Becky Gillette – Few things give more peace of mind that having enough money to put a roof over your head, groceries on the table and pay the bills. A nationally recognized financial expert, Sheryl Garrett, CFP and founder of Garrett Planning Network, has started free “Financial Independence Day” discussion groups at the church at 17 Elk Street on Sunday mornings from 9:30-10:30 a.m.
Garrett testified in a U.S. Congressional hearing in favor of proposed Department of Labor regulations that went into effect recently requiring investment advisors to put their client’s financial interests first when handling retirement savings. She has also testified in Congress on predatory lending, Social Security reform, and financial literacy. The Financial Independent Day discussions are being based on the book, What Your Financial Advisor Isn’t Telling You by Liz Davidson.
Garrett said high costs to purchase investments could quickly eat away at earnings, particularly over long periods of time. She acknowledged there are normal fees from investing in stocks, bonds or mutual funds, but there are also hidden fees.
“You need to know they are there,” Garrett said. “Some fees you shouldn’t have to pay. Something like a one percent annual fee doesn’t sound like much, but it makes a huge difference in the amount of earnings over a 30- to 40-year time period. Huge! It could be the difference in having half as much a nest egg.”
No commission products, such as Vanguard, are the ones Garrett recommends. And she said it isn’t a good idea to pick individual stocks to invest in, as that can be risky.
“I have never been good at picking individual stocks,” Garrett said. “Even Warren Buffett, the best living investor out there, said most people should not be buying companies like he does. Buffett recommends no load (no commission to purchase) index funds, which are a basket of stocks or bonds or both.”
Garrett, who has worked with more than 1,000 individuals providing financial planning advice, said the number one regret of most investors is not starting early enough. If someone starts saving in his or her teens or early 20s, even small amounts can grow substantially through the years.
She considers Roth Individual Retirement Accounts “a brilliant tool, especially for young people. With Roth IRAs, all the earnings grow tax-free. Withdrawals are tax-free. You don’t get a tax deduction for making the contributions like you may with regular IRAs, but earnings become the greatest part of the nest egg over time. Even though taxes historically are at a low rate, it adds considerable value when you don’t have to pay taxes.”
You must have earned income to contribute to the Roth IRA. One misconception about Roth IRAs is that people hear the maximum amount that can be contributed, and think they must invest that much. Instead, you can add smaller amounts.
Financial independence is also about avoiding debt. She is a big fan of going into retirement mortgage free, which has both financial and emotional benefits. And at any age, avoid the trap of high interest rate credit cards and payday loans.
“Payday loans can end up costing 400 percent a year,” Garrett said. “If you don’t have $100 now, why would you think you would have $150 in ten days?” When she went to college, it was rare for students to have credit cards, Now students get hammered with offers and many get in trouble spending too much.
“Credit cards are like bad drugs on campus,” Garrett said. “They should not be advertised on campuses. Kids without supervision for the first time in college can end up making big mistakes putting themselves deeply in debt. Teach your children about avoiding credit card debt and the importance of saving. How early is too early? You can start teaching them lessons at age four and above. You want your children to learn money skills while you still have influence over them.”
She insisted another thing children should be taught is that their most important asset is human capital: their ability to earn money. That can be difficult these days when incomes of the one percent are increasing dramatically while wages are lagging behind for the 99 percent.
“For the first time in four generations, the percentage of first time homebuyers in the U.S. has gone down,” Garrett said. “It was forty percent for decades and now it is down to thirty percent. A lot of it is that real estate prices are so high in some areas. But, in some cases, children aren’t willing to step down to the lower standard of living than they experienced in their parent’s homes. For the first time in American society, our children will not live higher on a higher economic scale than us. Do they need to? I don’t think so.”
The issues of Social Security and Medicare will be discussed at the next meeting, 9:30 a.m., Sunday, May 22, at 17 Elk St. Future meetings are set June 5, 19 and 26.