BIG SKY, BIG SAVINGS

Cathy and Ned realize it’s the little things that make the biggest difference in your financial picture

CATHY AND NED COONEY were both born and raised in Southern California—back when Orange County meant open spaces and orange groves.

But in 2004, the husband and wife team traded in the heat, smog, and congested freeways of the Inland Empire for snow, suicidal deer awaiting roadkill status, and threatening skies over the Flathead Valley, just adjacent to Glacier National Park.

“Our idea of a traffic jam is having four cars waiting for a light at an intersection,” Cathy quips.

Making the move from the Golden State certainly took a leap of faith for the couple.

“Many of our colleagues probably thought we were crazy. The economy of the Inland Empire was booming and we both had good-paying jobs. We moved to Montana with no jobs though we knew that my husband wanted to start his own [philanthropic] consulting business,” Cathy told me.

Today she’s at the epicenter of the nonprofit world in Montana in her role as program director for the Montana Community Foundation.

“Everyone who wants to know about community foundations gets referred to me,” she says. “I have become the ‘go-to’ person for our sector for the whole state. I’m a fairly big fish in the tiny pond of the nonprofit/philanthropic sector in Montana.”

Cathy lives in Bigfork and is proud to have visited all of Montana’s fifty-six counties many times over as she’s helped launch nearly a dozen community foundations. These include the Greater Polson Community Foundation, the Ruby Valley Foundation, and the Wibaux Endowment Foundation.

Nonprofit work isn’t known for its high pay, but the fifty-three-year-old program director has found a niche that allows her a comfortable income. She makes a little more than $50,000 annually.

Ned, forty-five, runs a nonprofit consulting firm called Ascent Strategic Development, and has income that mirrors her own, although it changes from year to year.

“That’s a very good joint income for Montana, especially working in the nonprofit sector. We are very lucky,” she says. “When we moved here eight years ago, we had a joint income of $120,000 working for two nonprofits in Riverside, California. We may never get back up to that salary, but that’s OK!”

As for a lot of people, Cathy’s early efforts to get a solid investment plan in place were upset by a previous divorce.

“I do feel like a slacker when I hear about twenty-year-olds buying homes or people my age who already can retire. Overachievers!” She laughs. “I have to admit that I got a slow start because my ex-husband was terrible with money, and I paid off his old debts and had to build up his retirement savings, which he promptly emptied and spent once I divorced him.”

But Cathy has made some simple yet smart tweaks to her investment portfolio that will make all the difference for her down the road. I want to tell you what she’s done because these are the same kinds of things you can do today, no matter what kind of income you earn.

When it came to making her money work for her, the first thing Cathy did was pay attention to who was managing it.

From her days at California nonprofits, Cathy had amassed a sizable nest egg in her 403(b)—the retirement plan common in the teaching and nonprofit fields—but it wasn’t with the right administrator. So she moved it.

Many 403(b) plans are administered by life insurance companies that load them with massive commissions and huge ongoing fees, especially when your money is in a variable annuity. Good providers are generally few and far between.

“I definitely think that people in the nonprofit [and] academic fields are not aware of the high fees. . . . I had an account with Mutual of America for years. I had all my funds invested in a Fidelity mutual fund,” Cathy says. “I thought I was paying low fees because my money was invested in Fidelity Investments, but then I realized that Mutual of America must be adding more fees so I moved the money into a Vanguard IRA.”

A simple difference of 1 percentage point in fees can mean tens of thousands of dollars in the long run.

For example, the average variable annuity might charge fees of 2.25 percent annually; the average mutual fund might charge 1.4 percent annually; and the average no-load index fund, 0.18 percent annually, according to Meridian Wealth Management.

That means a $250 monthly contribution with 8 percent growth over thirty-five years will amount to either $336,320, $409,585, or $548,750 at retirement, depending on whether you paid fees of 2.25 percent, 1.4 percent, or 0.18 percent. Which one would you want?

In the same vein, Cathy insisted that her current employer put her retirement match into an account at Vanguard instead of at a full-fee company.

“My employer was very cooperative. They actually put 6 percent into an individual SEP [simplified employee pension] since we don’t have a regular 403(b) plan [at the Montana Community Foundation]. It took a little extra work, but my employer was willing. We have a small foundation with seven full-time staff, and so we don’t have to deal with lots of bureaucracy to get things done.”

