.

Reed has only a few hundred dollars in his savings and checking accounts. There is $550 in his 403(b) retirement plan, which is invested in a money market account.

Their monthly mortgage bill of $1,779 is a steep increase from what they had been paying in rent, and they usually add an extra $50 a month in an effort to pay down the principal on their loan faster.

Since purchasing their home, in which they have virtually no equity, they've cut back on everything from dinners out to private sessions at the gym with a personal trainer.

The couple know they are in a bind and that they will have to do something about it sooner or later.

"We're spending a lot of money for kind of a boring lifestyle," Lawrence admits.

Akright's assessment of the situation? The couple need to think hard about how they are spending and saving if they expect anything to change. A look at the numbers proves the planner's point. The couple are spending a little more than $6,100 a month and saving $1,125. After taxes--which include self-employment taxes such as the Social Security and state disability Lawrence must pay--"it's likely a wash between after-tax income and total expenses," Akright says.

The couple may find they'll have more leeway in a year or so. Reed's postdoctoral position will terminate in the summer of 1998. He hopes to get a job with a biotechnology firm in a position that would pay $50,000 to $60,000 a year.

But Akright urged the couple to think about their situation as it is today and to choose among three courses of action:

* They can make an immediate sharp reduction in their living expenses, saving more of their money so they can reach all their goals eventually.

* They can stop saving for retirement until Reed's income increases. That will make a difference to their retirement savings in the long run, but, because they are relatively young, if they resume saving as soon as possible, they should be all right.

* They can permanently scale back on their more ambitious plans, such as remodeling their home extensively and traveling frequently.

Akright favors a strategy combining the first and last options. It's simply unwise not to save for retirement if you possibly can.

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