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Future gains; Secrets to saving for your future

By Valerie Anderson, Source: Tribune Media Services

In a recession, your knee-jerk reaction may be to take all your money out of your 401(k) and stuff it under your mattress where it’s “safe.” But Christian Cordoba, founder and president of California Retirement Advisors in El Segundo, Calif., says that’s the opposite of what smart investors should be doing.

“People today, more than they have in many years, are revisiting their retirement finances and getting serious about how to make smart choices with their money,” he says. They are beginning to save more than ever — out of either necessity or fear.” Cordoba adds that while people are avoiding careless spending, they’re also failing to invest the pennies that they’re pinching.

“It often amazes me how people go screaming for the exits when share prices decline by a significant amount,” Cordoba says. “They stop making contributions to their retirement plans at the most opportunistic times — when prices are low again. Yet if you slash the prices at any upscale department store by 50 to 75 percent, people line up outside before the doors even open.”

Consider your options

If you’re just starting out in your career, perhaps you think investing can wait — after all, retirement is a long way off. But Cordoba recommends that new hires take saving and retirement seriously, even if it seems premature.

“When I meet with a client who has recently started working at a company, I suggest they find out when they will be eligible to contribute to the company retirement plan. Just because the company has a retirement plan, does not mean they are able to contribute to it right away,” he says.

In fact, Cordoba says it’s not uncommon for companies to require their employees to wait a full year before they’re eligible to contribute. He also advises new employees to find out how much their company will “match” their contributions, if at all. “Be sure to take advantage of any free money,” he says.

Los Angeles-based finance expert and author of “Living Rich for Less” (WaterBrook Press, $16.99), Ellie Kay says in her observation one of the first things that new hires have a tendency to do is to celebrate by buying a new car, getting a bigger apartment, or putting a celebration gift on their credit card.


“Spending is the enemy of saving, so my first recommendation for a new hire is for them to get on a budget,” she says. Kay also recommends that new employees stay at their jobs for at least a year, in an effort to gauge the security of their new position, before they even consider buying a home or moving to a more expensive apartment.
“In today’s uncertain economy and shaky job market, new hires are often the first fires ¬ so be cautious in how you save, spend, and strategize your financial plan,” she warns.
Kay advises employees to have at least 10 percent of their paycheck set up in an allotment directly toward their savings account as well.

“The goal for a single income family is to build six to eight months worth of living expenses in the case of an emergency,” she states. “If you are a dual income family, then the goal is to build three to four months worth of living expenses into a basic savings account.”

In order to budget for an emergency fund and your retirement savings contributions, Cordoba advises employees to complete a list of monthly and annual expenses. This way, you can discover how much you will be able to contribute and save.

“If you can, contribute at least the company match amount,” Cordoba says. “If you can contribute more, do so, but you should contribute as much as you feel comfortable being deducted from each paycheck without having to reduce the amount in the near future.”

Now until retirement

If you have some time until retirement, but you’re not a brand-new employee, Cordoba says to remember the following numbers: 5,3,7,52,30. That’s five dollars per meal, three times per day, seven days per week, fifty-two weeks per year, for thirty years.

“If you retire at age 60, and live to age 90, and like to eat three times per day, assuming you only eat at McDonalds at $5 per meal, one can expect to spend $163,800 in retirement on eating alone,” he says.

“Employee should consider, if they have10 years until retirement, and they get paid once per month, do they have a plan in place to save $163,800 from their next 120 paychecks? Remember,” Cordoba adds, “This does not include inflation, potentially increasing consumption tax or other living expenses.”

Cordoba says that if you are a mid-level employee, you should be saving money by other means than just the typical 401(k).

“The Roth IRA is an excellent supplement, because it will give employees more choices from a tax perspective for income when they retire,” he says.

Kay says mid-level employees need to follow the same basic foundation as new hires —they need to be on a budget, contributing to their 401(k) plans, and they need to make sure they have enough in savings in the event of an emergency. But toward the middle of one’s career, employees need to take it one step further. She believes it’s a smart move to max out your 401(k) contributions for your age group and set up a laddering CD that comes to maturity at different times.

“This is a solid and safe investment that will keep your money tied up for the period of the CD, and yet give you enough flexibility to have access to funds in the event of an emergency not covered by your emergency savings account,” Kay states.

401(k)s, CDs, funds, oh my. It can all start to seem overwhelming to a newbie investor. But when it comes down to financial smarts, all it takes is good common sense.

Says Kay, “Live on less than what you make and invest the difference.”

— Valerie Anderson, Tribune Media Services