If you're not sure how much you should be saving, Pagliarini has devised a simple formula: whatever percentage represents half of your current age. "If you are 50, you should be saving 25 percent of your income," he says. "A lower percentage -- like 10 percent -- isn't enough. And with this formula, the percentage increases as you get older, so you'll be saving more."
The obvious first destination for your retirement
savings dollars is an employer-sponsored retirement
plan -- a 401(k) , 403(b) or 457
plan. If your employer matches any portion
of your savings, those funds are equivalent
to free money. So if you can't contribute
the maximum that the law allows -- $15,500
in 2007 for those under age 50 -- contribute
at least enough to get that employer match.
(If you're over 50, IRS rules permit you to
sock away $5,000 extra a year in catch-up
Then figure out how you can
bump that percentage up quickly, perhaps by
immediately directing any cost-of-living increases
or bonuses into your retirement plan so you
don't even see them in your paycheck.
If you max out your 401(k) or don't have one, consider either a traditional
or Roth IRA. If you are under certain income
limits, you can make a before-tax contribution
to an IRA of $4,000 in 2007, along with a
$1,000 catch-up contribution if you are 50
or older. With a Roth IRA, contributions are
made on an after-tax basis and you pay no
tax when you remove the money in retirement.
Experts are divided on the advisability of setting up a Roth if you're single. "The biggest benefit of a Roth -- the ability to pass on money to your heirs -- isn't as big of a deal for someone who is single and has no kids," Enright says. Pagliarini disagrees, saying, "I like Roths because you pay the tax now, when tax rates are low and you don't have to take the minimum required distributions that you have to take with a deductible IRA."
Because single people don't have the safety
net that those in couples have -- a second
income -- they should create that safety net
themselves in the form of additional savings
and insurance. You should have at least three
months of expenses in an easy-to-access emergency
fund or at the very least in an accessible
home equity loan or home equity line of credit
that you currently have open. (Compare rates at Bankrate's
home equity channel page.)