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Wall Street, California | MONEY MAKE-OVER

Deejay Needs to Turn Up Volume


For a guy who's got thousands of dollars in CDs, Chase needs a lot of help with his finances.

Actually, Chase's CD collection is of the musical variety, grist for his 7 p.m.-to-midnight radio show on KLYY-FM, the Pasadena-based rock station better known as Y107.

Chase, who goes only by his first name, keeps his $8,000 in savings parked in a low-interest-earning bank account. His retirement fund, such as it is, is the $450 he's got in an IRA, also in a low-return investment. Furthermore, he can't seem to eliminate a pesky $2,000 credit card debt, the result of a few too many dinners on the town and the occasional trip to his native England.

"My knowledge of the stock market is nothing," Chase admitted. "My experience is limited to tax time and H&R Block. Music is my religion. I love the music."

That's not to say Chase is naive enough to be harboring some vague when-I'm-64-style notion that a carefree retirement will somehow just arrive. He's aware he needs to improve his knowledge of personal finance matters, and, upon receiving word not long ago that he'd be getting a $10,000 inheritance soon, he decided to seek professional advice.

That money means a lot to someone like Chase. Sure, the Howard Sterns with their multimillion-dollar syndication deals or the Marks and Brians in drive-time slots at well-established stations covering a major market such as Los Angeles are pretty well fixed. But the story is very different for most radio disc jockeys. Besides the insecurity of being in a ratings-dependent line of work, these announcers earn far less than the medium's stars.

"It's very possible for a deejay at a 'guerrilla' station not covering the entire market to earn between $40,000 to $60,000 in Los Angeles," said Jeff Pollack, chairman of the Pollack Group, a Los Angeles-based radio consulting firm. "These so-called guerrilla stations need to run with lower expenses."

His credit card habit notwithstanding, Chase does try to keep his expenses in line. Yes, he does own a fairly new car (for which he pays $360 a month, on a 9% five-year loan). But, otherwise, he lives like a guy who values his financial independence. In fact, he figures that if he had to, he could live on a little bit more than $250 a week--a figure he calls his "fast food index"--a reference to the part-time, minimum-wage burger-chain job he had in high school.

For instance, he shares an apartment with a co-worker, keeping his rent at just $525 a month. He also tries--usually successfully--to save a few hundred dollars a month out of his paychecks. Fortunately for a music lover such as Chase, one of the perks of being a deejay is that he gets quite a few CDs free from record companies. If he weren't getting them free, he admits, he'd probably be buying more than he could afford.

Chase may be in a better spot than a lot of 29-year-olds, but his long-term finances definitely need to be playing at a higher speed, said Brent Kessel, a fee-only certified financial planner in Santa Monica. Kessel's major concern: Chase isn't taking advantage of the station's tax-deferred retirement savings plan.

In doing so, he's not only giving up one of the best tax advantages around, he's also squandering the enormous advantage of his youth. How so? Here's a f'r instance: Savings of, say, $333.33 a month, or $4,000 a year, earning average annual returns of 8% will grow to almost $748,500 in 36 years. If Chase were to wait 10 years to start saving for retirement, he'd have to put aside about $780.13 a month (also assuming an annualized 8% return). Or, to look it another way, $333.33 a month saved for 26 years instead of 36, and growing at that same annualized 8%, would grow to just $329,817.

Chase attributed his reluctance to save in the company's 401(k) to a desire to keep his retirement savings under his own control. However, although it is certainly legal for an employer to require that 401(k) savings be left with that employer until the individual turns 65--even if he has left that company's employ--in practice few companies will do that.

In most cases, an employee can roll his 401(k) savings over into an individual retirement account when he is no longer on that company's staff.

Chase has been passing up a good deal, Kessel said. Y107's 401(k) matches 25% of employee contributions up to 3% of pretax pay. Kessel believes that, with just a little bit of discipline, Chase could comfortably contribute $4,500 annually to his firm's retirement plan.

"You'll regret not doing this," Kessel told Chase. "If the amount I'm suggesting feels like too much money, start smaller and see if you can take it. Then you can ramp it up."

Chase would also, for similar tax-related reasons, benefit from opening an IRA. Kessel suggested that Chase open a Roth. The biggest advantage with these IRAs is that not only do savings grow untaxed, as with a traditional IRA, but disbursements taken in retirement are not taxed either.

Now, what to buy? Chase has several stipulations.

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