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Katlyn Graham: Hello. I'm Katlyn Graham here with John T. Brennan, the Vice President and Senior Trust Officer at Cape Ann Savings Bank. Mr. Brennan is also a Certified Financial Planning Practitioner. Welcome, Mr. Brennan.
John T. Brennan: Good morning, Katlyn.
Katlyn: Thanks for coming in today.
John: Sure thing.
Katlyn: We're discussing retirement planning, which I know you're an expert in. John, when should I start saving for retirement?
John: To answer that one is easy, as soon as possible. There's a quote attributed to Albert Einstein, but it's really not from him. The power of compounded interest is one of the most powerful forces in the universe.
If you start planning for your retirement at age 18 and setting a little money aside, that money grows. The interest compounds on the original amount of money. If you keep on adding a little bit of time, the value of that money over time will increase.
Time is your ally when saving for your retirement. Sooner is better and you can do yourself a lot of good by setting aside a modest amount as soon as you're eligible for a retirement plan.
Anybody who is working and has an employer offering a retirement plan, pay into your employer's plan that 401K or some other similar device, as soon as possible. As soon as you're eligible.
Katlyn: What if I'm 45 years old and I've barely saved anything. What can I do?
John: At that point, you really want to get on your horse. I have seen people make up a pretty significant amount of ground in their later years, but, retirement savings really should become a priority.
I don't think people are fully aware of the fact of how they are really on their own in terms of their retirement these days. We used to have pensions which helped a lot of employees and took the risk of planning for the retirement off the individual.
As pensions have gone away, the responsibility for retirement has really fallen back on the individual to a degree that I don't think people are aware. As soon as possible you really want to arrange your finances in a way that you have money being diverted to your retirement, and very quickly and maybe with some good market circumstances, you can make up some ground.
Katlyn: You have seen people make up some ground?
John: I have seen it, yes.
Katlyn: A lot of families I'm sure are struggling with this as they're trying to save for their retirement. They also have kids who need to go to college. What is more important?
John: Personally, I think that retirement comes first. The reason why is that if somebody's planning for their kids' education, we've all seen the costs of college grow at twice the rate of inflation since 1980. I think college costs are becoming ridiculous and unaffordable to middle class people which is unfortunate. It is what it is.
A child and a student will have the eligibility for loans. They will have the possibility of grants and scholarships. If you retire with no funds, there's no scholarship you can get. There is no grant, you're on your own.
I tell parents to prioritize their own retirement first. Why? Because let's say you've saved a bunch of money for retirement. If you really needed to, you could find a way to apply those for college costs. If you save all the money for college and then it's gone, and then you have nothing in retirement, you're not in a good position.
The other thing to be aware of just in terms of college planning, and this gets tricky. Maybe we shouldn't even have this in the interview, but there is the federal student financial aid form. That is an important form which will help a child determine eligibility for financial aid when they apply to school. That is a form that really is going to look at family income. Income is a great determinant of eligibility for college costs.
That's another thing that people can be aware of, if there's a lot of income it will make you ineligible. Income will create an assumption on the government's part in terms of what you might have set aside for college costs. If you can afford to save some money for your kids' college, great.
My emphasis would be, prioritize your retirement first, and don't over-do it. It's good to have something in the 529, but don't go bananas. I think personal retirement is more important.
Katlyn: Thank you very much, Mr. Brennan, for all your information about retirement planning. I really appreciate it.
John: Sure thing, Katlyn.
Noreen Gilliss: The reason the Cape Ann Savings Bank is one of the best banks on the North Shore is because of our great customer service. All of our employees; from the receptionist to the President, go above and beyond to meet our customers’ needs. All of our customer service reps are trained to listen to their customer and match their needs to the products and services that we offer. We offer a wide range for the consumer and business customers. We all strive here at the Cape Ann Savings Bank to make our customers feel comfortable. So why don’t you come and visit us and become part of the family?
