Mailbag for Friday, June 15, 2007

Chris Farrell answers your financial questions.

TEXT OF INTERVIEW

TESS VIGELAND: I'm Tess Vigeland. And you know what happens when the weather gets warm? It means summer is almost officially here. Time of lazy days and not so lazy personal financial advise, at least, from our own financial answer man, Chris Farrell. How are you doing, Chris?

CHRIS FARRELL: I'm doing well. How are you doing?

VIGELAND:
Good. Not feeling too lazy today, I hope.

FARRELL:
Well, I have a question for you, though.

VIGELAND:
OK.

FARRELL:
OK. When does summer start? Because as far as I'm concerned, the sun is out, school's almost out. It's summer time.

VIGELAND:
I will say it is summer. It is officially summer. But before we get to answering any questions, please do take down our Web site address. It's Marketplace.org, click on the contact button there. Or you can give us a call, we're at 877-275-6669. That's 877-ASK-MONY, and spell that M-O-N-Y. All right, let's hit the phones. We've got William on the line from Winterville, Georgia. Hi, William.

WILLIAM:
Hi, Tess. How are you today?

VIGELAND:
Very well, thank you. We talked to someone a couple of weeks ago from Georgia who said it was hot and dry. Is that still the case there?

WILLIAM:
Ah, yes, ma'am. We just got a little, tiny bit of rain in our part of Georgia in the last two days. Not enough to do us any good, though. We're in the middle of a drought. We're like 111 inches of rain behind.

VIGELAND:
All right. Well, I understand that you've been holding on to some Coca-Cola stock for a little while. Tell us what your question is for Chris this week.

WILLIAM:
Well, Chris, my question is this. I have stock in Coca-Cola Hellenic Bottling in Greece, and I can't sell it. My broker can't sell it. My financial advisor can't find a way to sell it. And I'm just stuck with it.

VIGELAND:
So is this bottling company say, is it a former subsidiary of Coca-Cola?

WILLIAM:
Yes. I bought Coca-Cola Amatil in Australia, and they owned Coca-Cola Hellenic in Greece. Amatil spun Hellenic bottling off. While I did sell Amatil for a loss, I'm stuck with this Hellenic bottling. And if I could sell that, I'd actually have a small profit or break even. But I can't sell it. The only thing they've been telling me is I have to get a certificate for the stock and go to Greece, and they can't even get me a certificate.

VIGELAND:
Chris, could you explain something for us, which is why, if he owns stock in a subsidiary of Coca-Cola, why he can't sell it?

FARRELL:
OK. Here's my puzzlement. Coca-Cola Hellenic Bottling Company is the world's second largest Coke bottler outside the US. If you go to Business Week, their company section, or Hoover.com or Yahoo, you can look up Coca-Cola Hellenic Bottling Company. And so what I can't understand is why you can't sell it at all because it's, it's trading on the New York Stock Exchange. So it's highly liquid. It's followed by some major Wall Street analyst. Their research reports out on it. So you should be able to sell it.

WILLIAM:
OK. Well, I'll inform my broker about that. He's been telling me all along I can't.

FARRELL:
Now, the other thing is whether in some of the mergers and acquisitions you have something that should have expired in one of these merge and acquisitions in which case what you would contact is the Coca-Cola Hellenic Bottling Company investor relations because sometimes, you might have owned a little piece of something that they acquired, and then you were, be bought out, which, by the way, they still have to pay you off.

WILLIAM:
Yeah. I know I'm supposed to get my money somehow. Well, like I said, this all happened a long time ago. I've changed my investment strategy and I use the Marlon Brando method now and that works much better.

VIGELAND:
And what is that?

FARRELL:
What is that?

FARRELL:
Well, he made a movie in which he was a mafia kingpin, and he was speaking to his stockbroker and he's told him, I don't like it when stocks that you buy me go down. So go and buy me stocks that go up.

VIGELAND:
We like that method.

WILLIAM:
I really appreciate your help with this one because I've been stuck.

VIGELAND:
Terrific question. Let us know what you find out.

WILLIAM:
I will get back to you as soon as I sold it and tell you how I, and what I had to go through to do it.

VIGELAND:
Fantastic. Thanks for the call.

