Kiplinger's Personal Finance


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Kiplinger's Personal Finance

  1. 1. S P E C I A L R E P O R T: I D E N T I T Y T H E F T T H E M E LT D O W N WHAT’S YOUR NAME WORTH? WHAT TECH STOCKS ON THE STREET, JUST $25 | 88 NEED TO REVIVE | 60 March 2001 Vol. 55, No.3 | Founded 1947 | | $2.95 RETIRE At age 33, Mary Foley could afford to retire—and WHEN YOU start a whole new life. WANT s Planning your early exit | 38 s10 funds and 20 stocks to get you to the finish line | 52
  2. 2. | March 2001 | Vol. 55, No. 3 | Founded 1947 5 COVER 37 | I N V E S T I N G Retire when you want Photograph by Kristine Larsen; 38 | Retire When You Want illustration by Mark Zingarelli 38 | Exit Strategies 14 | FROM THE EDITOR Millions of Americans dream of an early retirement in which the grind of a reg- How goes your exit strategy? ular job gives way to the freedom of pursuing happiness. To see how you might make that vision a reality, check out these success stories. 17 | LETTERS 48 | Putting a (Rough) Price Tag on Your Dream 18 | INDEX You already know that reaching your goal takes some serious saving, but how Significant company mentions. much? Use our worksheet and online resources to plug in your own numbers. 24 | A H E A D 52 The Fed’s fight against reces- sion . . . What tests will your newborn take? . . . Borrowing for business online . . . Person- ality tests return to the work- place. Reviews, page 34. 136 | REWARDS Kicking a credit habit. ZOHAR LAZAR KRISTINE LARSEN 24 52 | Your Freedom Portfolio Sound investments will help Elizabeth Sugg sail into a smooth retirement. Here are strategies—plus specific funds and stocks—to help you get there, too. KIPLINGER’S PERSONAL FINANCE (ISSN 1528-9729) is published monthly by THE KIPLINGER WASHINGTON EDITORS INC. Editorial & Executive Offices: 1729 H 60 | Tech Gets Tough Love St., N.W., Washington, DC 20006 (202-887-6400). A newsletter editor who missed a lot of technology gains on the way up is Subscription Center/Customer Service: 800-544-0155 avoiding all the losses on the way down—and he’s still not ready to buy. or e-mail: POSTMASTER: Send change of address to Kiplinger’s Personal Finance, P.O. Box 3292, Harlan, IA 51593-0472. 66 | Weatherproof Your Investments GST# 123395253. Finding a fund that can work for you in good times and bad is no easy task. Plus: How the 50 biggest funds fared during the Nasdaq bear market. Copyright © 2001 by the Kiplinger Washington Editors Inc. Periodical postage paid at Washington, DC, and at additional mailing offices. Subscription prices: In 70 | MORE ON INVESTING YOUR MONEY U.S. and possessions $23.95 for one year, $39.95 A deregulation fiasco and lower interest rates mean juicy bargains in electric for two years, $54.95 for three years. Additional stocks (page 70). Picks from the bargain basement (72). How to minimize the postage: In Canada and Mexico add $8.50 per year and in all other foreign countries add $9.50 per year. tax pain when stocks split (72). Familiar fund winners are missing from our Single-copy price: $2.95. rankings, and there’s a whole new cast (76). Fund rankings begin on page 73.
  3. 3. 8 Contents kiplinger’s | march 2001 HOW TO REACH US 80 FEEDBACK. To contact our editorial offices, write to Kiplinger’s Personal Finance, 1729 H St., N.W., Washington, DC 20006, fax to 202-331-7255, or e-mail to On the Web, go to and click on “Contact us.” Q&A. Have a question? Send it to Q&A, Kiplinger’s Personal Finance, 1729 H St., N.W., Washington, DC 20006, fax it to 202-331-7255, or e-mail it to q&a@ Include your name, address and daytime telephone number. We can’t reply by mail, but we’ll reprint as many as space permits. MARK ZINGARELLI SUBSCRIPTIONS. For inquiries about ordering, billing or renewing your subscription, or to report address changes, call 800-544-0155, Monday through Friday between 7 A.M. and 11 79 | M A N A G I N G P.M. and Saturday and Sunday between 8 A.M. and 6 P.M. central time. Or write 80 | IDENTITY THEFT: The Day They Stole My Name to Kiplinger’s Personal Finance, P.O. Box 3292, Harlan, IA 51593-0472. Your When her wallet was stolen, that was just the beginning of our writer’s woes. mailing label will come in handy when In the process, she learned valuable lessons that can help you protect yourself. speaking with our customer-service representatives. 88 | IDENTITY THEFT: Anatomy of a Fraud Old-fashioned pickpocketing is only a fragment of today’s identity-fraud trade. You can also accomplish these tasks via e-mail ( Sophisticated crime rings make millions by stealing others’ good names. Or on the Internet, go to ( and click on 98 | MORE ON MANAGING YOUR MONEY “Customer Service.” People collecting long-term-care benefits are glad to have them—they only wish they had bought more (page 98). Time to refinance? (100). The best ways REPRINTS. Contact PARS Internation- al Corp., 102 W. 38th St., Sixth Floor, to settle up with the IRS (102). Cleaning up the CD business (108). For average New York, NY 10018 (212-221-9595; loan rates, see page 104; best credit cards, 106; top money-market yields, 108. fax, 212-221-9195; e-mail, 111 | S P E N D I N G MAILING LISTS. From time to time 112 | Kitchen Aid we make our subscriber list available to carefully screened companies whose You might think that great chefs have a hearty appetite for culinary gewgaws, products may be of interest to you. If but the ones we talked to favor the minimalist approach. Here’s what Julia you would rather not receive such solici- Child, Maida Heatter, Rick Bayless and others consider the absolute essentials. tations, send your mailing label to P.O. Box 3292, Harlan, IA 51593-0472 and 118 | Nothing But Net instruct us to exclude your name. The latest Web-surfing devices offer quick access to the Internet, but nothing more. If that appeals to you, see what we think of five models. 122 | MORE ON SPENDING YOUR MONEY EDWIN FOTHERINGHAM How to escape the cramped coach and upgrade to first-class (page 122). Five cars outfitted for your daily commute into the urban jungle (126). Power bars or Pop-Tarts? (130). 122
