Nurse's Best Medicine: Healthy Savings Plan

SPECIAL TO THE TIMES

Joanne Baker has worn some wildly different hats in her professional life, but lately she's starting to feel a little worn out.

For the last six years, Baker, 47, has managed to juggle being a part-time hospital nurse with owning an art gallery. But she recently closed her Costa Mesa-based Timbuktu, which specialized in African art, after realizing her medical salary was essentially subsidizing the popular but unprofitable gallery.

Still, Baker would rather not resume full-time nursing duties. Instead, she imagines a future in which she's free enough to travel with her longtime fiance--a freelance cameraman and aspiring documentary filmmaker.

"I found when I worked as a nurse less hours, I enjoyed it more and it made me a better nurse," Baker said. "I can't return to nursing full time. It would spiritually bankrupt me. I'd rather be poor."

Luckily, Victoria Collins, a fee-only certified financial planner based in Irvine, doesn't see Baker's situation in dire terms. However, there are changes that Baker is going to have to make if she wants to achieve her goal as well as enjoy a standard of living in retirement close to what she enjoys now.

In Baker's favor is that she already lives within her means, she is saving and she expects to be both able and willing to work part time into her late 60s or early 70s. If she retires at 70, Social Security is likely to replace more than half her living expenses--and she has more than 20 years to build up a nest egg to take care of the other half.

According to Collins, Baker's primary financial focus should be increasing savings. The nurse, who now grosses between $35,000 and $45,000 annually, has $24,000 invested in her workplace 401(k) and another $12,000 in individual retirement accounts. She also has $21,000 in equity built up in the Newport Beach condominium that she co-owns with her fiance and another friend.

It's not an inconsiderable sum, considering Baker immigrated to the United States from South Africa 25 years ago and raised her now-adult daughter as a single mom. Yet it's far from what she'll need to get her through her old age comfortably.

"My investment for the last 24 years has been my daughter. That's what I put my money into," said a slightly rueful Baker.

Now that Baker's daughter has graduated from college, the nurse wants to help her pay off her student loans, help her set up a retirement account, contribute $5,000 to her wedding next year and fund a mother-daughter trip to South Africa.

Collins' first recommendation: Cut the apron strings. "Putting aside money for retirement has to be your primary goal," Collins said. "You have fewer earning years left than your daughter has."

The financial planner urged Baker to start immediately. She would like to see the nurse increase her 401(k) contributions from her current 6% of her gross salary--the maximum amount matched by her employer--to the maximum contribution allowed. Not only will this money grow tax-deferred but it will reduce Baker's income tax bill as well.

Collins also would like Baker to shift her investment strategy and become both more aggressive and diversified. For example, Baker's 401(k) is currently divided between a value mutual fund and a generic equity fund. The financial planner recommended that Baker contribute to two other choices in her plan, the highly rated Janus Twenty Fund (three-year average annual rate of return: 43%), and Templeton Foreign Fund (three-year average annual rate of return: 23%).

Her recommendations for the $9,500 that Baker has in her Roth IRA and $2,500 in an Individual Retirement Account also are for greater diversification. Collins urged the nurse to sell very specific types of holdings--Atlantic Richfield and Boeing stock, the Germany Fund, a closed-end county fund, and the Paine Webber Retirement Money Fund--and instead invest the proceeds in more diversified mutual funds.

The reason: Collins believes that Baker simply does not have enough money saved to invest in individual stocks and remain diversified. As a general rule of thumb, the planner recommends a minimum of $100,000 divided among 20 stocks before she advises clients to invest their savings outside of mutual funds, which spread the risk for their holders among dozens of stocks or bonds.

Collins suggested that Baker put about 75% of the $12,000 into the Schwab 1000 Fund (three-year annualized rate of return: 27%), an index fund made up of the 1,000 largest public U.S. companies.

For the rest, Collins suggested something that might sound very aggressive to some: technology-stock funds.

Baker might want to invest in the Internet Fund (which has a 100% return so far this year; almost 200% in 1998) or the Northern Technology Fund (three-year annualized rate of return: 51%), a broad-based no-load fund with a five-star rating from Morningstar, Collins said.

Although the funds can be highly volatile in the short term, Baker is investing for the long haul, and "Technology is here to stay," Collins said.

And as Baker's savings grows, the planner believes she should add a small company and international mutual fund to her mix. Although there's always risk that these sectors will fall for long periods, Collins says if Baker invests too conservatively, she also risks reaching retirement age without enough money to see her through. "You need to be as aggressive as possible. You're only 47 and can afford to take some volatility in the market," the planner explained.

The planner also suggested that Baker attempt to put money aside for an emergency savings fund and not rely on her credit cards or fiance to bail her out if things go wrong. "A man is not a plan," Collins affirmed. Baker, who frequently relies on her fiance for financial advice, agreed. "I'd like to be financially independent, and I'm afraid I'm not going to be."

Similarly, Collins recommended that Baker begin pricing disability insurance. The product tends to be expensive, and the planner reluctantly admitted she's not sure the nurse can afford it given her current salary and retirement savings needs. "A disability policy is an expensive proposition when you're saving for retirement, but statistically, you're more likely to become disabled than die," she said.

Finally, the planner said Baker, who jokes about being "engaged forever," should read up on the financial and legal ramifications of unmarried couples who live together. Collins recommended "The Living Together Kit: A Legal Guide for Unmarried Couples," published by Nolo Press.

After digesting Collins' strategy, Baker concluded: "It sounds like I have to keep putting away as much money as I can. That's the bottom line." But she appreciated hearing the one bit of advice she truly wanted to hear: "Thank you for telling me I don't have to go to work more."

*

Helaine Olen is a regular contributor to The Times. To be considered for a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053 or to money@latimes.com. You can save a step and print or download the questionnaire at http://www.latimes.com/HOME/BUSINESS/FINPLAN/make-over.htm.

Information on choosing a financial planner is available at The Times' Web site at http://www.latimes.com/finplan. The site offers stories, phone numbers, addresses and links to related sites.

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This Week's Make-Over

* Investor: Joanne Baker, 47

* Occupation: Nurse and art dealer

* Gross annual income: $45,000

* Financial goals: Learn more about personal finance; implement a retirement savings strategy while continuing to work part time.

Current Portfolio

* Cash: $100 in bank savings account

* Retirement accounts: $24,000 in employer 401(k); $9,500 in Roth IRA; $2,500 in conventional IRA

* Real estate: About $21,000 equity in Newport Beach condominium co-owned with two others

* Debt: None

Recommendations

* Make retirement savings primary financial goal.

* Reconsider plans to help daughter pay off student loan.

* Contribute maximum amount allowed to 401(k) plan.

* Read up on the legal ramifications of unmarried couples who live together.

Recommended Mutual Fund Purchases

Schwab 1000 Fund (800) 435-4000

Internet Fund http://www.internetfund.com/

Northern Technology Fund (800) 595-9111

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Meet the Planner

Victoria Collins is a certified financial planner and a partner in financial planning firm Keller, Collins, Hakopian & Leisure in Irvine. She was named one of the nation's top 200 financial advisors by Worth magazine in 1996, 1997 and 1998.

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