High praise for aggressively saving

Aimée Huff, a certified-financial planner and chartered financial analyst with MWBoone and Associates, of Bellevue, is working with Glenn and Laurie Griffin to produce a plan that will allow them to pay for their daughter's college, retire in 10 years and meet the purchase of a new house.

The plan assumes that one or both could live to age 95.

Huff said the house is affordable for the family, but it may crimp their cash flow for a few years, particularly with college ahead for daughter Taylor.

In general, Huff cautioned, people should not buy a bigger house to save on income taxes.

"You spent $4 to save $1."

She gave the couple high marks for handling the special needs of a blended family, including drafting wills and dealing with children's educational expenses. She said trusts would also be helpful in estate planning.

With the Griffins' income and lifestyle, they will need to replace only about 50 percent of their income when they retire, a very low figure compared with most Americans.

The reason: many of their current expenses, such as college, retirement savings, insurance premiums and child-related costs, will go away when they retire. They've also been aggressive savers.

Huff found their investments a little too risky for people in their late 40s and early 50s, and recommend that they re-allocate their portfolios into more diversified, more conservative holdings. She used questionnaires to get a sense of the couple's risk tolerance.

One option would be a portfolio with 60 percent of its holdings in stocks, especially large-cap value, large-cap growth and international equities; 35 percent in bonds, and 5 percent in cash. A low- to medium-risk option has 53 percent in bonds, 40 percent in stocks and 7 percent in cash.

Also, the Griffins should rebalance those portfolios once a year to get back to the targeted balances they agreed on.

Huff was concerned with their variable universal life-insurance policies and is working with Glenn and Laurie on other options. Such policies promise that part of the premium goes to insurance while the rest is invested, but they can carry expensive fees.

Laurie was overinsured while Glenn should consider getting additional insurance. Huff recommends that clients use term insurance and invest the savings elsewhere. The Griffins should also consider long-term-care policies.

In general, Huff said, more life insurance is needed when there's a greater debt load and needs, such as college — where more income has to be replaced. But those insurance needs drop dramatically as people near retirement with a low debt load and college expenses behind them.

Once college expenses are over, the Griffins should use the savings to make extra payments on their mortgage, to help ensure they have as little debt as possible in retirement.

Huff said a key lesson for everyone is that "the higher proportion of their income people live on today, and does not drop away by retirement, the more they must replace in retirement. Most people do not understand this dual effect."