March 2009
EquiStar Wealth
Managment LLC
Jenny Fleming, CPA, The 1% Difference
CFP®, PFS
Managing Partner Last year, New York City school children went before expenses are taken into account. (Note
901 South Mopac door to door collecting pennies. By asking for that taxes and inflation are not considered.)*
Expressway only 1% of a dollar, they were able to raise $1
Plaza One Suite 300 million for charity. Annual Annual The 1%
Austin, TX 78746
expenses expenses difference
512-2502277 Sometimes the small actions we take yield big
jenny@eswealth.com of 1.50% of 2.50%
eswealth.com results. Take a look at three examples of how (net 6.5%) (net 5.5%)
adjusting your finances by just 1% can make
a real difference over time. After 10
$375,428 $341,629 $33,799
years
Boost your retirement contribution After 20
I thought during these turbulent $704,729 $583,551 $121,178
times it would be good for us to Making contributions to an employer- years
remember the impact of saving a sponsored retirement account via payroll After 30
little bit at a time. Two of the best $1,322,873 $996,790 $326,083
ways I know to help your portfolio deductions can be a years
is to decrease your withdrawals or convenient way to save
add new money as you can. This
will help your account gain ground for retirement. But Of course, there are other things to be con-
as the market turns upward. because these contribu- cerned about when investing. For example,
tions come out of your you may want to consider potential ways to
Please do not hesitate to call or salary automatically, generate higher returns through your asset
email if you have questions.
you can easily lose track allocation and investment management
of how much you're contributing, and end up choices, taking into account your investment
Best, with less than you should have--or could objectives, risk tolerance, and time horizon.
have--for retirement.
Jenny Refinance higher-cost loans
If you're not already saving the maximum
amount allowed, why not commit to steadily Concerns about the economy have led to rate
increasing your contributions by 1% (or more) cuts by the Federal Reserve. With some inter-
each year? For example, if you're earning est rates falling to their lowest levels in two
$100,000 per year, and you're currently con- years, now might be a good time to think
tributing 10% of your salary to your retirement about refinancing a higher-cost loan or mort-
In this issue: account at work, you'll have approximately gage. As the following examples show, inter-
$1,181,340 by the time you retire in 30 years, est rates don't need to fall far for you to save
The 1% Difference money. Here's what you could potentially save
assuming an average return of 8%. But if you
How Well Are You Navigating increase your contribution by 1% (to 11% of by reducing your interest rate by just 1%:
the Efficient Frontier? your salary), your retirement account could be
• Refinancing a 48-month, $25,000 car
worth approximately $1,299,484--10%
Will You Pay Taxes on Your loan to reduce the rate from 6.99% to
Social Security Benefits? more--by the time you retire.*
5.99% could save you approximately
Is my pension safe if my Review investment expenses $553 in interest over the life of the loan
employer goes bust?
When you're focused on returns, it's easy to • Refinancing a 25-year, $400,000 mort-
overlook the costs associated with investing. gage to reduce the rate from 6.75% to
However, it's important to periodically review 5.75% could save you approximately
investment expenses and their impact on re- $74,166 in interest over the life of the
turns. These vary widely, but even a 1% differ- loan
ence can be significant over time. For exam-
* This is a hypothetical example, and does not
ple, the following table shows what a
reflect the performance of any specific
$200,000 investment might be worth in the
investment.
future, assuming an annual return of 8%
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