Tag Archives: savings

Ask Brianna: How do I save for goals other than retirement?

“Ask Brianna” is a Q&A column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college.

Q: I know I should save for retirement, but that’s so far away. How do I also save for the things I want sooner, like a house, a vacation or a move to a new city?

A: You’ll see me write about retirement over and over in this column — it comes with the territory as a personal finance writer. Talking retirement gets my planning, strategizing, and, yes, lecturing engines going, because Americans need encouragement. Almost half of families had no retirement account savings in 2013, according to an Economic Policy Iask-briannaanstitute analysis of Federal Reserve data.

You’ll need to start saving now if you want your post-work years to be filled with excitement and possibility, not anxiety over how to pay your bills. But while you save, you can also live a varied, satisfying life in your 20s and 30s. Decide on your priorities, make a plan, and be savvy about where you put your money. Smart money management now means more fun stories to tell your grandkids when you’re happily retired later on.

GET YOUR RETIREMENT SAVINGS ON TRACK

As a 20- or 30-something, you have one big advantage over older folks when saving for retirement: time. The money you earn on your investments has decades to grow, so you can save a little every month without drastically cutting back on other expenses. If you wait to save, you might have to make some tough sacrifices to catch up in your 40s and 50s.

Contribute to a 401(k) if you have one at work, and add enough to match your company’s contributions if they’re offered. Open an individual retirement account if you don’t have a 401(k). Aim to save 10 percent of your gross income for retirement, which can include an employer match.

PRIORITIZE OTHER GOALS

Pick your top nonretirement goals, decide when you want to achieve them, then create a savings plan. You can set up direct deposit at work so part of your paycheck goes straight into your savings account, says Damian Dunn, a financial planner and president of NextGen Financial Life Planning LLC in Auburn, Indiana. You’ll be less likely to spend your money if it’s not easily accessible, he says; federal law limits withdrawals from savings accounts to six per month.

Here’s how to save for the three common goals you mentioned in your question:

  • Down payment: Renting works just fine for many 20- and 30-somethings, especially if you want to be able to move easily. But if buying a house is a major dream of yours, start saving as early as you can to get close to the 20 percent down payment most conventional mortgage lenders prefer.

The best place to save depends on how soon you think you’ll buy. An online savings account is the most flexible, but a certificate of deposit, also known as a CD, will offer a higher interest rate if you can wait for four or five years. CDs require you to keep your money locked away at a bank or credit union for a certain amount of time, which will keep you from dipping into your account in the interim.

  • Travel: Online savings accounts are also ideal for upcoming trips; some let you set up sub-accounts you can name (say, “Costa Rica Adventure Fund”) to keep you motivated. Consider using a cashback or travel rewards credit card before your trip, especially if it has a sign-up bonus, to get discounted flights or hotel stays. Pay off your balance each month so you don’t pay interest, which is money that could go toward your vacation instead.
  • Moving: Your 20s is an ideal time to explore careers and live in different places. But with rent and student loans to pay, you’ll need to save money before you can run away to Los Angeles to pursue your acting dreams. Save at least six months’ worth of necessary expenses so you have a buffer if you can’t find a job right away. Before the move, try making extra money by negotiating down or canceling subscriptions like cable, taking on extra part-time work or socking away tax refunds and bonuses.

A full life is more than just planning for the future, and your postgrad job lets you afford the trips or leather jackets you could only covet when you were in college. You should enjoy those things in the decades before you retire. All you have to do is plan for them.

 

On the Web

NerdWallet: Which CD Term Length Should You Choose?

https://nerd.me/3-nerdwallet-banking

 

This column was provided to The Associated Press by the personal finance website NerdWallet. Brianna McGurran is a staff writer at NerdWallet. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.

 

Women more likely than men to face poverty during retirement

During their working years, women tend to earn less than men, and when they retire, they’re more likely to live in poverty.

These are women who raised children and cared for sick and elderly family members, often taking what savings and income they had and spending it on things besides their own retirement security.

The National Institute on Retirement Security, a nonprofit research center, reports that women are 80 percent more likely than men to be impoverished at age 65 and older. Women age 75 to 79 are three times more likely.

While experts cite a pay gap as a major cause for retirement insecurity, other factors play a role, from single parenthood and divorce to the fact that women typically live longer than men.

For Marsha Hall, 60, the process of trying to save for retirement has been nearly impossible.

“I’ve had jobs that included a 401(k) and I was able to put some money aside, every month,” she says.ß “But then I would get laid off and have to cash out the 401(k) to have money to live on.”

