| Retirement planning:
Handle debt wisely |
| By Lucy Lazarony
• Bankrate.com |
|
With the flick of the graduation
cap into the air and the promise of a new job waiting, the last
thing most college graduates want to mull over is paying for retirement.
They just can't see it. Most can't
imagine being 30, let alone 65. And yet many financial choices that
twentysomethings make now will help determine whether they'll be
working away in their twilight years or kicking up their heels and
swapping stories of how things were way back in the 20th century.
Slay the debt dragon
Step one on the financial march is to get a handle on debt. A top
priority is to get rid of as much credit card debt as possible.
As you know, credit card debt loads have steadily risen especially
among college students and graduates.
"If you want to be serious about being
healthy financially in later years, that has to be taken out,"
says Meg Green, a certified financial planner based in Miami.
Double or triple minimum credit card payments
whenever possible. Plot out a realistic spending plan. Lots of recent
college grads, especially young doctors and young lawyers, are so
sick and tired of living as "poor students" that they
spend like mad in their early- and mid-20s. Much of that spending
goes on credit cards.
This strategy, while filled with plenty of "I've
made it" euphoria, can mean trouble later.
It's just not wise to spend with abandon and
pile up high credit card debt in your 20s, especially for people
who are facing a good 10 years or so of student loan payments. It
only makes that financial hole you're trying to climb out of that
much deeper.
"You'll never survive if you're starting
out in life with a lot of debt and you don't dig yourself out right
away," warns Marilyn Steinmetz, a certified financial planner
in West Hartford, Conn.
Of course, not all debt is negative.
Some debt is necessary to meet goals. A college education and a
mortgage, for example, are worth going into the red for.
"I don't think there's anyone I know who
gets through life all cash," Green says.
Beware the too-big mortgage
Twentysomethings lucky enough to swing a mortgage should not go
overboard with their "dream" home. Make sure those mortgage
payments are manageable each month. Who wants to eat peanut butter
and jelly sandwiches on a card table each night -- even if you do
own the joint? Overwhelming home expenses can eat into all aspects
of your financial life, including long-term goals such as retirement.
Find out how much house you can afford using this
checklist.
"It's a matter of balancing," says
David Morganstern, a certified financial planner in Portland, Ore.
"You don't want to put everything in so that you're house poor.
People need to budget themselves so that they have enough cash flow
after they've bought the house and fixed it up to save for retirement."
Begin saving
OK, so you've got a handle on your debt situation. And if you do
buy a house anytime soon, you'll be sure not to let it suck you
dry financially. So far, so good. Now don't forget about saving.
As Green points out, "Debt should not stop
you from socking away even the littlest bit away for retirement."
An easy way to do this is to join your company's
401(k) program.
Most employers allow their employees to sign
up as soon as an initial probationary period ends. An employee can
request that as much as 15 percent be deducted from each paycheck
toward the retirement plan. Many companies will match whatever the
employee contributes, dollar for dollar, up to a certain limit.
If 15 percent is too high, start with 5 percent and gradually work
your way up to the maximum, advise some financial planners.
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