  4. 4. 12 .com | Your interactive personal-finance center LEARN MORE: INTERACT: USE OUR Visit in February and March to see Ask our writers and TOOLS: these online enhancements to the magazine. editors questions, read the columns, then give us MANAGE INVESTING your feedback. THE WEB Kiplinger-q is a new soft- Retire When Tax-Time Help ware device that stays on You Want is posting your desktop as you surf How much money do you daily tax tips and hosting need to save each month to frequent forums to answer finance an early retirement? your tax-time questions. You can fill out the work- You can buy Kiplinger’s Tax- sheet (see page 48) or, if Cut software at our site, too. you’d rather not do the math, check out our online Practical version at www.kiplinger Tech .com/tools/retcalc2.html. Kiplinger’s technology And from our home page, writer, Michael J. Martinez, the Web. Besides scrolling click on “Kiplinger’s Port- spotlights products with financial news and quick folios” to track prices, earn- more function than flash. links to the best of ings, growth prospects and, you can S E A N K E L LY key ratios of the 20 stocks Value Added save Web pages from any fit for a long-term portfolio. Steven Goldberg offers sug- site and read them later— gestions for stock, bond and off-line. Tech Gets Tough Love fund investors looking for Fred Hickey, editor of the High-Tech Strategist newsletter, value in their portfolios. FINANCIAL is the guy money managers and analysts consult to cut NEWS through the tech-stock clutter. What’s his take on when eConsumer Keep up with personal- tech will turn around? Read the Insider Interview, on page Sacha Cohen uncovers finance and business news 60, then go to our home page to hear an audio clip from the best services on with our feeds from AP, the interview. the Net. UPI and more than 30 other wire services. MANAGING Ask Kim @Kiplinger YIELDS Anatomy of a Fraud Got a personal- & RATES Identity thieves are increasingly using the Web to steal finance question? Find rates in hundreds your good name (see page 88). Unlisted phone numbers, Ask Q&A editor of cities for checking ac- prior addresses, and even driving records for some states are Kim Lankford. counts, mortgages, CDs, available on- credit cards and more. line. We’ll Dear Dr. show you Tightwad CALCULATORS where identity Make your kids See what the marriage thieves go to money-savvy with penalty is costing you, how CHRISTOPHER ROBBINS discover sensi- advice from Janet much you can spend on tive informa- Bodnar. housing, or whether it tion about you. makes sense to refinance your mortgage. DAN PEEBLES
  5. 5. 14 From the Editor kiplinger’s | march 2001 HOW GOES YOUR OWN EXIT STRATEGY? I hope you like what you do for a living as much as I do. But I suspect that sometimes we all yearn for the time—and the independence—to pursue other interests in the brief period we spend on this earth. Hence, the uni- versal attraction of early retirement. Most of us, however, don’t think of re- tirement as a time to sit on the front porch and whittle wood. We want to get on with the rest of our lives. Cer- tainly that would apply to the early retirees who populate this month’s cover package, beginning on page 38. Mary Beth Franklin, who wrote “Exit Strategies,” says we need a new name for retirement, and I agree. “It’s not about rocking chairs and gold watches,” says Mary Beth, “but about rockin’ and gold medals.” Yet to get to the point of making such a big ILENE PERLMAN change in your life, you need both in- q Mary Beth Franklin, spiration, which her story provides in in training for her abundance, and a plan. next career. That’s where “Your Freedom Portfo- lio” comes in, on page 52. Senior edi- en route to Canada’s Mount Trem- tor Manny Schiffres offers specific ad- blant, on a winter vacation. Godspeed, vice on building a nest egg that will Mary Beth, but tell me: What makes permit you to step out of your present you think I plan on being around to life and into a new one. Associate edi- hand you that gold watch? tor Brian Knestout, on page 42, di- rects you to planning resources on the P.S.: Kiplinger’s Mutual Funds 2001 is Web. The worksheet on page 48 lets on sale on newsstands, with returns you take the measure of your financial for and rankings of more than 2,500 progress. Editorial director Kevin Mc- funds to January 2. Insightful articles Cormally oversaw this team effort. describe the 101 best funds, as well as The experience of interviewing and winning fund strategies and portfo- interacting with cover subjects Mary lios. The publication is perfect for Foley, Darrel Choate, Joe Bukovsky beginning and veteran investors. To and Jim King wasn’t lost on Mary order directly, call 888-547-5464 or Beth. She has no intention of sticking visit around to get a gold watch from me. At age 40, Mary Beth took up skiing, and her idea of a new take on life is to spend several months a year as a ski instructor. In fact, as I write this, she’s
  6. 6. 24 | March 2001 | Vol. 55, No. 3 | Founded 1947 25 finances | Forget the scare talk. are growing fast and unem- WWW | Cold feet ployment is at a record Lower interest rates and higher low.” C all this a most- Economic growth is of-your-money- wages will LIFT THE ECONOMY, clearly cooling off from its back guarantee: torrid pace of the past few, an W H AT ’ S N E X T FO R YO U R M O N E Y s BY M E LY N D A D OV E L W I L C OX fending off a recession. years. But, says Swonk, investing site for women, “Alan Greenspan was will let its brokerage cus- blamed for one Bush reces- tomers sell back their THE FED sion; he won’t be blamed for shares commission-free another.” Look for the Fed within 30 days of a trade to continue lowering rates, if they experience buyer’s bringing the federal funds remorse. But sympathy rate down to 5.5% or lower PUMPS only goes so far: Custo- by summer. That would put mers are still on the hook the prime rate at no more for losses they may have than 8.5%—a full percent- incurred. age point below where it IRON was at year-end. With its surprise rate cut half of 2001 and register in early January, the Fed slightly above 2.5% for the “rushed in and grabbed the year. Few expect the econo- economy before it hit the my to post negative growth T ground,” says Gary Shoe- for even one quarter, let smith, director of the Cen- alone the two or more con- ter