Pop quiz:
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Time to run the numbers
Don’t tell us you’re no good at math. Or, you forgot your calculator. Or, you have to get back to Angry Birds. Increasing your financial security calls for clear thinking and focus. Take a minute and test your savvy.
• Bob Williams , publisher
Q 01
Q 03
Q 08
bob.williams@thesouthern.com
Mutual fund fees quietly add up. The difference of half a percentage point – a fund that charges 0.75 percent vs. a fund that charges 0.25 percent – costs an investor with $100,000 invested in mutual funds in a 401(k) account how much more per year? a. $50 c. $250 b. $100 d. $500
What’s the best strategy for paying off debts: a. Pay off smallest debts with a low APR first, in order to reduce your overall number of loans b. Concentrate on paying off the biggest debt with the highest APR first
In the wake of the great recession, what proportion of parents provide grown children financial assistance? a. 25 percent c. 50 percent b. 33 percent d. 66 percent
• To subscribe: Call 618-351-5000 from Carbondale, Murphysboro and DeSoto; 618-997-3356, option 2 from Williamson County; or 800-228-0429, option 2, between 6 a.m. and 5 p.m. weekdays, 7 a.m. to 11 a.m. Saturday and Sunday. • To place a display ad: Call 8 a.m. to 5 p.m. weekdays, 618-529-5454, option 6; from Williamson County, 618997-3356; or toll free: 800-228-0429, option 6.
Q 02 What percentage of middle class Americans have no written financial plan? a. 19 c. 59 b. 39 d. 69
• Editorial materials: Les O’Dell and Content That Works
SE
& SPOU
Q 04 The graduates of 2011 are the most indebted class in history, with an average student loan debt load of: a. 7,300 c. $27,300 b. 17,300 d. $37,300
Q 05 Are the following statements about credit unions True or False? a. Credit unions are nonprofit financial institutions. b. Credit unions are owned and controlled by members, not profit-seeking shareholders c. Credit unions offer fewer services than regular banks d. Credit unions are restricted to employees of certain companies or organizations e. Profits at a credit union go back to members in the form of lower fees
Q 06 Postponing retirement until age 70, rather than claiming Social Security at age 62, results in a benefit that is: a. 75 percent higher b. 55 percent higher c. 35 percent higher d. 15 percent higher
Q 07 Average life expectancy of a U.S. citizen: a. 68 c. 88 b. 78 d. 90
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Q 09 What’s the average wage for U.S. workers? a. $33,000 c. $53,000 b. $43,000 d. $57,000
Q 10 What is the annual percentage rate on a new credit card? a. 12.99 percent c. 14.99 percent b. 13.99 percent d. 15.99 percent
How do you rate? 10 correct: Warren Buffet wants to friend you! 9 correct: Close… less Angry Birds, more Suze Orman! 8 or less correct: It’s time to do some homework! 1. d: $500 per year 2. d: 69 percent 3. b: Although many people choose to eliminate small debts first, which makes them feel they are making progress, they’d save more money long-term if they paid off larger, higher-interest debt first 4. c: $27,300 5. a: T b: T c: F d: F e: T 6. a: 75 percent higher 7. b: 78 years 8. d: More than two-thirds, or 66 percent, double the rate of 20 years ago 9. b: $43,000 10. c: 14.99 percent as of Nov. 2011
Saving for retirement:
The timeline
Local advisers help you think smarter, at every stage in life.
