"I see it as a train wreck,"
says Congemi, who points out that as baby boomers realize
they haven't saved enough for retirement, the next generation
will have to be called upon to help. And then that generation,
of course, won't be able to put away enough for themselves.
D'Arruda points to the worries some people
have that boomers will sell off their equities to live
through retirement and the stock market will take a
tumble as this large group exits the market.
Expect the unexpected.
Because emergencies -- think job loss, illness, car
breakdowns and home repairs -- happen to all of us (sometimes
all at once), experts recommend building reserves for
a rainy day before funding those sunny retirement days.
Nationally syndicated radio talk show
host Dave Ramsey, author of "The
Total Money Makeover," calls this reserve fund
"Murphy Repellant." He explains: "You
know Murphy's law -- anything that can go wrong will.
If you don't have an emergency fund Murphy will move
into your spare bedroom and eventually invite his three
cousins -- Broke, Desperate and Stupid -- to join him."
Harris agrees. "The fact is, no one
knows when something's going to occur where they need
to put their hands on $5,000 to $10,000."
But isn't that what home equity loans
and credit cards are for? Borrow off the house, and
"odds are, you'll never put that money back,"
Harris says. Not to mention, credit card interest rates
rack up fast.
Having an emergency fund brings peace of mind that you'll be able to keep up with the mortgage and other regular bills for a few months, should a financial setback occur.
For those who are working on getting out
of debt, a realistic emergency savings goal to begin
with is $1,000, says Ramsey. Then work up to saving
three to six months' of expenses to take care of bigger
The price of getting smart.
Since a kid's college years crop up faster than you
can say "expected family contribution" --
and even public institution costs are expected to reach
six figures by 2020 -- the goal of being able
to pay for a child's education is what keeps some parents
and grandparents saving. Participation in 529 plans
will likely be skyrocketing, now that the tax benefits
of these college savings vehicles have been made permanent.
Yet some financial experts recommend thinking twice before giving savings the old college try. "My approach is to put as much money away into retirement as you possibly can, and don't put money into college funds," says Harris, who has three daughters in their 20s, each of whom started off in community colleges and eventually got their four-year degrees without the need for loans.
"Here's the method to my madness,"
says Harris. "Retirement money works for you at
a younger age. Most people don't have funds available
to adequately put money aside for both retirement and
college. If you put maximum into retirement and your
child is ready for school, you can discontinue retirement
savings and pay for college out of your cash flow. Don't
forget, the amount of aid students can get is limited
by the assets they already have. A student who has a
big nest egg won't qualify for financial assistance.
My counsel has been: First set up an emergency fund,
then fully max out your retirement and only then put
money into college funds."