This week, Gail dispenses some advice in finding a financial advisor and addresses the important issue of setting retirement saving goals.

Dear Gail —

I think it is time I start to find a financial advisor. Some of my friends have American Express advisors, some have others.

What do I look for in a financial advisor?



Dear Scott —

You've already taken the first step.

The first thing I recommend to those looking for a financial advisor is: ask people you know and respect who they use.

Don't get too hung up on what firm the advisor works for; first try to find a person who is compatible with you. Issues surround our money are extremely private and sensitive. Make sure you'll feel comfortable spilling your financial guts to this person.

Also, consider their experience and credentials. Start by choosing three financial advisors and make an appointment to meet with each of them. There should be no fee for this. Think of this as if you were an employer interviewing candidates for the job of  "personal financial consultant." In other words, don't be intimidated — you're the one in the driver's seat.

Visit the Financial Planning Association's web site at www.fpanet.org to learn about questions you might want to ask and issues to cover, such as how this professional gets paid. But do plenty of listening too. Pay close attention to the kinds of questions he/she asks you such as: What is your investing experience?, What is this money for?, When will you need it?, etc.

Having a knowledgeable advisor is a critical factor in getting your financial affairs off to a strong start. I think it's great you're doing this!


Dear Gail,

I have two IRAs and currently participate in my company's 401k plan. The first IRA had one $50 contribution made to some years back and none since. The second, as was the first, is a rollover from another company's plan. The interest earned by these IRAs is minuscule. My 401k is being matched by my employer up to 6%. I'm currently putting in 2% of my salary.

I hear more and more about the Roth IRAs, and I'm considering starting one of those as well. My question for you is, can I or should I use the other IRAs for opening the Roth IRA or can I use the current IRAs I have and put them elsewhere and earn more from that?

My wife and I are in our early 40's and we have two children, 15 and 12. Any comments would be appreciated.



Dear Kevin —

You've got several options; the question is, how much money can you afford to invest?

Your number one goal should be to take full advantage of the matching provision of your company 401(k) plan. By not doing this, you are leaving "free" money on the table. Russ Courtney, president of Courtney Retirement and Investment Services in Alpina, Mich., recommends "as you can afford to — perhaps in conjunction with a raise — strive to increase your annual contributions." Your goal is to contribute at least 6% of your salary, so you collect the full benefit your company is willing to provide.

After that, you can consider other places to invest for retirement. As you know, an Individual Retirement Account (IRA) comes in two flavors: there's the traditional, tax-deductible kind, and the newer Roth IRA which gives you the tax break later. You and your wife can each contribute up to $2,000 to an IRA this year (you've got until next April 15 to do so). 

The type of IRA you qualify for will depend upon your income. For instance, if the two of you file your taxes "married, joint" and your Adjusted Gross Income (AGI) is under $52,000, then you can each put $2,000 into a traditional IRA and subtract a total of $4,000 from your 2001 taxable income. In other words, your contributions are fully deductible.

If your AGI is above $52,000, you can still contribute $2,000 to an IRA, but you may not be able to deduct it. People who are covered by a retirement plan at work, as you are, are not able to take advantage of deductible contributions. However, if your wife has no plan — either because she is a full-time homemaker or her employer doesn't offer a plan — then her contribution would still be deductible as long as your joint income is under $150,000.

If your wife is not eligible to deduct her contribution to a traditional IRA, I suggest you consider contributing to a Roth IRA. Again, there are income limits. If your joint Modified AGI is under $150,000, you qualify. (I've covered the rules extensively in previous "Your $ Matters" columns; access them by clicking on the icon near the upper right corner of this page.)

As for your existing IRAs, I suspect you're not only getting poor returns, but high annual custodial fees. I've seen some as high as $50/year, which can wipe out any earnings you eke out on a small account. So combine them into a single IRA with a company that charges a reasonable custodial fee ($10 to $20 a year) and invest the money in something that is likely to produce better returns.

Courtney recommends you consider using a mutual fund. "Since you're fairly young, you certainly want to have growth in your portfolio, which gives you the opportunity to earn returns that significantly outpace inflation over time," he says. "You can't afford to be too conservative 20 years before retirement." That means you need to own stocks. Fortunately, time is on your side because with more than 20 years before retirement, according to Courtney, you can "ride out the inherent market volatility that comes with owning stocks."

As many people discovered last year, it's dangerous to invest in just one sector of the economy. Courtney points out that with the amount of money you are talking about, the cost would be prohibitive if you tried to own a broadly-diversified portfolio of companies via their individual stocks. However, "through a mutual fund you can reasonably participate in all sectors, which further reduces your risk." Look for a fund "that invests in large, well-known companies with the financial capability to weather any future economic storm," he says. That means large, well-known, "blue chip," U.S. companies.

Last but not least, starting in January you'll be able to save even more money in your retirement plans because the new tax bill just signed by President Bush raises contribution limits. For instance, you'll be able to put $3,000 into an IRA; 401(k) limits rise to $11,000.

Good luck!


If you have a question for Gail Buckner and the Your $ Matters column, send them to moneymatters@foxnews.com along with your name and phone number.

The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.