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.
"Economies of scale really kick in with the second or the third child," said economist Mark Lino, the report's author, who said housing, buying in bulk, sharing clothes, better deals for child care and other economies of scale help reduce the cost of rearing subsequent children.
This was encouraging news to the Wongs, especially for Ling, who is more concerned about the financial hardship another child would bring. If they have a second baby, she said, she would go back to work shortly after it is born. She pointed out that her parents live nearby and can baby-sit at little cost.
Now to the question of schooling: How much will the Wongs need in order to send Nathan to a private university when the time comes?
Moran estimates the couple will need nearly $200,000 for four years. If they set aside $66,000 and can earn 10% per year on that sum, he said, they would have enough to fund college education for two children in 16 years. The $66,000 could come from the sale of their rental home.
This would be a better choice than borrowing from their 401(k) retirement plans to pay for college, Moran said. Although the Wongs were not seriously planning on borrowing from their 401(k)s, many couples do, and it's not always the best strategy, said Moran.
If the couple take Moran's advice and reduce their 401(k) savings to 10% of their pretax income from the current 14%, they could build up college funds now with the $4,000 a year they will not be putting in those retirement funds, or they could use the $66,000 from the sale of their income property.
The Wongs might consider investing the college money in a variable universal life insurance policy, Moran said. Under current tax law, the Wongs could make tax-free withdrawals to pay for college expenses, and, unlike a loan from a 401(k), the money won't need to be repaid.
"Education is No. 1 on our list," John said. "If Nathan makes it to medical school or something, we would work even longer and delay retirement if we had to."
To get their entire retirement portfolio into shape, the Wongs need to do some savvy investing. Both John and Ling are smart about money, as both of them spend their workdays analyzing budgets. But like many couples, they are sometimes at odds over money issues, such as the best method of investing. John says he is finished with single stocks because he lost money.
"I used to buy high and sell low," he joked.
"You used to give me a heart attack," Ling added.
Moran said this is common problem for couples. Frequent discussion and evaluation of their objectives will help them stay on track, and stay together, he said. They also need to recognize their different backgrounds. John, as the only son of a Chinese family, said he was reared to be more aggressive when it comes to money. Ling, the daughter of a Chinese family, was reared to be more conservative.
To get the kind of return they need for their nest egg to grow, the Wongs will want to consider more aggressive investing techniques yet satisfy Ling's need for safety.
The couple currently have too much of their assets in one place: real estate. They have $144,000 in equity in the Lawndale house and about $30,000 in equity in their San Gabriel home.
"With the rental house, my wife and I have a big disagreement," said John, who wants to keep the Lawndale house, which he bought in 1978 as an investment, and refinance it to take advantage of tax breaks.
Ling, on the other hand, wants to sell that house so the couple won't have the headache of tenants, and then invest in a variable-rate annuity.
Moran thinks they both are wrong.
He said the Wongs have made a mistake common to many investors: Instead of looking at their real estate, retirement funds and other savings as a whole, they have looked at individual pieces.
They should sell the rental house immediately, he said, and put the proceeds in their investment portfolio. That portfolio should be diversified and restructured so that 12% is invested in equity real estate investment trusts, 13% in international equities, 25% in large U.S. companies, 15% in mid-size U.S. companies and 35% in small U.S. companies, Moran said.
In addition, among other recommendations, Moran suggested that they move $8,500 they have in the relatively new Fidelity Hong Kong & China, a load fund (year-to-date return: 33.2%) and the $3,500 in the also new Fidelity Japan Small Companies (year-to-date return: -20.7%) into Fidelity Advisors Emerging Asia Fund, a closed-end fund selling at a discount to its net asset value.
Once they get their portfolio in shape, the Wongs need to turn to estate planning. Because they have roughly equal incomes and a child, they need more life insurance. Moran suggests they each get a $500,000 variable universal life policy, so that the money spent on premiums will go mostly into a tax-favored account, which can be drawn on for college expenses.
The couple also need a basic will, an appointment of guardian for children and powers of attorney for health care, he said. They should also consider a living trust.
