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How to Save for Retirement

Planning for the future: It’s not just for parents anymore.

How Much?
Ideally, a couple should save 10–15% of their gross (pre-tax) salary each year. Sure that might seem like a ton of money especially when you’re barely making ends meet, but a little planning and discipline and you’ll come close.

For What?
Know your money goals. What’s the amount you’ll need to buy, say, a new hybrid car or a house? Write down no more than three goals in each of the following categories:
--Short-term (six months or less)
--Medium-term (one to three years)
--Long-term (three or more years)
Put a cost next to each goal, and a time frame for reaching it. Now, compare lists identifying the crossover, and finalizing your goals.

The Big Three
Every couple should get cracking on the following three investments ASAP:
1. Down payment on a house. “Home ownership offers considerable tax advantages,” Deborah says. “You can deduct mortgage interest and real estate taxes, and it forces you to save, but you’re building equity in something that will likely increase in value.”
2. Retirement. “You’re going to be pretty much on your own at that age,” Deborah says. “And that isn’t me trying to scare anyone or be an alarmist. It’s reality.” In other words, if you’re not contributing to your 401(k), begin.
3. Emergency fund—roughly three to six months of living expenses. It’s a piggy bank you should never break into without dire need. For example, one of you might switch jobs and suffer a huge lag between paychecks, the car could crap out for no reason, or you could snowboard into a tree. Life’s uncertain, but having an emergency fund will definitely ease financial pain.

How Risky?
Determine your risk tolerance based on how fast you want your money to grow and how soon you’ll need the money. Do you want to invest in risky individual stocks and possibly get a higher return or would you rather just put it in autopilot with index funds that are based on market performance. (These have returned about 8% a year over the last 10 years.)
If you plan on buying a house in the next year, then you should keep your money more liquid—meaning choose 3 month Treasury Bills with a return of about 4% and a purchase fee over maxing out your 401K and risking penalties when you take the money out.

Need Help?
Wondering if you should you see a financial planner? The short answer is: Definitely. A financial planner will help you avoid making costly mistakes, like getting the wrong kind of insurance. They can also help you make the most of your retirement savings -- an advantage not to be underestimated -- by reviewing your 401(k) plan offerings and making recommendations based on your goals and risk tolerance. If you don’t have a 401(k) option, a planner can even advise you which type of IRA to set up using the same criteria.

-- Amy Keith

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