72 KIPLINGER’S PERSONAL FINANCE^ 05/2017THEN & NOW
Merging Their Money and Their Goals
THEN: Ian Mackinnon, an engineer for
Sunoco, had an unusual problem for a
26-year-old: He had $25,000 in a savings
account and wanted advice on how to invest
it for a higher return. His financial goals in
2011, when our story appeared: continue
saving for retirement in his 401(k), to which
he was contributing 15% to 20% of his
salary, and at some point buy a car and a
house. He was also adamant that he keep
some of his savings in cash as an emergency
fund. We recommended putting $10,000 in
cash accounts, $5,000 in a Roth IRA and the
remaining $10,000 in two growth-oriented
mutual funds from Vanguard. Our one warn-
ing to this millennial supersaver: A serious
relationship could “upset his financial
applecart.” We suggested that he and any
significant other consult a financial planner
before commingling their finances.NOW: Six years later, Mackinnon has
checked off all three of his goals. The Van-
guard funds did well, and over the next few
years Mackinnon kicked in another $2,000
to each of them, resulting in a total balance
of about $19,000. He used that money,
along with another cache of savings he had
invested on his own—“The initial $25,000
was just fluff I had sitting in a savings
account”—to put a $60,000 down payment
on a two-bedroom row house in downtown
Philadelphia. He also bought a Volkswagen
Jetta, financing the cost over five years; he
recently retired the loan.
Mackinnon continues to save in his 401(k),
but with a new employer—Edmund Optics,
in Barrington, N.J., where he works as an
engineer in sales. He contributes 6% of his
salary, enough to score the company’s 3%
match. Because he works partly on commis-sion, he is holding off on contributing more
until he has a better handle on his annual
earnings.
So what about the significant other?
That would be Devon Madison, 27, an assis-
tant principal at a charter school near their
Center City home. Madison more than pulls
her weight in contributing to the household
finances—if anything, Mackinnon says, “I’m
afraid I might upset her applecart.” The cou-
ple have yet to consult a financial planner,
but together they have set several new fi-
nancial goals, including buying a bigger
house and renting out their current one
in a few years.
As for their more immediate goal,
Mackinnon and Madison will formally
commingle their futures along with their
finances this spring, when they tie the knot.
JANE BENNETT CLARK■ Devon Madison
and Ian Mackinnon:
Setting their sights
on getting married
and buying a bigger
house.^2011INSET PHOTO: COLIN M. LENTONPHOTOGRAPH BY MICHAEL BRANSCOM28»AHEADFOURSunoco, Ian, 26, is eager to an engineering job with make his savings work for YEARS AFTERLANDING
him. By living frugally, the former college athlete has kept himself in solid fiscal
shape. He’s paid off his student loans and amassed $25,000 in a savings ac-count. Ian also contributes
15% to 20% of his paycheck to his company’s 401(k) and qualifies for his employer’s 5% match.
says his strategy needs a jolt. He insists that at least Despite this cushion, Ian
$10,000 remain in the bank, but he’s eager to earn higher returns on the rest of his money. Still, he doesn’t want
to put all of the remaining $15,000 at risk, he says. “You never know—I might want some of it available in
case of an emergency.” Ian sees three possible major expenses in his future: a
new car, a house and gradu-ate-school tuition. But he doesn’t expect to take on any of those obligations
in the next five years. One reason he’s not in a hurry to buy a place is his job, which has him rotate among vari-ous locations (he recently moved from Tennessee to Pennsylvania to take up
new duties).Filling the gap.start puts him ahead of Ian’s financial
many—if not most—of his peers. But his story is also a reminder that there’s a
long, long time between the first job and the last one. Financial planners say it’s easy but wrong to overem-
phasize retirement savings when you’re unlikely to be retired for a few decades. Timothy Maurer, vice-president of the Financial Consulate, in Hunt Valley, Md., says that Ian “deserves
a pretty substantial affirma-tion because he’s doing an outstanding job.” But there is one problem: Maurer
calls Ian’s current strategy a barbell scenario. That means he’s heavy on the
two extreme ends—short-term emergency cash and retirement savings—but has left a gap in the middle.
fill the void by divvying up his resources into fourths. Because he already has the Maurer recommends Iantwo ends covered, he can keep $10,000 in cash ac-counts that are easily acces-
sible and divide the rest between a taxable broker-age account and a Roth IRA, to which he can contribute
up to $5,000 in 2011. Unlike his 401(k) contributions, Ian’s contributions to the
Roth can be withdrawn at any time without taxes or penalties. Meanwhile, growth-oriented mutual
funds would be best for the brokerage account. Ian can feel comfortable seeking higher returns because he
won’t need to make with-drawals for many years. Richard Salmen, a senior
adviser with GTrust Finan-cial Partners, of Topeka, Kan., recommends that when Ian chooses mutual
funds, he should make sure that the new funds’ objec-tives are in harmony with his 401(k) and compensate for
any gaps. A basic fund such as KET INDEX FUND (SYMBOL VTSMX)or VANGUARD TOTAL STOCK MAR-VANGUARD TOTAL BOND MAR-
KET INDEX FUND (VBMFX)work well alongside just about any 401(k). should
could upset Ian’s apple cart, says Salmen—a serious relationship. When a couple There is one thing that
begins to think about com-mingling finances, he sug-gests that they first consult a financial adviser for a
basic, if unromantic, chat.THINK AHEAD, BUT NOT TOO FAR AHEAD THERE’S A HAPPY MEDIUM BETWEEN SAVING FOR EMERGENCIES AND INVESTING FOR RETIREMENT. BY SUSANNAH SNIDER
WHO: WHERE: QUESTION: I DO WITH THE $25,000 IN MY IAN MACKINNON, 26PHILADELPHIAWHAT SHOULD
SAVINGS ACCOUNT?