Amy Mann didn't start tucking away money for retirement until her early 40s, when she realized a princely inheritance or wealthy suitor might not head her way.
Amy Mann, 49, works in sales for a small marketing firm in New York City.
She is single and has a gross annual income of $47,000
Retirement account: $38,000 in her IRA, invested in a growth fund, an
equity & income fund and a small-cap fund
Non-retirement investments: $15,000 invested in E*Trade, Xerox and two Janus
mutual funds: Enterprise and Global Life Sciences
Continue saving $500 a month toward retirement, investing through
dollar-cost averaging in diversified mutual funds
Consider using cash to purchase apartment now renting
Sell individual stocks and transfer money to diversified mutual funds
Buy disability insurance
|Today’s Financial Planner
Marilyn S. Steinmetz is a certified financial planner and president of Money
Matters, a financial planning firm in West Hartford, Conn. She has a Master’
s of Business Administration, and she is an adjunct faculty member at the
University of Hartford, teaching courses in financial planning and taxation.
The 49-year-old New Yorker now shudders at the thought of hitting the big 5-0 with a relatively spare sum in savings.
"Am I without hope?" she wrote in her e-mail requesting a FOX MarketWire Makeover. "Does my future portend a cardboard box?"
Marilyn Steinmetz, a certified financial planner in West Hartford, Conn., assured Mann she was not destined for the homeless shelter. But at the same time, she warned Mann that if she expects to retire at age 65, she'll have to be extremely diligent about saving and stop exposing her investments to big risks.
Mann, who works in sales for a small marketing firm, now saves a respectable $500 a month from her $47,000 annual salary. By brown bagging lunches, giving up vacations and refraining from updating her wardrobe, she has amassed $38,000 in an IRA, $15,000 in a non-retirement brokerage account and $25,000 in cash over the past eight years.
"I really do get a great high from saving, because it's a wonderful feeling even to have a little bit," Mann said. "It's better than any purchase I could make."
Steinmetz liked Mann's attitude, and said if Mann continues setting aside $500 a month, she'll have roughly $500,000 when she reaches 65, assuming a 10 percent annual rate of growth and adding the money she already has saved. That may be enough considering Mann's fixed expenses now amount to only $1,300 a month. But because she's single and lives in an expensive city, Steinmetz urged her to try to save even more aggressively.
"You'll need at least half a million to retire," Steinmetz told Mann. "You can do it if you really go for it, but the main thing is that you really have to stop gambling with your money."
Mann's IRA now is invested in three mutual funds, a large-cap growth fund, an equity & income fund and a small-cap fund. Steinmetz didn't have a problem with those choices, but she found it troubling that Mann trades individual stocks through her non-retirement brokerage account.
Mann now owns shares of E*Trade and Xerox, both of which are trading lower than what she originally paid. (She also has Janus Enterprise and Janus Global Life Sciences, two mutual funds, in her brokerage account.)
Not only does stock trading cause Mann to lose sleep, but Steinmetz said it's comparable to gambling. Playing the stock market may be fine for the well-off, but Mann unfortunately doesn't have the same leeway with her money. "You need to leave the job to professionals," Steinmetz said.
She encouraged Mann to keep her Janus funds, but sell her individual stocks and use the proceeds to invest in other funds. Because Mann has the stomach to take some risks, she suggested Robertson Stephens Emerging Growth, an aggressive small-to-mid-cap growth fund with a five-year average annual return of 44.36 percent.
"This is a go-for-it fund," Steinmetz said. "So, you still have potential for strong returns."
For an international fund, she recommended Janus Worldwide, which has a five-year average annual return of 31.2 percent.
Overall, Steinmetz suggested an equities allocation of 50 percent to mid-to-large-cap stock funds, 30 percent to international funds and 20 percent to small company funds.
Dollar-Cost-Averaging Ensures Money Gets Saved
The planner also recommended that Mann arrange for $500 to be automatically directed to her discount brokerage or mutual fund company each month. By dollar-cost-averaging investing a fixed sum in a mutual fund or other security at regular intervals Mann would not have to time the market to invest at market lows. Dollar-cost-averaging also is a good way to ensure that money gets saved, rather than spent.
And although Steinmetz steered Mann away from individual stocks, she cautioned her from being too conservative about her emergency fund allocation. The planner recommended that Mann keep only $10,000 in cash. (Typically, financial planners recommend that clients keep an emergency fund equivalent to three to six months worth of their fixed expenses.)
However, Steinmetz said Mann might want to consider using her cash as a down payment on a condo.
Mann has the option to buy her studio apartment for under $100,000.
Steinmetz estimated that if she received a mortgage with an 8 percent rate, she would pay just a little more than the roughly $900 a month she's now paying in rent, when adding the condo's maintenance fees and tax breaks into the equation.
"Instead of watching your rent go up, this would tie you in," Steinmetz said. "This could give you more security in the future."
Said Mann: "I've been thinking about buying for so long, but I've never done it. "But it's definitely something to think about."
Another area of concern to Mann is that she has no pension or 401(k) plan through her employer. Quitting might be an option for a young person, but Mann worries that jumping from job to job could leave her unemployed if the economy sours and employers snub her for younger candidates.
"I know I could be making more money, but I have tremendous security in my job now," she said. "I'm too afraid to switch jobs."