for Economic Studies at secutive quarters that have Wake Forest University. As traditionally defined a re- a result, there’s a good cession. Unlike during the chance that the worst pain 1990–91 recession, says he U.S. economy has been may already be over. Shoesmith, there’s no crisis The consensus among in banking, no high busi- recession-free for so long that it’s hard forecasters is that growth ness debt burden, no over- will pick up in the second building of commercial to remember what a downturn looks like. Yet some analysts are speculating DONE IN THE SUN that the r-word is just around the A dd another must-have to your beach bag, along with corner—or, even worse, that we’re in your sunscreen and sunglasses: a dime-size disposable sticker that mea- one already. Odds are we ain’t. sures the total dose of UV rays hitting your skin. At about 10 cents a pop, it What you’re hearing on TV and warns of sunburn by changing color, signaling when to slather on more elsewhere is “a very Wall Street–cen- lotion or duck under the umbrella. The sticker, invented by an Israeli company, will make tered and Washington, D.C.–centered its U.S. debut in the spring. You can get it formulated for use with or without sunscreen, and for six skin tones, de- recession forecast,” says Diane Swonk, pending on how sensitive you are to the sun. It’s not wa- terproof, but while you frolic in the surf you can attach it chief economist for Bank One, based to a towel or beach bag and it will still measure the UV V I T O A LU I A rays to alert you to your burn threshold. —ERIN BURT in Chicago. “On Main Street, wages ILLUSTRATION BY DAN ADEL
  7. 7. 26 kiplinger’s | march 2001 space, and no Gulf War. This time, California’s en- DEAD ergy crisis isn’t expected to RINGERS have national repercussions. And expectations for corpo- rate profits have dropped so P ity the poor pay phone. With the low that investors may be rise of cellular pleasantly surprised by sec- phones and prepaid call- ond-quarter earnings. ing cards, “we’ve seen a Normally it takes six to 10% to 14% drop per 12 months for the economy year in usage nationwide to perk up after a rate cut, ANDERS WENNGREN over the past three but this time the lag may years,” says Verizon be shorter. Mortgage rates spokesman Jim Smith, had actually fallen a full and the number of percentage point before the phones has declined by Fed cut in early January, so about 400,000. refinancings are well ahead Not only are phone of schedule. Lower energy companies removing pay prices by spring should phones from unprof- also put more cash in con- sumers’ pockets. “I can’t think of one rea- son consumers would stay home rather than go shop- MEDICINE | Expanded screening can spot ping,” says Shoesmith. If more GENETIC DISORDERS in newborns. anyone feels the pinch, it’s the small slice of investors most heavily invested in BABY STEPS TO A Nasdaq stocks, says Jim Griffin of Aeltus Invest- HEALTHIER CHILD q Keeping up: Left behind by ment Management. A cell phones, pay booths could The jobless rate has held dvances in tech- TESTS | Where to go become Internet kiosks. steady at about 4%, possi- nology have made bly because employers are it possible to test T wo private labs itable locations, they reluctant to part with work- newborns for more than 40 offer supplemental also are looking for new ers who were hard to find. genetic disorders, and if you genetic tests for ways to make the re- The rate could drift up, live in Wisconsin your baby newborns. Each charges maining phone booths but even if it hits 4.5% in will be tested for 21 of $25, but screens for a earn their keep. Among 2001, that would still rank them. If you live in Massa- slightly different set of the ideas under consid- among the ten best years of chusetts, you can choose to disorders. eration: turning them the postwar era. “It’s hard have your child tested for into kiosks for Internet to find evidence of reces- 30 abnormalities. Babies Baylor University Medical Center access, data ports or sions coming at a time of born in Utah, however, are 800-422-9567 electrical outlets. full employment,” says tested for only three condi- Don’t worry. If you’re Joseph Battipaglia of Grun- tions. Most states require newbornscreening really in need of a pay tal & Co. hospitals to test for five to phone, “they will always In fact, by year-end the eight disorders, including Neo Gen Screening 800-892-1288 be around,” says Smith. Fed may be raising rates PKU and congenital hy- “We will just have to find again, says Griffin. “The pothyroidism, both of new ways to keep up market will have bottomed which can cause mental re- WA LT E R S M I T H with the competition.” out and we’ll find out that tardation, and sickle-cell a very unequal way across —GLEN MAYERS the economy wasn’t so fun- disease. the U.S. in terms of screen- damentally sick after all.” “Newborns are served in ing,” says Dr. Donald
  8. 8. 28 kiplinger’s | march 2001 Mattison, medical director not require them. Hospitals for the March of Dimes. aren’t charging for the T H E K I P L I N G E R Yet early testing can make screening; they typically a big difference in detecting conditions that are relative- ly rare and often go unno- ticed under normal circum- cover their costs from the lump-sum fee that insur- ance companies pay for childbirth. MONITOR LONGEVITY | Time marches on . . . and on stances. For example, a To help states achieve a metabolic disorder such as consensus, says Mattison, the 67,000 MCAD, which doesn’t al- March of Dimes would like Estimated number of Americans who are at low the body to burn stored the federal government to least 100 years old, a 130% increase from 1990. fat properly and affects develop uniform screening about one in 10,000 babies, guidelines that states could 834,000 isn’t apparent until a child adopt, just as it sets stan- Projected number of centenarians in 2050. fasts as a result of vomiting dards for immunizations. 