Making room for baby

A flight attendant at a struggling airline can afford to adopt

Your Money

April 02, 2006|By JANET KIDD STEWART | JANET KIDD STEWART,TRIBUNE MEDIA SERVICES

For all the turbulence in the airline industry, flight attendant Laura Belanger's retirement plan is soaring.

Despite pay and benefit cuts as her employer tried to right itself after filing for bankruptcy, she has maximized her company savings plan and diversified into real estate. At 42, her net worth is a comfortable $282,588.

In February, her union ratified an agreement that locks in employer direct and matching retirement funds of up to 6 percent of salary in a 401(k)-style plan.

The plan still isn't as rich as the original pension Belanger was expecting. She's in line to receive some pension benefits when she retires, but they're not what they would have been before the bankruptcy filing.

Actuarial estimates project the new plan will come close to matching her original pension if she works to age 65 and contributes 3 percent of her take-home pay each year.

Now her dream is to adopt a baby. Can she ante up several thousand dollars for the adoption process, plus all of the expenses of caring for a child as a single mother, and still manage a soft landing for retirement?

"I didn't think I'd be 42 and single and without children," said Belanger, a 14-year veteran with United Airlines who lives in Chicago. Listening to her father express regret for things not done just before he died instilled a passion in Belanger to start exploring different adoption services.

"I just couldn't imagine lying there [at the end of life] and saying I wish I'd done this," she said. "I've wanted this for a long time, and I don't take it lightly. I helped raise my sister's kids and know what I'm getting into. I don't make quick decisions."

Before meeting with financial planner Alice Bryan for the Money Makeover process, Belanger did her homework. After tax incentives, she figures the adoption itself will cost $7,000. Day care, which she's been investigating through other flight attendants who have similar work schedules, should run about $7,680 a year.

Those additional expenses alone would eat up more than a third of her $39,996 annual salary in the year of adoption.

But Bryan said she believes the plan can work if Belanger makes some moves with her investments and considers some cheaper day-care alternatives.

"The key is going to be keeping expenses down, and Laura has already shown she can live frugally," said Bryan, a planner with North Star Financial Consulting in Indianapolis who has worked with several other airline employees struggling to adapt their finances in an industry rife with bankruptcies.

Originally, Belanger projected expenses of about $1,140 per month on child care and other child-related costs, over and above the adoption. Without altering anything else, even with some interest income she receives, that would leave her nearly $400 in the red every month, Bryan said.

Now she's looking into baby-sitting co-ops and ways to boost her rental income on an investment property.

Belanger is part-owner with her family of a time share, which the family expects to sell in the near future. Her estimated profit: $42,000.

Bryan suggested applying that profit to Belanger's investment condo in Chicago, minus money set aside for taxes. The condo has a market value of $120,000 and a mortgage of $83,000. By substantially paying down the mortgage, she would be able to keep more of her $800-a-month rental income, boosting the money available for current expenses.

Belanger had been considering using the time-share profit to buy another investment property, but Bryan urged her to stay liquid while she establishes her new expenses with the baby.

"I wouldn't look at that just yet," Bryan said. "You don't want another complication to worry about."

As for retirement, Belanger had been contributing about 13 percent of her pay to the United Airlines savings plan. Bryan recommended she cut that back to 3 percent, allowing her to get the maximum company matching contribution of another 3 percent. Under the new contract, the company also will kick in up to 3 percent more in a direct contribution.

Then, Bryan suggested opening a Roth IRA, in which participants contribute after-tax dollars that grow tax free. She recommended putting those funds into a so-called lifecycle fund at a low-cost mutual fund supermarket. Lifecycle funds are single mutual funds that automatically adjust asset allocation with a target retirement date in mind.

"The benefit of tax-free withdrawals from Roth accounts in retirement will more than make up for the cost of paying the taxes now," Bryan said.

Belanger has $30,000 in stocks in a taxable account. Bryan suggested using that account to fund the adoption costs. Belanger expects her initial outlay for an international adoption will be about $17,000 but hopes to recoup about $10,000 in tax incentives that will defray those costs. If she does, that money will go back into the taxable account.

Despite the squeeze on her cash flow, Belanger is committed to starting a family.

"I think I was born to be a mom," she said.

Janet Kidd Stewart writes for Tribune Media Services.

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