To: Tony Snow
The White House
Congratulations on becoming the new White House press secretary, and welcome to the neighborhood! I'm sure you took a pay cut to leave your job as a Fox News commentator, but at least you get taxpayer-funded trips to exciting locales. Has President Bush come up with a nickname for you yet? I sure hope it's better than the one Karl Rove got!
I must say, Tony, that I am concerned about your retirement. You're 51 years old, after all -- closer to retirement age than College Republican age. Yet during your first "press gaggle," you were asked if you maintained any financial ties to Fox News or its parent, News Corp. (NYSE: NWS ) . You replied, "I had no stock in Fox to begin with. And so I don't have to sell any . as a matter of fact, I was even too dopey to get in on a 401(k)."
Now, I'm sure you have other retirement savings. After all, you disclosed that you have a pension with the union to which you belonged, the American Federation of Television and Radio Artists (AFTRA). But not signing up for a 401(k) could be, I'm sure you agree, a big mistake.
Hey, I understand. You're busy. And you're certainly not alone. The Employee Benefit Research Institute tells us that more than half of workers have less than $50,000 saved.
Yet signing up for a company retirement plan can take as little as 15 minutes. Plus -- and you'll love this, being a Republican and all -- it'll cut your tax bill, since contributions are essentially tax-deductible and your investments grow tax-deferred. (Doesn't it really boil your potatoes to think that not only did you not sign up for the 401(k) at Fox, but you also paid more taxes? If it makes you feel entitled to slip some White House pens into your pocket, I'll understand.)
So to get you up and running in your new job, I thought I'd send you a quick-and-easy set of three steps on how to sign up for your current retirement plan. Read my lips: This will take no more than 15 minutes.
1. Sign up for the Thrift Savings Plan (TSP). The first thing you'll need to understand is that the federal government doesn't offer a 401(k), so don't go around asking for one. (You'll really get ribbed by Helen Thomas if you do.) Instead, Uncle Sam offers the Thrift Savings Plan, known to its security-clearanced friends as the TSP. It's a wonderful low-cost plan made up of a few index-based investment choices. Here's a link to the election form (that's the form you need to submit in order to have money diverted from your paycheck to your retirement plan; I promise, it doesn't involve butterfly ballots or hanging chads).
2. Choose an amount to save. The more, the better, of course. But if you really don't have any other retirement savings, then you need to be saving at least 20% of your salary if you want to retire by age 65 or so -- a third of your salary would be even better. If that would be too much for you right now, start with 10% and increase your contribution rate every time you get a raise. Just remember: The less you save now, the more you'll have to work later.
3. Choose your investments. This can be the toughest part for most Americans. After all, most of us weren't taught to be money managers by our schools or parents. So let me give you the quick lowdown.
Unless you can't tolerate 20% drops in the value of your portfolio, someone of your age should be invested mostly in stocks. A healthy dose of the TSP's S&P 500 index fund (a.k.a. the C fund) -- with big stakes in General Electric (NYSE: GE ) and ExxonMobil (NYSE: XOM ) -- is a great place to start. You should also own some of the small-cap stock fund (the S Fund), with -- perhaps surprisingly -- large holdings in Berkshire Hathaway (NYSE: BRKa ) and Genentech (NYSE: DNA ) . And while I'm sure you're a red-white-and-blue-blooded American, you should also consider the I Fund (international stocks), with top holdings of BP (NYSE: BP ) and HSBC (NYSE: HBC ) .
Deciding how much to contribute to each of these funds -- plus the government securities (G Fund) and fixed-income (F Fund) choices -- can take some time. That's why I think "lifestyle" or "target retirement" funds are great options. They automatically allocate your assets, and automatically move to safer investments as you near retirement. There's nothing easier than automatic investing.
Luckily for you, the federal TSP does offer such options. The L2020 Fund sounds like it would be a good choice, since you'll be 65 in 2020. However, it's a conservative fund, which might at first sound appealing to a Republican like yourself, but actually means that it gets bond-heavy too fast. By the year 2020, it'll have 80% of its assets in fixed-income investments, leaving just 20% in stocks. That would leave your retirement vulnerable to inflation, since fixed-income investments don't keep up with the rising cost of living as well as stocks have historically done. So as long as you can stand the volatility of stocks, the L2030 fund might be better for you. It'll have approximately 58% of its assets in stocks when you're 65, a much more fair and balanced allocation.
That's all you need to know to get you going. If you want to learn more, I'll let you check out my Rule Your Retirement service for free. (Actually, anyone can take a 30-day free trial, so this isn't a special gift you'll have to report.)
So sign up for your retirement plan now! Like you, I'm a big proponent of the "ownership society." But for that to work, folks have to take the steps to own stuff that appreciates (i.e., investments) rather than stuff that depreciates.
Robert F. Brokamp
P.S. Could I get invited to the "press gaggle"? I've never been to something with such a funny name, unless you count Winona, Minn. Or The Motley Fool.
Robert Brokamp is the advisor ofMotley Fool Rule Your Retirement, which anyone can try free for 30 days. Robert is an independent who has voted for Democrats and Republicans, so keep your accusations of political bias to yourself and get back to work. He owns an S&P 500 index fund. The Motley Fool has a bipartisandisclosure policy.