WILLIAM:
Bye.

VIGELAND:
All right. Let's check out the e-mail bag. Liz wrote in from Westlake, Ohio. And for years she and her husband have worked and saved and have a great nest egg for retirement. And, apparently, that savings gene was passed on to their daughter who has now socked away $3,000 in savings and $15,000 in stocks. Now, the daughter is going to be starting Johns Hopkins School of Medicine this fall. And they were originally told by the financial aid office that a lot of students get a combination of grants and scholarships and loans.

VIGELAND:
But, her we go, when the financial aid department saw their financial status, they have this nest egg, even though their daughter has supported herself for a year now, they only offered her government loans for only two-thirds of the amount. No grants, no scholarships. So what is the best way for dealing with what's going to be a very expensive medical education?

FARRELL:
It's going to be expensive. And there is the, there's twist to it, which is that as far as the medical school is concerned, the financial aid department, you're considered financially dependent on your parents even if they don't claim you.

VIGELAND:
But isn't this really just another example of whether you're going to college or a graduate school, medical school, law school, you are almost punished for having any form of savings whether it's a savings account or stocks or retirement account, they take all of that into account when they determine what they're going to give you for loans and grants and that sort of thing?

FARRELL:
You are actually penalized by savings. The difference is, and I think there's a lot of evidence, is that your student and the parents, they have more financial freedom. And you don't really know what financial aid is going to be, how much financial aid you're going to get. So I really still encourage parents for undergraduates to continue to save for their child, even though there may be a financial aid penalty because I think you're buying an option, and you'll end up with a lot more choice. You're gonna have to run the numbers and just see how you're gonna make this work. There is no magic bullet here.

VIGELAND:
No magic bullets. So is there a best way to go about trying to figure out how to finance this?

FARRELL:
Well, you know, sure. You're able to do some of it through the savings and then as far as the parents are going to have to decide as how much do they want to contribute. Do they want their daughter to do some private sector borrowing? Do they want themselves to try and top off the money? Are there some work-study programs? So you're gonna be looking at a lot of budgets, a lot issues about indebtiveness, loan payment requirements and deciding, you know, how the family is going to treat this investment as a family.

VIGELAND:
Well, well, you know, you think you do everything right, you saved for the future, but you still get hit with that proverbial financial sucker punch. We can help out. Click on the contact button on our Web site, Marketplace.org or call us at 877-275-6669. That's 877-ASK-MONY. That's M-O-N-Y. Let's go to the phones again. Brian is on the line from Miami, Florida. Hi, Brian.

BRIAN:
How are you?

VIGELAND:
Very well. And you?

BRIAN:
Very well.

VIGELAND:
What's your question for Chris today?

BRIAN:
OK. So Chris, my, my mother and I were speaking a couple of days ago and I happened to find out that she has absolutely no retirement savings to speak of. She has no savings, even, I understand, and I wanted to see if you might recommend something given her situation, which is that she's about 45-years-old and she makes between $60,000 and $70,000 nowadays. She has the option to contribute to a 401 (K), where she works, but she has not contributed anything at all.

VIGELAND:
What industry is she in, Brian?

BRIAN:
She's an assistant principal, actually.

VIGELAND:
Oh. So she's in education?

BRIAN:
That's right.

VIGELAND:
Well, so that, the 401 (K), is there also a pension by any chance?

BRIAN:
I think there is. I know she knows that, that she'll be able to retire at 62 or something like that and get some kind of benefits.

VIGELAND:
OK.

BRIAN:
She doesn't know anything about that beside, you know.

VIGELAND:
All right. So she's probably counting, Chris, on the pension, but hasn't saved anything else outside of that.

BRIAN:
Correct.

FARRELL:
That's right. So, I mean, actually your mom in one sense is in a decent situation because she does have a pension. That pension will provide her as to set an income during her retirement years. I would still recommend that she join the 401 (K). One nice thing about 401 (KS), you don't have to make that much of an adjustment. It just comes automatically out of your paycheck. And what most people do, and it sounds like maybe your mom did, you kind of spend what goes into the checking account. So there's a little bit less going into the checking account because it's going into this tax deferred savings, you'll hardly even feel it. And over, you know, 15 years, the money compounds, she'll have herself a nice little addition to her nest egg, to her savings. So I would strongly recommend that she participate to the full.

