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Wall Street, California | MONEY MAKE-OVER / Southern
Californians Learning How to Succeed in Personal Fiances

Can Bachelor's Salary Support Sudden Family?


Richard Rosenthal dropped the bombshell on his financial planners in much the same way that his girlfriend had dropped one on him:

I'm no longer the carefree bachelor, flush with cash, that I told you I was a few months ago, he confessed to two financial planners who agreed to review his finances for The Times. I need to buy a house because I'm having a baby, getting married and worried about my new family's lifestyle and financial prospects.

Rosenthal, a 43-year-old vessel planner, says he's still in a state of shock. Even though he has known about his girlfriend's pregnancy for several months, he couldn't bring himself to talk about how it might change his lifestyle.

"I was so undecided about my finances to begin with, and now I was totally lost," he said. "I didn't know how to adjust my budget, what to do, whether we were going to get married, live together, the whole thing."

American Express planners Jo Ellen Nevans and Jeffrey Hilliard were nearly as shocked. When Rosenthal volunteered to participate in a Money Make-Over a few months ago, he presented himself as a free-living bachelor with loads of discretionary income.

His main concerns were learning whether he was on track with his retirement savings and whether his money was prudently invested. His biggest dilemma was deciding whether to buy a home to reduce his income taxes or simply remain in his modest, $650-a-month apartment in Long Beach, where he was perfectly content.

Now, the planners had to go back to the drawing board with a new mission: Figure out a way Rosenthal could support a wife and child, buy a $350,000 home, accumulate savings for his child's eventual college expenses and boost insurance coverage. Rosenthal would like his future wife to have the option of staying home with the baby. Yet he doesn't want to derail his retirement plans either.

As Nevans and Hilliard mapped out these new goals, Rosenthal became overwhelmed by the thought of the mounting expenses and wondered whether his fiancee should quit work entirely.

"Maybe she could work part time at home," he offered tentatively.

Not to worry. Much to his astonishment, the planners told Rosenthal he can have it all, even on one income.

"You mean I can still save for retirement too?" Rosenthal asked. "Will we have enough money to go out to eat? Or go on vacation?"

Yes, yes and yes, Nevans and Hilliard responded.

Rosenthal has a couple of aces in the hole, including a high salary and a fiancee with resources of her own. (Rosenthal's fiancee didn't want her name used, partly because she hasn't yet shared the news with her boss.)

Two years ago, Rosenthal became a member of the International Longshore and Warehouse Union Local 63. His wages nearly tripled as a result, to more than $100,000.

"It's like winning the jackpot or lottery," he said. Rosenthal describes himself as frugal but did celebrate his sudden prosperity by buying a Porsche Boxster.

Assuming that Rosenthal buys a home, next year's tax deductions could help him support a family without changing their standard of living or savings rate, Nevans said. The tax deduction for mortgage interest would total about $22,000, while exemptions for Rosenthal's wife and baby would create $5,600 or more in write-offs.

So Rosenthal's federal tax liability is projected to drop from the current $26,500 to $12,000, boosting his cash flow by more than $1,200 a month.

Nevans advised Rosenthal to consult with a tax expert about withholding the right amount of taxes from his wages. An expert could also determine whether Rosenthal and his fiancee would reduce their taxes by getting married this year, when their earnings would be combined, or by waiting until 2001, when they would be relying on Rosenthal's earnings alone.

Taxes won't dictate the timing of the marriage, Rosenthal said, but medical insurance might. He and his fiancee would like to marry before the baby is born so she can quit work. If she quits after they're married, she could be added as a dependent on his health insurance and the childbirth expenses would be covered.

Though some couples feel strongly that marriage should precede the birth of their first child, regardless of financial factors, Rosenthal said that wasn't an important consideration for him. They're very much in love, he said. Since meeting in late 1998 during a singles' ski trip at Mammoth, the couple have spent nearly every weekend together. They're not particularly traditional.

"I know you're supposed to get married, buy a house, have a baby," Rosenthal said. "We're kind of doing things in reverse order: have a baby, buy a house, get married."

Nevans and Hilliard's conclusion that the couple can have it all is based on many assumptions, some of which involve the finances of Rosenthal's fiancee. She, like Rosenthal, has been saving for retirement in a 401(k) plan.

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