Welcome to the May 2005 edition of Susan Robison's free e-mail newsletter for women business owners, executives, and professionals.

Our goal is to bring you news, insights, and information about leading a balanced and prosperous life while making a difference. If you are on this list you have been a client, an advocate, or attended a workshop. Pass this newsletter on to others who might be interested. This e-mail list is not sold or exchanged. Details on subscribing (and unsubscribing) are at the end.

In this issue, you'll find:

1. Retirement - the Financial Side
2. BossWoman coaching
3. Up and coming workshops

Retirement is one of those topics that separate the women from the girls, that is, those who take their financial future seriously from those that figure “it will all work out.” The recent debate about the future of social security has reminded women of their worst money nightmare, the “bag lady” fantasy, the fear of living on the streets or at least of living so far beneath the poverty level that basic necessities are unaffordable. Even if you will eventually see a social security check in your mailbox, your best insurance of living comfortably in your later years is to have other monies available, either in company plans or your own private retirement funds. If you aim to reach financial independence in which you do not need to depend on earned income and then you decide to continue employment you will have extra money for travel, grandchildren’s education, or philanthropy. If you presume everything will work out, you may not be able to stop working even if you wish to.

Shockingly, many people are not saving enough for retirement. In preparation for this newsletter, I consulted Eric D. Brotman, CFP, CLU, MSFS, President of Brotman Financial Group, Inc. who said that the U.S. now has a negative savings rate as our debt continues to outpace our savings. This problem has particularly arisen from people who borrow against their retirement funds and do not replace what they draw out. He said, “Personal debt has skyrocketed during the low interest rate craze, and as rates increase, personal bankruptcies are sure to follow. But don’t count on bankruptcies for your financial plan. Timely new rules and regulations for bankruptcy will make it harder and more expensive for consumers to do.”

Since I often recommend that my clients consult with a financial professional to help them plan for financial goals including retirement, I asked Eric who in addition to running his firm is the President-Elect of the Financial Planning Association of Maryland, how readers might find a financial planner to work with. He suggested getting referrals from other professionals that help you with your business matters such as your accountant or your attorney. If you do not have existing advisors or friends who can point you in the right direction, check out the Financial Planning Association’s Planner-Search, a free national service to help consumers find financial planners. It is online at www.fpanet.org. Just click on “Find a Planner” and you can begin your search.

He said most financial professionals will want to interview you before putting together a financial plan for the future. You will get more out of your time with a planner if you clarify your answers to these questions before you meet with the planner. If you are planning for the future as part of a couple, you and your mate should ask these questions separately and then compare answers to test whether you have similar expectations of your later years.

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What Kind of Lifestyle Do I (We) Want?
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Answering this question will clarify some of you money and retirement values. The answer will guide financial professionals on the answer to some of the other questions they will ask.

• What do you like about your current lifestyle choices such as housing, entertainment, travel, consumer goods?
• What aspects of this lifestyle would you like to continue past your work life? What would you drop (the boat)? What would you want to add (the boat)?
• What aspects of your current lifestyle would change if you no longer needed to work? For example, some planners formerly assumed that after retirement, people could live on about 70-80% of their current income. They no longer make that assumption since some line items in your normal spending plan will decrease and some will increase. For example, you might lower your dry cleaning bill by not needing to wear suits to work each day but you might want to increase your travel budget, your hobby budget, or your medical spending.
• What assets and liabilities do you currently have? At what point in the future will you be able to live debt free and keep your desired lifestyle?

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When Can I (We) Retire?
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The answer to this question depends on your lifestyle answers, how much you made in your lifetime, and how much you saved. For example, if you graduated from college you have the potential to earn twice what the average high school graduate will earn in her lifetime and therefore might save more and retire at a higher standard of living or even be able to retire earlier.

The earlier you plan on stopping your work life, the more money you need stockpiled that year to last through the rest of your life. This is where the math gets tricky and why it pays to have a professional helping you plan. For example, if you plan on retiring at age 65, you need your savings large enough and invested as good rate of return to provide income for the rest of your life and that might be 30-40 years. If you are still supporting yourself until 75 by paid employment, you need to have less savings at 65 because your stockpile will keep earning for you for those 10 years you are still working and not pulling any income out. Add to the complexity contributions from social security, a company pension, or a widow’s pension from your spouse’s employment.

There are on-line calculators available that can give you a rough idea of the answer to this question. Your place of employment might have one under “employee benefits” on the website or you could use the one at www.aarp.org. The first time I plugged in my numbers, I was shocked to be told by the impersonal calculator that I either had to die young, retire old, or eat cat food because I needed more time to build my stockpile. When I recalculated using a later retirement age, I was told I would have sufficient funds. Once again I recommend individualizing the answer to this question with a trained professional who hopefully can give you more encouraging news than the computer screen.

Eric Brotman suggests that timing retirement also has to do with company benefits, family considerations, and in many cases personal health and wellness. For those of you that don’t mind some actual numbers here is an example that Eric provides to illustrate the reality of saving for financial independence. If a family has two $35,000 wage earners, each of whom puts 10% a year into some form of retirement plan, the family is living on $63,000 per year before taxes. To accumulate enough money to have an income of $63,000 per year without the possibility of running out of money requires roughly $1,260,000. After retirement, the family can withdraw 5% of their money each year, while still earning returns in the 8-10% neighborhood for life. After fees and expenses, there should be enough money available to pay the $63,000 “retirement salary” and increase that amount by roughly 3% per year to keep up with the cost of bread and milk.

