Store Cashier Wants to Make Some Change

Pamela Carrick, 28, has spent nearly half of her life at Ralphs.

She joined the supermarket chain 12 years ago, when she was a high school junior and needed a part-time job. After graduating from Edison High School in Huntington Beach in 1990, Carrick became a full-time employee while working her way through college.

Since earning her bachelor’s degree in 1997, Carrick has kept her living costs low while saving regularly from her $35,000 salary as a cashier. The job gives her a sense of personal and financial security that enables her to pursue her aspirations: Buy a home, start a new career and build a retirement nest egg.

Although she makes enough money to support herself, live comfortably and save for the future, Carrick realizes that she could use more direction. For example, “I have not activated my 401(k) because I am not sure what option I would like to invest in,” she said.

Mitchell F. Keil, a certified financial planner in Irvine who reviewed Carrick’s finances at The Times’ request, said that indecisiveness about what exact steps to take for retirement savings is a common problem.

Many large companies, including Ralphs, offer great benefits, Keil said, but are reluctant to give specific advice to employees for fear of being sued if the advice turns out not to have been the best course.

“It’s a big problem,” Keil said. “Employers don’t want to be held liable for any investment decisions. So employees typically invest in what their buddies invest in. Or they invest in all the investments offered because they don’t know what to do. Or they’ll say, ‘I’m conservative,’ and they invest in a money-market fund.

“Outside of home ownership, 401(k) plans are usually our largest asset. Yet they’re the least understood,” he said.

Carrick’s wish to become a pharmaceutical salesperson would be comparatively easy because Ralphs accommodates employees who have other jobs. In fact, many part-time Ralphs employees hold down full-time positions elsewhere. That flexibility would enable Carrick to pay her bills while she makes a transition to a commission sales job with erratic income.

Ralphs has offered Carrick a promotion, but she has declined to focus on her goal of self-employment. Carrick thinks she might be suited for an independent sales job in which she can use her people skills and her training in psychology--her major at Cal State Long Beach.

“One thing that gives me a lot of confidence is I do work at Ralphs, where I have to interact with the public,” she said.

As Keil spoke with Carrick, it became apparent that owning a home is her strongest, most immediate desire.

“I’m ready to starve myself for that down payment,” Carrick said, noting that a home would represent independence. So far, she has squirreled away about $11,250 toward a down payment. She has researched mortgage loans and interest rates on the Internet. She has looked at two-bedroom homes and condominiums in her price range of $120,000.

Carrick currently keeps expenses down by renting a small room in Huntington Beach for $210 a month. But she does like to splurge occasionally on new clothes or an evening of entertainment. Most of her activities are quiet; she enjoys museums, reading, art exhibits, computer research and genealogy.

Keil advised Carrick to double her fund for a home purchase and said she might want to aim for $26,000. A down payment of 20% of the home’s price would save money later by eliminating the need for private mortgage insurance and helping her get a lower interest rate, Keil said.

At Carrick’s current savings rate of $800 a month, or $9,600 annually, it would take her at least a year to amass the down payment. But by making extra payments this year, Carrick will soon pay off her 1995 Volkswagen Jetta. Then she’ll have an additional $484 a month--$5,808 a year--to apply toward her home down-payment fund.

“You know how to live within your means,” Keil told her. “I don’t often see that in single people. I applaud that.” But buying a home “might take longer than you like--especially if you plan to go into pharmaceutical sales any time soon. Sales is a demanding profession and very unforgiving in the early years. You’ll need a cushion of savings.”

He advised Carrick to put aside roughly $4,500, or the equivalent of three months’ living expenses.

“That will give you breathing room and actually allow you to be a success,” Keil said. “For any salesperson, money in the bank gives security and confidence.”

Because her down payment and emergency fund savings must be kept safe, Keil suggested that Carrick combine all her savings in a no-load, ultra-short-term corporate bond mutual fund. He recommended Cypresstree Senior Floating Rate Fund ([800] 860-5575), which currently earns 6.5% annually--well above the 2% to 3% she now gets in her credit union savings accounts. Cypresstree, based in Boston, is one of the few no-load, low-cost funds that allow monthly redemptions. It is composed of short-term corporate notes tied to the prime interest rate.

Other bond mutual funds, many mixing government and corporate securities, also earn about 6%. Even a standard brokerage money-market account earns more than 5% these days.

Keil said he thought Carrick was right not to open a 401(k) account at Ralphs, because the company does not match employee contributions and limits on borrowing from a 401(k) would put off her home-purchase plans.

Although sensitive to her desire for a home, Keil also cautioned her that homeownership can be expensive.

“You’ll need extra money for repairs,” Keil said. “What happens if the hot-water heater blows?’ ”

One safety net that Carrick should establish ahead of time is to secure a line of credit, Keil said, preferably from her credit union. “They’re not as good as cash, but they’re better than a credit card.”

Carrick’s mortgage payment--probably about $800 a month on a home loan of $100,000--would be $590 more than she now pays in rent. But because mortgage interest is tax-deductible, the real cost to Carrick should be manageable, Keil said.

Once Carrick buys a home, she can turn her attention to the 401(k), which also can help shelter income from taxes. Ralphs’ plan offers a variety of T. Rowe Price mutual funds. For Carrick, Keil advised allocating 35% to blue-chip growth stocks, another 35% to funds that invest in stock indexes, 20% to international stocks and 10% to small-company stocks.

The tax deferral feature of retirement savings plans is what makes them so attractive, Keil said. “Interest earning interest is the eighth wonder of the world,” he said, repeating the famous declaration of the late Bernard Baruch, a U.S. financier and statesman.

Although Carrick considers herself a beginning investor preoccupied with safety of principal and interest, she couldn’t resist asking Keil whether he could recommend a highflying stock that might soar in value.

Keil demurred. “You’ve spent years saving. . . . You would be the one person who invests in an Internet stock [and loses] money,” he told her. “People want high liquidity and safety. At the same time, they want investment growth and high returns. You can’t have both of those conflicting objectives.”

Carrick needs to be a conservative investor while saving for her home down payment, Keil said. But she can afford to be more aggressive with her retirement savings because she’ll have decades to make up any market setbacks, he said. He urged Carrick to continue reading up on investments and personal finance so she’ll feel confident about her future decisions.

“I know you’ll make it happen,” Keil said of Carrick’s goals. “You’ve got heart. You’ve got commitment.”

And she’s got Ralphs.

*

Suzy Hagstrom 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 https://www.latimes.com/makeoverform.

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

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This Week’s Make-Over

Investor: Pamela Carrick, 28, a cashier at Ralphs

Gross annual income: About $35,000

Goals: Buy a home, invest in Ralphs 401(k) plan, learn about investments, reduce taxes, consider launching a sales career.

Current Portfolio

Cash: About $600 in a checking account

Savings: $7,500 in a certificate of deposit, $3,600 in two credit union savings accounts, $150 in U.S. savings bonds

Stock: About $280 in stock from her employer

Retirement accounts: Qualified for a pension plan through her union

Debt: $6,500 car loan

Recommendations

* Continue setting aside $800 a month toward down payment on home.

* After paying off car in July, apply the money toward home down payment.

* Combine savings into one mutual fund.

* Draft a will, medical power of attorney and financial power of attorney.

Meet the Planner

Mitchell F. Keil operates a financial planning practice at Integrity Financial Advisory in Irvine and has served as co-host of the PBS television series “The Financial Advisors.”