Don't wait to start saving for retirement
By Liz Weston
Dear Liz: I am 25 and work part time while I finish my bachelor's degree. Most of my family thinks the amount I could contribute to a retirement account is too little to bother with opening one, but I would like to get into the habit of having the contributions. I would be contributing only about $25 a paycheck (every two weeks), and this is an optimistic estimate.
I do have about $4,000 in savings right now. Do you think I should go ahead and open an IRA? If so, what should I be looking for in the bank or investment company with which I open the account?
Answer: There's really no such thing as "too little" when it comes to retirement savings. Everything you set aside can help you on your journey to financial independence.
Furthermore, waiting until you can contribute more is a bad idea, since your expenses will probably rise over time and you'll always find ways to spend the money if you don't make saving a habit. Start with those $25 contributions and try to bump up the amount every few months. Once you graduate, look for a job that offers a good workplace retirement plan that will allow you to contribute 10% to 20% of your earnings - preferably with a company match.
For now, though, opening up an IRA or a Roth IRA is a great idea. You may be able to get a tax credit for your contributions if your modified adjusted gross income is below $27,750. (You can learn more about this saver's credit by reading Publication 590, Individual Retirement Arrangements, or the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions.)
Avoid banks and full-service brokerages, as their hefty fees will eat heavily into your returns. Instead, start with an account at a company that offers low fees, such as discount mutual fund company Vanguard Group or discount online brokerage ShareBuilder.
Vanguard has a $3,000 minimum investment requirement on most accounts and a $100 minimum for additional investments, so you'd need to save up in another account (such as an online savings account) and transfer the money over when you have enough. ShareBuilder, by contrast, allows you to invest without minimums. Automatic investments in certain mutual funds are free, while automatic investments in other funds and stocks cost $4 apiece.
On saying no to struggling parents
Dear Liz: You recently had a letter from an adult whose financially irresponsible parents expected yet another bailout. As a therapist, I wanted to comment.
"No" is an emotionally laden word, and so few people are comfortable using it, especially when it comes to our own parents. If the 30-year-old were a client of mine, I would help him bear the pain and grief of loss. This is what any son who loves his parents and feels responsible for them must be feeling as he witnesses his parent's financial troubles. Yet his hands are tied. The parents have a history of bad money behaviors, and the son can't fix the problem that was probably present before his birth. "No" is the proper boundary.
If the son gives his parents a session with a financial planner, he must strengthen himself against further disappointment. If not, he will find himself in financial quicksand along with his parents.
Answer: Thanks for your response. While many would feel a moral obligation to help struggling parents, setting limits is essential. There's also a legal component to this.
Dear Liz: Regarding the 30-year-old who complained about supporting his or her parents, you should have discussed state laws that require an adult child to support his or her indigent parents. California's law says that every adult child who, having the ability so to do, fails to provide necessary food, clothing, shelter or medical attendance for an indigent parent, is guilty of a misdemeanor.
Answer: According to ElderLawAnswers.com, a site that provides information for consumers and elder-law attorneys, 30 states have laws making adult children responsible for their parents if the parents can't afford to take care of themselves. You can find more information and a link to the state statutes in the resources section of the website.
These laws are rarely enforced, and the 30-year-old wasn't proposing letting his parents starve or go homeless. His parents aren't indigent; they're struggling to pay for a lifestyle they can no longer afford and perhaps never could.
Liz Weston is the author of "The 10 Commandments of Money: Survive and Thrive in the New Economy." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.
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