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  Will They Be Ready?

Dennis Dean Kirk, 48,
Falls Church

Job: Lawyer.

Annual earnings: Widely varied, from $17,000 in 1997 to $68,000 in 1998.

Sources of retirement income: Keogh plan, Roth IRA.

Other assets, savings and investments: $1,000 in savings, house valued at approximately $250,000.

By Martha M. Hamilton
Washington Post Staff Writer
Sunday, September 26, 1999; Page H4

Kirk is a trial lawyer whose income is erratic. He worries that his savings for retirement have been "de minimus," and about saving for his son's college tuition. "I'm a single dad with a 9-year-old son, and it's critical to look at long-range planning for his education," he said.

Kirk accumulated about $100,000 in credit-card debt while he was going through divorce.

Ron Gebhardstbauer, senior pension fellow for the American Academy of Actuaries, looked at Kirk's finances, running the information through Quicken financial-planning software first, then critiquing Quicken's results and adding his own thoughts.

Gebhardstbauer recommended that convert his credit-card debt into a second mortgage, which he has enough equity in his house to do. This step could reduce annual interest expenses by about $10,000. He also suggested Kirk consider refinancing his first mortage if he could get a lower interest rate and save some money.

Kirk followed this advice, and just slightly more than a week ago he refinanced his ortgage, which had been at 21 percent. "Sometimes lawyers are slow to do the kind of things they would advise for clients," he said.

Now he hopes to be able to reduce his debt and begin saving for both goals: his retirement and college education.

Kirk has $95,000 in his Keogh and $34,000 in Roth IRAs, but withdrawing money from them is not advisable – pay income tax plus 10 percent of the amount withdrawn.

Last year Kirk moved $19,000 in retirement funds into a Roth IRA, which increases his tax bill for this year and three more years.

When his cash flow improves, Gebhardtsbauer said Kirk should invest in his existing Keogh plan, a simplified employee pension (SEP) or a Simple IRA. An SEP is a pension plan Congress created for small businesses that requires the employer to make the same percentage contribution on behalf of each employee in the firm. The Simple IRA allows a worker to invest in an IRA through payroll deductions. The drawback to these plans is that they limit maximum contributions more than other retirement plans, but that isn't a concern for now, he noted.

Gebhardtsbauer noted that Kirk, as a lawyer, has done an excellent job of taking care of some chores that many people his age put off. He has a will, a power of attorney for health care and a living will. He also has life, health, disability and long-term-care insurance.

© Copyright 1999 The Washington Post Company

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