VIGELAND:
So Brian, this is great that you've noticed this and called, you know, attention to your mother's situation. Are you saving for retirement?

BRIAN:
I haven't. I actually happen to...

VIGELAND:
Brian.

BRIAN:
Oh, no. I know, I know, I know, I happened to have heard recently that there is some kind of set up for which people that are independent contractors or self-employed, they have some kind of fantastic retirement option available to them. Is that the case for somebody like me who referees basketball games on the side?

VIGELAND:
Chris?

FARRELL:
Oh, you're self-employed? Oh, yeah. Absolutely. For the, the simplest one for someone who has moonlighting, has an extra job on the side, is what we call a SEP-IRA. A SEP-IRA is a wonderful retirement savings plan for the self-employed. It's, it requires, basically no paperwork. I mean you just have to pick your mutual fund company, financial institution you're gonna work with. They send you a form, you sign it. You make your choices. Your money compounds tax-deferred. So it's really an ideal retirement savings vehicle for anybody who is self-employed.

VIGELAND:
And Chris, couldn't he also get started on a Roth IRA?

FARRELL:
Oh, absolutely. I just love Roth IRA. So I think there's nothing not to love about a Roth IRA. Now it's true, you're contributing to the Roth IRA with after tax dollars, but your money compounds tax-deferred. And then when you pull the earnings out in retirement, it's tax-free.

BRIAN:
Great. And you'd recommend that for somebody like me who's about in their early 20s?

VIGELAND:
Especially if you're young.

FARRELL:
Oh, absolutely. Especially, because then, when you think about how long you have for this money to compound in your favor.

VIGELAND:
So get started. Get yourself started and then get your mother started as well.

BRIAN:
We'll do.

VIGELAND:
OK. Thanks for the call.

BRIAN:
Thanks so much.

VIGELAND:
Well, even though retirement sometimes seems really far away, it's never too early or too late to start thinking about it. If you got some questions, we've got the answers. Give us a call and we'll shed some light on it. We're at 877-275-6669. That's 877-ASK-MONY. Or visit our Web site, Marketplace.org. And click on the contact button. This is Marketplace Money from American Public Media.

VIGELAND:
All right. Todd wrote in from Rochester, Minnesota. And he has a 403 (B) with his current employer. And I'll point out that, that is the non-profit equivalent of a 401 (K). He's also set-up a Roth IRA on his own, but his for 403 (B) has no employer match. And as we know, the Roth gross is tax-free, the 403 (B) is tax-deferred. So he is wondering about moving the balance from his 403 (B) to the Roth. So this is what we call a rollover. Can he rollover from the 403 (B) even though he's still working for his employer?

FARRELL:
No. He cannot. You need to have left your employer and then you can do a rollover. The real story here is he has his 403 (B). He's with his employer. You continue to contribute. I applaud Todd for also having the Roth IRA, but he cannot rollover his 403 (B) into a Roth until he's left his employer.

VIGELAND:
So the recommendation then is to just go ahead and keep contributing the 403 (B) and the Roth at the same time. If and when he leaves his employer, he can go ahead and look at a possible rollover.

FARRELL:
That's right. And, you know, and just a throw on whether I think that's . . . a lot of times, we don't have that much choice. But, you know, when you are looking for a job and you're sort of trying to figure out, "Am I gonna do this? Am I gonna do that?" You know, one of the things is look very closely at the retirement plan. That matches, really, an important benefit. The company should be offering the match to encourage their employees to save for their retirement. So, you know, it's one thing when he's thinking about a job change, some time down the road, he may also want to throw into how you evaluate a company is. What is a retirement plan? And is it a good one?

VIGELAND:
All right. Terrific. Well, Todd, we hope that helped you out. Thanks for the great question. Unfortunately, those are all the questions we can take on this week's show. But please do leave your question for a future program on our voicemail. We're at 877-275-6669. That's 877-ASK-MONY, we spell that M-O-N-Y, or visit our contact page on our Web site, Marketplace.org. Chris, as always, thanks for the great advice.

FARRELL:
It's been a lot of fun.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.

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