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The Gallaghers' Payoff

Short on Savings

Financial planner Derek Kennedy has outlined an aggressive savings plan to help Gallagher retire comfortably. Bookmark this site for updates to her story.

Aug. 14, 2009

Gallagher has already increased her contribution to her 403(b) plan at work from $600 a year to a whopping $125 a week, half of the savings that planner Derek Kennedy says she needs to set aside for her future. The tax-deferred 403(b) account not only allows her money to grow faster than it would in an investment that’s taxed every year, it also keeps the money out of easy reach until retirement.

To help meet her $12,600 annual savings goal, Gallagher is planning one big lifestyle change. She has lined up a housemate, a friend of hers who'll help pay expenses—allowing Gallagher to put more into savings.

Following Kennedy's advice, she dropped her plan to take out a parent's loan for Kelsey's fall tuition at college. "I used some of my savings on hand and got her dad to put in a bit more," she says. Though the move puts her one step back on savings, it avoids the cost of interest on a loan. As for next semester's tuition, "Kelsey has a goal to meet," says Gallagher, who, as a matter of diplomacy, would prefer not to tell the world just what she expects her daughter to borrow or earn from part-time work.

Sept. 10, 2009

Gallagher confesses she "hasn't done much" lately to further her plan for financial security, but she may be underestimating her efforts. She's been busy helping the friend who'll share her house—and its costs—relocate from West Virginia.

She also held a massive garage sale, clearing a tidy $300. But rather than saving the cash, "I'm going to set aside that money for travel," she says.

Meanwhile, Gallagher has been mulling financial planner Derek Kennedy's recent memo summarizing the must-do moves he recommended. They include funding a Roth IRA each year and establishing a power of attorney and health care proxy, so there's someone to make financial and medical decisions for Gallagher if she can't make them herself someday.

Oct. 8, 2009

Gallagher has taken up Derek Kennedy's suggestion that they talk once a week by phone, to help her put the financial plan he created for her into action. On the 15-minute calls they go over her to-do list. "I even get homework," she says.

Kennedy has seen this technique pay off for clients. "When faced with a long implementation list, clients often feel overwhelmed, especially if they don't have much experience dealing with financial matters or investment accounts," he says. "It's like telling someone that they need to clean out their garage. The project just seems so huge that they drag their feet. And the longer they drag their feet, the more intimidating the project becomes."

Gallagher's list has 18 items on it, so Kennedy is breaking it down into discrete steps. The first payoff: when she started sorting through her papers, she discovered a power of attorney she already has in place. Now she just needs to get a signature for the health care proxy she recently picked up.

As for the biggest to-do item—cutting spending—with $125 going straight from her pay into a 403(b) account, Gallagher has trimmed her weekly restaurant visits and is spending less on entertainment. And she's okay with it. "When you just put that money aside you don't miss it that much," she says. She compares the increased payroll deduction to giving to the United Way—a practice she'll continue.

The addition of a housemate has helped with expenses, too, and Gallagher plans to have a few friends over later this month to celebrate the new situation.

Gallagher is also relieved she didn't have to take out a loan for Kelsey's fall tuition, and proud of how well Kelsey—a college sophomore who's working three part-time jobs to help defray costs—is doing with her studies.

Next on the list: research long-term care insurance and open a savings account to hold part of the emergency fund Kennedy recommends. Down the road they'll tackle how to commit even more of her income toward retirement.

Dec. 3, 2009

While the holidays can make it hard to stick to even the best financial plan, Judy has a lot to celebrate this season. She just had her last weekly phone call with financial planner Derek Kennedy; all 18 items have been marked off her immediate to-do list.

Her biggest accomplishments: increasing her annual savings and maximizing her investments. She transferred her Roth IRA to a different Roth account with lower fees and better investment options for her situation, and she contributed $6,000 to it—the maximum amount for 2009. With Kennedy’s help, she navigated rolling over two 403(b) retirement accounts into an IRA account with lower fees. She also put $3,000 into a savings account that will serve as her emergency fund, using some of the proceeds from a life insurance policy she no longer needed.

Kennedy underscores that Gallagher’s biggest challenge for the new year will be to meet her annual savings goal of $12,600. It’s possible, as long as she keeps the long-term in mind. “What I still have to do is increase my payment each month to myself,” Judy says.

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