Saving for the Future Is Good, but There’s Such a Thing as Overdoing It

Q: I am a homeowner with a 15-year mortgage at 6.9%. We’ve been paying extra toward the principal and are on track to pay off the loan in seven years. I would love to take my wife and daughter on vacations all over the world after our house is paid off and before our daughter, who is 10, gets too old and wants to be off doing other things with her friends.

Or should the money we’re using to pay off the loan faster be invested in our 401(k)s instead? I have 6% of my check going into my plan at work, and my wife is contributing about the same to hers. We can contribute up to 12%. Which is the smarter move financially over the next seven years?

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A: Financial planning is all about making choices, and some of them are not as simple as calculating interest savings versus a potential investment gain.

Your daughter is growing up faster than you think. By 17, she may already be too impatient for the kind of family vacations you have in mind. Don’t let the present slip completely away while you focus on the future.

You really need to sit down with a financial planner or good financial planning software to figure out a few things. Are you on track for a comfortable retirement at your current savings rate? Can you boost your 401(k) contributions and still have money to take those vacations you dream about? Do your trips need to be around the world? Or are there places closer to home that would allow you to build family memories and still stay on track for your other goals?

As far as your mortgage, that’s almost a no-brainer. You’re already saving a lot of interest with a 15-year loan, and your rate is low; it doesn’t make much sense to accelerate your payments. Some planners might even suggest refinancing to a 30-year loan to lower your monthly payment and thus free up more money to invest for your retirement and pay for other pursuits.

A Will, by Itself, Isn’t the Way

Q: My husband and I have one adult daughter, and we want to make sure that we are doing whatever is necessary for our estate to avoid probate. We currently have a will in which our estate is left to the surviving spouse, or to our daughter in the event my husband and I die at the same time.

Our estate consists of a house and its contents, two cars, a 401(k) and a stock portfolio, all in both of our names. The total value of our estate is approximately $500,000. Is our will sufficient? Or is there a further step we should take to avoid probate?

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A: A will does not avoid probate. Ever.

Joint tenancy, joint accounts, pay-on-death accounts and retirement accounts with designated beneficiaries can avoid probate if only one spouse dies. If you should die together, or if the surviving spouse doesn’t take further steps to avoid probate, your estate will eventually wind up in probate court before passing to your child.

(Probate, for those not intimately familiar with it, is a court process that makes sure property passes to beneficiaries correctly and that creditors get paid. Certain states, California and New York among them, have lengthy and costly probate processes, which is why many people want to avoid them.)

Since your estate is worth more than $100,000, the probate threshold in California, you’ll definitely want to take further steps. A living trust may be your best solution; having a lawyer create a living trust and related documents will cost $1,000 to $3,000, depending on the complexity of your estate. For more information about living trusts, read Denis Clifford’s book “Plan Your Estate.”

The 401(k), by the way, cannot be in both of your names; it can only be in the name of whoever contributes to it. But if you name a beneficiary--and a contingent beneficiary in case the first beneficiary dies when you do or before--then your retirement account can avoid probate on both your deaths.

No ‘Found Money’ Here, Sorry

Q: I worked for a company in the 1970s that later filed for bankruptcy. How do I find out if it ever had a 401(k) plan for its employees and if I’m due any money?

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A: I hate to disappoint you, but there’s no way you could have been contributing to any company’s 401(k) plan in the 1970s. The law allowing 401(k)s didn’t exist before 1978, and the first 401(k) plan wasn’t launched until the early 1980s.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at http://161.35.110.226/moneytalk.