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Under 50 — Tackle your financial challenges and become a financial superhero
By Kate Peterson
Illustrations by Shane McG
 For the Magnificent
family—Mike, Mary, son Mick and daughter Macy—of Anyville, U.S.A., it all began
with a tax refund. Over dinner one night, the flurry of ideas about how to spend
it came fast and furious. Mick, noting that his 16th birthday was weeks away,
suggested using it for his first car. Eleven-year-old Macy campaigned for a
trip to Disney World. Mike, 46, insisted it would be best spent on a riding
lawn mower.
Instead, 43-year-old Mary held the line. It was time to make a new start financially,
she said, to enable the Magnificents to tackle their financial challenges: college,
retirement and a long-sought goal of making regular contributions to charity.
The kids scattered. But Mike and Mary dug in, and now they look back on that
moment as a Magnificent turning point.
Assessing the Situation
Quickly, Mary detailed the family's financial picture. Like an average U.S.
family, the Magnificents earned $66,000 per year; $3,850 in monthly take-home
pay. Monthly expenses averaged around $2,000. The house payment was $850 a month,
car payments were $225 and they had a credit card balance of $2,000, on which
they paid $200 each month.
That left $575 each month. After one month of careful monitoring to assess
their expenses, the Magnificents found they could squeeze another $100 out of
their $2,000 monthly expenses. "Having an idea of where the money is going
is an excellent way to start budgeting," says Davon Bultemeier, senior
financial consultant with Thrivent Financial for Lutherans in Fort Wayne, Indiana.
Next, the Magnificents transferred their credit card debt to a zero-interest
card. They agreed to have the entire balance paid off by the time the rate would
rise. It's a move most American families should emulate, says Don Swanson, senior
financial consultant with Thrivent Financial in Libertyville, Illinois. "Too
many American families are mired in credit card debt. Getting rid of that debt
should be at the top of any family's financial goals."
A Financial Shield
In the meantime, Mary discovered they were underinsured. Mike had group life
coverage at work, but the $100,000 benefit was insufficient. Mary had no life
insurance, and neither had disability coverage.
With their credit card debt paid off, they found they could afford insurance
premiums that would provide a financial shield against death, so they purchased
term life insurance contracts. "Term policies are a great way to get more
coverage when families have conflicting needs with a limited pool of dollars,"
says Swanson.
They also purchased small cash-value life insurance contracts. "Families
often will need coverage as they get older, if for nothing other than covering
final expenses," says Bultemeier, explaining that cash-value coverage is
permanent.
For the Future
Like many families who don't get a jump on college funding, time was slipping
away for the Magnificents to save for Mick's college education. They had to
get serious—and fast. Knowing they also needed to begin setting aside money
for Macy's education, they established a 529 plan, a tax-advantaged college
investment account. They named Mick as the beneficiary, but knew they could
use some of the money when Macy began college.
"529 accounts can combine saving for two kids in one account, resulting
in lower fees," explains Swanson. Since Macy has more time before college,
the savings for her should be invested in higher-risk assets with higher potential
return. The money earmarked for Mick should be in fairly low-risk assets, Swanson
says.
Project: Retirement
The next battle for the Magnificents was preparing for retirement. Mike had
contributed to a 401(k) plan through work for many years, and with his employer's
match, it was now worth $28,000.
Since Mary, as a part-time worker, was not eligible for her employer's plan,
they decided to establish a Roth IRA for her, beginning immediately, using their
tax refund. Any additional money they had-from bonuses, pay raises or gifts, they
agreed to devote to a Roth IRA for Mike.
"If couples have different pools of money to draw on at retirement, they
can potentially take the same amount of income and pay a lower tax rate on it,"
Swanson says. He still recommends contributing to work-sponsored retirement
plans first because of the immediate tax benefits, and because so many employers
offer to match employee contributions.
Another benefit to a Roth IRA, says Bultemeier, is that penalty-free withdrawals
of the contributed amount can be made for any reason—including education costs.
Bultemeier urges caution with any early withdrawal, since it compromises much-needed
retirement savings for the parents and may be subject to charges from the issuing
company.
Super Givers
While the Magnificents had often contributed to various charities, they didn't
have a specific plan to make regular gifts. Once they had a better sense of
their finances and had cut out unnecessary expenses, they were able to make
weekly, sustained contributions to their church that were no longer comprised
of "whatever's left." And, because they created a plan, they could
better leverage the many Thrivent Financial programs to supplement their giving
to their favorite Lutheran institutions.
"By setting up a budget at the beginning of the year, you can make charitable
contributions just like you pay the mortgage or the electric bill," says
Bultemeier. "Then you aren't just waiting to see what's left in your checking
account at the end of the month."
In a short time, with planning and discipline, the Magnificents had faced their
financial challenges: college funding, retirement, protection and charitable
giving.
Granger, Indiana, writer Kate Peterson covered Social Security in the Fall
2005 issue of Thrivent magazine.
How Average—or Superheroic—Are You?
Here's a look at just a few measures of how American families stack up financially.
The median income for a family headed by 35- to 44-year-olds is $62,121.
-U.S. Census Bureau
The median value of installment loan debt (e.g., car loans) for households
headed by 35- to 44-year-olds is $11,100.
-U.S. Federal Reserve
The median value of credit card debt for households headed by 35- to 44-year-olds
is $2,000.
-U.S. Federal Reserve
The median value of retirement accounts for households headed by 35- to
44-year-olds is $28,500.
-U.S. Federal Reserve
Median net worth for households headed by 35-44-year-olds is $77,600
-U.S. Federal Reserve
Median value of a primary residence for households headed by 35-44-year-olds
is $125,000 while the median value of home-secured debt for the same group is
$80,000. -U.S. Federal Reserve
Average total cost of one year of college at a public university (in-state student)
is $11,354.
-The College Board's Trends in College Pricing, 2004
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