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Personal Finance
Salting away in the sand
July 17, 2000: 8:05 a.m. ET

An engineer wonders how he shapes up, and when to come home
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - You could say Ted McGlynn is enjoying the Arabian nights. He has spent seven months in Riyadh, the Saudi Arabian capital, working as an operations manager for a large U.S. telecommunications-equipment maker.

At the moment, in the middle of July, midday temperatures in Saudi Arabia are hitting 45 degrees Celsius, or 113 degrees Fahrenheit. So when he can, he takes off on the weekend - Thursday and Friday - for hotel pools in Dubai or other Gulf states and sites. He hopes someday to make it to Petra, the city carved into a cliff face in Jordan.

Despite the heat, Saudi Arabia has been real, and that's what McGlynn, 29, was looking for when he left Omaha, Neb., for this post in the first place.

"I just had an interest in travel. I was looking for some international experience," he says.

A promotion, and a new set of challenges


graphicThe new post came with a promotion. He was a vanilla-plain engineer in Nebraska, supervising and designing the way an assembly line ran. Now he has become a manager.

Careerwise, he feels he has scored with the move to a different country. "It's very interesting," McGlynn said. "It's a lot different challenges than I had back in the U.S. You're given more responsibility here." He oversees 25 people now.

The challenges are not just vocational. McGlynn says everything he took for granted in his homeland is different. "Driving is taking your life into your own hands - it's very dangerous," he explained. "You'd be amazed at what you can see at a red light."




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What does he mean? People in the right lane turning left, drivers not looking where they're turning, cars cutting you off - it's all part of the commute, he said. "And everyone drives extremely fast."

No place like home


It's a far cry from Williamstown, Vt., where McGlynn grew up, near his birthplace, Burlington, Vt. He studied engineering management at the University of Vermont, where he got his bachelor's, then moved to the University of Nebraska at Lincoln, where he got a master's in industrial engineering.

McGlynn started working at the Omaha plant as a co-op intern, as part of his course. He stayed on when he got his degree.

graphicA colleague moved out to Riyadh. "I said, if something came up, to let me know," he recalled. "Something popped up, and here I am."

Now he finds himself a world away, on a two-year posting. "It's a whole different culture - some of it is very interesting," he said. Some of it is tough. "Personally, it's a major adjustment."

Shopping is fun when haggling is almost expected, he thinks. Saudi Arabians are very hospitable, too, and Riyadh feels very safe, he said.

He also has very little in the way of costs. Leading the life of an ex-pat, McGlynn finds his rent is paid for, as is the Honda Accord he drives. He gets a 20 percent "overseas" bonus on his $60,000 salary, too. That gives him an extra $1,000 a month.

With very little in the way of fixed costs, he reckons he only spends about $300 a month. "I've saved more in the last seven months than I've ever had in the bank before," he added.




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Splinters from a spinoff


He has some reservations about his new life. What does he miss? "Just your basic freedom, seeing a movie or having a beer," McGlynn said. Alcohol is prohibited in Muslim-dominated Saudi Arabia, though people do make homebrew, according to McGlynn.

He lives on a campus with other Americans and spends most of his spare time with them or Western Europeans. Those weekends in Dubai are also a cultural getaway, where he can "chill" at a hotel with a beer and enjoy the more-relaxed social atmosphere of that emirate.

He also has a tough decision to make about staying in Saudi Arabia. Since he left, the division he worked for in Omaha has been slated for a spinoff. He was guaranteed a job back in Nebraska.

So he can return to his old position soon, or he can stay on in Riyadh, where the division isn't being spun off. That would mean he'd have to apply for new positions within his own company when his two years are up. He could probably return to the United States. But neither his return nor his position would be guaranteed.

"I'm not ready to leave yet," he says. "But I'm apprehensive about losing the security blanket."

Could he be lean and debt free?


McGlynn, who said he has always had a bit of a "saving bug," wants to know how he stacks up financially against other 29-year-olds.

He puts 10 percent of his salary into his employer's stock-purchase plan, where he gets a 15 percent discount. He also has stock options worth around $15,000 that he has yet to exercise and wonders what to do with.

