June 2001 Newsletter

What's the main way you save for retirement?
A. 401(k)s
B. IRAs
C. Savings accounts and CDs
D. Annuities
E. I rummage under the sofa cushions for coins now and then.
If your answer is C, D or E then you need to attend FPW!

June 13: Module 4. Quick Estimate of Income Needed in Retirement
1. The main activity of the workshop will be using the Ballpark Estimate worksheet to determine how much you need to save each year for retirement. Copies of the worksheet (available on the web site) will be provided.
2. There will be a short review of the new tax law changes affecting retirement planning.
BEFORE YOU COME TO FPW:
• I encourage you to go to the web site and fill out the worksheet BEFORE coming to FPW because then you will have lots of questions for me. By now you can see that we are building upon the earlier modules. From Module 1: your life expectancy; Module 2: How much will your expenses be in retirement? Module 3: an estimate of your Social Security retirement benefit. Although the Ballpark Estimate doesn't allow for changing life expectancy (it assumes you will live to 87), you will need to estimate your annual income needs. While it provides a guesstimate of Social Security benefits, if you have your numbers from your Personal Earnings and Benefit Statement the worksheet will be more accurate. Note that married couples should fill out separate worksheets (be sure to divide up your expected living expenses). If you are new to FPW review the first 3 modules.
• To fill out the Ballpark Estimate you need a list of your retirement assets. If you have The Financial Checkup from the January FPW review Ch. 2 the Net Worth Statement and Ch. 6 Retirement. Otherwise, compile your own list of retirement assets.
• Fill in "My Personal Record Sheet" from the web site.
• If you don't have one already: get a 3 ring binder for your FPW materials.
• Some thoughts on this process of estimating retirement savings needs: There are many retirement planning worksheets available. The Ballpark Estimate is a short and easy one designed to be re-calculated each year. The closer you are to retirement, the more useful it is to complete one of the more detailed worksheets or on-line calculators and to visit with a financial planner.
Just a reminder: to put these large dollar figures into perspective read: Get a Life: You Don't Need a Million to Retire Well by Ralph Warner, Nolo Press. Chapter one is available on the web site: www.nolo.com. You can get a free copy if you bring a friend to FPW for her first time.
Virtually every personal finance and investing web site has a retirement planning calculator. Use them with caution; remember GIGO. It's your responsibility to input accurate information or educated estimates.

Other news:

Your Rights as a Financial Planning Client
The Certified Financial Planner Board of Standards has released its latest brochure, "Your Rights as a Financial Planning Client." The brochure describes the kind of treatment consumers should expect from a financial planner and helps them recognize when a planner is focusing on a client's best interest. A "consumer version" of the Board's Code of Ethics and Professional Responsibility," the brochure has been reviewed by the Securities and Exchange Commission and covers such topics as integrity, competence, and professionalism. The brochure is available through the Consumer Information Catalog or through the CFP Board by calling 1-888-CFP-MARK.

"How much should I be spending on _____?" How much do other Americans spend? Here's some data to help you compare your food expenditures to national data. Is food a category where you can save money?
NATIONAL FOOD SPENDING UP
Food spending rose 4.9 percent in the U.S. to $788.6 billion between 1998 and 1999. Total expenditures for food away from home increased by 6.3 percent to $374.7 billion in 1999-the largest yearly increase in this category since 1990. Food at home expenditures increased 3.8 percent to $413.9 billion in 1999. Adjusting for inflation, total food spending at home rose 1.4 percent in 1999 and food away from home rose 4.1 percent. Between 1990 and 1999, total real food expenditures increased 13.7 percent. Real spending on food away from home grew 24.8 percent, and food at home expenditures increased 4.7 percent. Away from home food expenditures reached a record of 47.5 percent of total food spending in 1999. Rising incomes are cited as the primary reason for the increase.
In 1999, 10.4 percent of household disposable personal income was spent on food, down from 11.4 percent in 1990. In 1990, Americans spent slightly more than 7 percent of their disposable income for food at home and about 4 percent for food away from home. A decade later, households spent 6.2 percent of disposable income for food at home and 4.2 percent for food away from home.
SOURCE: "Food Consumption and Spending," Food Review, Volume 23, #3, p 15-17.

