Financial Planning for the MTV Generation
 by: ARA Content

(ARA) - So, you were born between 1965 and 1978. Are you tired of the Generation X label and being portrayed by the media as a cynical, Xtreme sports-loving, body-piercing slacker? If you’re one of the 76 million Americans that are considered to be “Xers,” you may see yourself more as an independent, career-minded, technologically savvy, young adult. As someone between the age of 22 and 35, “Xers” most likely tune out the thousands of marketers with retirement messages geared towards “boomers.” Insurance providers, investment companies and financial planners are virtually ignoring the millions of Americans considered to be “Xers.” Meanwhile this misunderstood group continues to buy homes and select mortgage companies and retirement plans with little attention and relevant advice.

So, are boomers the only generation that should be concerned about their future? Absolutely not. Planning for your future can be tough for anyone, no matter what his or her age. But individuals between the ages of 22 and 35 need to recognize the important opportunity they have of starting early and understanding the basics, according to Randy Schuldt, vice president with IHateFinancialPlanning.com, a new Web site geared to the more than 75 percent of Americans who hate financial planning.

Schuldt offers some additional financial planning tips for Generation Xers:

Think Retirement

According to the 1990 U.S. census, the average American worker has only saved $1000 towards retirement. Pretty sad, isn’t it? To make matters worse, the average monthly Social Security benefit for a retired worker in 2000 was $804 (Source: U.S. Social Security Administration). You’ve heard it before, the sooner you start saving for your future, the better. So where do you start? First of all, just start. Consider putting away a little at a time — $25 or $50 a month - in a mutual fund or 401(K) account. If you’re 25 years old and put $25 away each month into an account earning 8.0 percent, you will have saved $58,099 by retirement at age 60. Compare this amount to the $14,940 you would save by starting when you’re 40.

Develop a Financial Plan

Whether you’re graduating from college, getting married or having a baby, you need to set specific goals (home ownership, vacation property, college education, retirement, etc.) and develop a financial plan for the future. To get started, consider meeting with a financial professional. A financial professional can help you get off on the right foot, by helping you develop a long-term financial plan that will make your hard earned money work harder for you.

Explore Life Insurance

If you’re still living the “Friends” lifestyle and spend most of your time at coffee shops like Monica, Joey, Phoebe, Chandler, Ross and Rachel, you may not need to think about life insurance just yet. However, “Xers” do settle down, get married and start families. If you have dependents (a spouse, children or aging parents) you need life insurance. The good news is that many employers offer life insurance as an employee benefit. But this may not be enough. First, talk to your benefits or human resources manager to learn more about their offerings and how to enroll. Then, see an insurance agent who offers insurance from major providers to determine if you may need more.

Deal with Debt

“Debt is one of the biggest financial problems facing young adults,” says Chris Newell, principal of Newell Financial Corp. in Little Rock, Ark. When it comes to paying off debt, Newell says to start high. Rather than concentrating on paying down a little of each credit card balance, find out the interest rate for each card — it should say on the monthly statement — and pay down the cards with the highest debt and interest rates.

“First, make a pledge, ‘no more additional credit card debt,’” Newell says. “Then, start paying off the highest debt cards. As soon as one card is eliminated, continue the same payments on the other cards. Never reduce this monthly debt payment amount until they are all paid off. You will have to be disciplined and pay substantially more each month than the minimum balance.”

Contribute the Maximum

401K plans and IRAs offer the best opportunities to take advantage of tax-deferred savings and contributions from your employer. If you’re working, ideally you should contribute the full amount to your 401K plan that you can. But at the very least, contribute up to the match offered by your employer.

An IRA provides tax efficiency to set aside money for retirement. For example, by contributing to a Roth IRA (just one type of IRA), you don’t pay income tax when you withdraw the money (including gains, dividends and interest) assuming you are age 59- and the account has been open for five years. If your annual income is less than $95,000 for a single taxpayer or $150,000 for married couples filing jointly, you can contribute to a Roth IRA.

