Home Financial Planning Seattle couple’s dilemma: How could they afford a second child? Here’s what financial planners advised. – Seattle Times

Seattle couple’s dilemma: How could they afford a second child? Here’s what financial planners advised. – Seattle Times

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Amanda and Alex LaComb, of North Seattle, have good jobs, solid financial habits and money in the bank. But then, all of a sudden, their household finances seemed to go sideways.

It began when they started a family, with Amanda giving birth last summer to their first child, James.

For the LaCombs to keep working full time, they needed to find child care for their little boy. The monthly child-care bill of about $2,300 for an infant was a sticker-shock moment. That’s about $28,000 a year.

Questions began piling up. Their desire for a second child in a couple of years would mean a second child-care bill. Could they afford it?

What about selling their condo and buying a house for their growing family?

They were also nagged by other, long-term questions. How could they save for college for their kids, to say nothing of their own retirements?

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“We were feeling overwhelmed about our priorities,” said Amanda, 30.

Although their long-term outlook was bright, the next five years looked daunting. How could they get through them? “That was our big question,” said Alex, 31.

As regular readers of The Seattle Times’ Money Makeover series, the LaCombs decided to ask for help. The Times contacted the Financial Planning Association of Puget Sound, which put out a call for volunteer financial planners to help the couple.

Financial planners Jessica Kirwin and Thom Allison of Bellevue-based Allison Spielman Advisors stepped forward and got in touch with the LaCombs.

After gathering the couple’s financial data, Kirwin and Allison ran a cash-flow projection. There they found a red flag.

The projection showed the couple finishing 2019 and 2020 in the black. Then, with the arrival of their second child, the LaCombs faced five straight years of red ink, from 2021 to 2025. The chief culprit was child care.

Allison said the LaCombs were right to sense trouble on the horizon and try to head it off. “Had they done absolutely nothing, and not panicked, they would have had a good reason to panic,” he said.

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Kirwin and Allison went to work on a financial plan that would get the LaCombs through the tough times and strengthen their position for later years. Fortunately, the planners had a lot to work with.

The LaCombs have good jobs. Amanda is an information technology supervisor at Expeditors International, and Alex is an aerospace engineer at Boeing. Their combined income before taxes is between $200,000 and $225,000 a year.

The projected median household income in King County for 2017 was $89,142, according to the state Office of Financial Management’s most recent estimate.

The LaCombs are savers. They have about $50,000 in savings accounts, which serves as an emergency fund. Their checking accounts contain about $10,000.

Both are contributing to their 401(k) retirement plans at work, and their employers match a portion of their contributions. Amanda has accumulated about $100,000 in her 401(k), while Alex has about $150,000.

Alex also has a small pension at Boeing, but the account is frozen because the company is phasing out its pension program. If he were to cash out with a lump-sum payment, he would get about $25,000.

The couple are also feeding individual retirement accounts. The balance in Amanda’s IRA is about $25,000, while Alex has about $15,000.

Finally, Amanda has about $25,000 worth of stocks and options through her employer’s benefit package.

On the debt side of the ledger, the LaCombs owe about $275,000 on their North Seattle condo, which they bought in 2016 for $409,000, King County property records show. Zillow estimates the condo’s current market value at $524,745.

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The couple also owe about $5,000 on their 2015 Honda Accord. They plan to pay off the debt next year.

The LaCombs have no other debts, and if there were a roster of debt-averse Americans, their names would be on it.

They earned degrees from the University of Washington and Purdue University, leaving them with about $60,000 in student loans. They paid off the debt in three years by living in a cheap apartment, driving an old car and pinching pennies.

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Amanda joked about the 1999 Acura they drove during their frugal days. “Our car was old enough to have a driver’s license,” she said.

Over at Allison Spielman Advisors, the financial planners devised a strategy for getting the LaCombs to 2026 and beyond.

Kirwin and Allison urged the couple to save as much of their surplus as possible over the next two years and put the money into a high-yield savings account. The temporary nest egg, perhaps as much as $22,000, would cover a portion of the child-care costs for two children for five years, until they reach school age.

That wasn’t enough, however, so the planners advised the LaCombs to temporarily reduce some of their long-term savings. They told Amanda to stop contributing to her employee stock purchase plan until 2026, freeing up nearly $2,000 a year.

Kirwin and Allison also told the couple to wait until 2026 to begin saving for college for their kids. If the LaCombs then stashed away $10,000 a year for each child, by 2036 they would have enough money to send both children to the UW, the planners estimated.

In a pinch, Amanda could sell some of her employer’s stock awards to cover any remaining shortfalls.

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All of those money maneuvers combined should make the projected deficits disappear. “There aren’t too many tweaks they need to make,” Kirwin said.

Meanwhile, the LaCombs continue to put away $1,000 a month for a house. They may be in the market for a larger home as soon as next year.

One of the couple’s unexpected take-aways from working with the financial planners was seeing the need for more life insurance.

Both have life-insurance policies through their employers. Amanda’s policy has a $178,000 benefit, while the benefit on Alex’s policy is $259,000. It’s not nearly enough, the planners said.

In a few years the LaCombs expect to have two children and a hefty mortgage. That warrants life insurance coverage with a $1.5 million benefit — on each parent, the planners said.

The money would go a long way toward paying for living expenses, college and the mortgage. “If you lost one of those incomes,” Kirwin said, “it would be a major blow.”

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Fortunately, life insurance is relatively affordable for those who are young and healthy. Kirwin estimated that Amanda and Alex could each buy a big-benefit policy for between $50 and $70 a month for 25 years.

The LaCombs say they are following all of the planners’ recommendations, including one that was more lighthearted than life insurance.

Kirwin and Allison suggested scheduling regular “date nights” so the couple can go over their household finances. The exercise can be fun, and it gets both partners on the same page.

Amanda and Alex started meeting weekly. Once they get up to speed, the LaCombs will meet monthly for a financial “date.”

“We’re following the plan,” Amanda said. “We feel like we have a path forward.”

And that, they said, is the big thing.

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