82% or surgery. But if babies In the meantime, two Percentage of centenarians who are women. with the disorder don’t con- private labs offer supple- sume enough sugar, they mental testing to the public 46 AND 48 can suffer a life-threatening for about $25 (see the box Life expectancy at birth in 1900 for men cardiac arrest or lapse into on page 26). Consult your and women, respectively. a coma. doctor before the baby’s due 74 AND 80 Four states—Massachu- date so you will have the Life expectancy at birth in 1997 for men setts, North Carolina, South test kit when a blood sam- and women, respectively. Carolina and Wisconsin— ple is collected for other already screen for an ex- screening tests when your 122 YEARS panded list of abnormali- baby is born. The Tyler Age of Jeanne Calment of France, who was the oldest ties. In Pennsylvania, all for Life Foundation (www recorded person when she died in 1997. She took up fencing but seven hospitals have, a parents’ when she was 85, and was still riding a bike at 100. elected to perform the tests, advocacy group, is also a 31% even though the state does good source of information. Percentage of earnings you must save every year to maintain your preretirement income when you start working at age 20, retire at 60, and live to 100. A IS FOR ATTITUDE —MAGALI RHEAULT SOURCES: The Brookings Institution, U.S. Census Bureau, Guinness Book of World H igh school students in suburban Seattle are get- Records, Harvard Medical School, National Center for Health Statistics ting a new grade on their report cards: an “employability profile” that assesses the likelihood that a student will be success- ful in the workplace. Teachers BANKING | Lending networks on the grade students on such char- acteristics as punctuality, Web give SMALL BUSINESSES more places attendance, teamwork and to borrow money with fewer hassles. pride in their work. Students who achieve an average of 4 or 5 on a five-point scale earn a “hire me first” card they can FAST CREDIT ONLINE S present to potential employ- haron Berry got visited a Web site called ers during job interviews. a lukewarm reception LiveCapital, filled out an Kentwood High School prin- from local banks online loan application, and cipal Doug Hostetter says the grade not only helps area when she sought a loan to within about five minutes businesses but could also improve a student’s academic expand her Stafford, Va., was evaluating competing D AV I D S H A R P E performance. “Often the cause of poor grades is work child-care business by open- offers from several banks. ethic, not intellect.” ing a second center. Rather Within two weeks Berry than scrap her plans, Berry had her money.
  9. 9. 30 kiplinger’s | march 2001 LiveCapital and several SPENDING | You can fill your order at other online companies ONLINE GROCERS, but be prepared to drive by a have built networks of lenders that small business- supermarket to pick it up. By Catherine Siskos es can tap into quickly and easily (see the box below). In the case of LiveCapital, COME AND GET IT 70 financial institutions belong to the network, T he turmoil sur- you’ll have to pay for it. among them American rounding dot-coms Albertson’s, the Idaho- Express, Citibank, First has hit online gro- based supermarket chain, Union, G.E.Capital and cers especially hard. Home already gives its customers NOW IT’S Wells Fargo. Mike Gross- delivery is a painfully sore the option of going to one DOT-GONE man, LiveCapital’s co- spot for e-grocers, who of 36 Seattle-area stores founder and CEO, says must either recoup their to pick up online orders its customers value conve- delivery costs by setting a at drive-through sites. The I t wasn’t so long ago that firms were rushing nience and anonymity as high minimum on purchas- service is free for online to add a “.com” to their opposed to “going from names. Now they’re rush- bank to bank and getting ing to rub it out. grilled by a loan officer.” Last October, for ex- Real-time credit approval ample, UpdateThis, which doesn’t always replace the makes software to help intangible value of personal clients update their Web banking. “When business sites, dropped the “.com” owners face difficult times from its name. “We didn’t and they’ve been loyal want to look like just an- clients, their bank will be other Internet company,” there for them,” says Loren PA U L M E R I D E T H says UpdateThis presi- Herbst, a retired banker dent Bill McCahey. who counsels small compa- As early as last spring, nies as a volunteer with the when laggard dot-coms Service Corps of Retired Ex- q In Seattle, online-grocery customers collect their orders at Albertson’s. were still riding the tail of the craze, “we were ad- WWW | Cash to go es or risk losing customers purchases of $5 or more. vising companies with by raising their fees.Web- Otherwise, you have to pay van, for example, has raised $5.95, the same fee cus- V strong business strate- isit the following gies that ‘.com’ didn’t sites to get a its minimum purchase for tomers pay for a home or have to be part of their quick thumbs up free home delivery from $50 office delivery when pur- name,” says Suzanne or thumbs down on a to $75 for some California chases are less than $60. Hogan, a corporate-brand small-business loan customers, and Grocery- “People in this business image consultant with application: Works has more than dou- are throwing spaghetti at Lippincott & Margulies. bled its minimum order the wall and seeing what “The real issue was for free delivery from $25 sticks,” says Matt Stamski, whether the business to $60. an analyst with Gomez Ad- made sense.” Rather than close up visors, and he thinks the As Internet companies shop, struggling Internet pickup option has staying mature, cutesy names will grocers may be bailed out power. “There’s still the fall by the wayside, and ecutives. But if you don’t by traditional supermarkets. convenience of not having the .com suffix will be- have such a relationship, Customers will still order to walk around the store or come increasingly redun- or if you have already ap- their groceries online but stand in line at the check- J O N AT H A N C A R L S O N dant, adds Hogan. “Al- plied for a bank loan and go to a nearby market to out counter.” And picky most any brand today has been turned down, “what pick them up. If you prefer customers who prefer to ex- its own Web site.” do you have to lose?” says the convenience of delivery amine their own avocados Herbst. to your home or office, can run into the store.