HOME EQUITY STAGNATES
An analysis of Census Bureau data prepared by a Freddie Mac housing economist for the Consumer Federation of America (CFA) suggests that while homeownership has risen to a record high of 67 percent, home equity has declined somewhat. Between 1989 and 1999, average home
equity per homeowner declined, in inflation-adjusted (1999) dollars, from $91,000 to $89,500. Home equity did, however, increase over the same period for lower-income (from $76,000 to $80,400) and African-American households (from $53,400 to $59,700).
Differences were also noted by age. Home equity increased for age groups older than 55, but decreased for groups under this age. In 1999, households headed by someone younger than 45 had 14 percent less equity than their counterparts of a decade earlier. Households between the age of 35 and 54 saw mortgage loan to value ratios increase by about 16 percent.
Two reasons for the stagnation are suggested. Increased borrowing by homeowners on their home equity and an increase in the number of first-time homeowners using low down payment mortgages. In the past five years, about twenty percent of homeowners had borrowed on their home equity, with loans averaging $36,000. Nearly one-third of these borrowers (31%) refinanced consumer debt, and one-quarter said they were concerned about repaying this debt.
SOURCE: CFA Press Release, November 16, 2000.

Savings bond interest rates change twice a year: (May 1 and November 1). As of May 1, 2001, the Series I (inflation-adjusted) bond is paying 5.92%. This includes a 3% fixed rate plus semi-annual inflation adjustments. The Series EE rate is 4.5% which is 90% of the average yield for 5-year Treasury securities for the previous 6 months. For more information, visit www.savingsbonds.gov. For more info on savings bonds: Investing For Your Future http://www.investing.rutgers.edu Lesson 3.

TEACHING KIDS ABOUT MONEY: TIPS FOR PARENTS
The 2001 Parents, Youth & Money national survey shows how much parents really know about finances, and suggests tips for parents to help kids become savvy savers and consumers. The survey finds parents overestimate how much they know about finances and underestimate the role they can play in teaching their children about money management.
While a majority of respondents felt confident about their understanding of financial matters and their ability to manage money, many of their actions and behaviors contradict this self-assessment. Previous studies revealed that 94 percent of students turn to parents for financial education and guidance. Yet, most respondents could cite only one or two examples of things they had done to teach their children about money. Even parents who feel they do a fair or poor job of managing their money still consider themselves effective at giving their kids financial advice.
The survey highlights the need to provide financial education to parents, including information about how to teach children about money. Tips for parents include discussing family financial matters with children; teaching basic skills like comparison shopping, goal-setting and budgeting; using the media and internet as financial education tools; and talking to kids about future job or business ownership prospects.
In conjunction with the 2001 Parents Survey, ASEC and the TIAA CREF Institute have created several tools to help parents. The "Money Talk" pamphlet series, Youth Money Poster, Interactive Savings Goal Calculator, and Piggy Bank Wrapper and additional information about the survey are available at http://www.asec.org.
SOURCE: April 12, 2001 News Release from ASEC, EBRI and Mathew Greenwald & Associates.

What does it cost to be a woman?
http://www.money.com/costs/women
See how your gender affects what you earn and spend. Also, check out Ann Crittenden's recent book, The Price of Motherhood: Why the Most Important Job in the World is Still the Least Valued.

Money 101 Lesson 13 "Planning for Retirement"
Created by the editors at Money magazine and its Web site, Money 101 consists of electronic lessons that help you invest, save, borrow and spend more wisely. The essentials of each lesson can be absorbed in just 10 minutes. But all lessons feature greater calculators, quizzes and a library of supplemental materials--for those who want to dig deeper. Lesson 13 "Planning for retirement" provides a concise lesson in the basic concepts:
http://www.money.com/money/101/lessons/13/intro.html

For good, solid, down-to-earth financial advice and information:
WEEKLY BRIEFING: The DirectAdvice Newsletter is published by DirectAdvice, Inc., 52 times a year and distributed free to individuals interested in investing and financial planning. On the home page: http://www.directadvice.com/ click on: "Subscribe to our FREE Weekly E-Mail Newsletter!"

The U.S.U. Family Life Center, 493 North 700 East in Logan offers free financial and housing counseling. If you want help getting out of debt or simply organizing your finances and developing a realistic budget (or know someone who can use this help), call 797-7224 for an appointment. The FLC offers first-time homebuyer workshops the last Saturday of each month.

Funding for Financial Planning for Women (copying cost, postage, book purchases, etc.) is made possible by a grant from the Foundation for Financial Planning. www.foundation-finplan.org/