For baby boomers, it may be too late to save a significant amount of money for retirement, says Bud Hebeler in an essay titled, "The trade: Work longer or live on less." Boomers shouldn't take early retirement, but instead should hold off on taking Social Security until age 70, if possible. "It won't be long before those who started at 62 will be longing for the additional 75 percent of income they could get if they were able to wait till age 70 to start," says the retirement planning expert and author. "They will never be able to buy an annuity as inexpensive."
His essay goes on to provide helpful tips for those intent on quitting work early at the expense of maintaining their lifestyle. Among his pointers for survival: consider Section 8 public housing, grow and can your own food, learn to bake, play Scrabble, get rid of your cars, find a dentist who will do pro bono work, etc.
It's not a lifestyle I would choose -- except for the playing Scrabble part.
Learn from boomers' mistakes
While I believe it's never too late to stockpile money for the future, it's a lot easier to do when you're young. But retirement may be the furthest thing from the minds of young people struggling to pay off student loans or save up for a down payment on a house. Yet now is the best time for them to tuck away some money expressly for that purpose. Rather than worrying about growing their own food later, they can begin to nurture their nest egg now.
So here are five tips for smart young folks who want more choices for their future than bare-bones survival strategies.
1. Duck into your human resources department and inquire about the company retirement plan, such as a 401(k) plan. If your employer offers one, ask when you can enroll. If you are told you will be automatically enrolled unless you choose to opt out, ask how much of your paycheck will go into the plan. If you're told it's 3 percent, ask how to override the decision so you can contribute more.
2. If your employer matches your contribution, find out how much you must contribute to get the full match. Typically, a company may match 50 cents on the dollar up to 6 percent of pay. If that's the case, contribute at least that much so you can take advantage of this free money. Why wouldn't you?
3. If you can afford to contribute even more, by all means do so. Many retirement experts say you should put away 10 percent to 15 percent of your income to ensure a comfortable retirement. If you can't afford to do it now, increase your contribution by a percentage point each year until you get to that level.
4. Choose low-cost index funds if they're offered in your plan. Allocate a portion to domestic stocks and a portion to foreign stocks -- of various sizes if possible. If you have a lot of choices, go with a default choice (typically a target-date fund) until you have time to learn about your investment options.
5. If your employer doesn't offer a company plan, open an individual retirement account. Fidelity and Vanguard offer low-cost index funds in their lineups. You can arrange to have money sent directly from your savings or checking account every month to your IRA. When it's automatic, you don't have to think about it except at infrequent intervals -- maybe once a year.
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