BY LES O’DELL FOR THE SOUTHERN
Most of us have things we know we need to do, but for one reason or another do not do. We “forget” to exercise, perform routine car maintenance, floss our teeth and flip our mattresses. Unfortunately, the list of things we should be doing but somehow ignore too often includes planning for retirement, financial advisers say. “Day-to-day, most people are thinking about taking the kids to school, projects at work and other things they have to do,” says Joel Sambursky, financial adviser at Forbes Financial Group in Carbondale. “Sadly, it’s a very short-term focus.” Instead, Sambursky says, people of all ages need to be doing some thinking about their retirement and setting financial goals for the remainder of their lives. “The way that financial advisers help people is to get them to focus on those goals and begin to work toward those goals,” he explained. “Think about what you would like your lifestyle to be when you’re retired and think a little bit more longterm.” According to the Employee Benefit Research Institute, 68 percent of American workers have some money set aside for retirement, often in work-related
retirement plans or other investments. The problem, Sambursky says, is that people don’t know how much they money they will need to retire with the lifestyle they desire. In fact, the EBRI reports that 42 percent of workers simply guess how much money they will need. Sambursky suggests individuals try to determine their own financial needs for retirement and then work to reach those goals. He says it is important that people determine how they define successful retirement, calculate their retirement income needs, as well as goals and objectives.
20s and 30s For those who have recently entered the workforce, retirement rarely comes to mind. “Generally speaking, research shows that for people in their 20s and 30s, retirement is an afterthought; it’s the ninth thing on the to-do list,” Sambursky says. “Yet, the reality is that those are the people in the best positions to ensure a successful retirement.” Kevin Frost, financial representative with Northwestern Mutual in Herrin, says young adulthood is a great time for people to have a significant impact on their futures. “I generally suggest that
‘Think about what you would like your lifestyle to be when you’re retired and think a little bit more long term.’ JOEL SAMBURSKY FORBES FINANCIAL GROUP, CARBONDALE
those in their 20s and 30s begin by laying the foundation of their overall financial plan,” he says. “A very important part of that plan is the defensive component. I encourage younger clients to protect their income through disability income insurance and protect their families through life insurance. Then, once they have established adequate emergency funds, we can begin focusing more heavily on long term investing and retirement programs.” Frost says regardless of age, it is never too early to begin planning for retirement. “Albert Einstein called the power of compound interest the most powerful force on earth,” he explains. “When you are young, it is a powerful force on your side. Due to the power of compound interest, the dollars you set aside today are worth significantly more at retirement than the dollars you set aside later.” Sambursky agrees. “Most financial
CTW
People of all ages need to be doing some thinking about their retirement and setting financial goals for the remainder of their lives.
advisers when they’re working with someone who is retired probably don’t hear them say, ‘You know, I just saved too much money the last 35 years; I’ve got too much money now.’ Most people say ‘I wish I would have done more in my 20s, I wish I would have done a little bit more in my 30s,’ he explains. Sambursky encourages young people to take advantage of retirement plans offered through their employment, especially those with matching contributions from employers, such as 401k plans. Frost urges those in their 20s and 30s to at least begin saving. “Every little bit helps. Just saving something small on some basis and adding a little to it every year will yield results later in life. You can’t undo the past but that doesn’t mean you should compound the problem by ignoring it further,” he says.
40s and 50s Even if savings up to this point have been minimal or non-existent, a successful retirement is still within reach, says Jim Shull, financial services representative with Raymond James Financial in Marion.
“You still have a window of opportunity to build your golden nest egg. Renewed focus will help you buckle down and work toward the goals you have set for your retirement years. It’s not too late, but time is of the essence. People can still reach their retirement goals, even starting in their 50s. After all, they still have 15 years or more before they choose to retire,” Shull explains. He says individuals should be maximizing contributions in employer retirement plans and should also look into savings through investment products such as individual retirement accounts. “You would be surprised what kind of nice nest egg a person can accumulate in 15 years. The key is to start now,” he says. Sambursky adds that getting a later start on savings means individuals will have to save more. “The pure math is going to dictate that if you’re older, you’re going to have to save more as a percentage of your income to live the type of retirement that you want. For someone who is in his or her 40s, it’s not too late to start, but we’re going to have to do substantially more in savings in order
to make up for the lost years of not saving,” he says.
