Fortune seems to be smiling on Eric and Aurora Jablonowski. The Orlando couple just landed new, higher-paying jobs. They have $50,000 in savings and more than $100,000 in equity in a house worth $240,000. They pay off their credit cards monthly. And, using a state-sponsored 529 plan, they've prepaid tuition for sons Ryan, 7, and Andre, 2, if they attend qualifying public colleges.
But there is a cloud. Their retirement investments -- his-and-her Roth IRAs and a joint taxable account -- are a mess. In late 1999, a financial planner at PaineWebber persuaded them to invest in a collection of 15 aggressive stock funds with high commissions and fat fees. Aurora says the mix is down 50%. The IRAs are now worth $45,000, and the taxable account $25,000.
Ready to act. Neither Eric, 46, nor Aurora, 39, felt competent to question the strategy. "We had no clue what we were getting into," says Aurora, an administrator for a defense contractor. She and Eric, a builder's warranty-claims representative, want fewer, less costly funds and less volatility. They face three key issues: how to allocate between stocks and bonds, which funds to choose and how to find additional money to expand their retirement kitty.
Barry Swaim, of Wealth Management Group, in Winston-Salem, N.C., urges the Jablonowskis to "wipe the slate clean" by dismissing their adviser and transferring to low-cost leader Vanguard. He recommends that they each move their IRA money to Vanguard LifeStrategy Moderate Growth, a fund that invests in other Vanguard funds (typically in a ratio of 60% stocks to 40% bonds) and carries a low expense ratio of 0.28%. Swaim suggests that the couple also sell the funds in the taxable account. Then they can go with such fine choices as Muhlenkamp Fund, Selected American Shares and Third Avenue Real Estate Value. All told, the Jablonowskis would have 75% of their retirement money in stocks and the rest in bonds.
Moving the cash. The Jablonowskis don't need $50,000 in the bank. Patricia Konetzny, of the Practical Planner, in Maynard, Mass., suggests that they keep $30,000, or about six months' living expenses, in supersafe investments. She recommends $10,000 in the bank and $20,000 in U.S. savings bonds, which currently earn tax-deferred interest of 3.25% (the rate is adjusted every six months). The Jablonowskis should invest the rest in the stock funds, making sure that they earmark the maximum each year to their IRAs.
Lastly, Eric and Aurora should channel as much as they can into their new employers' 401(k) plans. If they can set aside 10% of their combined pay, or about $9,000, their employers will add about $3,000. This could be a strain until the kids are done with day care, but saving now will pay off when Eric and Aurora are ready to retire -- and Ryan and Andre are grown.
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