Develop a Support Network

This is the age of information. Most likely, you may have a cell phone, voice mail, pager and a handheld computer. You prefer to learn through conversation and communities rather than reading text books and reports. The same goes for financial planning. “Xers” are much more willing to talk about their financial situation than their grandparents or even, parents. Embrace this new freedom. Schuldt recommends creating a community, either online or an old-fashioned investment club, and learn from each other. Whether you pool your money and start investing in the stock market or share investment tips and advice, communities offer a fun, easy way to get interested in your financial future. Or go to IHateFinancialPlanning.com to plug into a growing community of people who share a similar hatred for financial planning.

Keep Dreaming

What is that you really want? Home ownership? Early retirement? Financial independence? It’s important to understand your financial goals and to realize that your actions today either bring you one step closer to — or pull you one step back from — your goals. If you plan to buy a home in five to ten years, are your actions today helping or damaging your credit rating? Not only do you need a down payment to buy a house, you need an established credit history and a record of on-time payments.

The bottom line for “Xers” is that you should ignore the marketing messages geared towards cynical, unmotivated slackers. It’s not too early to start planning for your future and saving for retirement, says Schuldt. Consider the big picture. The decisions you make today about your career, education, debt and retirement will stick with you and shape your future. So, invest in yourself. Start small. And ignore the stereotypes.

Securities available through PrimeVest Financial Services, Inc., an affiliated registered broker dealer, Member NASD/SIPC. Call (320) 656-4300, ext. 64691, for a prospectus, which contains complete information on expenses and charges. Read it carefully before you send money or invest.

About The Author

Courtesy ARA Content, www.ARAcontent.com; e-mail: info@ARAcontent.com

EDITOR’S NOTE: IHateFinancialPlanning.com is part of the ING Group, a worldwide leader in the fields of insurance, banking and asset management, with more than 100,000 employees in 65 countries.

Once you’ve familiarized yourself with the Roth IRA basics, you should know whether or not you want to open a Roth IRA or not (and, of course, whether or not you’re eligible).

If you decide the benefits of a Roth IRA are too good to pass up, then you’re ready to set up your account.

Below are the steps you’ll need to take:

1) Investment Preparation

Make sure you’re ready to open a Roth IRA right now. Setting up a Roth IRA is a long-term commitment. It’s not something to be taken lightly. If the money you plan to invest in your Roth IRA is money you will need by year’s end, then consider building up your savings first, then open your Roth IRA.

For example, you have at least six months of living expenses set aside in your savings or money market account. If you have any high-interest debt, pay that off first. Debt in the form of a modest fixed-rate mortgage is okay, but debt in the form of credit cards is a major hindrance to your financial health. Make sure you pay off those credit cards!

Once you’re on firm financial footing, you’re ready to open a Roth IRA.

2) Find A Discount Brokerage Firm

You’ve made the decision to open a Roth IRA.

Great!

Your next step is to select the financial institution where you’ll open your account. A number of options exist for individual investors, including both traditional bricks-and-mortar firms as well as their online counterparts (although traditional firms have online services).

I highly recommend setting up your account online. Most online brokerage services are significantly less expensive than full-service, walk-in-the-door financial institutions where an employee has to be paid to help you. All such a person would do anyway is fill out the same online information as you, so you might as well do it yourself and save some money. I’m going to make the assumption that since you’re reading this online, you already know how to surf the web. And opening a Roth IRA account online is no harder than that!

Choosing what firm to use will be the hardest part of the process, and there’s no firm that is right for everyone. Each discount broker will have a different schedule of fees, different trading costs, and minimum initial and recurring investment amounts. You need to do some research to find out which one best meets your individual needs.

For example, if you envision yourself trading a lot, then choosing a discount broker with low trading commissions makes sense. But if you envision yourself trading very little, you may be willing to accept a higher trading cost if doing so means a lower threshold for your initial and recurring investments.

In your research, here are some questions you might consider:

  • Is a minimum initial investment required?
  • Is there a minimum amount for subsequent contributions?
  • Are any fees associated with the account?
  • Are automatic bank draft contributions available?
  • Is free automatic reinvestment of dividends available?