60s and beyond The focus here often shifts to managing what has been set aside for years or generating additional income specifically for retirement says Andrew Darnell, financial adviser with Edward Jones in Du Quoin. “It’s not too late to think about how to manage their retirement income,” Darnell says. Darnell says that for most people, the average Social Security check may or may not be enough to provide the desired lifestyle. “For folks now in their 60s, Social Ssecurity may be enough, but it depends upon their own balance sheets and lifestyle,” he says. “By and large many will need to have other sources of income besides social security.” The additional sources may include retirement plans or delaying retirement in order to continue to save. “Hopefully they will have some nest egg,” Darnell says. “Even then, they may end up looking at other ways to generating additional income.”
Life Planning Guide · The Southern Illinoisan Friday, March 9, 2012 Page 3
On the way to a
Financial plan Odds are, you say you have one, but you don’t. Why your family needs a financial plan. With the economy in turmoil, there’s rarely been a more important time for families to draft a detailed financial plan. Such a plan, including strategies for achieving big life milestones (education, buying a home and retirement), saving, investing and dealing with inevitable setbacks, can help steer families through challenging times. Few of us are prepared. Some 79 percent of people claim to have a financial plan, according to a 2011 survey by the Certified Financial Planner Board of Standards, but this number is misleading. Nearly half of those with a plan, 46 percent, say that it exists only in their heads; 11 percent say they only have written down some notes or ideas, not a complete plan. Financial planner Simon Singer says too many families spend more time planning a vacation than
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they do making decisions about their life’s finances. A financial plan, like a vacation, requires setting a destination and establishing an itinerary. “You need to know where you are going and how you’re going to get there,” says Singer, founder of Advisor Consulting Group, Los Angeles. Families need to know where they stand financially, even if their finances are in disarray. Doug Hendee, certified financial planner for Brighton Securities, Rochester, N.Y., sees many families who ignore financial troubles in hopes they’ll simply disappear. “So many people are embarrassed to look at their finances,” Hendee says. “But ignorance in this case is not bliss. How will you know what you need to do if you don’t take a look at your financial situation to figure out where you stand?
The good news is that crafting a financial plan doesn’t have to be an unpleasant chore. The most important part of any financial plan also is the simplest: a budget. A budget should take into account the money a family brings into the household each month. It also should list all of a family’s expenses. These should be divided into two main categories. Fixed expenses are those that don’t change from month to month: insurance payments, mortgage payments, student loans. Then there are discretionary or charges that fluctuate month to month, including utility bills, gas, entertainment spending and groceries. “Families need to know where their money is coming from and where it is going,” says Nancy Skeans, partner with Schneider Downs Wealth Management Advisors in Pittsburgh. “If they don’t
Learn more about…
In search of a financial adviser The key to finding the right investment services provider is asking the right questions – both of yourself and of prospective providers. Following are some questions from the Coalition for Investor Education, a group of state securities regulators, consumer advocates and financial planning and investment advisers, to help you identify the right provider for you. Remember, there are no foolish questions. Any reputable provider should be happy to discuss these issues with you and answer any questions you may have.
Investing and consumer protection at investor.gov The basics of investing at investoreducation.org Effective ways to save at consumerfed.org (click on Financial Services) understand that, it’s almost impossible for them to understand how much they can save and where they can cut expenses.” Families shouldn’t focus too much on the small details of a financial plan, Hendee says. What’s most important is that they start putting together a financial plan as soon as possible, even if it’s not yet complete.
CTW
The good news is that crafting a financial plan doesn’t have to be an unpleasant chore. The most important part of any financial plan also is the simplest: a budget.
Do you need help developing strategies to reach your financial goals or do you simply want suggestions on appropriate investment products to implement your goals? Do you prefer working with someone who is primarily considered a salesperson, an adviser or a combination of the two? Do you prefer paying for investment services through a fee, commissions, a percentage of assets in your account or a combination of these? How important is it to you that your provider have a legal obligation to act in your best interests and disclose potential conflicts of interest? How involved do you want to be in decisions about your specific investments? Do you want assistance with a few targeted areas, or do you need a comprehensive plan for your finances? Do you already have a portfolio of investments you would like help managing?
