ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, January 15, 1996 TAG: 9601160003
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF/STAFF WRITER
THIS IS THE YEAR: The first of the so-called baby-boom generation will celebrate their 50th birthdays during 1996. It means that for a huge portion of the U.S. population the question of how to handle their finances for the remainder of their working careers and retirements. What should they do? The Roanoke Times Money Page put that question to seven financial planners in Western Virginia. Here are their answers:
GEORGE H. BELL of the Bell Financial Group, Blacksburg:
BASED on your risk tolerance, your age, your wealth and your investment/economic beliefs, you might plot your strategy with this philosophy: "hedge your bets." It is what I recommend and how I invest, myself.
Below are four investment ideas you should consider. The less risk you wish to take the higher percentage of money you should put in the safer accounts. The more risk, the more money you might put in your hedge position. If you can only tolerate moderate risk, think of spreading your money out evenly.
In the following accounts, metals would be considered high risk, industrial stocks medium risk and money market accounts low risk. This of course varies widely, but is accepted as a rule of thumb:
40 percent in a money market mutual fund (Dreyfus 100 percent U.S. Treasury Money Market Fund);
15 percent in gold mutual funds (Fidelity Select American Gold or Lexington Goldfund);
45 percent in mutual funds (Robertson-Stevens Contrarian Fund, 20th Century Growth Investors, or both).
Money market funds do not guarantee safety of principal and are not federally insured. They are nonetheless considered safe.
Place 15 percent of your money in no-load gold or silver mutual funds. Some are invested in South Africa or other countries which may support programs you don't believe in. Others invest only in Canada and America. When the value of gold goes up (you can watch the news), this is inflationary and might indicate interest rates will go up. Then stocks will go down.
Lastly, you might put 45 percent in stock mutual funds. My choice is Robertson-Stevens Contrarian Fund, which shorts the market and purchases stocks that are out of favor (buy low, sell high). You might choose Mutual Shares fund if you are conservative, or 20th Century Growth Investors, which has a 10 percent position in Japan (buy low) if you can tolerate more risk. Or split your investments among all three of them. The funds mentioned are no-load or low-load funds.
DAVID CISSEL of Financial Solutions, Roanoke:
FIFTY is an important age to review your financial goals and situation. For many, retirement planning becomes more important as retirement begins to be more than just a distant dream.
To plan for retirement, you should know when you want to retire and have a good idea of how much income you will need when you retire. You can then determine how much more you need to save. If you have a company plan, like a 401(k) or other contributory plan, you should maximize your salary contributions. You should also contact Social Security to get a personal earnings and benefits estimate statement.
Managing debt is very important. You should pay off credit card bills monthly. Other consumer debt should be kept to a minimum. It may be a good idea to make extra payments on your mortgage or possibly refinance a 30-year mortgage to 15 years.
Financial management strategies need to keep up with changes in your family situation. If you have children that no longer depend on you financially, you may be able to reduce your life insurance. Also, if your parents are alive, make sure you know what their financial situation is so you can help anticipate their needs. If you have a will, you should review it to make sure it is still appropriate. If you do not have a will, stop procrastinating and see an attorney to make one.
If you have invested conservatively, you may want to increase the percentage of stocks or equity mutual funds you have. If you have invested more aggressively, you may want to shift to some more conservative investments.
ANDREW M. HUDICK of Fee-Only Financial Planning in Roanoke:
IF I were a baby boomer turning 50, the biggest concern I would have is retirement monies and the viability/solvency of the Social Security system.
Their parents have depended on Social Security and corporate pensions as their primary retirement resource. With the problems being experienced by the Social Security program, there is a strong certainty that the system as we now know it will not be in place when these folks reach retirement age.
Indeed, a 50-year-old cannot collect full Social Security benefits until reaching age 66, and recent Congressional proposals have suggested extending this age for full benefits.
In addition, many corporations are phasing out the defined benefit retirement plans that have been in place for years and replacing them with defined contribution plans. (Such plans define the benefit a retiree receives based upon salary, age and length of service, while a defined contribution plan is a portable pool of funds where you have defined the contribution as a percentage of salary or annual amount.) So it is mandatory that baby boomers take advantage of 401(k), 403(b) and 457 plans to help fund their retirement resources.
I would also review the insurance portfolio of the boomer. Make certain they have adequate liability insurance including an umbrella policy for catastrophe. With the family grown or growing, life insurance needs should be reviewed. For many, the need for life insurance will decline as dependents have grown and reached the age of majority.
JOHN C. PARROTT SR. of Wheat First Butcher Singer:
THE first step is to look at a time line for retirement. How long you will have for money to work will have a great deal to do with how you invest it.
