Saturday, April 5, 2008

So, who's financial advice should you take?

One of the challenges women face in saving for their retirement is who to listen to and which advice to take. Because financial decisions can become so complicated most people - men and women alike - will just do nothing for fear that they will make the wrong decisions or trust the wrong people.

For most of us doing some very simple things is the best answer and truly we can’t afford not to take these simple steps in our financial lives. My previous blog, Women and Poverty - a Wake-up Call, highlighted the importance of education and lifetime earnings and making sure we put in the minimum amount of money in our retirement savings accounts to get our maximum employer match.

So, let’s look at some simple steps to follow:

1 - Get the most education you can as early as possible. If your job skills become unmarketable, take courses to update or acquire new skills to make you more valuable to your current employer or a future one. Most community colleges offer affordable programs that can lead to certifications or Associate Degrees that will help you in this pursuit. Moreover, some employers still offer a form of educational benefits that will help you pay for this. You need to check and see if your employer is one of them.

2 - Contribute to your 401k, 403b or other deferred savings retirement account to get the maximum employer match. If you can’t do the maximum, do as much as you can and whenever you receive a pay raise increase your contribution as much as you can. The old adage to pay yourself first is a solid one and you will find that you will adjust your spending accordingly. More and more employers are automatically enrolling new employees in the company deferred retirement plans, and the employee has to actively "opt out" to not get this incredible advantage.

3 - Depending on your current tax bracket and only after you get your employer match, consider contributing to a Roth IRA - not a traditional one - but a Roth IRA. The reason? The lower your tax bracket the less up front cost there is to a Roth IRA. With a Roth IRA you contribute dollars you’ve already paid taxes on, in other words post-tax dollars. So, while you are in a lower tax bracket - say 10 or 15% - contribute to a Roth IRA. When you reach 59 ½, which is the qualifying age to pull the money out tax free you will probably be in a higher tax bracket and since the growth will be tax free at that point you will have a great financial advantage. The other benefit of a Roth IRA is that since you contribute post-tax dollars you will have a basis that is available to you in cases of emergency without paying any taxes or penalties if you need the money. Just don’t take out any of the growth - always leave that amount in until you reach the qualifying age. Besides it will continue to grow!

4 - Carry as little debt as possible and carry it at the lowest interest rate possible. This is harder than it sounds and it’s one of my weak areas. I too am working on reducing credit card debt and have to remind myself of my own advice. It’s essential to a financially secure retirement to get rid of all debt before you retire, especially credit card debt. I have literally charted out how and when to pay down my debt and figured out how long I have to work to achieve my financial goals. In other words, I have a blue print. Life has thrown me a few zingers along the way and each time I’ve had to adjust my blue print but the good news is that I have room to maneuver because I understand where I am financially and where I want to go.

5 - If it sounds too good to be true - it probably is. Don’t let anyone talk you into investing in anything that promises unrealistic returns or sounds like a get-rich quick scheme. Check out everything before you give anyone any of your hard-earned money. Every single one of us has some financial insecurity and this is what unscrupulous people prey on. Most states have agencies that will help you figure out if you’re being preyed on by someone who is trying to scam you, so take the time to research your options and who is offering you a deal that sounds too good to be true.

6 - Start reading books and magazines that offer retirement advice. Go to the library or go online so you don’t even have to spend any money to get this advice. As you continue to read about retirement from credible sources you will develop a working knowledge of the processes that are available to you and then you will need to learn how to adapt these to your personal financial profile.

Here are some links to get you started: