Thursday, August 20, 2009

Savings Spree!

You are planning for retirement, or at least planning to plan for retirement. A big part of that is changing your mindset from a spending mentality to a savings mentality. At some point at or after retirement, you may not be earning a salary. A scary thought, isn’t it? You aren’t going to stop spending (or as I call it, “leaking money”), so your income will have to come from other sources you have created as part of your retirement planning. Let’s review some of the options you have for socking money away for your future.

RETIREMENT PLANS: If you are fortunate enough to have a job that offers a 401K plan, you should contribute the maximum amount against which the company matches your contribution. Company matching is “free money”! Annual contributions to IRA’s are also a good way to save for your future. You may be eligible to fund a Roth IRA if your modified adjusted gross income does not exceed the thresholds specified by the program (which vary by marital and IRS filing status). If your income is too high to qualify, you can still establish a standard IRA. Old-fashioned, company-funded pension plans are few and far between these days, but are still providing income for a subset of retirees.

PAYROLL DEDUCTIONS: Your automatic deduction for Social Security is another way you are saving for your retirement, with the expectation that you are going to get at least some of that money back for retirement. Visit to access estimates for your Social Security benefits based on your earnings records. Some publicly-traded companies offer an option to redirect a portion of your pay to purchase shares of stock. This can be a good way to save money in the form of an investment, although there is risk associated with owning stocks, and with having too much of your savings in one specific stock. (Remember Enron?) For those in higher earning brackets, your benefits may include an option to “defer” some of your income (before it is taxed) to retirement or the point at which you separate from your employer.

PERIODIC/AUTOMATIC TRANSFERS TO SAVINGS: You can choose to save a predetermined amount from every paycheck by establishing a transfer from checking to savings that happens automatically. Although a savings account is not a good place to keep large sums of money long term, this banking feature provides a mechanism to redirect “cash” from your pay on a regular basis.

WINDFALLS: Aside from your regular income, you may have opportunities to put away money that you obtain as a result of an inheritance, a legal settlement, a gift, the sale of an asset, or even an annual bonus from your employer. My philosophy on windfalls has always been to spend some (hey, enjoy life!) - and save some. A windfall can provide a welcome bump up to your retirement savings.

It’s satisfying to watch your nest egg grow, and important to keep track of your progress. Even though your savings may be spread around in different accounts, be sure you have a way to consolidate the information in one place. A simple spreadsheet can provide the means to stay on top of the results from your savings spree.

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