Modest Appraisal

John and Lynnda Laybourn do not think of themselves as particularly thrifty people.

Sure, they gave up the cable TV premium movie channels when their daughter was born and Lynnda decided to leave her teaching job. And yes, John frequently brown-bags dinner leftovers for lunch.

But the Bakersfield couple, both 35, say they’d live economically even if they weren’t trying to rear a 2-year-old, prepare for the arrival of a second child in March, and save for college and retirement--all on John’s $38,000 salary as a Kern County park planner.

“It’s mostly stuff we’d do anyway,” Lynnda says. “We’re not frugal, but we don’t spend a lot of money.”


What’s their secret? In part, it’s residing in a part of California where the cost of living is decidedly lower. And there are the copious hand-me-downs--from baby clothes to play equipment--and free baby-sitting that their relatives provide. But their ace in the hole may well be attitude.

“We spent a year in China as English teachers, and we brought only four suitcases with us,” says Lynnda. “They thought we had so much. . . . It gives you perspective.”

It can also put you in good financial shape. The couple save about $150 a month and are still able to contribute about $3,000 a year to their church and Christian missionary organizations. So far, they’ve accumulated a portfolio of $2,200 in a bank savings account, $10,000 in certificates of deposit and $9,216 in mutual funds.

But despite the fact that they’ve shown they’re careful with money and have relatives willing to pitch in, the Laybourns are worried. They don’t see how, even with Lynnda returning to work several years from now, they can save for retirement and pay 75% of two children’s college costs.


Michael V. Glowacki, a Los Angeles-based fee-only certified financial planner, worked with the Laybourns to develop a comprehensive financial strategy to address the couple’s financial goals and their desire to maintain their strong commitment to charity.

Glowacki immediately put the couple’s fears regarding retirement to rest.

As a Kern County employee, John is covered by an excellent pension plan. If, for example, he retires at 65 after 40 years of service, he will receive 97% of his last year’s salary as his yearly benefit. Because he also pays into Social Security, it’s likely he will enjoy a boost in income upon retirement. And if Lynnda decides to teach in the public schools, she’ll be eligible for a state retirement pension in addition to Social Security.

“You can’t beat government retirement benefits,” Glowacki said. “In California, most counties still have a pension plan. They can thank the unions for that.”

In Kern County, parks department employees had been paying a modest monthly sum toward their pensions. In July, however, under a new union agreement, the contribution will be eliminated to offset several years in which employees went without raises.

Rather than focus on retirement, Glowacki urged the Laybourns to turn their immediate attention to emergency planning and financing their children’s educations.

Instead of keeping so much cash in certificates of deposit and checking and savings accounts, Glowacki suggested the couple place $5,000 in a Charles Schwab money market fund and $7,200 in Pimco Low Duration Institutional (five-year average annual return: 6.9%), a corporate bond fund. They would thus have access to the money quickly, should there be a need, without incurring penalties, something their current choices do not fully allow.

Glowacki also recommended that John consider doubling his life insurance coverage. He pays $130 a year for term life insurance that would provide the family $100,000 in the event of his death. Because John is the only wage earner and they’ll have two young children, the Laybourns ought to have enough insurance to allow Lynnda to stay home until the kids are both in school. With their current insurance, if something were to happen to John, Lynnda would have to go back to work in less than four years.


“It’s a trade-off of peace of mind versus laying out another $130 a year,” Glowacki said.

The planner agreed with the Laybourns’ reasoning on their housing situation. They pay $725 a month for mortgage, taxes and insurance on their two-bedroom house. Lynnda says she would love to have more room for their children, but she and John don’t want to sell now because the house is probably worth only $77,000--$4,000 less than when they bought it in 1990.

Glowacki thinks it’s doubtful the Laybourns will be able to keep saving $150 month when the second child arrives. The couple estimate they now spend slightly more than $100 a month on Jennifer--mainly for food and diapers.

Once Lynnda returns to work, though, they can begin saving in earnest. With proper planning, Glowacki said, they should be able to accumulate roughly 75% of the cost of their children’s education at a school such as UCLA, where fees, room and board currently run a little less than $11,000 a year. The plan assumes that Lynnda will begin earning $30,000 annually (in today’s dollars) in 2003 and that four years of college will cost $107,000 for Jennifer and $120,000 for her sibling.

Beginning in 2003, then, the Laybourns should invest $400 a month for Jennifer and $340 a month for her sibling, for a total of $8,880 a year. Assuming a 10.3% average annual return and a combined marginal tax rate of 34%, they should be able to raise $82,384 for Jennifer by 2013 and $90,219 for the younger child by 2015, the years the children can expect to begin college.

If saving almost $9,000 a year seems too daunting, Glowacki said, the Laybourns could reduce the initial outlays to $340 and $285 per month, then increase their savings amount by 3.5% every year to reach the same goals.

The family can realistically hope to achieve these ambitious savings targets because of their lifestyle and the comparatively low cost of living in Bakersfield.