The engineer puts as much into his 401(k) as he can, 16 percent. He has built up a balance of around $56,000. Almost all - 90 percent -- of the 401(k) money goes to a Fidelity-managed international fund, and 10 percent goes to a blended fund aimed at his retiring in 2030. That part gets less aggressive as he gets older.

McGlynn bought a house in Omaha a year ago, not long before he moved. Most of the $98,000 mortgage is still outstanding, and he only put down around 3 percent, so he's paying private mortgage insurance.

But he is renting out the house short-term, for six months. The tenant's rent covers the mortgage. He also has someone who can take care of landlord duties, like repairs.

"I rather like the idea of someone else building my equity and paying the mortgage," he writes. But he wonders if he should pay down some of the debt on the house, which is at 8 percent.

Compare and contrast


McGlynn has $5,500 in student loans at 10 percent interest, plus $200 in debt that he plans on paying off in the next two months.

With low costs and a high rate of savings in Saudi Arabia, "I am not sure what would be best to invest in," he stated. Pay down the student loans? Mortgage? Open a Roth IRA?

He quite likes the idea of setting aside money now, particularly if he could retire early. He's shooting for 50. "I have a long-term outlook on investing and do not mind salting away my money now and not being able to access it for a long period," he explains.

But he still wants to know how he shapes up, and which of his various options will suit him best.

"What does a 'typical' person in my age and income situation look like?" he wonders. "I'd just like to have someone tell me I'm doing OK, or I'm way behind, or, if I'm saving too much, 'Go and buy that color TV.'"




What the planners say:


Though he's doing very well for his age, and it's understandable that he wants to know how he compares, Ted McGlynn "is not a typical 29-year-old," Russell Owen pointed out. Unless you're talking about 29-year-old Saudi Arabians, presumably, and even then you suspect McGlynn would be unusual.

That said, Owen, a certified financial planner and president of Portland, Ore.-based Strategic Research & Management Corp., spots a couple of easy moves that McGlynn and others like him should make right away.

When it comes to the student debt, "pay off the loans!!" Owen urged.

McGlynn should definitely start a Roth IRA, too, according to Owen, and contribute the maximum $2,000 a year. "The future tax and estate-planning benefits of the Roth IRA were made to order for Mr. McGlynn," Owen believes.

Eileen Dorsey, president of Money Consultants Inc. in St. Louis and also a certified financial planner, agreed that the Roth IRA is something someone McGlynn's age should have. She also agreed that McGlynn shouldn't worry too much about comparing his situation with his peers.

"No one is typical," she said. "Your contemporary could easily be married with four children and work for a company without health insurance and only be able to contribute 5 percent to his or her 401(k)."

Expert adviser recommended


The advice gets thornier after that. Owen, saying he feels most comfortable giving financial-planning advice, cautioned McGlynn to hire a tax adviser. The adviser could explore the implications of residence outside the United States, specifically in Saudi Arabia.

Earned income from outside the United States can be exempt from federal income tax, Owen pointed out. But McGlynn needs someone who fully understands both his situation and cross-border tax.

The tax adviser could address another point, too. By converting his home to a rental property, McGlynn may be able to depreciate the property on his taxes. "Again, tax counsel is recommended," Owen said.

Owen is certain, however, that McGlynn should not waste his time worrying about his mortgage now. At 8 percent, there's no point in refinancing, Owen said.

What's more, the benefit of paying down the mortgage would be minimal, since the mortgage is effectively paid for and not affecting McGlynn's cash flow. McGlynn may want to sell the house when he returns anyway, Owen pointed out, especially if he doesn't return to his old job.

Dorsey said McGlynn could refinance if interest rates drop, but only if he makes the home his principal residence again, and "only if you are going to stay there." If his bank allows prepayments, Dorsey suggested that he look into increasing his equity to 20 percent, which would mean he no longer has to pay private mortgage insurance.

Owen instructs McGlynn to hire a management company to oversee the house. That way, the company can find a new tenant if the current one leaves. It can take care of any upkeep. It would also collect the rent and pay the mortgage. McGlynn could then effectively forget about the house for the time being.