Life Planning Guide · The Southern Illinoisan Friday, March 9, 2012 Page 5
Beginner’s guide to
Building a budget
A budget is the foundation of a solid financial plan. Here’s an easy, real-world guide to setting one up. Erica Sandberg has this simple advice for consumers thinking about creating a household budget: Don’t forget the small stuff. That includes the monthly manicure, the special holiday bottle of wine, the extra $20 on a birthday lunch for your best friend and that concert you’ve been dying to see. And don’t forget to consider what might happen: a flat tire, a broken tooth or a speeding ticket. Not
figuring in life’s many little – and sometimes large – expenses can derail a budget. Sandberg, a personal finance expert and author of “Expecting Money: The Essential Financial Plan for New and Growing Families” (Kaplan, 2008), says the key to a savvy budget is accounting for everything. “Be extremely comprehensive,” she says. “So many people tend to truncate their budgets.
They divide their expenses into house, groceries, entertainment. That’s not enough categories. That’s not realistic.” Sandberg believes many consumers overthink a budget. “A budget is just cash flow – money coming in, money going out. If you think of it that way, it’s not so overwhelming.” Consumers who believe that a household budget boxes them in might have
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designed a plan that’s too inflexible, Sandberg says. “If they feel like they can only spend $300 a month on movies and theater, for example, it makes them feel deprived. But if they realize they can pull money from that entertainment area for, say, new tires for the car, it makes it more flexible.” The key to a successful budget is “a matter of manipulating it so you have money for necessities and things that are important to you,” Sandberg says. Knowing how much money you need and how much you have is paramount for successful budgeting. “Everyone should know off the top of their heads how much they net in a month after taxes. Then, think in terms of 10 percent,” Sandberg says. “Let’s say you bring home $2,000. Everybody who is past fifth grade math knows that 10 percent of that is $200 a month. Try to set that aside. Most people can do it if they try hard enough.” Sandberg suggests people who have credit card balances should try to think of them as loans and attempt to pay them off in six months. Take care of the balances with the highest interest rates first, a tactic that will help save money in the long run. Budgeting can be painful at first, but Sandberg reminds people that it does get easier. It’s like changing eating habits, she says. “At first,
you pay really close attention to calorie counts and statistics. But later, it becomes pretty natural. It’s the same with a budget. Once you get used to living within your prescribed numbers, it becomes a part of you.” Here, tips for budgeting, from both finance expert Sandberg and the Federal Trade Commission: Determine how much money you bring home each month. Include all income – from your job, gifts, tax refunds, unemployment or other government assistance, alimony or child support, pensions, Social Security and profits from sales of used goods. Decide how to keep track of your finances. You can choose from phone apps, computer software or good oldfashioned paper and pencil. Decide what’s most comfortable. List how much goes into a savings account each month. The easiest to remember: 10 percent of your take-home income. List all predictable monthly expenses – those that tend not to change,
including rent or mortgage, a car payment, telephone, cable and Internet. List monthly expenses that can vary – utilities, personal grooming, property taxes, insurance, gas and groceries. List occasional expenses, for things like manicures, getting your eyebrows waxed, office supplies, holiday gifts or entertainment. Add up fixed and variable expenses and divide by 12 for a monthly estimate. If you end up with extra money, carry it over in a savings account for the next month. If you have credit card balances, pay them first instead of building a savings account. Having a savings balance and a credit balance can give you a false sense of security. Be flexible. If something unexpected comes up, such as unreimbursed medical bills, take care of them by finding other places you can cut. • Realize that once you get used to budgeting, it will become second nature.
Learn more about… Managing your money at ftc.gov (select Consumer Protection and look for Money Matters, under What’s New) Making smart money decisions at extension.org/personal_finance Setting up a template for your budget office.microsoft.com/en-us/templates (search “home budgets”) Managing money online at mint.com
Credit
Power to the region's people unions:
These organizations are low-cost, low-profile alternatives to commercial banks.
