Building your retirement nest egg

Black Enterprise, April, 1996 by Donna Hemans, Fairey. Juliette

THE EARLIER YOU START PLANNING AND SAVing for retirement, the better off you will be. Experts are universally agreed on this single point. At the same time, it's never too late to start. But your age, amount of time until retirement, and family and financial circumstances will play a crucial role in determining your best strategy.

The following two couples began their young marriages with similar goals: home ownership, early retirement and the financial security to maintain both comfortably. But they started out at different places on the life cycle, which vastly affected the expert advice they each received on saving and investing.

The Smiths are new parents in their 20s, and this represents their first real foray into the realm of financial planning. While they are already saving toward retirement they are more intensely focused on paying for day care and building a college fund for their son. For them, even early retirement is a distant dream.

For the fortysomething Kelleys, however, early retirement looms just around the bend and, with no young children to worry about, they're in the midst of preparing for the next phase of their lives and their careers.

These two couples represent different levels of money management experience, and their short-term money-building strategies are quite distinct. But their long-term goals remain similar. And each proves the point that when it comes to developing a financial plan, there's no time like the present--whatever your age.

LIFE IN THE NINE-TO-FIVE LANE

When Sean Smith played professional football as a defensive tackle with the New England Patriots in 1989, he lived a jet-set lifestyle, making $110,000 a year. He bought a new car, thousand-dollar suits and paid for his stepbrother's last years in college. He was also quite generous with his mother and his girlfriend, Pamela.

"We'd go to St. Thomas at the drop of a dime, or I'd fly Pamela to see me at $1,000 a pop every other weekend," Smith recalls. "I wasn't saving that money. We were young and spending."

But in 1992, the gravy train came to a grinding halt when Smith got cut from the team and had to take a nine-to-five job. What he had saved from his football days was spent on the formalities of getting married to Pamela in April of that year. These included a $6,500 ring and $15,000 in wedding expenses.

Unlike many financially naive athletes, Smith had gotten some good advice but he ignored it. "I had an excellent agent who preached saving, but I had a good time," he recalls. "I was like the other guys on the team, just spending my money." Even after their marriage, the Smiths continued to spend freely.

When the Smiths received some sound financial advice about a year ago, however, they listened closely. Facing considerable debt and the birth of their first child, they had little choice. Sean, 28, now earns $34,000 a year as a criminal investigator with the Gwinnett County district attorney's office, 27 miles outside Atlanta. Pamela, 29, is an engineer with Cibavision-Geigy making $41,000 annually. Their combined $75,000 income is still less than what Sean was making as a professional athlete, and they've been feeling the pinch.

FOOTLOOSE AND FANCY-FREE NO MORE

With visions of early retirement floating in their heads, the couple got involved with Amway, thinking that a sideline direct-sales business would help them achieve that dream. They also started saving to buy a house.

By August 1993, the newlyweds had the money for a down payment and qualified on Pam's salary alone to buy a three-bedroom, 2,800-sq.-ft. home for $95,400 in Snellville, Ga., about 20 miles outside Atlanta. The Smiths currently pay $7,000 in property taxes a year, and $2,400 in property insurance. Their monthly mortgage is $793.

The stork was on their trail. In February 1994, when the couple found out they were expecting a baby, they decided it was time to get some professional financial help. Saving for two was one thing, but with parenthood looming, the couple became concerned about achieving their financial dreams, which included sending Pamela to medical school, retiring at the tender age of 45, buying a larger home, building a stock portfolio and sending their children to college.

The Smiths' first meeting with Saeed Khalif, a personal financial advisor with American Express in Decatur, Ga., provided a jarring wake-up call. They had $600 in savings, $250 in their checking account and, Khalif notes, no budget or financial plan to speak of. "There was no consistency about their spending plan," he says. "They were just living and having a good time. Sean wasn't even contributing to his retirement savings."

Their dream of early retirement at 45 suddenly seemed a fantasy. It was time to get real. For starters, the carefree spending had to stop: It was causing their credit card debt to spin out of control. The Smiths had three Visas, a Home Depot card, and Sears and Chevron cards--all were maxed out.

Their total credit card debt was about $8,000, and one card's interest rate was a towering 21%. "They were in control of paying the monthly bills, but they weren't aware of how much they were losing by not actually saving that money," says Khalif, who consolidated the debt using their lower interest cards and formulated a repayment schedule. Within six to eight months, the cards were paid off and a valuable lesson had been learned. But there was more to be done.