Considering questions like these, you’ll have to choose the options that are best for you. But here’s a few discount broker recommendations:

Firstrade

Roth-IRA fee: No

Charge per trade: $6.95

Minimum Initial Investment: None

Firstrade is the discount broker I use for my own Roth IRA. They have no minimum initial investment requirement, and they charge only $6.95 per trade. But the most important factor in my decision to use Firstrade was their option for free automatic reinvestment of dividends. You can also set up a regular weekly or monthly contribution amount as low as $10.

Sharebuilder

Roth-IRA fee: No

Charge per trade: Varies

Minimum Initial Investment: None

Sharebuilder offers three (3) different pricing structures to choose from, so your commissions will vary from $0 to $4 for automatic investments, all the way up to $9.95 per trade for real-time individual security purchases. The advantage of Sharebuilder is its automatic investment program. The program allows you to set up a plan to purchase a set dollar amount of a given stock on a monthly basis.

For instance, you may decide you want to buy $25 dollars of Coca-Cola (KO) stock on a once-a-month basis. If Coca-Cola is trading at $50 per share, Sharebuilder would enable you to buy half a share per month.

This is good for investors who have a small amount of money to invest, but want to diversify their purchases without spending the majority of their Roth IRA contribution on trading fees. It’s also great for those who wish to dollar cost average their investment portfolio.

Zecco

Roth-IRA fee: $30 Annual Fee

Charge per trade: $0.00-$4.50

Minimum Initial Investment: None

Zecco charges a $30 annual fee to maintain a Roth IRA, but this cost is more than offset if you maintain a balance of $25,000+ or you plan on making more than 25 trades per month. While I wouldn’t personally recommend making 25 or more trades per month within any brokerage account (much less a Roth IRA), I realize this is a strategy that some people will want to explore. Visit the Zecco website for more information on the pricing structure which varies depending on your average balance and trading activity.

These options are just three to consider, but don’t think they’re your only options. You can find a more comprehensive list by Googling “online discount brokerage firms.”

3) Fill Out The Application

Once you choose your online discount broker, simply follow the steps on their site in order to open an account. When prompted, check the account option for “Roth IRA.”

When you do, you’ll be asked to fill out an application. The application process for an Individual Retirement Account (IRA) is easy. Most brokers allow you to fill out the application online, but then they’ll require you to mail or fax a signed copy afterward (just follow the instructions they provide). In the meantime, you’ll need to have some basic information at your fingertips:

  • Your Social Security number
  • Your bank account number
  • Your bank account routing number
  • Your current employment information
  • Your initial investment amount

Once you’ve gathered this information, simply follow the onscreen instructions to complete the application.

4) Your Initial Investment

At this point, with your application complete, you’ll be prompted to make an initial contribution to your Roth IRA. Unless you’re using a wire transfer to do this, the process may take up to 3 to 4 business days to complete since the discount broker needs to contact your bank and set up the bank draft process. Once the transfer of funds goes through, your money will most likely go into a money market account where it earns interest until you decide to make your first investment.

5) Automatic Investments?

While you’re waiting for your initial funds transfer to go through, take the time to explore the discount broker’s online trading site. Familiarize yourself with the different areas of the site and the availability of options at your disposal.

I highly recommend setting up an option whereby monthly or weekly contributions are automatically drafted from your bank account. This is a relatively painless way to fund your Roth IRA during the course of the year.

Also, if you’re a buy-and-hold investor of individual dividend-paying stocks, you might want to choose an option for free automatic reinvestment of dividends. This will allow you to buy fractional shares of a company’s stock whenever a quarterly dividend is paid. If done right, this strategy can lead to compounding investment returns that significantly increase your account’s performance.

Overall, take the time to gain some familiarity with the broker’s site, so when it comes time to invest, you’re ready to pull the trigger.

6) Start Investing

Assuming you’ve already chosen an investment strategy with which your comfortable, the process is now complete. Once your initial contribution shows up as “available” in your online account, you’re ready to start investing!

For more information on how to open a Roth IRA, visit Britt Gillette’s website, Your-Roth-IRA.com, a site focused exclusively on helping people with self-directed Roth IRAs.

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