The good news is that you still have a lot of peak earning years ahead of you. Many people don’t hit their professional stride until they reach their 40s, 50s and 60s, and they have their best earning years, by far, late in life. If you qualify for a traditional pension, so much the better, because many systems use your highest-paying three or five years to calculate your benefits. These traditional pensions, however, are getting quite rare. The bad news is this: Interest rates are at near record lows. That’s great for borrowers, but it makes things a lot harder on savers. Chances are you will need to save a lot more money to generate a given level of retirement income than your forebears did a generation or two ago.
Here are some principals:
• Rein in spending sharply. Learn to enjoy cooking, rather than eating out. Cut back on cable TV packages and take up exercise instead. The lower your monthly expenses, the more free cash flow you will have available to invest. All solutions to your problem start with this one step.
• Pay down consumer debt and credit card debt. With credit card interest rates in the high 20s for some people, this is often the very best return on your investment you can get. Every dollar you pay down in credit card debt sooner or later nets you a return on investment equal to the interest rate on the card — with no risk and no taxes due.
• Next, make sure you are making the most of your tax-advantaged retirement savings opportunities. Are you working for someone else? Increase your 401(k) contributions. Maximize your IRA or Roth IRA contributions if you are eligible. Own some annuities, which are tax deferred (but gains are eventually taxed as income), and some people buy and hold mutual funds or ETFs. These aren’t tax-deferred, but index funds are very tax-efficient, and if you hold them longer than a year, they are taxed at more favorable long-term capital gains rates, rather than ordinary income rates.
• Above all, save money. Squirrel money away every way you can. Cash is still king, and there’s no substitute for healthy cash reserves in your credit union account, whether in checking, certificates or other conservative savings options. You might not get a great return, but it’s safe, secure and steady.Information by Sonya Wingfield, loan officer at Midland Credit Union, 2891 106th St., Urbandale, 515-278-1994.-