Most of us aren’t motivated to improve our relationship with money (which usually boils down to: save more, spend less) until there’s some kind of wake-up call. Sometimes it takes a couple of uncomfortable turning points to effect real change.
Tammy Ramsey recalls the first time money became an “action item” for her family. It was a few years ago when she and her husband Jeff and sons Parker and Colton were living in a big house in Dupont. They had plenty of money for kid’s camps and new cars and such.
But then Tammy became aware that they were ignoring something: the future.
“I had a lot of fun in my 30s. At 41, I woke up and said, ‘I think we have a problem.’” Tammy realized they hadn’t saved money for retirement or for the education of the boys. “We did some soul searching, figuring out what do we need, instead of just thinking, ‘more, more, more!’”
The family moved from a 3,500-square-foot house in Dupont to a 1,900-square-foot house in Olympia and trimmed their mortgage from $3,000 to $1,900 a month. They started saving for retirement. And with this re-orientation, they stashed the worries about money on the back burner.
Then a few months ago, Tammy’s mom had a massive stroke at age 73. “We had to scramble to figure out the elder care system in a moment,” Tammy says. “It was eye-opening. When people say long-term care costs a lot, they are not kidding!”
Because Jeff is older than Tammy — he’s 60 and she’s 47 – the couple started to worry that if either one of them needed long-term care, their savings would be wiped out pretty quickly. That’s the wake-up call that prompted the Ramseys to request a Money Makeover.
The Seattle Times asked the Puget Sound Chapter of the Financial Planning Association to find a planner who could help the couple with long-term care coverage. What Trish Howe of Howe Financial Advisory in Fremont discovered is that Jeff and Tammy had to deal with more pressing financial issues before they could shop for long-term care options.
Howe’s conclusion: The family is still spending too much today to properly fund their tomorrow.
Tammy and Jeff make good money — Tammy is a technology program manager for a nonprofit and Jeff is a learning and development specialist for a glass manufacturing company. Together, they gross around $180,000 a year. But they didn’t always have such a cushy income.
“For 13 years Jeff was a stay-at-home dad,” Howe says. “They had plenty of money day to day, but didn’t realize how that would cripple their retirement savings.”
“We made that decision for the moment in the moment. Jeff was one of the only dads dropping kids off at preschool and it worked for us,” Tammy says. “No one could have convinced us that we’d be in our 50s and say, ‘Now what?’”
What Howe recommends the family do first is to get control of household expenses and eliminate non-mortgage debt. “Budgeting and debt reduction is the urgent priority for Jeff and Tammy,” she says.
Tammy acknowledges what she calls “a car problem.”
“Trish told us, ‘The two of you will not buy another car for seven years. You can’t have a new car every three years like you’ve been doing.’”
At the moment, Jeff and Tammy owe $50,000 on loans for their three cars. Their immediate goal is to have their son’s $8,000 car paid off by the end of the year.
The only other non-mortgage debt the couple has is a credit card. Tammy says before meeting with a financial planner, she didn’t feel like her family spends a lot, especially now that they are at home because of the pandemic. “We don’t dine out, we don’t travel. I’m saying, ‘Look how great we are!’ – as I’m unwrapping the fifth Amazon box this week.”
In recent weeks the family has cut down on Amazon purchases. Tammy says she is only allowed to hit that “purchase” button once every two weeks.
They’ve also trimmed their online entertainment bill from $80 to $20 a month. In the few months since they’ve been working with Howe, the couple has paid off all of their $6,000 credit card debt. They had no emergency fund — now they have $9,000 saved for a rainy day.
Tammy says her family has had an unusual partner in executing what she calls the “Trish plan.” It’s coronavirus.
“I don’t have a 100-mile-a-day commute so I save $60 a week in gas. It became a blessing working from home. I’m never too tired to cook, movie theaters are closed. All those savings are helping our plan to succeed.”
Because of the lasting economic impact of COVID-19, Howe predicts that the Ramseys won’t be the only family pulling back on spending.
Of course, for many families that austerity cuts much closer to the bone. Many of the more than 20 million Americans who are unemployed due to the pandemic are struggling right now to make their rent or mortgage payments — locally, nearly 1 in 5 Puget Sound renters doubt they can pay their July rent. Tammy is aware that her family is lucky. “We are very grateful that both my husband and I have retained our jobs.”
Early on, Howe stressed that it would be important to get the couple’s sons on board with that austerity plan.
“Everyone needs to row this boat,” Howe says. Parker, 20, and Colton, 16 have been happy to do their part. For example, Colton was signed up for a trip to Europe this summer. It was postponed until 2021, but Colton said he’s fine with canceling it, and that saved $3,000.
Where the sons will really be impacted by a leaner budget is with their college tuition. The Ramseys have a 529 plan for education, but it only has a balance of $20,000 — far short of the $30,000 average cost of one year of tuition and expenses in America, according to Educationdata.org.
Howe doesn’t believe parents should feel guilty about asking kids to pay for their college education, especially when, as with the Ramseys, the choice is between funding their retirement or their sons’ college.
Here Howe dispenses some tough love: “Hey kids, higher education is expensive and your parents don’t owe it to you.”
She says she’s seen lots of parents who have spent many tens of thousands of dollars on degrees that their children never “monetized”.
Parker is doing his part to save money for college by joining AmeriCorps. Right now he’s building trails in Montana – getting super fit and earning money he can spend on college through the Segal AmeriCorps Education Award.
Colton is still in high school. Tammy encouraged him to join the Running Start program this fall, which allows high school students to take college courses at a community college and get high school and college credits simultaneously, so he could graduate from high school with an associate college degree already in the bag. A study finds Running Start is especially popular with middle-class families who want to reduce tuition bills.
Jeff and Tammy have about $250,000 saved for retirement, which doesn’t sound so bad. But given that Jeff is 60, Howe says this couple has a lot of catching up to do. And they are doing it. Tammy estimates she and her husband will stash away more than $41,000 in retirement funds this year, and the couple plans to keep that up going forward for many years.
And how has the Ramsey’s nest egg been invested? Well, not in the softest bedding. “Jeff and Tammy were in a very aggressive mix with 100% stock in their retirement plan,” says Howe. But then the pandemic showed them how quickly that nest egg could get scrambled.
“We moved to a more conservative mix in February when the market started to tank,” Tammy says. “We moved to 53% stock, 25% bond and 22% cash. We panicked.”
Howe says she does not presume to tell clients what’s right for them when it comes to investing. The most important thing, she says, is to find a mix you can leave in place. “Panicking is a sign you took more risk than you can tolerate. Jeff and Tammy got more conservative. It’s not an option to go back.”
What’s most important, Howe says, is to keep feeding that retirement fund. “Remember with a 401k funded through payroll, you have built-in discipline to buy more when prices are low and less when prices are high.”
Crunching the numbers, Howe says that if Jeff continues his retirement contributions until age 70 and Tammy funds her plan until age 67, both could fully retire by 2040. Another option, especially given their age difference, is that the couple could have a phased retirement, with Jeff retiring first and Tammy working part time for a few years.
Tammy says she feels much more clear about her family’s finances now. “I told Trish, ‘I need you to be my personal trainer for finances.’ And she did that. Sometimes you just need someone to tell you what you already know.”