  10. 10. 32 kiplinger’s | march 2001 CAREERS | Are you | Airlines are saving lives—and T R AV E L right for the job? Take dollars—by keeping SICK PASSENGERS in touch a PERSONALITY QUIZ to with doctors on the ground. By Erin Burt see where you stand. By Catherine Siskos E.R. IN THE AIR U ntrained flight or fainting as a result of sit- THE personnel and inad- ting too long and standing equate equipment up too quickly. Next in PERFECT are not a healthy combina- line are heart-related com- tion for passengers who are plaints, ranging from minor MATCH stricken with an in-flight chest pain to a full-blown medical emergency. In near- heart attack. A fter falling ly half of all airborne med- A growing number of out of favor in ical emergencies, pilots end airlines, including Ameri- the ’70s, person- up diverting the plane to can and United, voluntarily ality tests for job candi- the closest airport for help. carry an onboard automatic dates are making a come- To save critical minutes external defibrillator ZOHAR LAZAR back. Employers that used for patients, as well (AED)—an easy-to-operate, the earlier tests to identify as millions of dol- four-pound version of the applicants with potential lars for airlines, paddles hospitals use to psychological problems more than 30 carriers, shock a heart in cases of car- found themselves in a heap including Continental, of legal trouble. But today naire on its Web site to de- Southwest and US Airways, “the emphasis is on screen- termine whether potential use a system operated by ing competence as opposed applicants will fit into the MedAire Services that pro- to screening out crazy peo- corporate culture (see sam- vides in-flight audio and ple,” says University of Tul- ple questions below). Other video communication di- AGILENT TECHNOLOGIES sa psychology professor companies administer de- rectly with emergency- Robert Hogan. tailed in-house tests that room doctors at a Phoenix Using multiple-choice or vary by position. hospital. Doctors can in- true-false questions, the Traits sought by employ- struct flight personnel on tests help employers find ers aren’t always obvious. how to handle emergencies out if an applicant has traits For example, the most driv- and help determine whether q Safe passage: Airline crews get associated with top per- en salespeople score low on to divert the plane. training for medical emergencies. formers in a particular job, self-esteem, while introverts This spring Virgin At- with the goal of reducing make the best managers be- lantic will become the first diac arrest. Studies show turnover. Texas Instruments cause they don’t waste time airline to use an enhanced that for every minute defib- posts a general question- socializing. version of the in-flight rillation is delayed after a technology to send temper- patient collapses, the sur- S H O P TA L K | What employers want to know ature, blood pressure, vival rate drops significant- blood-oxygen level, EKG, ly. A Federal Aviation Ad- respiratory rate and other ministration proposal that’s A t the Texas Instruments Web site, job applicants are asked how strongly they agree or disagree with vital signs directly to doc- expected to pass this spring statements such as these: tors on the ground. would require AEDs and I prefer work that allows me free time to pursue my out- MedAire’s 24-hour emer- beefed-up medical kits to side interests. gency-room call center typi- be carried on all passenger I prefer work that involves little or no contact with my cally handles about 40 calls flights. The new kits would customers. a day, a number that has in- include an IV unit and flu- I prefer work that confronts me with difficult or complex creased with the crush of air id, CPR masks, and a bron- problems. traffic. The most common chodilator inhaler for asth- ailment is lightheadedness ma attacks.
