Millionaires in the making(ZT)

June 12, 2007

Keith and Elizabeth Bevelacqua

Ages: Keith 35, Elizabeth 40
Occupations: Computer Support Technician and Pediatric Physical Therapist
Salary: About $70,000 combined

401(k): $150,000
Investment Accounts: $22,000
Company Employee Stock Ownership Plan: $14,000
Home Equity: $110,000

Home Equity Line of Credit: $15,000 owed

Keith Bevelacqua remembers the exact dollar amount of his first retirement savings: $48 a month, or about $1.50 a day. Just out of college, he wasn’t saving what he wanted to - just what he could. As his salary grew, he hiked his contributions. Twelve years later, his strategy is paying off. He and his wife, Elizabeth, of Knightdale, North Carolina, have a net worth of about $280,000, with $150,000 tucked away in their 401(k).

The Bevelacquas have managed to do it without scrimping on their day-to-day lives. They enjoy frequent road trips to the mountains and the beach with their four kids, aged two to seven, all on a combined annual salary around $70,000.

“Our best asset is our planning,” says Keith. “If we’re going on a trip, we begin squirreling away money months in advance. I don’t want to deprive my kid of an ice-cream cone just because we haven’t planned.”

The millionaire mark is within reach for the family, due to their early start and savings habits. At one point, both Keith and Elizabeth were both putting 15 percent of their salaries into retirement funds. They now save 9 percent of Keith’s salary since their kids were born.

The couple made sure not to overstep their means when they spent $150,500 on a two-story home outside Raleigh in 1997. “We moved into something a little more modest because we knew we wanted to start a family,” wrote Keith.

The couple has refinanced their mortgage several times in order to get it down to a 15-year fixed rate of 4.875 percent. They expect to pay it off in nine years. The Bevelacquas have no debt besides the mortgage and $15,000 owed on a home-equity loan. They’re considering a larger home, but they aren’t sure about the potentially expensive move.

Elizabeth was earning the majority of the couple’s combined income as a physical therapist, but after her first child, she drastically reduced her hours so she could take care of her kids. She now works about 10 hours per week but plans to return to work full time in 2010 when all the children are school-aged.

The couple’s long-term goals revolve around family and travel. “When I’m 60 or 65, if my kids are in California, I want to be able to have the option of getting on a plane and visiting them,” says Keith. They don’t have a specific retirement date planned or a dollar amount in mind for what they’ll need per year, but they believe their discipline will get them a healthy nest egg.

Our Expert’s Take: The Bevelacquas have shown that you can build solid retirement savings if you start early and adhere to your plan, said Diana DeCharles, a Certified Financial Planner with AIG Financial Advisors.

“It doesn’t take a lot - it just takes time,” she said. “Obviously they started a ways back, because he’s only 35, and they already have $150,000 in their 401(k).”

But their plan would be even stronger if they had a goal for how much they needed each year, she said. “If they want to count on living off of both of their incomes each year in retirement, Elizabeth is really going to have to save a lot when she returns to work,” said DeCharles. “She has about 22 years until retirement, so she should be putting away about 10 percent of her full-time salary.”

Even today, putting away more than 9 percent of Keith’s salary would be ideal, she said. “It’s important because they’re not getting the amount that Elizabeth would be able to contribute.” But DeCharles said that the decision to have Elizabeth be a stay-at-home mom could actually work out, given the potentially high care costs for four children.

In case of an emergency, Keith said he can obtain $22,000 he’s already paid toward his home-equity loan, rather than having a more traditional cash account. But DeCharles would like to see the couple have substantial cash savings to protect against the event of an emergency.

“Money that you’ve put towards a home equity loan isn’t an emergency fund, because you’ll eventually have to pay it back,” she said, “They should have enough cash to cover them if someone were no longer working.” Ample life insurance policies covering both Keith and Elizabeth would also be good, she added.

Finally, DeCharles said that the couple’s goal of a new home could entirely change the retirement equation. “Depending on how much house they want to buy, it could really take a chunk of their retirement income,” she said. “They need to make a decision: do I want my money to be in a house, or do I want to retire at 60 rather than 65?”