Medical expenses add chaos to confusing financial status
Working couple face new job for wife, extensive surgeries and physical therapies for daughter.
Special to The Seattle Times
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Seattle spouses Kevin Keith and Ya Chun Wang have a lot on their plate: The two-earner couple have two young kids, two housing payments in two counties, three types of expenses (medical, residential, academic), and multiple retirement and savings accounts.
To make matters even more complicated, they’re headed for some life change. Wang holds a doctorate in dentistry and is re-entering the job market after a period of paid residency, and their 4-year-old daughter is scheduled this summer for the first in a series of surgeries needed to correct a congenital short femur condition. The family’s income, expenses and address may all shift in short order.
“We’ve definitely got a lot of change coming up,” says Keith, 33, a project engineer in the construction industry. “In project management, I work with cash flow, managing assets and budgets. One of the scary things for us is forecasting some of our upcoming medical costs.”
Their daughter’s medical condition will require multiple surgeries and several periods of physical therapy between now and her teen years, he notes, but the cost estimates vary and may change as Wang transitions into a new workplace.
To sort out their priorities and prepare for what’s next, the couple completed an online survey to participate in a free financial makeover from a member of the Puget Sound Chapter of the Financial Planning Association. They were paired with Larissa Vidal, a certified financial planner at Seattle-based Insight Financial Planning.
The couple have assets worth about $330,000. This includes a home in Mountlake Terrace that they own but currently rent out (valued at $281,000) while they live in a rental near the UW campus where Wang has been in school. They also have accumulated $23,000 in retirement accounts and $25,600 in emergency savings.
But their debt of $390,000 includes $110,000 in student loans for Wang’s education, and the fact that their Mountlake Terrace home has about $280,000 outstanding on its mortgage, roughly equivalent to the home’s value, which dropped in recent years as the real-estate market changed.
They’re also facing up to $200,000 in medical- and physical-therapy costs for their daughter between now and when she reaches adulthood.
Fortunately, their monthly income falls between $13,000 and $14,000. But with a laundry list of conflicting goals, it was hard to know where to start.
“They’re managing so many things right now,” Vidal says. “They’re doing a very good job of it, too. And they have so much potential.”
Initially, she said, Keith discussed reducing debt, maybe refinancing their home in Mountlake Terrace and budgeting for medical expenses, exploring if private school is a possibility for the children and saving for college. But as she talked with him, Vidal says, it became clear the couple want to focus on their children in the near-term — and also spend more time with them.
Fortunately, with their combined income, the couple is on track to meet their goal of retiring at 65 if they invest in aggressive stocks and do so at a regular pace.
Keith should continue to contribute 3 percent of his pay to a 401(k) that’s employer-matched, and with Wang contributing 3 percent of her pay to the expected nonmatched plan she’d gain at a new workplace starting around January 2015.
Vidal’s plan assumes the couple can set aside as much as $50,000 to $60,000 per year after their living expenses and mortgage and education debt, and depending upon Wang’s new salary. Vidal counseled the couple to approach their financial goals in phases. Her task list for them starts with preparing their will, exploring better life-insurance options, Keith’s consolidating retirement accounts and researching private schools.
The Mountlake Terrace house isn’t eligible for refinancing, but at Vidal’s urging, the couple increased the rent by $100 monthly in keeping with the rental market.
Vidal encouraged the couple to earmark $6,300 from a tax refund for this year’s surgery and to move the remaining $14,530 they’ve set aside for their daughter’s surgery into a certificate of deposit that keeps the money separate from other savings.
This fall, from September through November, they are to add $5,000 per month for three months to their CDs for surgery and from then on add $3,000 per year through 2023.
With those funds in place, the couple can turn their attention to some debt. Vidal urged them to pay off $16,000 in higher-interest second-mortgage debt at their Mountlake Terrace home.
Then, in February 2015 and onward, they can begin to set aside roughly $1,500 per month for their children’s education.
It’s a lengthy to-do list, but Keith says he feels confident that he and Wang can complete it and fulfill several of their priorities.
“I feel like I’ve got time on my side,” he said. “She cautioned us against being too conservative.”
Jane Hodges is a Seattle freelancer.