The Laybourns’ annual income is close to the city’s median annual household income of $36,000. According to the American Chamber of Commerce Researchers Assn., a Bakersfield resident can expect to spend $109 on the same bag of groceries that would cost a Los Angles County resident $117, and to spend $93 for every $132 a Los Angeles resident would pay for housing.


The Laybourns’ biggest--perhaps only--financial problem? The high-risk nature of their current mutual fund portfolio, something they were not aware of. Nearly half their fund investments are in a fund that invests in medium-size U.S. firms. About 22% is in one focused on small U.S. firms and 31% in an international stock fund. That’s a mix Glowacki pronounced “very aggressive.”

“You can call us ignorant conservatives,” John responded with a laugh.

He explained that his father established a gift trust for Jennifer through American Century Twentieth Century Giftrust (five-year average annual return: 18.6%), a small-company fund. John then picked the two other funds from mailings the company sent him without realizing that one--the firm’s Vista Fund (five-year average annual return: 10.3%), is considered fairly risky. Though it defines itself as a small-company fund, Vista has shifted its focus to more medium-size companies, Glowacki said.

Glowacki advised the Laybourns to keep their current holdings, but to invest in other funds as well to add diversity and decrease volatility. He suggested they stop adding to the gift trust; restrictions on that form of investment make it impossible to transfer monies to another fund, which could be a problem if the investment suddenly begins delivering lackluster results.

He advised them to put 40% of their future savings into a mutual fund that seeks to replicate the performance of the Standard & Poor’s 500 index, such as DFA U.S. Large Company Portfolio (five-year average annual return: 16.5%); another 40% to a mutual fund specializing in small companies, such as Parkstone Small Capitalization (five-year average annual return: 20.4%); and the remainder to an international stock vehicle such as Lazard International Equity Portfolio (five-year average annual return: 8.8%).

All of these recommendations are no-load funds and are available with low initial minimum purchases through a fee-only planner who is a Schwab institutional investment advisor. (That is, such planners--Glowacki is one--can buy products through Schwab, but they receive no commissions on these purchases.)

The investments should be monitored so that after three years, the Laybourns’ total fund holdings will stack up as follows: 17% large-company stock funds, 8% medium-company stock funds, 50% small-company stock funds and 25% international stock funds. They should maintain an emergency reserve too, of course.

That mix should be maintained until five years before Jennifer enters college. At that time, the couple should evenly divide future savings for her between a short-term bond fund and an intermediate-term global bond fund in order to lower the volatility of their portfolio. For the younger child, the strategy switch should be made six years before he or she enters college. Were they in that position now, Glowacki would recommend the newer Brinson Global Bond (five-year average annual return: not applicable) and adding to what they have in Pimco Low Duration Institutional.

Helaine Olen is a Los Angeles-based freelance writer. She can be reached on the Internet at


This Week’s Make-Over

Investors: John and Lynnda Laybourn

Ages: Both 35

Occupations: John is a park planner, Lynnda is a full-time homemaker

Gross annual income: $38,000

Financial goals: Pay for 75% of their children’s college educations and save for retirement

Current Portfolio

Mutual funds:

$4,320 in American Century-Twentieth Century Vista

$2,896 in American Century-Twentieth Century International Growth

$2,000 in American Century-Twentieth Century Giftrust.


$2,200 in a bank savings account

$10,000 in certificates of deposit.

47% in mid-size U.S. companies, CHECK THIS; 22% in small U.S. companies; 31% in international stocks.


* Keep $12,200 in savings liquid and earmark as an emergency fund. Do not renew certificates of deposit. Place $5,000 in a Charles Schwab market account, remainder in Pimco Low Duration Institutional.

* Allocate future mutual fund investments so as to increase diversity, reduce risk. Put 40% into funds investing in large U.S. company stocks, 40% into small-company stock funds and 20% in funds investing in international companies. Monitor so that after three years of full-time investing, 17% of the portfolio should be in large-company funds, 8% in medium-size-company funds, 50% in small-company funds and 25% in international stock funds.

* Beginning in 2003, when Lynnda plans to return to the work force, the Laybourns should save $400 a month toward their elder child’s college expenses and $340 a month for their younger child’s. Or they could start by investing $340 and $285 a month, respectively, then increase the amount saved by 3.5% in subsequent years.

* Five years before Jennifer attends college, the Laybourns should divide her future college fund allocations between a short-term fund and an intermediate-term global bond fund. For their younger child, they should begin this strategy six years before college.

Recommended Purchases

Parkstone Small Capitalization, (800) 451-8377

Lazard International Equity Portfolio, (800 823-6300

DFA U.S. Large Company Portfolio, (310) 395-8005

Brinson Global Bond, (800) 448-2430

Pimco Low Duration Institutional, (800) 927-4648


Meet the Planner

Michael V Glowacki is a Los Angeles-based fee-only certified financial planner and certified public accountant. He is the incoming president of the Los Angeles Chapter of the International Assn. for Financial Planning. His firm, M. Glowacki Financial Advisory, specializes in financial planning and investment management consulting for small-business owners and high-net-worth individuals. He holds a master’s in business taxation from USC.