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MONEY MAKE-OVER / HELAINE OLEN

Independently Healthy

Free Spirit Needs to Take Control of Her Financial Life

May 20, 1997|HELAINE OLEN

Kathy Harter is learning to manage her own finances. She admits it's about time.

Harter, now 50, was divorced young and reared her daughter, Laura, on her own. She often felt overwhelmed when it came to money, so she relied on her father to make all her financial decisions. What began as a stopgap measure, however, went on for more than two decades--until last year, when her father became too ill to offer financial guidance.

Harter, a freelance writer and computer operator, began to study the portfolio her father had purchased for her over the years. As she began educating herself about financial matters, she found herself at another crossroads. Her daughter was engaged and had bought a house in Northern California; her father had become incapacitated with Alzheimer's disease. Harter felt her ties to Los Angeles were being cut. Although she had neither family nor firm employment waiting for her, she decided to move to Honolulu last month.

"I'm free!" Harter said with a laugh. "Mummy is going wild."

She may have to go wild on a strict budget, warns Phillip E. Cook, a certified financial planner based in Torrance.

Harter's portfolio, almost all of which was selected by her father, is worth an estimated $150,000. It consists of savings bonds with a total face value of $100,000 but a current value of about $62,500. She has a variable annuity worth $13,800; $26,580 in the T. Rowe Price New Income bond fund (five-year average annual return: 6.7%); $14,600 in an individual retirement account invested in T. Rowe Price's High-Yield bond fund (five-year average annual return: 9.8%); and about $9,100 in 225 shares of utility company American Electric Power Co.

Since she started making her own investment choices, Harter has purchased shares in two other T. Rowe Price funds. She now has $5,600 in the firm's Equity-Income stock fund (five-year average annual return: 17.1%) and $4,300 in its Blue Chip Growth stock fund, a fairly new fund. She has about $14,000 in her checking and savings accounts.

Not only is her nest egg not large enough for someone her age to ensure a comfortable retirement, it is invested in a way more appropriate for someone many years older, Cook said. Only 13% of Harter's assets are positioned for growth in the stock market. The remainder are in bonds and other slow-growing investments that, while offering greater safety than stock investments, also have significantly less potential for long-term gains.

Because Harter's employment situation is tenuous, it will probably be difficult for her to save as much money right now as she'd like to.

Hers has been nothing if not a free-spirited lifestyle.

For most of the 1980s, she worked as an executive assistant, earning a steady but modest salary. She left that job in 1989 to pursue a career as a mystery writer, winning notice in contests but no publishing contract. In recent years, Harter said, her gross annual income has hovered around $20,000 to $25,000. But $10,000 of her annual income is a gift from her parents.

Having a supportive family is great, but, as Harter admits, it has also allowed her to maintain an impractical approach to money, to put off thinking seriously about providing for her own financial security in old age.

"I was Daddy's girl; it made me very lazy," Harter said. "When he got sick, I was losing more than a father, I was losing a safety net.

"My dad originally put me in the T. Rowe Price funds, and when the stuff came in the mail, I either filed it, threw it away or put it in a box unseen and unread," Harter confesses.

"As my dad started getting sick and wasn't able to do as much, I felt better when I began to at least start reading the stuff."

Cook's first advice to Harter: Firm up her employment situation. She was recently hired as a receptionist by a local television station three afternoons a week--a start--but she realizes now that she needs full-time work.

Harter, ever the optimist, is hopeful that the job will lead to something bigger.

"It's a place to meet people and get contacts," she said. "It's someone on the island who says, 'Yes, she shows up on time, she does good work.' And there are a lot of contacts here that can lead to other things."

Once Harter is employed full time, she can start augmenting her retirement fund by investing the $10,000 a year she gets from her parents, Cook said.

Indeed, if she wants to retire with $30,000 a year of income in today's dollars--what it would take to support her present lifestyle--Harter needs to begin putting aside $1,100 a month as soon as possible, Cook said. That means she needs to save a bit beyond what her parents are providing.

Harter also needs to learn to budget and to save on a schedule rather than rely so much on her parents' generosity, Cook told her.

"You need to get into the habit of making economic decisions, not comfort decisions," the planner said.

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