BY LES O’DELL FOR THE SOUTHERN
There are local and regional financial institutions that offer services, including savings accounts and loans. Customers’ deposits are protected through a federal insurance program, and they have convenient locations and hours. In many ways, these financial intuitions serve many of the same roles as banks, yet credit unions are unique. From humble beginnings in 1908, credit unions have become major players in financial services, serving more than 91 million members nationally and holding $951 billion in total assets. There are more than 7,000 credit unions in the U.S. and at least nine in Southern Illinois. Some, such as the Carbondalebased SIU Credit Union, have thousands of members. Others, such as Johnston City’s D-B Employees Credit Union, have fewer than 100 members. Yet, regardless of the size, all of the credit unions are organized according to the same principles and goals. “We are cooperatives,” explains Dennis Schaefer, president and CEO of the SIU Credit Union. “We are not for profit, and we are owned by membership, not by stockholders.” Schaefer says credit unions are similar to community banks in some ways but different in other ways. One unique characteristic is that users of credit unions are the owners, each purchasing
ALAN ROGERS / THE SOUTHERN
SIU Credit Union's Carbondale location on Giant City Road.
a share in the entity as part of their initial deposit. Profits from the credit unions are returned to members in the forms of higher interest rates on savings or other accounts and lower loan rates. They are long-standing concepts: Credit unions originated with manufacturing workers in Europe who could not obtain loans. “They couldn’t get loans at a bank, so they banded together and used their deposits to make the first loan,” Schaefer says. Most credit unions are chartered with a specific sponsor. Originally, SIU Credit Union was open only to employees of the university or their immediate families. “Over the years, the government has allowed us to become what is called communitychartered, meaning that anyone who lives or works in the 11 counties of Southern Illinois can become members,” Schaefer says. Other credit unions remain “closed-in,” meaning that membership is limited to those in the sponsoring
group or their immediate families. The D-B Employees Credit Union services those who work at Diagraph MSP. Herrin’s Williamson County Catholic Credit Union is open to any member of the Catholic churches in Williamson County and their families. There are credit unions specifically for those affiliated with the federal penitentiary in Marion and those who work for the state highway department. Still, even the smaller and closed-membership institutions offer many services. Most offer savings accounts and personal loans. Larger credit unions offer additional services including mortgages and checking accounts. “We do everything from passbook savings accounts to IRAs and CDs,” Schaefer says. “Plus, we have business loans as well.” Credit union administrators say customers appreciate the institutions because of low or no fees and on lower loan rates. “We’re pretty much low-fee, and we can offer
lower interest rates on loans, partially because we don’t have the overhead that some banks do,” says Debbie DaRosa, manager of the Southeastern Electric Employees Credit Union, a 1000-member credit union in Harrisburg. Schaefer says deposits in credit unions are insured by the National Credit Union Administration, an entity similar to the Federal Deposit Insurance Corp., which guarantees bank deposits. “Originally, credit union deposits were called ‘shares,’ and early checking accounts were called ‘share drafts.’ But that has changed over the
years,” he explains. While the SIU Credit Union has five locations, many of the region’s other credit unions have only one. The NYC Employees Credit Union in Harrisburg has 100 members and one office. Originally established for employees of the New York Central Railroad (later Conrail and CSX), all credit union business is conducted by Treasurer Donna Price in the basement of her Harrisburg home. “It’s all very low-key,” she says. She says the credit union offers savings accounts and signature personal loans. All of the credit unions
in the region strive to serve their memberowners with quality financial products and services and outstanding customer service. “It really saves people money to investigate credit unions,” says Robbie Wiseman, president of the Williamson County Catholic Credit Union. “Plus, people like the service and dealing oneon-one with individuals without being transferred from department to department.” For SIU Credit Union’s Schaefer, credit unions are all about service. “We’re here to serve our members and to serve our communities,” he says.
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Page 8 Friday, March 9, 2012 The Southern Illinoisan · Life Planning Guide