Paying for Life’s Major Milestones Without Wrecking Retirement

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By Josh Alpert, Motor City Retirement Advising, Southfield, MI

Dressed in a gorgeous white dress which draped elegantly behind her, Jennifer Turner Knowles’ wedding was underway. Huge bouquets of flowers everywhere, a harpist plucking out divine music, a banquet with 87 guests to follow. Charles Knowles, whose friends affectionately call him Chuck, had one of the most enjoyable days of his life.

When all was said and done, Chuck was on the hook for a $32,000 tab. “A small price to pay for Jenny’s big day,” he quipped while telling me about it as we discussed his retirement plan. He was in his 28th year of employment as a press operator, and at age 57 all those years of physical labor had taken their toll. “Friday, February 9th, 2018,” he rattled off with no hesitation, the day he will have completed 30 years and also the day he says will be the last time he ever goes into work. He has already begun the countdown. His body aches all over, a common reality for many hard-working, blue collar folks in this country.

But, Chuck wasn’t ready to retire, not quite yet. With a nest egg of roughly $300,000, the wedding required him to dig into his savings and use up more than 10% in a single draw, a cringe-worthy financial move for anyone two years away from retirement, especially when viewed from the outside looking in.

Chuck, along with his wife, Elaine, had known this day would come. The oldest of two as well as their only daughter, Jennifer had been seeing her now-husband, Larry, for nearly 6 years before the big day. The Knowles knew they would need a plan and they also knew they were not financial savants, so, five years ago, they wisely enlisted the help of a retirement adviser, who in this particular case, happened to be me. They told me one of their goals was to give their daughter an amazing wedding, an experience they never were able to enjoy for themselves; they had been wed in a government building on a weekday afternoon in the middle of winter, attended by just the two of them.

From a financial perspective, one of the nicer aspects of life’s major milestones involves the fact that most of them are predictable, or at the very least, provide a pretty good amount of notice before they happen. With the luxury of time and predictability, the financial planning aspect becomes a lot easier.

Life involves making sacrifices on a daily basis. The majority of employed Americans forego the use of some money today in exchange for something of greater perceived value in the future- a vacation, a better retirement, a college fund, a wedding… if we sacrifice enough today, we certainly improve our chances of meeting our future financial-related goals. Obviously, a well only runs so deep, so we have to be reasonable to work within our financial confines.

When the Knowles first came to me for direction, Chuck also told me how he was a huge fan of Chevrolet Corvettes and was considering purchasing a new model as a third vehicle. While it is not my role to tell anyone how they should spend their hard-earned money, people often look to their retirement adviser as a voice of reason. Upon hearing about the wedding and the Corvette, I knew if the Knowles wanted a more comfortable retirement, a sacrifice would need to be made. At a cost of approximately one thousand dollars a month, they could afford the Corvette, but when the wedding came, they would have to dip into Chuck’s 401(k) plan, which would also subject him to a 10% IRS-imposed tax penalty for withdrawing funds before age 59½ while still employed. “The ‘Vette will have to wait Chucky,” Elaine blurted out, “this is more important than a car you’re going to spend more time looking at than driving.” Instead of having a car payment, they saved $1,000 every month in a wedding fund and wound up having money left over after the wedding.

The same idea can be applied to nearly any of life’s major milestones. When a child or grandchild is born and you wanted to establish a college fund, if you started funding it the year of birth and continued to fund it every year, after 17 years, you should have saved up quite a bit towards paying for college. There are several types of college funds to choose from, each providing different contribution limits, terms and benefits, but regardless of how you go about saving for a college fund, the fact remains that you are planning ahead so you do not have to compromise your retirement later.

If you find yourself needing to finance a major milestone and you have not planned in advance, but want to figure out a way to pay without wrecking your retirement, a home equity loan may be a viable solution. With interest rates at historically low levels, borrowing against the equity you have built in your home has never been more affordable. Additionally, a home equity loan will allow you to keep your current investments in place while spreading your payment over time in the future. 

Planning for life’s major milestones is no different than planning for anything else financially. When professional guidance is sought, achievable goals are set and proper care is taken to follow that guidance, then you are setting yourself up for success.

Josh Alpert is the owner of Motor City Retirement Advising (www.MotorCityRA.com), with offices located in Southfield, Michigan. Painstaking attention to every single detail goes into each and every custom-designed plan, Josh has helped his clients invest tens of millions of dollars over the 15 years he has worked as a retirement adviser. 

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