Katlyn Graham: Hello. I'm Katlyn Graham, here with Mr. John Brennan, the Vice President and Senior Trust Officer at Cape Ann Savings Bank. John is also a certified financial planner. Welcome, John.
John Brennan: Good morning, Katlyn.
Katlyn: Thanks for joining us, today.
John: My pleasure.
Katlyn: We're discussing financial planning. Something I know I need to work on. To get started, you've handed me a sheet, here. It's titled "Income and Expense Worksheet." Could you explain what this is, and how this is going to help me?
John: Sure. First of all, Katlyn, let me point out that this is simply an Excel spreadsheet that I have posted on our website, for people to grab, and use at their leisure.
One of the things that we do, in matters financial, is we want to make sure that people have the money to meet their needs. Where does that process begin? The first thing you do need to know, is how much you spend. This income, and expense worksheet is broken out through a calendar year. I haven't specified any calendar year.
On the top of the worksheet you will see, essentially, money in. Starting with the most logical one, wages. Then there are various other forms of income that you could put in there. This is cash in. At the bottom, where you see the colors turn to yellow, orange, et cetera, these are expenses.
It's income minus expenses equals your net positive or negative at the end of month, and then consequently at the end of the year. What we're trying to do the first thing you do when you do a financial plan is see if somebody is net positive cash at the end of the year, or negative at the end of the year.
Money is flowing in and out of our hands all of the time. That's just how it is. Most of your money goes to spending and sustaining your life. What you want to do is hopefully have a little piece, which is going to your retirement, or some other type of future planning. This is essentially a diagnostic tool, where people can say, "OK, am I making money right now, or am I going into debt?"
You can guess another good symptom of somebody who is in debt would be...
Katlyn: A symptom? Spending too much.
John: Right, and credit card debt. If you're overspending, you have debt somewhere. In our times, in modern American life, people use credit cards all the time. It's fairly easy to fall into some kind of credit card debt. None of us are above it. That's, fundamentally, what you want to get your head around first. If you're in debt, you want to get out.
It can take time. These things are challenging, but this income expense worksheet is designed to just be a simple diagnostic tool, to help people get a sense of what they're spending, and what they need to maintain their household. A calendar year is a good perspective example, because something like oil heat might be seasonal.
You might have a big expense, like some type of insurance that you have that only comes up once a year. You might take the dog to the vet twice a year. That's an expense, but it doesn't happen every month, so a month is not a good sample, but a year provides you with a good sample. Not to overuse the word.
The other thing, too, you're going to point out here I don't think it makes sense to track every single penny, and where it goes. You can drive yourself bananas. I think that the perfect is the enemy of the good. You want to get a look at big costs. That's what this is designed to do.
The other thing you might do, if you really want to track every penny, give yourself a certain amount of cash every week off your paycheck. That's the money where you buy coffee, you buy lunch, you buy little frivolous items, but then you can sort of put it in one category, which is essentially mad money, or cash, or fun money, or whatever.
That's a separate category, so you can track it that way. This is a pretty good tool for just getting a handle on what it costs you to live your life.
Katlyn: I notice you have big items on here, like mortgage, auto loan, but then you also have hair, which can get expensive and add up. I don't always include that in my budget. Dry cleaning, laundry.
John: Right, and what I try to do is look at common expenses. The other thing I will point out, this is an Excel spreadsheet. Anybody with a little knowledge of Excel, or using the Excel help features. You can customize this to your specific circumstances. The idea I had here was just to generate some ideas.
You might look at this and say, "I have my stamp collecting hobby," or, "My watercolors hobby." Something specific to you. Add it as a line item, and you can make this as specific to you as you want it to be.
Katlyn: I like your sheet, though, because it's color coded, and it really breaks it down. Very helpful sheet. This on your website?
John: This is on our website. Feel free, take a copy.
Katlyn: I will. Thank you.
John: Thank you.
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