  11. 11. | March 2001 | Vol. 55, No. 3 | Founded 1947 37 Investing A L L A B O U T S TO C KS , B O N D S A N D M U T U A L F U N D S s BULLISH SIGNAL: The Fed’s half-point rate cut SCENE ON on January 3 won’t be the last. Before the Fed is WALL STREET through, cuts could total at least 1.5 percentage Ma Bell is loved again: points. s NASDAQ NAILED: For all but the largest This may be a good time to check out long-distance stocks, it costs more to trade Nasdaq stocks than those stocks. The group was dead on the Big Board, a government study finds. That’s because of wider bid-ask spreads for Nasdaq issues. s INDEX BEATER: Legg Mason notes that Bill Miller’s PLASTOCK/PHOTONICA Value Trust fund topped Standard & Poor’s 500-stock index for the tenth straight year. Still, the fund lost 7% in 2000. s LOADED FOR BEAR: ProFunds UltraShort OTC is the top anti-tech fund, up 113% during the last among Standard & Poor’s 112 sectors in 2000. Nasdaq bear market from March 10 through January 2; But, as is often the case, among traditional funds open to new accounts, the sellers may have gone a bit overboard. leader was UAM Clipper Focus, up 73%. For more on bear- The stock that has sud- market results, see page 66. s CANINES CROW: After denly captured Wall Street’s fancy is AT&T, which sank several lackluster years, investing in the Dogs of 66% last year and recently the Dow--the ten highest-yielding stocks in the Dow cut its dividend for the first time in history. JP Morgan industrials--paid off last year. Helped by a 91% rise H&Q issued a report in mid in Philip Morris, the dogs gained 6% in 2000. The Dow January suggesting that AT&T, recently at $24, was lost 5%. s FIVE-STAR FIASCO: Stock funds that began worth $33 based on the 2000 with Morningstar’s coveted top rank lost 17%, on sum of its parts. Just days earlier Morgan Stanley average, last year. Funds that began the year with one Dean Witter had bumped star gained 5%. s PARSIMONIOUS PAYOUTS: S&P 500 up its rating from “neutral” to “strong buy.” Both firms dividends will be flat or up slightly in 2001, says say AT&T’s upcoming four- S&P. Payouts on the index dropped 2.5% last year, the way breakup could help boost the stock. biggest decline since 1951. s ROLLER COASTER: Ken Heebner’s CGM Focus fund soared 44% in the last quarter of 2000 by selling short high-tech stocks. But then, in the first two weeks of 2001, Focus sank 20%.
  12. 12. 38 Investing kiplinger’s | march 2001 39 co ver | Want to jump off the treadmill? These SUCCESS STORIES show you the way. By Mary Beth Franklin EXIT STRATEGIES M a r y F ol e y is RETIRE one of a new breed of retiree. She WHEN worked as long as she felt fulfilled YOU q The new look of retirement: Mary by her job, then called it quits. Having WANT Foley called it quits at age 33. † enough money to fund a retirement that might last far longer than her career was a key part of the equation. But the main motivation for saying sayonara was a desire to have the freedom to do what she wanted, when she wanted. PHOTOGRAPHS BY KRISTINE LARSEN
  13. 13. 40 Investing kiplinger’s | march 2001 The most obvious thing that sets her million dollars in a money-market apart from most other retirees is her For many workers, fund while she contemplated her next age: She was just 33 when she retired move. She turned to Stephen Park, an from America Online in 1999. the goal is for their investment adviser with A.G. Ed- Her 64-year-old father, Charles Fo- wards in Washington, D.C., to help ley, still chuckles over the fact that he portfolios, not the her establish a diversified portfolio of had to leave his dental practice early stocks to be monitored by professional one day two years ago to attend his calendar, to control money managers. They also created a daughter’s retirement party. laddered bond portfolio to generate Of course, not everyone has the op- when they retire. about $70,000 a year while she portunity to work for a start-up com- worked on her master’s degree at Pep- pany that grows into a global brand, tion of the term that once meant a perdine University, which she com- accumulating valuable stock options time to slow down and stop working. pleted in August 2000. along the way. But millions of Ameri- “In the 21st century, retirement “I want to be a good steward of this cans share Foley’s vision of an early re- will encompass a wide range of op- money, but I don’t want to spend 40 tirement in which the grind of a regu- tions,” observes Neal Cutler, director hours a week focusing on finances,” lar job gives way to the freedom of of research for the NCOA’s survey on Foley says. “I define retirement as be- pursuing a dream. the Myths and Realities of Aging ing able to choose what I want to do A recent survey by the National 2000. “Retirement used to be defined and how I want to spend my efforts at Council on the Aging (NCOA) found as what one was no longer doing—not a pace that I enjoy.” that while one in four workers is parenting, not working, not being ac- After graduating, she cashed in shooting to retire by a certain age, tively involved. Increasingly, it will be most of the bonds, using some of the seven out of ten hope to call it quits as defined by what one does do—second money to invest in an online start-up soon as they can afford to. Basically, career, volunteer work, travel, sport company, HumanR, where she spends they aim for their portfolio rather than activities.” time as a hands-on board member. the calendar to control when they re- She’s also writing a book about her tire. The big question is how much Right place, right time decade at AOL, where gender and ex- W money it will take to finance their es- hen Mary Foley, fresh perience took a backseat to innovation cape from the workaday world. out of college, accepted a and enthusiasm. Foley hopes it will be The goal of this special package is job in the customer-service a guidepost for women working in the to help you answer that question for department of Quantum Computer new economy. yourself and to arm you with the tools Services, she figured she’d stay a few to reach your retirement goal, whatev- months to earn some pocket money Gone fishin’ er it is. Before putting a price tag on retiring when you want and consider- ing investment strategies and model portfolios designed to help you before looking for a real job. But she got caught up in the enthusiasm of the small firm that grew into AOL. When she started in 1988, she was J oe Bukovsky of Plainfield, Ill., had always hoped to retire early, and an attractive buyout offer presented him with the opportu- achieve that goal, psyche