Know your assets, then set a strategy

Kathy Kimball gets teary when she describes her daughters as "really good kids." She's a divorced parent who wants to "support but not rescue" her girls, who are in their 20s.

At the same time, Kimball, a 56-year-old Seattle resident, wonders if she'll ever be able to retire and enjoy her hobbies.

She is a fearful investor because she lost $30,000 in the stock market. Kimball also admits she has no idea what her assets amount to. "It's easy to procrastinate when you don't know what you're doing," she said. "I keep putting off figuring out my finances because I'm an absolute novice."

What she wants

Kimball is a skilled artist and has illustrated a children's book.

She wants to retire from full-time work at the age of 62, leaving more time for dabbling with oil paints, traveling and volunteering.

Also, one of her daughters is pursuing a master's degree, and Kimball wants to help pay for education expenses.

Terms

403(b): A retirement savings plan available for nonprofit employers and public-education organizations.

Mutual fund: A form of collective investment that pools money from many investors and invests the funds in stocks, bonds, dividends and short-term money market accounts.

Bond: While stockholders own a part of the issuing company, bondholders are lenders to the issuer. Bonds usually have a defined term, or maturity, after which the bond is redeemed.

Expense ratio: The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return that fund holders achieve.

Robin Tan, a certified financial planner with KMS Financial Services in Kirkland, examined Kimball's earning, saving and spending history.

What she has

For Kimball, splurging is an occasional trip to Starbucks. She remodeled the kitchen in her Ravenna home recently and kept an old dishwasher that didn't match because she "couldn't throw away something that still works."

Her frugal character helps her keep debt low. She owes $62,000 on her mortgage and about $3,700 on a home-equity loan. Kimball, a Group Health nurse, contributes to a 403(b) plan. Her salary is above $80,000 and she expects to have a pension of $400,000 when she retires.

Most of her assets are in two residential properties in Seattle valued at $500,000 each.

One home she inherited when her mother died. She uses rental income from that house to help pay her daughters' college loans.

What she needs

Kimball turned the majority of a $90,000 inheritance over to an investment firm.

What you can do

Robin Tan, a certified financial planner and active member of the Financial Planning Association, offers this advice:

Max out your company's 401(k) or 403(b). This kind of investing gives employees the benefit of tax-deferred savings.

Keep investments well diversified. Aim to have 70 percent of an investment portfolio in stocks and 30 percent in bonds.

Find out what your assets and debts are. "Unfortunately, most people don't know what resources they have," said Tan.

She promptly lost $30,000 because it was heavily invested in only a few stocks.

One of the stocks was Enron — the energy company that collapsed in 2001 leaving investors with nothing. About 95 percent of Kimball's investment is in stocks and the remainder is in mutual funds.

"The stock portfolio is too aggressive for someone who is within 10 years of retirement and worries about the market," Tan said.

He recommends shifting her portfolio to a 70 percent stocks and 30 percent bond mix.

The mutual funds Kimball invested in haven't been growing because the expense ratios exceed 2 percent.

The expense ratio of any good stock mutual fund is between 0.8 and 1.2 percent, Tan said. She needs to reduce her portfolio's expenses by switching to low-cost index funds.

"If she makes a few adjustments, Kathy can be confident that she'll have ample funds to help her children and retire," Tan said.

He projects she'll be able to pay herself about $25,000 per year between the ages of 62 and 65, and her retirement fund should last for 30 years.

What she thinks

Kimball's net worth at the moment is $1.3 million. That was news to her.

"Whew!" Kimball said. "What a relief it is to finally know exactly what I have and what I should be doing with it."

She plans to shuffle some of her stock and mutual-fund investments and sell one of her properties when she retires.

Then she'll dust off her paint brushes and spend time with her daughters.