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  Will They Be Ready?

Kishan and Padma Baheti, 54 and 51, Great Falls

Jobs: He is a program director in the division of electrical and communications systems at the National Science Foundation; she is a software engineer at Oracle Corp.

Annual earnings: His, $107,000; hers, $67,000.

Sources of retirement income: His, Social Security, pension, employer-sponsored retirement savings plan, IRA; hers, Social Security, employer-sponsored retirement plan, IRA

Other assets, savings and investments: A house worth approximately $450,000; a town house worth about $100,000; approximately $25,000 in stock.

By Martha M. Hamilton
Washington Post Staff Writer
Sunday, September 26, 1999; Page H5

Kishan Baheti and his wife, Padma, have considerable savings toward retirement—approximately $1.2 million in tax-favored accounts. They immigrated to the United States from India in 1970.

“We were fortunate that we had excellent educations in India and we were able to grow with the financial and intellectual opportunities here,” said Kishan Baheti, who began to accumulate retirement savings when he worked for General Electric Co. “I believe it’s one of the best things Congress has done for the common man is allow this tax-deferred gilding of the wealth.”

Indeed, the Bahetis are saving more than necessary and creating occasional current cash-flow problems, said Laurence J. Kotlikoff, an economist with Boston University and author of “Generational Accounting: What Determines Savings.”

For example, the Bahetis have been covering some current spending by borrowing money from a home-equity line of credit. That debt has been accumulating at a rate of about $1,200 a month. One cost they’ve covered this way is the approximately $6,700 a year they spend to buy Oracle stock at a special, relatively low price offered to employees. So far, Kishan said, the stock has increased in value at a higher rate than the interest they pay on that borrowing.

But if the Bahetis reduced their investment in Oracle stock, that would reduce their need to borrow, said Kotlikoff, who looked at the Bahetis’ financial planning using Economic Security Planner (ESPlanner), a software program that he and two other economists developed.

Another alternative, Kotlikoff said, would be to buy Oracle shares but quickly sell them at higher prices to provide more cash. He also noted that a large investment in a single stock can be risky.

Kotlikoff said his software also indicated that Kishan is buying more life insurance than necessary. His policy pays $650,000 if he dies. Kotlikoff said the software recommended coverage of $180,000 for Kishan, because if he dies while both Bahetis are working, his family’s taxes and household expenditures would be reduced and the family would get additional income from his pension and Social Security survivor benefits.

Another issue for the Bahetis is how to save for college expenses for their 11-year-old daughter and 9-year-old son. Their oldest daughter, 24, has completed college. Both Kishan and Padma expect to retire about the same time they finish paying college tuition.

When the Bahetis’ second child starts college in 2005, Kishan will be age 59½ and able to withdraw funds from his IRA without penalty, although he will have to pay taxes on the amount. As an alternative, he may want to reduce his contributions then to his employer-provided tax-favored savings account.

He contributes 9.8 percent of his pay to the plan, of which the NSF matches 3 percent. If he is earning $125,000 a year at that point, reducing the savings to 3 percent would free $8,500 a year for college expenditures. And he could borrow from his 401(k).

© Copyright 1999 The Washington Post Company

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