yourself up one of about 120 employees, most of nity sooner than he expected. In 1993, by seeing how others have pulled it whom received stock options as a re- Upjohn offered Bukovsky, a pharma- off. While different events triggered ward for signing on and additional op- cist in charge of monitoring drug their decisions to retire early, the peo- tions over the years. By the time she studies, two choices: a $500,000 lump ple whose stories are told on the fol- left in January 1999, she was in sum or an annuity worth $2,000 a lowing pages had one thing in com- charge of corporate training for a com- month for the rest of his life. He was mon: They had a plan. Follow their pany that employed more than 12,000 54 years old. lead to discover how sticking to a reg- people. She enjoyed the challenge of His wife had died of cancer a few ular investing schedule, reducing building an organization from the years earlier, and Bukovsky knew he debt, setting retirement goals, and ground up so much that she decided wanted to spend more time with his making smart decisions about manag- to pursue a graduate degree in organi- three grown sons and pursuing his fa- ing your money can work for you. zational development. Her stock op- vorite hobbies of fishing and hunting. Hear that ticking? Every seven sec- tions, now worth millions, were her He was anxious to take the early-re- onds another baby-boomer turns 55. ticket to a new life. tirement offer, yet wherever he turned As the members of this demographic Foley exercised all of her remaining for professional advice, the answer was tidal wave approach retirement, they options in one smooth transaction, the same: He was too young. will increasingly challenge the defini- sold the stock, then parked several The chief impediment, he was told,
  14. 14. 41 q Darrel Choate retired two years ago at age 55, as soon as he qualified for retiree health insurance. was that rolling the half-million- there’s no penalty on the payouts. salary. But in 1998, at age 58, he dollar buyout into an IRA would lock Therese Mayer, an investment stopped working altogether and start- up the money until he was 591⁄2. What adviser with A.G. Edwards in ed withdrawing funds from his IRA. would he live on in the interim? Fi- Naperville, Ill., showed Bukovsky For maximum flexibility he actually nally, Bukovsky found an adviser who how setting up such a payout schedule cut his IRA into two accounts, one to knew a way around the problem. could help him reach his goal. (If you fund the $45,000 annual payments he Tapping an IRA before age 591⁄2 have a 401(k) at work, that same 10% needed, the other to continue to grow normally exposes you to a 10% early- penalty generally applies to with- undisturbed. He must continue to withdrawal penalty on top of the in- drawals before age 591⁄2. But in what make the steady withdrawals from the come taxes you owe, meaning you could be a boon to early retirees, the one IRA until age 63 to satisfy the could lose about half your money to penalty disappears at 55 if you leave five-year rule. Now that he is over taxes and penalties. But you can avoid your job and get the money after you 591⁄2, he can withdraw money from the the penalty by setting up a schedule of reach that age.) other IRA any time he wants without substantially equal payments based on Following Bukovsky’s “retirement,” penalty. Both accounts, which are in- your life expectancy. As long as that he initially worked part-time as a vested about 80% in stocks and 20% payment stream lasts for at least five pharmacist and consultant, earning in bonds, earned better than 13% in years and until you’re at least 591⁄2, less than half of his $100,000 former each of the past three years and are
  15. 15. 42 Investing kiplinger’s | march 2001 WWW | Virtual and real-life help in your quest GOLDWATCH.COM I f you’re navigating your on the choices inside your retirement ship on your 401(k) plan and other retire- own, plenty of Internet sites ment vehicles, and the amount clamor for your attention. But of risk you’re comfortable you don’t need to dock at with. That’s something other every port of call. Instead, go sites do only by subscription. directly to the 401(k) Advisor The specific offerings of about at (www 1,100 plans are loaded on the 401(k) Advisor system. If your Run by TeamVest, a Char- plan isn’t one of them, you can lotte, N.C.–based investment input your own retirement- adviser, this comprehensive plan options. retirement-planning site cov- But that’s not the site’s best ers more than just 401(k) feature. The 401(k) Advisor plans. Its retirement calculator has a staff of living and is designed to take all your re- breathing financial planners tirement assets into account on hand to speak with Web and tell you the odds that surfers via online instant- S E A N K E L LY you’ll reach your retirement messaging boxes (or, if you goal, depending on different have a second line, by phone). investment allocations. This feature enables you to Like many of its competi- get answers on how to make with investment options on couple to ask four planners to tors, Quicken’s 401(k) Advisor the calculator work and to your own and don’t feel the massage their early-retire- calculates those probabilities sort out any problems with a need to have an adviser eagle- ment dream. We paid the cou- using a Monte Carlo simula- financial planner who is look- eye your portfolio, you’ll find ple’s expenses, but they didn’t tion, which churns out hun- ing at the same computer the online calculator a valu- tell the planners that they dreds of possible outcomes screen you are—a service that able tool for charting your were our stalking horses. using random returns for dif- no other site offers. These course to retirement. Charges vary, but our cou- ferent asset classes. The sys- consultations are free. ple paid $600 for retirement tem produces better estimates When we tested this fea- For computerphobes. Even planning from American Ex- than those that assume your ture, our conversation didn’t in the 21st century, everyone is press, $500 to Vanguard, investments will earn a steady break new ground, but the ad- not online all the time. But $250 to Merrill Lynch, and 10% year in and year out (they vice was sound and reason- lack of an Internet connection nothing to Prudential. In each won’t). And like its competi- able. Another plus: quick re- doesn’t lock you out of getting case, the planners used PC tors, the site offers a handy sponse from customer service. retirement-planning help. As programs to generate financial “what if” tool. It lets you ad- When one of our