She and Ned also have Roth IRAs that they max out each year.

“I just pay the Roth contributions automatically like I pay our mortgage and utility bills. It’s not optional. Luckily for us, we don’t have kids, we don’t have credit card debt, we aren’t extravagant, and we have seen our income rise slowly but steadily in the eight years we have lived in Montana. Also, when we built our house four years ago, we built a 1,200-square-foot house, not a 2,500-square-foot house. Our contractor said it was the smallest house he had ever built, but we knew what we could afford.”

Today Cathy has a total of $228,000 invested, putting her on track for a nice retirement. Clearly, she is no slouch when it comes to money.

But another cornerstone of her investing strategy is that she anticipates working beyond traditional retirement age. I can’t overstress the importance of that choice, particularly for women.

Women tend to live five years live longer than men on average. Yet they save far less money for retirement than men, and most women tend to invest too conservatively. Working longer, if you’re able, can really help right the ship of your retirement.

“As a woman and an ex-Jazzercise instructor who is health conscious, I assume that I will live a long time and outlive my husband. It would be stupid for me to not think about how I’m going to afford my old age,” Cathy says. “I certainly plan to work part-time well into my seventies. I love working and having that professional identity.”

Cathy attributes a lot of her money smarts to her parents, both poor German immigrants who left their country’s struggling post–World War II economy for a better life in Canada and then the United States.

“They worked hard, saved, and now are the classic ‘millionaires next door.’ They actually could have done even better if they had invested some of their money in equities rather than just saved it in CDs, but they did invest in some real estate over the years in Orange County and Santa Barbara and did reasonably well with [it].

“My parents really believe in saving and living within your means. I inherited some of that outlook, although they don’t believe in using any of their money to enjoy their lives, and I just think that is so wrong. There is a balance.”

What lessons can you draw from Cathy’s story?

Start with a Roth IRA first.

• For any nonprofit worker or teacher saving for retirement, your first step should be to do a Roth IRA on your own. You can contribute up to $5,000 annually ($6,000 for those fifty or older). A Roth is vastly superior to a 403(b) plan. Make your contributions automatic like Cathy did so the question of discipline in saving doesn’t even come into the picture. Do this especially if there’s no company match into a 403(b), which there often isn’t.

Know what’s in your 403(b) plan.

• If you get new plan info on your 403(b), find out what’s in it. Don’t be intimidated or confused by the verbiage. Look at the expense ratio. Most 403(b) plans are over 2 percent. You want that number to be below .5 percent. Vanguard in particular can be as little as .2 percent.
• That’s why Cathy moved her 403(b) money to Vanguard. But there’s also another company I like called TIAA-CREF. If you are offered a 403(b) with them, do it. They will charge you as little as one-twentieth in junk fees what you would pay to a typical insurance company offering a 403(b) plan. Visit TIAA-CREF.org for more details.

Invest like a man . . . or a woman.

• Are men or women better investors? In general, women end up with less money over time because they’re hardwired to be conservative to a fault. They also live longer on average, so they have less money that has to stretch over a longer period of time.
• Generally, women tend to pick “safe” choices like CDs for their money. Men, on the other hand, trade stocks excessively and hurt themselves by buying and selling too much. Yet the average man ends up with a lot more money at the end of a working lifetime—even accounting for income differences. That’s because if a woman puts money in CDs, she barely keeps up with inflation and loses in the long term.
• The Sun Sentinel found that women in the state of Florida have a 50 percent greater chance than men of being impoverished after age sixty-five. And if they’ve worked fewer years because of child rearing, women get less of a Social Security check too.
• That’s a pretty bleak picture. But it doesn’t have to be anyone’s fate. Make it your personal goal to learn a bit of the opposite sex’s investing style and let it temper your own.

Keep it simple.

• If the alphabet soup of 401(k)s, IRAs, and 403(b)s ever gets too much for you, keep it simple. Investing doesn’t have to be complicated. Discount investment houses like Fidelity, T. Rowe Price, and Vanguard offer targeted retirement funds, where you just select the year that’s closest to your expected date of retirement and pop your money in. Then the fund’s manager allocates it for you. No muss, no fuss on your part. When you’re young, they have you heavily in stocks. Then as you age, you get fewer stocks and more bonds.