September 2001 Newsletter

September 12: Module 7: Are You (or your spouse) Self-Employed &/or Responsible for Your Own Retirement? If you or your spouse is self-employed (or plan to be) or if your employer does not provide a retirement plan, don't miss this session. For small business owners, too!
Bring a friend to FPW and get a free financial planning book (while they last).
If you think you are too young to start planning for retirement, the earlier you start, the easier it is to reach your goal.
If retirement is not your main financial concern don't forget some of the excellent web resources to learn about other aspects of credit, money management, and investing:
http://www.money.com/money/101/lessons/

October 10: module 8: Individual Retirement Accounts with guest speaker Lyle Hansen.
New comers: You can review previous modules at: <http://www.ces.purdue.edu/retirement>

Quote of the month: "Nothing can impair your standard of living quite like a credit card balance that rolls over and over, month after month." Chet Currier, whose mutual fund column runs in the Sunday Salt Lake Tribune business section.

Recommended articles:
"Your Money: Where to Park Your Cash: Strategies that balance safety and returns for every savings goal." September 2001 Consumer Reports pp. 64-65.
With the complex new tax law more consumers will find themselves needing professional financial advice. There is an excellent article "Advice worth the price" by Suzanne Woolley in the August 2001 Money magazine Pp. 69-80. to help you decide when you need help and how to pick an advisor. Read the article: http://www.money.com/money/depts/planning/finplanner/

Budget? Just Shoot Me Now! By Stephen Advokat (<DirectAdvice.com> email newsletter started a series of articles on budgeting)
"For some, "budget" is a six-letter expletive. Budgets are hard to write, even harder to adhere to, and they restrict your lifestyle to something just this side of a Benedictine monk. Right?
Well, they can. But then you probably wouldn't stick to it. And what would be the value of that?
So the point is to create a budget that doesn't make you feel constricted. A budget that leaves you feeling not deprived, but rather in control of your spending so that you can make the most of every hard-earned dollar." Sign up for the weekly email newsletter to learn more.

Due to a lack of staff Social Security will no longer offer bimonthly seminars in Logan. Call Social Security at 1-800-772-1213. The Ogden office is located in the Federal Building 324 25th St. Office hours are 9 am to 4 pm Monday -Friday.

New Utah Retirement Systems statement
If you or your spouse participate in URS then be sure to read your second quarter statement that arrived in July. The statement is easier to read and includes a projection of how your account will grow at 5%, 8% and 12% rates. If you are invested in equities (stocks) in the long run the 8% return may be a bit conservative and the 12% optimistic. Your beneficiaries are listed as well as a convenient reminder. "Give your retirement a raise" illustrates the value of compound interest. The low annual fees listed for URS investments are a good benchmark for your personal investments.
Don't forget about the mid-career and pre-retirement planning seminars offered by URS in Logan on Sept 13 and 14; check them out on the website: http://www.urs.org/.

Some thoughts on investment risk:
"When gauging investment risk, recognize the limits of statistics." In the Vanguard, Summer 2001, p. 9.
"Too often, risk is described in statistical terms that have very little meaning or relevance to most investors" Jeffrey S. Molitor, Vanguard's Portfolio Review Group. Problems with risk statistics: 1. Data are based on past performance. 2. They are heavily influenced by past investment trends which are unlikely to be repeated. "The real nature of risk for investors is... whether you will have the resources to meet your long-term needs and goals." So what do you do? Diversification offers some "insurance" against unanticipated investment events. You need to decide on an asset allocation that makes sense to you. "The only surefire ways to influence the amount of money you'll have in the future are to invest more, start early, extend the length of time you invest, and lower your costs." "The only risk-reducing variables under your control are the amount you invest, how long you invest, and what you pay for your investments."

Faster Vesting of Employer Matching Contributions to Retirement Accounts
The 2001 tax law accelerates the vesting requirements so that employees will own (be "vested" in) their employer's contributions to their retirement accounts more quickly. An employer can offer "cliff vesting" (all or nothing) after an employee has completed 3 years of service or "graduated vesting" after 6 years (20%/year beginning with employee's second year of service). Remember that the employee ALWAYS owns their own contributions to their retirement account; vesting applies only to the employer's contributions.

Lower-Income Investors Are Not Saving Enough
By Stephen Advokat
We've long been advocates of saving as much as you can for retirement. After all, retirement doesn't come cheap. And with lengthening life spans, you'll likely be retired for a long time. (Indeed, you could be retired for as many years as you spent working.) We recommend that, as a minimum, you save 10% of your annual income. Fact is, we'd prefer you salt away 15% or 20%. Too little, too late. Now comes a report out of Atlanta underscoring once again our basic concern that retirement is expensive, and that many of us are not investing enough for it.
According to the Center for Risk Management and Insurance Research at the Robinson College of Business, a single-income married couple earning $20,000 a year is saving a scant 1.6%, or about $320, a year for retirement. A couple earning $50,000 a year is saving only slightly more, 4.6%, or $2,300. And a couple earning $90,000 a year is saving 6.8%, or $6,120 annually.
Not only are all of these figures far from the 10% minimum we recommend, but they're also below the levels these income groups were putting aside just four years ago. (The $20,000-a-year couple was investing $1,040 a year; the $50,000 couple was investing $3,250, and the $90,000 couple was investing $6,210.)
Even more disconcerting: Everyone in the study was between ages 50 and 64. This is not a group that can make up for lost time later. This is a group that ought to be socking away as much money as it can for a retirement that is just beyond the horizon.
Dr. Bruce Palmer, who co-authored the study with Dr. Bruce D. Brooks, isn't sure why lower-income couples are putting away less money now than four years ago. In part, he speculates, it might have to do with inflation. He says, for example, that $20,000 today doesn't buy what $20,000 bought in 1997, so finding "extra" money for retirement is all the harder now.
Perhaps. We don't doubt that finding "extra" money for retirement is tough, no matter your annual income. But neither do we question the importance of investing for retirement.
Self-help advice: Over time, this newsletter (and our Website) will provide tips and strategies for finding that "extra" money.
Indeed, a first step might be to pay yourself first. That is, after you get each paycheck, make sure the first check you write is to deposit at least 10% of your earnings into a mutual fund for your retirement. That might sting at first. But over time, your living standard will adapt to that level of income.
And even better, you'll be on the right path toward maintaining the lifestyle you now enjoy when you retire.
Stephen Advokat is executive managing editor of DirectAdvice.
Sign up for the free weekly email newsletter at: http://www.directadvice.com

Sound Money <www.soundmoney.org> 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. Featured topics in September:
September 8, 2001 Your Money Manager, with Erica Whittlinger
September 15, 2001 Long-Term Care Insurance, with Janet Bamford
September 22, 2001 Investing in Real Estate, with Allen Cymrot
September 29, 2001 A Guide for Living Together, with Frederick Hertz

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/