So what do the Wongs get from their make-over? With a little tinkering, they get a portfolio that will enable them to retire when they wish and with enough to put one or two children through private college. Most important, they will have a more peaceful household as John is assured they are saving enough and Ling gets the spending money she wants.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
This Week's Make-Over
Investors: John Wong and Ling Wong
Ages: 41 and 36
Annual income from employment: $102,000
Occupations: Budget analyst and auditor
Primary investment goals: Save for retirement and to put one or more children through private college.
Stocks and Stock Funds:
$8,500 Fidelity Hong Kong and China
$3,500 Fidelity Japan Small Companies
$15,000 401(k) growth and income fund (Ling)
$53,100 401(k) growth and income fund (John)
$10,500 401(k) long-term corporate bond fund
Money Market Funds:
$34,200 401(k) money market fund
$6,000 Fidelity Money Market
Real Estate: Income home with net equity of $144,000.
Cash: $3,000 in bank
* If the Wongs continue current investing and saving practices, they should easily be able to retire in 17 years and still be able to provide private-school education for two children. However, following a different investment strategy would allow the Wongs to save less and live more comfortably yet still attain their goals.
* The couple need to put aside $365 a month at a 10% return to have enough for their son, now 22 months, to attend four years of private college. For a second child, they would need to put aside an additional $258 each month. Or they could take proceeds from selling their income property and invest it for this purpose.
* With 51% of their assets in real estate, their portfolio is too risky. The couple should sell the income property and restructure their portfolio so that 12% is in equity real estate trusts, 13% in international equities, 25% in large U.S. companies, 15% in mid-size U.S. companies and 35% in small U.S. companies.
* As a married couple with equal income and family responsibilities, they should draw up a basic will and increase their life insurance coverage to at least $500,000 each.
Recommended New Portfolio
Fidelity Emerging Asia (NYSE; ticker symbol FAE) ($13.75)
Templeton Emerging Markets Appreciation (NYSE; TEA) ($18.125 a share)
Take advantage of international account fund option in John's 401(k) when available in 1997
25% Large U.S. Companies
Growth and income fund option in Ling's 401(k)
35% Small U.S. Companies
Capital Guardian Trust Growth account option in Pacific Select Exec Universal Life Insurance Policy ( 800-7646)
15% Mid-Size U.S. Companies
Janus Capital Growth LT account option in Pacific Select Exec Universal Life Insurance Policy
12% Real Estate Equity Funds
BRE Properties Real Estate Investment Trust (NYSE; BRE) ($22.25 a share)
Cohen & Steers Total Return Realty (NYSE; RFI) ($16.125 a share) ( 437-9912)
How Much Does a Second Child Cost?
Estimated annual expenditures for a second child by husband-wife families with an average annual income of $84,800. Estimates are from a 1995 study by the U.S. Department of Agriculture and are based on federal Consumer Expenditure Survey data.
Annual Trans- Health Age Totals Housing Food portation Clothing care 0-2 $11,320 $4,520 $1,240 $1,470 $580 $560 3-5 11,540 4,490 1,400 1,440 570 540 6-8 11,500 4,420 1,690 1,550 620 620 9-11 11,430 4,230 1,960 1,620 670 670 12-14 12,270 4,440 2,060 1,730 1,120 670 15-17 12,550 4,050 2,170 2,100 1,010 710 TOTALS $211,830 $78,450 $31,560 $29,730 $13,710 $11,310
Child care Age & education Misc. 0-2 $1,550 $1,400 3-5 1,690 1,410 6-8 1,160 1,440 9-11 810 1,470 12-14 620 1,630 15-17 1,090 1,420 TOTALS $20,760 $26,310
Source: U.S. Department of Agriculture
Meet the Planner
Richard P. Moran is a fee-only certified financial planner in Palos Verdes Estates who has 28 years of experience assisting business owners, corporate executives and retirees. He is a branch office manager with Financial Network Investment Corp., a registered investment advisory and brokerage firm based in Torrance.