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On a Path Leading to Greater Security


Joyce Taylor has a simple philosophy of life: Play the hand you're dealt, and don't lament too much when you get a bum deal. That's kept her going through what many would consider serious hardships.

Taylor, now 63, was widowed in her late 30s and reared her two children alone. She remarried in the early '80s and started a business repairing boat engines. But eventually the marriage failed and she folded the business. As part of the divorce settlement, Taylor had to pay alimony to her ex-husband. Later, she went to work for a bank that was shut down by regulators only a month after she got there.

But after each setback, Taylor, who now works as a secretary in the Orange County district attorney's office, picked herself up and trudged on, ready to accept the next challenge life threw at her.

And when it comes to money, Taylor has stuck to a steady path.

"I've always been a conservative person when it comes to money," she said. "I don't like taking too many chances--especially not now."

Her investment portfolio is made up of low-risk bond funds and bank certificates of deposit. Although these investments have kept her from losing principal, they've also depressed her average annual returns. In particular, she's missed the strong bull market in stocks of the last several years.

Taylor will have to embrace some change to her investment portfolio if she wants to maintain her current modest but comfortable lifestyle in retirement, says Karen C. Altfest, a fee-only certified financial planner based in New York City who reviewed Taylor's financial situation.

"I think she's doing really well because she's living fairly modestly and within her means," Altfest says of Taylor, "but she needs to consider new ways to invest what she has."

Although Taylor has never earned a lot--she currently makes just over $31,000 annually--she has assembled a nest egg of roughly $100,000 mainly by being frugal.

She clips coupons and shops for bargains. Though she admits to being a hopeless clotheshorse, she won't buy anything that isn't on sale. She seldom charges more than $100 on her credit card, and she always pays off the balance each month. And for the last four years, she's been paying $200 to $400 a month beyond the required payment of $357 for the mortgage on her condominium in Leisure World in Laguna Hills. She now owes about $40,000 on the mortgage.

In addition, 10% of her $31,560 annual gross salary goes directly into a pension fund at work.

Although those habits are great, her investments are far too conservative, Altfest says. With her money largely tied up in bond funds with single-digit average annual returns, Taylor's money isn't working a fraction as hard as she is. But if she revamps her portfolio, putting her money into a diversified mix of stocks, fixed-income securities and foreign investments, she should be able to significantly boost her returns yet still maintain a modicum of security in regard to her principal, Altfest says.

The fact that Taylor's investments aren't wisely allocated doesn't come as a shock. Most of her investment advice has come from friends or employees of her bank. The rest she's learned by the seat of her pants.

"I still feel like I'm such a novice and I need to learn so much," she said. "The scary part is that I'm not knowledgeable enough to know how to make the best of the money that I have."

Taylor first started pondering the matter of investing soon after her first husband died in 1973. She was 39 with an 11-year-old son, a daughter in college and a new house in Garden Grove. She received about $65,000 from her husband's life insurance policy. Taylor used a small portion of the money to pay off that mortgage and put the rest into bank CDs until 1985, when a friend from her boating club suggested that she try "the market."

She put some money into a Colonial government-bond fund, which paid regular interest that she used to help handle day-to-day expenses. That year she also sold her house and used the money to buy a boat, where she lived with her second husband until their divorce in 1992.

At that point, the $421 in interest Taylor was receiving from her bond fund investment helped cover her four-year alimony obligation to her ex-husband.

Taylor sold the boat in 1992, bought the condo in Leisure World and started making some decisions about her future. She hadn't considered retirement before then and had no money put aside for it. In 1993, when she got her job with the D.A.'s office, she opened an individual retirement account, now invested in a Kemper Horizon balanced fund, which invests in a mix of stocks and bonds. The IRA is now worth about $14,000.

Taylor should be able to retire in six or seven years, Altfest said. Making the new investments now should provide her with the $2,000 a month she hopes to live on and she should have enough money well into her 90s, said Altfest, who specializes in investments for women.

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