Redistribute his wealth


When it comes to his 401(k), both planners encouraged McGlynn to reallocate. "Investing 90 percent in an international fund gives me the chills," Owen said.

Dorsey concurred that it gives McGlynn too much worldwide exposure and not enough exposure to U.S. markets. Even just sticking with his current options, Dorsey thinks he should reverse the allocation from 90 percent to the international fund and 10 percent to the blended fund to 30-70, international-blended.

But she urged McGlynn to sift through his other choices, looking at large-cap and small-cap stock funds. "Broader diversification would be in order," she wrote.

One way both planners suggest he could diversify is to sell his company stock. Because he has both stock and options in his own company, McGlynn is too tied to one issue, Owen explained. But he should still participate in the plan, Owen added.

Both planners said he should sell the stock and reinvest the proceeds elsewhere. Owen also thinks McGlynn should exercise all his options, too, half this tax year and half next.

"Over the next two years, Mr. McGlynn will be in the lowest income-tax bracket he will ever be," Owen explained. His career is on the upswing and he will later have his retirement money coming through. After exercising the options, again planning the strategy with a tax adviser, McGlynn should sell half the option-generated stock and diversify the proceeds, according to the planner.

Too much money at retirement?


McGlynn could direct his own Roth IRA or use a Fidelity fund for it. In any case, it's time for McGlynn to open a brokerage account, according to Owen, and manage his nonretirement assets there.

In fact, Owen encouraged him to reduce his 401(k) contributions. He could even cease them while he's in Saudi Arabia, Owen said. That's an unusual step for a planner to recommend, but Owen pointed out that the $56,000 he already has in his plan will grow to $896,000 by age 58, or $1.8 million by age 65, assuming a 10 percent return. That does not include contributions going forward.

"One of the biggest problems that people like Mr. McGlynn face at retirement time is that [their] retirement pool is too large," Owen said. All at once, they have a large sum of money to deal with that they likely won't spend entirely.

Switching some of the 401(k) money into a regular, taxable brokerage account would give McGlynn flexibility, particularly if he wants to retire at 50. At that age, he would not be able to get his hands on his retirement funds without paying a penalty.

So Owen suggested that he put some of his dollars to work in a regular brokerage account, particularly while he is in Saudi Arabia and able to save a fair bit.

An allocation strategy


It's up to him, Owen said, but McGlynn could consider the following asset allocation: 10 percent cash in a money-market account, for home expenses, emergencies and possible future car payments; 65 percent in U.S. stocks, including his option stock; zero in bonds; and 25 percent in international funds.

For the U.S. stock investment, McGlynn might want to consider the Guinness Flight Wired Index fund (GFWIX). It invests in 40 stocks that Owen said are the "blue chips of the 21st century," with a strong technology bent. "Since you work in the tech field, I think you may find this portfolio of stocks very compelling," Owen said.

McGlynn could also look at Cubes (QQQ: Research, Estimates), or the Nasdaq 100 tracking stock. They trade like a stock rather than a mutual fund. Owen also highlights the Marsico Growth & Income fund (MGRIX) as a good option for McGlynn.

For the international exposure, Owen could use Fidelity's "overseas," Latin American and European funds in his 401(k). In his taxable account, McGlynn should consider the Artisan International fund (ARTIX) and the Oakmark International fund (OAKIX), according to Owen.

The Gulf state of mind suits him


There's one form of international exposure that McGlynn should not reduce his holdings in, Dorsey believes - his current job. She thinks the niggling fear he has about losing his security blanket of a guaranteed position is overdone.

"Do not worry about job security," Dorsey said. "There is no job security." On the flipside, a better opportunity at another company might come along, she added.

Anyway, McGlynn's fears about not returning home are misplaced, she believes, and he is overemphasizing a security blanket that still might get taken away.

"I have seen people come back from overseas and get guaranteed positions, only to have their jobs eliminated later," Dorsey concluded. "Enjoy living and working overseas."

* Disclaimer




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.