Planning Ahead - Page 2 of 3

Planning Ahead

right path. “I know I’m capable of doing what needs to be done.”

The Advice
Walt Clark, president of Clark Capital Financial in Columbia, Maryland, assessed Taylor’s early retirement goals. Since the $1,300 a month from his pension will not be enough to cover his expenses, Clark says Taylor will need to bridge the gap. Clark offers this advice:

Concentrate on the 401(k). Although Taylor began contributing more to his 401(k) plan, he’s still putting away only 5% of his gross income. With less than two years to retirement, he needs to invest the maximum amount allowed until he leaves the job, says Clark. He suggests 15%. If that is too tough to do right away, even bumping up his contribution to 10% would vastly enhance Taylor’s situation.

“This strategy will capture additional pre-taxed returns, which over the long run will accelerate better returns and wealth,” Clark explains. He recommends allocating assets to small-, medium-, and large-cap stock funds. Once he turns 50, Taylor can take advantage of a catch-up provision that will allow him to invest an additional $500 a year above the maximum contribution allowed to a retirement account.

Improve credit rating. A good credit rating will help not only in the purchase of a home or investment property but also if Taylor should decide to go into business for himself. Therefore, improving his credit score is crucial. “Ideally, he should try to get a score in the high 600s or above, so that he can obtain a low rate and keep his mortgage payments low,” says Clark. He suggests that Taylor take the $600 in discretionary monthly income and pay off his credit card balances. However, he should keep the cards active since closing the accounts could negatively affect his credit score. Furthermore, says Clark, “After the cards are paid off, I would contact each credit card company to negotiate a higher credit line and lower interest rate.” If he needs to use the cards, pay them off monthly before the cycle ends to eliminate interest charges.

Shore up savings. While Taylor’s immediate task will be paying off his high-interest credit cards, he needs to put much of his $2,000 contest winnings toward paying off the car loan. He also needs to get his money out of the stash and put it to work. Taylor is paying $440 a month on a 2001 Jeep Cherokee Laredo. Before Taylor retires he should be able to kiss his debts, excluding the time-share, goodbye. That’s good news because it means he can focus on saving in the near future. He also needs an emergency fund. Ideally, he should be able to quickly put his hands on at least six months of expenses once he no longer has a car note. Clark recommends that Taylor establish an automatic investment account. He can invest as little as $25 a month with money automatically deducted from a checking account. “I like a mid-cap stock fund for this plan,” says Clark. Two viable choices: Jennison Growth fund (PJFZX) and