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Making up for lost time
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October 30, 2000: 6:48 a.m. ET
A Web content developer wasn't secure enough to plan. Is it too late?
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Pamela Tanton blew off financial planning when she was younger. Now, at 43, she's starting to regret it.
"I really didn't start doing anything until the beginning of this year," Tanton said. "I was never in the mindset that I had enough money."
She has spent her career as a proofreader and a writer. On her slim income, she was happy to get by with the bills and have a little fun.
 "I realize that was stupid now," she said. "I just was not very motivated in that direction. Now I am, for some reason."
Breaking point came in 1997 when she and two partners started a business. Suddenly she realized she had no financial cushion. "That really brought it home to me," she said.
The partners developed instructional materials for health care plans. One helped diabetes patients stick with treatment. Another helped Latino patients relate to Anglo doctors, and vice versa.
Checks & Balances runs weekly. People with questions about financial planning are invited to write in. Click here to go to the Checks & Balances page, with past stories and information on how to submit your information.
"We did OK, but in the beginning it's always risky," she recalls. They sold out last year to HealthOnline, where she still works. They didn't do much better than break even. "I bought a lot of clothes last year," Tanton said.
She makes a decent wage with HealthOnline, though. It's a big boost from the $30,000 jobs she used to have. That's given her the impetus to save.
 Tanton hasn't bought a house and she doesn't want to. She still rents a one-bedroom apartment in Baltimore, Md., her hometown.
She likes the simplicity. If the dishwasher breaks, someone else fixes it. No hassles. She has a boyfriend but no family, and she's used to living single.
"Do I have to buy a house?" she asks. Her friends tell her she's stupid not to, for the tax breaks. Is there something else she could do?
A long shot on single stocks
Likewise, she has around $5,000 sitting in "a stupid little savings account," she says, earning 2 percent interest.
"I like having ready access to it," she noted. But she wonders if there isn't a more constructive place for her savings.
Tanton is investing now. She puts 12 percent of her pay in her 401(k) and has a balance of $5,000. But she doesn't get a match.
She sets aside $350 from her paycheck, too, most of it going into a value mutual fund with Legg Mason and her money-market checking account. She has a small IRA from an old employer.
 Tanton doesn't feel she should take lots of risk at her age. But this February, she invested $2,000 in an Australian company, ERG Ltd., which she heard a woman talking about on the radio.
ERG makes smart-card technology. Tanton checks the price every day on ERG's Web site. Unfortunately, her holding is down about $500.
Her main luxuries are t'ai chi and dance classes, and a housekeeper who comes once a week. She should probably cut that down, but she's very messy, she quips.
Sooner or later she will have to replace her six-year-old Saturn. And she has an upcoming trip to Germany, where her sister lives.
She wants to know if she can make up for her slow start planning. "I feel so worried that I started saving so late in life," she writes.
What the planners say:
Actually, Tanton's situation isn't that unusual, according to David Dresbach. She has waited until her 40s to start saving, and now she's setting aside 18.5 percent of her gross income in her brokerage and retirement accounts.
That's admirable, Dresbach, a certified financial planner in St. Paul, Minn., said. But to meet her goals, she needs to prioritize, he said.
"Ms. Tanton should write down her goals and objectives. They don't become real until you write them down," he said.
Carrie Cole, a certified financial planner in Dearborn, Mich., says both Tanton and her friends have a point about a house.
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Home ownership is expensive, Cole pointed out, particularly for a single woman who doesn't want to play handyman.
"Most folks forget to budget in home repairs when they purchase a house," Cole explained. "They are mortgaged to the max, and then they must somehow pay for roofs that leak, driveways that crack, et cetera."
Then again, Tanton is paying $8,760 a year in rent. Over the life of a 30-year mortgage, the apartment will cost her $262,800, Cole figures. The planner advises her to at least consider buying a condo where she'd have no outside maintenance.
Breaking goals down into hard numbers
When it comes to a replacement car, Dresbach said a low-mileage used car in good condition is the best value you can find. Perhaps Tanton can find an $18,000 car to suit her needs.
If she sets that as a goal in six years, she needs to save $250 a month if she's paying all in cash, Dresbach said. That's assuming interest and the inflation on the car are a wash. Breaking the numbers down makes goals clearer, he said.
Then if a short-term goal comes up, such as her trip to Europe, she can work out the cost and divert mutual-fund savings or the car money to cover it. She would then avoid tapping her savings or credit cards.
Time to catch up
Tanton realizes she is playing catch-up. Dresbach has some strategies. She should halve her cleaning bill, which would save her $1,560 a year to invest, he said.
She has $2,300 in credit-card debt and has been paying $150 to $300 a month toward it. Dresbach recommends paying it off over the next 12 months, paying at least $200 a month. Then she can free up that $200 for investing in her brokerage account.
She has to avoid putting any more money on her credit card, which probably means cutting expenses. And she would have to avoid running up credit after that. Maybe withdrawing cash would help, Cole said.
"I don't know how many people I've met with who completely pay off their credit cards and swear they'll never charge again, only to find them knee-deep in debt down the road," Cole said. Tanton needs to correct any bad spending habits, Cole suggests.
A more aggressive approach
The planner thinks Tanton should be more aggressive investing than she is. Statistically, she'll live 20 or more years into retirement, and groceries, cars et al. won't be getting any cheaper.
Tanton has 22 years before hitting retirement age at 65. Cole believes she should max her 401(k), even without a match. At her current rate of $7,800 a year, she will have $636,391 by age 65, assuming a 10 percent return. If she can achieve a 12 percent return, it's $858,265, Cole says.
The biggest danger is Tanton, Cole said. Investors get queasy, understandably, when the market drops. But many hurt themselves by buying when the market is high and selling when it's low, the opposite of what they should be doing, she said.
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Tanton's current investment rate will give her $49,000 a year if she retires at 66, Dresbach calculates. He assumes a 10 percent return, too. That would last her 30 years, to age 96.
But assuming 3.2 percent inflation, it would have buying power of $24,230 in today's dollars, Dresbach noted. Tanton would only have social security as a supplement. So she wouldn't keep the standard of living she has today, Dresbach said.
Part-time employment might let her fund a Roth IRA, Dresbach posited. Cutting her credit debt and cleaning bill would mean she'd have an extra $330 a month to invest, if she's not using it for short-term goals.
Dresbach advised her to invest in stock mutual funds, starting with index funds. Only once she has built an investment portfolio of twice her annual salary should she invest in individual stocks, he said. She could hold the ERG stock or sell it for the tax loss and use the money elsewhere.
As for her savings money, Dresbach said she needs three-to-six months of expenses as a reserve. He recommends she put it in a money-market account.
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