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MONEY MAKEOVER

Looking for a balance between college, retirement

By Lynn Asinof
Globe Correspondent / March 6, 2011

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Joe D’Urso, a recovery room nurse, wants to retire early. He’s also determined to finish paying for both his children’s college educations. These days, however, those goals aren’t particularly compatible. Like many families, the D’Ursos are caught between the need to fund their retirement and the rising costs of college.

Joe, 57, and his wife Darcy, 56, thought they were on track until the financial markets collapsed in 2008, leaving a huge crater in their investment portfolio. The tuition bills did more damage, topping $50,000 a year when daughter Chelsea started college, and hitting close to $100,000 when their son Matthew started two years later.

Having depleted their college fund, the D’Ursos turned to their home equity line of credit, borrowing $85,000 to pay tuition. But with an additional $70,000 in college bills expected over the next two years, the couple wasn’t sure how to come up with the cash. So they applied for a Boston Globe Money Makeover, saying they needed help managing “the outlandish cost’’ of educating their children.

Fee-only financial planner Cheryl Costa of AFW Wealth Advisors in Framingham started by running the D’Ursos’ retirement numbers. With about $400,000 tucked away for retirement, Joe’s plan to retire at 60 was pretty much out of the question, Costa said. “You’d run out of assets by the time you hit 82.’’

But when she extended Joe’s retirement by just two years, the numbers started to work — as long as the couple made some big lifestyle changes. That included selling their Shrewsbury home, dramatically downsizing, cutting expenses to $60,000 a year, and having Darcy — who’s in the dental field — continue working until 65. Then, Costa said, the D’Ursos would likely be able to stretch their assets into their mid-90s.

The D’Ursos raised the question of having their son transfer to a less expensive school for his last two years. “That’s certainly an option, but it’s a little late in the game to have him go somewhere else,’’ Costa said. Moreover, the savings, while helpful, just wouldn’t be enough to dramatically affect planning.

Both Joe and Darcy found themselves nodding in agreement as Costa explained the details, including the sale of the house. “We’ve gone from six people to two people,’’ said Darcy, noting that her parents at one point shared their home. After selling the house, paying off the mortgage and the home equity loan, and covering the remaining college, the couple would be able to buy a $225,000 condo and still have about $180,000 to put aside for retirement, Costa said.

When to sell? As soon as possible, the planner advised. “The longer you put it off, the more constrained you will be.’’

Cutting annual expenses to $60,000 might also be challenging, Costa said, since the couple now has more than $125,000 of annual income. But Joe was quick to point out that the $60,000 didn’t include money he might earn at a different job. He plans to leave the long hours and physical demands of nursing, but not necessarily stop working.

The D’Ursos’ investment portfolio was also in need of adjustment, since almost everything was invested in stocks, either through a brokerage account or the couple’s retirement plans. With interest rates poised to rise, Costa said, it isn’t a great time to buy longer-term fixed income investments since bond prices fall as interest rates rise. Still, she said the couple should gradually shift assets to short-term bond funds until stocks were just 60 or 65 percent of their portfolio.

“It’s really helpful to have it all laid out like this,’’ said Joe of the plan, noting that there was a lot of information to absorb.

Costa’s recommendations did spark questions. Darcy asked whether they should rent or buy after selling the house. “I still think it’s a good time to buy real estate,’’ Costa replied. When Joe asked where to invest the cash from the sale of the house, Costa recommended a diversified portfolio of US equities, international stocks, fixed income, market neutral investments, and real estate.

Then Darcy asked how they would pay for a wedding in five or eight years. “First things first,’’ Costa said.

To be considered for a Money Makeover, fill out the application at the “Your Money’’ section of boston.com/business, or call 617-929-2916.

JOE AND DARCY D’URSO
Goal: Balancing retirement with college funding for their children.

After covering three-quarters of their children’s total college costs, the D’Ursos had depleted their college savings and were looking for ways to retire early. Fee-only financial planner Cheryl Costa came up with a plan that calls for selling the family home, dramatically downsizing, and trimming living expenses. Her recommendations include:
■ Delay Joe’s retirement until he is 62.
■ Use proceeds from the house sale to pay off the mortgage, home equity line of credit, and remaining tuition bills.
■ Use what’s left from the house sale to buy a condo and boost retirement savings.
■ Reduce living expenses to $60,000 a year.