Born and raised in Detroit, Hall is divorced and doesn’t have any children. She works part time as a file clerk. She and her siblings pitch in to care for their 75-year old mother. Hall says she tries not to think about what her situation will be like at that age.

“My bills are current, I have food,” she says, “but I’m still living paycheck to paycheck, if it wasn’t for Section 8 (a housing subsidy), I don’t know where I’d be living.”

Joan Entmacher, vice president for family economic security at the National Women’s Law Center, says “the solution to the retirement (funding) crisis starts with the earnings and wage gap.”

The wage gap

That gap narrowed between the 1970s and 1990s, but stopped shrinking in 2001. Women earn about 76 cents to 79 cents on the dollar, compared with men.

Women are more likely to report that Social Security is the biggest source of income _ 50 percent to 38 percent for men, according to a recent poll by The Associated Press-NORC Center for Public Affairs Research. Women are 14 percentage points less likely to say they will receive a pension.

Entmacher says women are more likely to take on caregiving responsibilities, which increases the likelihood they will end up working part-time jobs, often for lower wages, and without benefits such as pensions, sick leave and health care.

“The bulk of stay-at-home moms are not these high income, well-educated women that you read about,” she says.

Over a 40-year career, the pay gap between men and women adds up to an average of $430,480, according to the Census Bureau. For minorities and women of color, the number is much higher.

“If we are talking about a 65-year-old black woman, she was born before desegregation,” says Karen Lincoln, a professor at the University of Southern California and director of a center for geriatric social work.

“This has a huge impact on things like the quality of education they receive, the employment opportunities available to them, and their ability to accumulate wealth,” Lincoln says.

Lincoln points to additional census data showing African-American women are paid 64 percent of what white men get, compared with 54 percent for Hispanic and Latina women. In addition to making less, women are much more likely to be single parents, putting additional economic strains on them.ßIn 2013, almost 83 percent of custodial parents were mothers, according to the census.

The war on poverty

Starting with the Johnson administration’s “War on Poverty” in 1964, and the creation of safety-net programs such as Medicare and Medicaid, poverty rates among both men and women have been falling steadily. In 1966 the percentage of women over 65 living below the federal poverty line stood at 32 percent, compared with 12.1 percent in 2014. For men over 65, the numbers are 23.5 percent and 7.4 percent, respectively.

Yet some analysts say the poverty rate is a poor gauge to assess the quality of life for aging seniors.

“The poverty rate is a deceptive number, it doesn’t reflect the money they (men and women) need to actually exist,” says Jennifer Brown, manager of research at the National Institute on Retirement Security.ß

Brown says that increasing life spans mean a woman in the United States today will live five years longer than the average man, and about four years longer than her grandmother.

“Those increases in longevity come with huge increases in medical costs,” Brown says. “Especially if you’re talking about things like long-term care or treatment for mental disabilities such as dementia and Alzheimer’s.”

Medicare does not cover long-term care. To get some subsidized coverage, seniors would need to spend down their assets to qualify for Medicaid or have a long-term care insurance policy.

In 2016, the census poverty threshold for a single person is $11,880. According to UCLA’s Elder Index, a measure of the cost for housing, food, transport and health care, for a 65-year-old renter shows that the base cost for these needs is $24,024 and growing.

Labor Department releases guidelines for employee benefits post-DOMA

The U.S. Department of Labor on Sept. 18 announced guidance for plans, plan sponsors, fiduciaries, participants and beneficiaries on employee benefits, especially retirement, in the wake of the U.S. Supreme Court ruling repealing the Defense of Marriage Act’s ban on federal recognition of gay marriage.

Labor said that, in general, the terms “spouse” and “marriage” in Title I of the Employee Retirement Income Security Act of 1974 and in related department regulations should be read to include same-sex couples legally married in any state or foreign jurisdiction that recognizes such marriages, regardless of where they currently live.

“This decision represents a historic step toward equality for all American families, and I have directed the department’s agency heads to ensure that they are implementing the decision in a way that provides maximum protection for workers and their families,” Secretary of Labor Thomas E. Perez said in a news release. “The department plans to issue additional guidance in the coming months as we continue to consult with the Department of Justice and other federal agencies to implement the decision.”

“By providing greater clarity on how the Supreme Court’s decision affects one of the laws we enforce, we are contributing to greater equality and greater protection for America’s working families,” added assistant Secretary for Employee Benefits Security Phyllis C. Borzi.

The Employee Benefits Security Agency protects the retirement, health and other workplace-related benefits of America’s workers, retirees and their families.

The agency oversees about 701,000 private sector retirement plans, 2.3 million health plans and other plans that provide benefits to more than 141 million Americans. Collectively, these plans hold more than $7.3 trillion in assets.