Investing without a safety net
This family has decided to manage its own money. But with a special-needs child, the stakes are high.
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(Money Magazine) -- The last time Wayne Lipovitch tried to get his family's finances on track, he flipped open the phone book and randomly picked out an adviser near his Phoenix home. That planner guided the Lipovitches' modest investments for a couple of years, and she became a family friend.
But Wayne, 41, admits he never understood how - or how much - she got paid. So after his dad convinced him he could save money by investing on his own, he figured, why not? He felt guilty leaving the adviser, "but my main responsibility is to make sure our family is secure," he says.
So far it hasn't been easy. Wayne stresses about how to pay for retirement or provide for his wife Michele, 38, and their two sons. Adding to the pressure: Their older child, Jacob, 2, has Down syndrome, a genetic condition that causes developmental delays and impairments.
Jacob can still lead a fulfilling life that involves going to school and possibly even working. But the Lipovitches know they'll probably have to help care for him - at least financially - for the rest of his life.
Wayne, a veterinarian, and Michele, who has a part-time massage therapy business, earn about $120,000 a year combined. The Lipovitches have $110,000 saved for retirement, largely through a collection of IRAs. They've set aside only $5,000 for emergencies, when they should have three months' worth of expenses, or $20,000, at a minimum.
It's their debt - $32,000 in credit-card balances, stemming partly from younger son Zachary's birth - that has kept them from saving more. That's because each year they send about $8,000 to their card companies to pay down balances and interest.
Get their priorities straight. Wayne and Michele currently spread their savings among a mix of IRAs, a variable annuity and a 529 college fund for Zachary. But what the Lipovitches really need to focus on first is eliminating their debt and building an emergency fund, says Sharlee Cretors, president of SC Financial Services, a Scottsdale, Ariz. wealth-management firm.
Her advice: The Lipovitches should take out a home-equity line of credit and use it to pay off the card debt. This way they can effectively swap their high credit-card rates, charging as much as 13%, with a rate starting out as low as 4%, Cretors says.
Cretors says the couple should also postpone contributing to the 529 until they pay off the HELOC. And they should even consider temporarily diverting the $400 a month or so they're currently socking away for retirement - using half to pay down debt and the other half to jump-start their emergency savings.
Wayne says he likes the idea of reducing his rate with a HELOC but is wary of stopping his 529 and IRA contributions. Instead, he says, he can pick up additional shifts at his and other vet clinics, which will boost his income by $1,500 a month. "I have opportunities to make more, so hopefully I can contribute to both accounts at the same time," he says.
If they carefully invest the $6,800 they're now saving, Wayne's additional income and the money they'll eventually free up after paying off their debt, it will dramatically improve their ability to retire comfortably.
Stick with a low-cost strategy. When he followed the advice of his Raymond James adviser, Wayne invested in a collection of load funds. When he chose to invest on his own, he stuck with no-load, low-cost Vanguard funds with solid 10-year records. Smart move, says Cretors.
While Wayne didn't have an exact asset allocation in mind, as luck would have it, nearly 90% of his and his wife's portfolio wound up in stocks through funds like Vanguard LifeStrategy Growth and Vanguard Target Retirement 2030. Cretors says that's an appropriate investment mix for their age.
Still, there's one thing they need to fix. They put $100 a month into a variable annuity. Instead, Cretors says, they're better off maxing out their IRAs each year.
Buy life insurance. Since Wayne, the family's primary earner, isn't in a group life insurance plan through work, Cretors says he should buy a $2 million term life policy on himself (and see whether he needs additional forms of insurance as he learns more about Jacob's long-term needs).
Cretors also recommends Michele take out a $1 million term policy. That may sound like a large amount for someone who works part time, but among other things, it would help cover the cost of care for the kids, especially Jacob.
Says Cretors: "The big concern is how he's going to be taken care of when you're gone." 
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