question- baby-boomers reach their plans, but our couple never just a handful of variables—if, naire responses caused the fifties, financial planners are had to sit down at a keyboard. say, you set aside more each Web page to return an error, expecting a booming business. We considered the plan pro- month or choose higher-risk, TeamVest replied to our e-mail Most planners have tradi- duced by Merrill Lynch to be higher-return investments—to within the hour with a fix. tionally worked as solo practi- the best; its planner met with see the impact of such For $19.95 a month, you can tioners or in small partner- the couple three times. The changes without enduring the get ongoing monitoring of ships catering to wealthy American Express and Pruden- questionnaire again. your plan—including quarterly clients. But now a number of tial planners also met person- A standout feature of the updates and recommenda- big firms offer low-cost or ally with the couple, but Van- site is its specific recommen- tions and unlimited access to a even free planning to the mid- guard’s program involved only dations of where to invest personal adviser. But if you’re dle class. To test these offer- telephone consultation. your retirement money based comfortable noodling around ings, we enlisted a Michigan —BRIAN P. KNESTOUT
  16. 16. 43 worth more than $1 million today. lege, they kicked their savings plan Mayer notes that the stock-market The cost of health into high gear. stumbles of 2000 highlight the im- “We were able to save about 25% portance of diversifying your portfolio. insurance can be of our income over the last five years Diversification allowed Bukovsky to before retirement,” Darrel says. They sell off bonds to fund withdrawals. a make or break also paid off their mortgage shortly “We wouldn’t want to be selling off after he stopped working. stocks now,” she says. issue for early- That’s a good plan, says Mike Stark, an investment adviser in Marietta, Health and security retirement plans. Ga., who specializes in retirement A n important element in planning. “It all comes down to Bukovsky’s early-retirement and my friends. I just wish I could lifestyle and monthly cash-flow re- package is health insurance. have done it at 40.” quirements,” he says. “If the house is His company continues to pay for the paid off, you pay cash for your vehi- bulk of his medical coverage until Part of a grand scheme cles, and the kids are through college, medicare kicks in at age 65. His out- D arrel Choate, an engi- you have just taken care of the three of-pocket cost is only $60 a month. neer who spent more than 20 biggest-ticket items that most Ameri- Indeed, the cost of health insurance years working for Boeing, can families face. Once you have those can be a make-or-break issue for early never left much to chance. In his for- costs taken care of, retiring early is not retirees. Despite a general belief that ties, he knew that he wanted to retire going to be a problem.” expenses will decline in retirement, as soon as he could. That time came For now, the Choates live comfort- health insurance can cost hundreds of two years ago, when he turned 55. ably on Darrel’s $2,000 monthly pen- dollars a month. If your previous em- “Two things happen at Boeing sion and $1,000 a month drawn from ployer has more than 20 employees, when you turn 55,” Choate says. “You their brokerage account. They don’t the company is required by federal law can draw a pension and you become plan to touch the retirement savings to let you continue your group cover- eligible for retiree health insurance that built up in the 401(k) and have age for up to 18 months. Some states that they will pay for until you and since been rolled over into an IRA. have similar laws for smaller employ- your spouse turn 65.” But because the pension is not in- ers. But such coverage is not cheap. “I had spent 31 years in the aero- dexed to inflation and will therefore You generally have to pay the entire space industry,” he says. “I wanted to be less valuable in the future, the cou- bill yourself plus up to 2% in admin- try other things.” Besides, he knew ple will gradually have to rely more istrative charges. You might find a too many people who waited until 65 heavily on savings. better deal by shopping on your own to retire and then discovered they It’s generally wise to spend savings (see “The Best of Health,” Feb.). weren’t healthy enough to enjoy it. in taxable accounts first. For one Bukovsky plans to start taking so- “What happens to people between thing, part of that money will come to cial security benefits in July when he the ages of 65 and 90 is not a pretty you tax-free (because it’s a return of al- turns 62, which will increase his in- picture.” ready-taxed funds). Also, long-term come by about $12,000 a year. For Since retiring, Choate, an avid hik- capital gains realized in a taxable ac- him, claiming benefits at 62—rather er, has trekked across New Zealand count are taxed at just 20% if you’ve than waiting until his “normal” retire- and visited Israel as part of an ecu- owned the asset for more than a year. ment age of 65 and four months—will menical studies program at a local Starting in 2006, there will be an even mean accepting 22% less than if he university. He spent the past two lower rate—18%—for assets owned waited until his normal retirement summers fixing up a summer home in more than five years. Tapping taxable age. But that’s part of the plan that is Montana, and he and his wife, Robin, accounts also lets your retirement as- making his early-retirement dream a recently returned from a trip to Italy. sets continue to grow tax-deferred un- reality, and if he lives until he’s at But long before they set off on their til you need them or must by law start least 72, he’ll actually come out ahead retirement adventures, they crunched withdrawing funds at age 701⁄2. All re- financially, too. the numbers and established goals to tirement-plan withdrawals, except af- “I couldn’t be happier,” Bukovsky make their dream happen on their ter-tax contributions or Roth-IRA says of the leisurely pace of his life. “I timetable. The key was spending less funds, are taxed in your top income- have a house on the lake and fish al- than they earned and socking money tax bracket. most every day in the summer. I visit away in both taxable brokerage ac- While Darrel and Robin plan to my parents, babysit my grandchil- counts and Darrel’s 401(k). Once their stay in their mortgage-free home for dren, and spend time with my sons two children had graduated from col- now, they are prepared to move into