Next you need to look very carefully at the major obligations you will have during that time period. When people disregard the need for liquidity for at least a portion of their investment funds during the pre-retirement period, they can end up selling something prematurely. (Murphy's Law comes into play.) Once you are comfortable with the amount of discretionary money you have to invest, then you can begin the process.
Probably the most common mistake people make is thinking that they have to make a big score right away. In most cases, this money is going to have 10 to 15 years to accumulate, so use patience and common sense. At even an 8 percent return, money will double nearly twice during a 15-year span.
When you set up your program, you need to make a no-nonsense determination of how much risk you want to take, how much liquidity you want the money to have and to whom you are going to listen for advice. It is easy for even the most seasoned professional to get stampeded by stories of someone else's success.
There are many ways to skin this cat. Annuities make sense in that they compound earnings tax-deferred until the money is taken out after 591/2. You can continue to make annual IRA contributions as they, too, will grow on a tax-deferred basis.
Many turn to mutual funds, for they lend themselves nicely to periodic contributions of capital, and they offer the advantage of professional management of that money. Some prefer to build their own portfolios piece by piece with individual stocks and bonds. This approach offers a way to build in liquidity and to try to gauge investment risk more carefully as well as offering maximum control.
JAMES PEARMAN of Fee-Only Financial Planning of Roanoke:
FINANCIAL planning at any age starts with establishing goals and quantifying the goals. Goals are important because they are the basis of determining priorities when choices have to be made in allocating limited resources. Dollar values must be assigned to each goal since, in financial terms, they provide the only method of "keeping score" of our progress in meeting our goals.
Normally the goal with the greatest priority when we reach age 50 is retirement income planning.
You should start by evaluating your current lifestyle and determining what changes you would make if you retired today. For example, will you live in your current house and will the mortgage be paid off?
This evaluation is used to establish the amount of income that will be needed to fund your desired retirement lifestyle. Once this income need is established, you need to evaluate the sources available to provide this income. Is there a company pension and how much will it provide? Should I count on Social Security? How much will my current savings provide?
For most baby boomers, personal savings will provide the difference between a comfortable retirement and a retirement of only getting by. A good investment plan is based on having realistic quantified goals and choosing investments that are consistent with these goals.
Most successful investors are those who invest consistently over a long period of time and with realistic expectations of the returns that will be received.
A person turning 50 in 1996 mostly likely will be working at least 15 more years before retiring. This time period is long enough that investing in equities provides the greatest likelihood of providing returns in the 8 to 10 percent range.
WANDA P. SEARS of American Express Financial Advisors:
MANY baby boomers already have started saving for retirement. But the retirement industry agrees that only a small percentage of baby boomers has taken retirement planning as seriously as they should have by now - when the earliest "boomers" are reaching age 50. For the generation that claimed to be youth personified, baby boomers are suddenly aware that they, too, will mature and age.
Typical baby-boomer obstacles include inheritance concerns, illusions about their earning power past mid-life, knowing how to spend and knowing how to save.
While our recent IRA Retirement Services Group survey showed that baby boomers expect to live long lives, they often forget that their parents also are going to alter the actuarial tables. Many baby boomers will be disappointed by the size of their inheritance, after their parents use up much of the money supporting themselves.
Baby boomers frequently overestimate their retirement earning potential. Few realize that, in today's employment environment, real income growth frequently stops in the 40s age range and often declines as early as the mid-50s.
The baby-boomer generation, particularly the more affluent "early" boomers, have redefined the term "necessity" as the latest fashions or expensive vacations. When we combine heavy spending with a late start in saving, baby boomers need to make every retirement dollar work as hard as possible. Increasing the return, whether on tax-advantaged investments or other funds, will help late-starters reach their goals.
J. GREGORY TINAGLIA of Investment Management Corp., Roanoke:
THE major financial concerns of most baby boomers are in one or more of the following four areas:
nThe most pressing concern usually involves covering the current or rapidly approaching cost of higher education for children.
Possible steps to help cover such costs include refinancing the home mortgage or obtaining an equity-line loan. Also, one should explore whether children can obtain some loans to share in the cost of covering educational expenses.
Any funds that have been saved that will be needed within the next five years should be changed from "growth" to low-risk investments such as bank accounts.
A second area of concern is retirement savings. One should try to maximize contributions to retirement plans, making sure to take advantage of any employer matches that are offered.
Also, investment options that concentrate on growth of capital (such as stock and stock funds), rather than income, should be selected. In addition, supplemental personal savings should be set aside to help ensure that the retirement funds accumulated will be adequate for one's needs.
A third area is the possible financial assistance required by aging parents. The cost of assisting parents can be very unpredictable because of unexpected medical and income needs associated with long-term care and inflation in living costs.
nA fourth area of concern for the baby boomer is estate planning. Everyone needs to have a will by this time and to make sure any existing will is up-to-date, including any trust planning that reduces or eliminates estate taxes or addresses specific needs of family members.
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