November 2001 Newsletter

A look ahead at FPW in 2002:
January 2002: "Grandma's Yellow Pie Plate" with Dr. Barbara Rowe, Extension Family Resource Management Specialist.
February 2002: Estate Planning

Quotes of the month: "Life happens while you are making other plans." John Lennon.
"Hope is not an action plan." Read the article "Retirement planning made easy" from directadvice.com in this newsletter.

Teaching Teens About Compound Interest
The TIAA-CREF Institute has released, "Creating an Interest in Interest," a four-page parent guide to teach teens (14-17) about compound interest. The guide includes lessons and activities to introduce and reinforce the concept of compounding interest. Learning objectives: define and explain the concept of compound interest; understand that investing or saving helps you to stay ahead of inflation; and recognize that saving and investing can help you reach financial
goals. In addition to "Creating an Interest in Interest," the web site
(http://www.tiaa-crefinstitute.org/Data/surveys/ps_docpg.htm) also includes an interactive savings goal calculator and information about the 2001 Parents and Money Survey.

The Money Manifesto (basic financial concepts are especially important during times of financial uncertainty). Read the details in Money magazine November 2001 pp. 78 & 80.
1. Stocks form the foundation
2. Fixed income can't be forgotten
3. Timing the market is a mistake
4. Buy low, sell high
5. Diversification matters (Index mutual funds should be core of your portfolio)
6. Focus on what you can control
7. There's no such thing as risk-free investing
8. Individuals have an edge
Also check out:
Are you covered? Money Nov. 2001 p. 139-147
Life insurance
Disability insurance
Homeowners insurance
Online shopping for insurance

Retirement Planning Made Easy By Frank C. Armstrong, CFP
"A secure retirement takes lots of money, perhaps more than you think.
With people retiring sooner and living longer, the average retiree will spend more years retired than working. You might say that retirement is really one-third of your life without a paycheck!
Living large
How big does your retirement nest egg need to be?
Most people find that they need at least 70% to 100% of their pre-retirement income to live comfortably. In fact, many financial planners working with active retirees find that their clients actually spend more money during their 60s and 70s than they did during their working years. The pace of spending slows down a bit once they reach their 80s, but increasing health expenses soon raise their total income needs again.
Therefore, for each dollar of income you think you'll require above whatever Social Security and pensions provide, count on needing a nest egg of at least $16 to $20. For instance, if you will need $10,000 a year of income from your investments, you should start out with $160,000 to $200,000.
Be sure to pay attention to how much you withdraw each year so your money doesn't run out while you still need it. Plan on withdrawing no more than 6% of your retirement funds each year. This should enable you to stay ahead of inflation (which historically has averaged about 3% a year). It will also let the portion of your retirement funds that you have not withdrawn continue to grow (that's because, based on historical average annual returns at least, even a conservative portfolio of, say, 60% stocks and 40% bonds could expect to average 7% or 8% annually).
Hope is not an action plan
How can you save up that much money?
Start early, invest enough (people who invest between 20% and 25% of their income during their working life have an excellent chance of achieving economic security), and attain reasonable rates of return.
The relationship between time, amount invested, rate of return and ultimate results is pretty well known. The dreary reality is that success requires discipline and that retirement planning must be given a high priority early in your career. After all, hope is not an action plan.
Failure to obtain a market rate of return also raises the stakes dramatically. Reaching the same goal requires dramatically more savings if your portfolio averages just 8% rather than 10%.
The more time you have until retirement, the more aggressive you can afford to be with your money (excluding, of course, what you set aside as an emergency fund and any other short-term needs). If you don't need to spend the money in the next few years, you shouldn't be too concerned about short-term fluctuations in the market.
Early, often, and with a dose of risk
Paradoxically, not taking enough investment risk could also guarantee failure.
Risk actually decreases over time. So, strange as it might seem, over longer periods the risky asset is the high-probability shot. Bonds and other savings alternatives do not offer enough real total return to meet reasonable economic needs later.
A 100% equity portfolio loaded up with high-risk asset classes like small-cap, foreign small-cap, emerging-market, and growth funds has the highest chance of success over long periods of time.
The moral is pretty clear: Invest early, invest lots, and invest in a diversified portfolio of equities to get reasonable long-term performance."
Frank C. Armstrong is chief investment strategist of DirectAdvice. (DirectAdvice.com email newsletter June 18, 2001)

Social Security Resources For Women
Recognizing the special importance of Social Security to women and the need for women to have access to timely, accurate information about their rights to benefits under the program, the Social Security Administration (SSA) has developed a new website, "Social Security Online For Women." The site (http://www.ssa.gov/women/) provides basic Social Security program information on retirement, survivors, disability and Supplemental Security Income benefits pertinent to women.
The Social Security Administration sends annual Social Security Statements to almost 135 million workers over age 25 who are not already receiving Social Security benefits. The statement provides individualized estimates of future Social Security benefits and a clear message that Social Security is only the foundation of a comfortable retirement. When you receive your statement, read it and use the information to fill out the Ball Park Estimate of your retirement savings needs.

Taxes on Investments
"Question: What's the difference between tax-deferred, taxable, and tax-free earnings on investments?
Answer: Tax-deferred investments are those whose earnings are not taxed until you withdraw them, such as 401(k)s, 403(b)s, U.S. Savings bonds and some IRAs. So, while you do pay taxes on them, you just don't pay them until you "use" the accounts.
Taxable investments are those for which you pay taxes every year on the dividends and appreciation of investments that you sell. Mutual funds and regular savings accounts are examples of taxable investments. Every year you must report the interest earned on your income tax statements and then pay taxes on it.
Tax-free (also known as tax-exempt) investments are those whose income is not taxed, such as municipal bonds. Bear in mind, however, that tax-free doesn't necessarily mean completely tax-free. Some "tax-free" investments, for instance, are only free of federal income taxes, leaving you to pay state or local taxes."
Courtesy of DirectAdvice.com weekly email newsletter

Sound Money <www.soundmoney.org> is a call-in radio program (Sat. 9-10 am 89.5 or 91.5 FM) is hosted by Debra Baer and Chris Farrell and features weekly appearances by Minneapolis money manager Erica Whittlinger, president of Whittlinger Capital Management. Each program contains several interviews with special guests who address a wide variety of topics of interest to individual investors and consumers. Upcoming topics:
November 10, 2001 Bonds, Bonds, Bonds
Erica Whittlinger takes your calls, and author Daniel Pederson answers all questions on savings bonds.
November 17, 2001 A Show Entirely About Risk!
Special guest Lynn Rossetto Kasper also joins us to talk about entertaining on a budget.
November 24, 2001 The Future of Wall St.
Renowned economic historian John Steele Gordon shares his thoughts on the future of Wall Street. Frances Cairncross of The Economist fills us in on the "Bridget Jones Economy."
December 1, 2001 All about Self Employment
Mary Rowland talks to us about retirement planning; Eric Tyson, frequent Sound Money contributor and author of the Dummies series on personal finance, helps us understand disability insurance; perennial Sound Money favorite Ross Levin joins us to talk about managing cash flow; and career counselor Amy Lindgren checks in about loving your job.

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/