Help! I Need Retirement Guidance
All the information available on retirement can be overwhelming. You need some retirement guidance, but who has the time to read all those books and magazines to decipher it all? To start or continue your retirement education, consider a subscription to The Financial Tips & Hints newsletter. The newsletter provides investment education in short informative articles, just like this one. The service is absolutely 100% FREE to join.
For this article, I have narrowed what key retirement items you need to know into a nutshell using Suze Orman's book, The Money Book for the Young, Fabulous & Broke and Ric Edelman's book, The New Rules of Money: 88 simple strategies for financial success today. Suze's book, although specifically written for the under 40 crowd, offering great incite to everyone who plans to retire.
Ric: You should have between two months' and a years worth of spending in cash reserves at all times. The amount of reserves you will need depends on the stability of your income. Your cash reserves should be kept in safe and liquid investments - saving or checking accounts, U.S. Treasury bills, short-term bank CDs and money market funds.
Suze: If you have credit card debt, pay it off first, before funding your emergency fund. Once the debt is paid off, consider investing in a Roth IRA. Because you can withdrawal the amount you have contributed (not the earnings) to a Roth IRA without penalty regardless of age, it can serve as a sort of emergency fund (depending on how it's invested - see Ric list above). This may earn you a better return on your money.
Ric: Get a big mortgage and never pay it off, because your mortgage interest is probably less than what stock investments have paid since 1926 - over 10%. If you pay off your mortgage early, you lose the difference in income you could have made, plus mortgage interest tax deductions.
Suze: Pay off your mortgage as early as possible. As long as all other debt is paid off and your retirement plans (401(k), 403(b), etc.) and retirement accounts (IRAs) have been maxed out.
Me: Follow the plan above that will allow you to sleep the best at night.
Retirement Plans and Accounts
Ric: If your employer does any sort of matching contribution, then your retirement planning needs will be best met by fully participating in your employer's retirement plan.
Suze: Your top priority should be to invest in your company's 401(k) (or 403(b), Thrift Savings Plan or Tax-sheltered annuities) if it provides matching funds. Then when you have hit the maximum the company will match, start investing in a Roth IRA. If your company does not match your contributions, then contribute the maximum to your Roth IRA, only then should you explore using your company's retirement plan or other retirement account options.
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Now that you have some retirement guidance, get out there and do it!