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Monday, Jul. 27, 1998
Couple can manage money by budgeting
Retirement strategy is 3-sided: Social Security, company pension, personal savings
By JEFFREY TOMICH
Staff WriterMarilyn Carothers wants to rid herself of debt, save enough money to retire comfortably and have some money left over to travel.
Carothers (not her real name) is a married 46-year-old receptionist living in South Texas.
She and her husband earn a little over $37,000 a year. Their assets of about $91,000 consist mainly of their home, personal property and $35,000 in an IRA.
Annual expenses run about $29,000, led by cars, a mortgage and payments on a home improvement loan and credit cards.
Carothers wants a financial planner to help her decide what to invest in and figure out how to live comfortably on her current salary.
William C. Quinton, a certified public accountant, certified financial planner and principal of Gowland, Quinton, Strealy & Associates, analyzed the case. He said the key for Carothers to manage her money effectively is budgeting.
If she owns a computer, Quinton suggests she use a checkbook program such as Quicken, Microsoft Money or any of the newer online banking programs. Such programs track checkbook balances, help reconcile checkbooks and give detailed reports on expenses.
If Carothers doesn't have a computer, she could use a cash budget book found at any office supply store to tally checks manually, he said.
``Once you know what you are spending your money on, you can use this information to set spending goals for yourself,'' he said. ``If this process of accumulating spending information and designing a budget becomes a little overwhelming, there is help.''
The Consumer Credit Counseling Service of South Texas, for instance, will help anyone design a financial budget confidentially and for free. They will also help with credit card debt issues, Quinton said.
Carothers' first goal should be to get rid of credit card debt, he said.
``Pick the credit card with the highest interest rate, and pay the maximum you can each month until it is paid off,'' he suggests. ``Then, pick the next-highest-rate card. Continue until they are all paid off.''
After credit cards are paid off, Carothers should use credit only as an alternative to cash and always pay monthly balances in full, Quinton said. ``This way you incur no interest charges, plus you get to use the credit card company's money for free.''
Quinton said Carothers can use the extra savings to increase contributions to her 401(k) plan. She should also make sure her 401(k) funds are allocated properly between investments.
Most people with more than 10 years until retirement need a diversified growth strategy, Quinton said. He suggests 70 percent blue chip stock funds and 30 percent investment-grade bond funds.
``Lots of people make the mistake of thinking they should be investing retirement monies very conservatively, and end up putting the money in certificates of deposit or guaranteed investment contracts,'' he said. ``This can be an appropriate strategy for someone currently in retirement, but is wrong for someone with years to go until they reach retirement.
``The longer one's financial time horizon is, the riskier and more aggressive their investment portfolio should be. The reason is that since the money will not be touched for years, it can tolerate fluctuations.''
A good, long-term growth portfolio should return about 12 percent per year, versus approximately 6 percent annually for the most secure investments, he said.
``The difference in return can mean all the difference between a mediocre or a comfortable retirement.''
Carothers should not depend on just one source for her retirement income. A good retirement strategy is three-sided, Quinton said.
The first side of the triangle is Social Security. While there's concern about what may eventually happen to the Social Security system, it remains a significant source of retirement income for most people, he said.
Social Security benefits are calculated using an individual's lifetime earnings record, so it is important to make sure that record is correct, Quinton said.
The second side of the retirement triangle is a company pension.
Until recently, pension plans generally provided a projected benefit at retirement based on a formula using a combination of years of service and an employee's pay level. The plans made a relatively straightforward calculation to determine expected income at retirement.
Increasingly, however, defined benefit plans are being replaced by 401(k) plans, in which the employee and company make yearly contributions that are invested under the plan. Retirement income depends on how much the employee and employer contribute as well as investment results of securities inside the plan.
The final side of the retirement triangle is supplied by personal savings. Generally, it is best to use vehicles such as IRAs and other tax-advantaged accounts to accumulate retirement funds, Quinton said.
Quinton suggests that Carothers verify her Social Security earnings, learn what her projected benefit will be, read her company pension summary plan and have the company's benefits office prepare a projected retirement annuity.
She should also make sure she is using her company 401(k) plan to the fullest extent, he said. Many companies offer some type of matching contribution plan under which they will add money to a plan based on how much the employee contributes.
``Everyone should contribute at least up to the company matching limit. But, having just said that, you will be even better off contributing as much as you possibly can.''
The imit for 1998 is $10,000.
Finally, he suggests Carothers use a standard IRA or the new Roth IRA to help save for retirement.
The Caller-Times is seeking people to share their financial situations with the newspaper's readers. Your name will not be used in a story and the financial planner's advice is free. Call Caller-Times business writer Jeffrey Tomich at 886-3678 or write him at P.O. Box 9136, Corpus Christi, Texas 78469.
How you can request your earnings record
To request your Social Security earnings record, you can mail a completed copy of Social Security form SSA-7004 to:
Social Security Administration
Wilkes-Barre Data Operations Center
P.O. Box 20
Wilkes-Barre, PA 18703
Forms are available at any local Social Security office or by calling (800) 772-1213.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web