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How Much Risk Can I (We) Tolerate?
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Financial planners will also determine your risk tolerance, how distrait you might get when an investment looses money versus how distrait you might get if you don’t make money fast enough. It is always a tradeoff. Fast cash brings more risks which can mean no cash. You might think that the safest place to put your money would be in a savings account until you realize that if the rate of interest you are earning is not keeping up with inflation, you are losing money- not the original money you deposited but the potential money you might have made with another investment vehicle. Of course that other way of investing might have lost you money so you can see how the two items trade off. Your planner will use terms like risk aversive, moderate, etc. but what you need to communicate is your upset at losing money versus your upset at not making it fast enough.

One way to work with the tradeoff of risk versus high earning is something the financial people call “diversification.” That means putting some money into various categories of risk and ways of earning money such as stock, bonds and real estate. Financial planners can use models to predict earnings and inflation and can make predictions, but they don’t have a perfect crystal ball either and they don’t want you to get mad in case the numbers change. So they always offer a disclaimer that says that past performances do not predict future ones. Still their models are better than what you or I would come up with.

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How Much Attention Do I (We) Want to Pay to Investments?
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How excited are you about reading about these topics? Company pension plans, Defined benefit plans, 401(k)’s, Traditional IRA’s, & Roth IRA’s.

If you don’t get excited about the above topics, here is the meat of what you need to know: These terms refer to various people in the US can plan for retirement income.

• Pension plan – money your company promises to pay you in retirement. You draw your pension for the rest of your life no matter how much you contributed. If you die shortly after retirement, the money you saved goes into a pot for other retirees. Your widow/er may get some of that money, depending on the plan. If you live longer that the insurance actuary tables predict, you beat the system and draw out more than your company put away for you. There are few of these left anymore.
• Retirement plans at your company like 401(k)’s - you have only what is in the pot and when it runs out – well that’s it. The pot is finite; it is your pot and you can take it with you and put into a new pot. You can also start pots like Traditional IRA’s (before tax money) and Roth IRA’s (after tax money) totally on your own with no company helping you.

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Further Tips
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• Start saving when you start working. Don’t fall into the trap of thinking you will start later when all of your goals are met like owning a house and starting the children’s education funds. When your savings grows through the miracle of compound interest, you have time on your side. Aim for a 20% savings rate if possible. Have it taken out of your paycheck and you will never feel deprived especially when you see compound interest and good strategies paying off for your future.
• Use credit for houses, education and cars only if possible. Pay off your credit card at the end of every month and you won’t be tempted to live on somebody else’s money while you pay high interest rates.
• Take advantage of saving in a company plan such as profit- sharing plans, 401(k)s, and 403(b)s. Entrepreneurs can save pre-tax dollars in SEPs and SIMPLEs.
• If you start an IRA check with a professional about whether a pre-tax or after tax choice is better for your situation.
• Insurance should be part of your plan as well. Eric recommends that that an ideal financial and retirement plan must work under any and all circumstances. Thus, before constructing the financial castle, it is often wise to dig the risk management moat. *Disability insurance protects against the loss of income due to injury or illness.
• Life insurance can supply a surviving spouse and/or children with income to replace the deceased worker’s paycheck.
• Medical insurance provides benefits in the event of illness, and retirees must get solid advice as to the rules regarding Medicare. *Long-term care insurance can provide financial support in the event of a long-term illness, and can assist in protecting assets against outliving your money during a period of increased medical expenses.
• Property and liability coverage to protect your home in the event of a loss, and to protect your family in the event of a lawsuit stemming from an automobile accident or an accident on your property.

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Conclusion
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If you don’t want to be eating cat food in your old age, pay yourself first.

Happy savings,
Susan Robison

References:
Eric Brotman CFP, CLU, MSFS can be reached at:
Brotman Financial Group, Inc.
9690 Deereco Road, Suite 280
Timonium MD 21093
PH: (410) 252-4555 ext. 16
FX: (410) 252-6678
ebrotman@brotmanfinancial.com

His mission statement is:
At Brotman Financial Group, we do comprehensive financial planning and wealth management for families and small businesses by getting to know the unique and intimate details of your financial world and thoughtfully crafting a strategy to identify and support your goals.

Books: just about any book by Suze Orman, Peter Lynch, or Rick Eidelman

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2. BossWoman coaching
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About the publisher: Susan Robison, Ph.D. is a professional coach, speaker, author and seminar leader. She loves to coach women who want improvement in:

• work-life balance,
• career transitions,
• building your business or practice,
• time management,
• increasing productivity.

She provides keynotes and seminars to business and organizations on the topics of:

• leadership strategies for women,
• relationships,
• work-life balance,
• change.

Contact Susan for your coaching, speaking, or seminar needs at Susan@BossWoman.org or at 410-465-5892.

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3. Up and coming workshops
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I am currently booking workshops for the fall and winter. Contact me if your group needs a speaker on the topics listed above.

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To start receiving the BossWoman e-Newsletter send an email with “Please send BossWoman” in the Subject to: Susan@BossWoman.org.

BossWoman e-Newsletter is intended for informational and educational purposes only. Coaching should not be construed as a form of, or substitute for, counseling, psychotherapy, legal, or financial services.

© Copyright 2005 Susan Robison. All rights reserved. The above material is copyrighted but you may retransmit or distribute it to whomever you wish as long as not a single word is changed, added or deleted, including the contact information. However, you may not copy it to a web site without the publisher’s permission.