balance

WORK, MONEY, AND HEALTH ADVICE FOR BUSY PEOPLE

Looking Forward

4 SMART WAYS TO BUILD YOUR NEST EGG

Youwant to save for tomorrow, but sometimes today gets in theway. Money experts help troubleshootyour biggest retirement dilemmas.

By Kate Rockwood

1

My student loan debt is stressing me out. Shouldn’t I pay that off before saving for retirement?

“It’s natural to feel overwhelmed, but ifyou can do both, do both,” saysAmy Godwin, a certified financial planner andvice president at Fidelity Investments. It might seem like making 7 percent return in the stock market while paying 7 percent interest on a loan is awash—untilyou factor in compound interest. Let’s say you have an extra $300 inyour budget each month and 10years to pay off a $20,000 student loan. Ifyou throw that spare cash into a retirement account,you could end upwith $4,000 more at the end of the decade than ifyou rushed to pay offyour loan before switching to savings.And $4,000 invested inyour 20swill likely turn into $34,000 by the time you retire, even ifyou don’t contribute another dime. “There’s a psychological benefit to saving for retirement,” addsAndrea Coombes, a retirement specialist at NerdWallet. Setting aside even a small amount each month can helpyou feel in control ofyour financial future. One caveat:The math doesn’t hold up ifyou have private student loans or credit cardswith double-digit interest rates. Focus laser-like on erasing that kind of debt.

2

I’m tempted to cut back on retirement savings to help with my daughter’s college costs.

Fidelity recommends having four timesyour salary in retirement savings by age 45 and six times by age 50. Ifyou’re past those goalposts and socking away north of 15 percent eachyear,you can dial back for a bit to helpwith college. “But as soon asyour kids graduate, you have to try to double down on retirement,” says Coombes. Nearly a quarter of parents saving for retirement also expect their kids to support them during retirement. “There’s a real risk of becoming a burden to themwhenyou retire and, in turn, risking their financial security,” says Coombes.

3

I’m in my 50s and don’t feel as on track for retirement as my friends.

First, stop sizing up other people’s nest eggs.You might think peer pressurewill motivateyou to save more, but a study in The Journal of Finance found the opposite is true. Kickyour savings into high gear by increasing contributions toyour employer-sponsored retirement plan (ifyou have access to one) andyour IRA. Starting at age 50,you can stash an extra $6,000 ayear in catch-up contributions in a 401(k), plus an extra $1,000 in an IRA, for a total annual savings of $31,000 across both accounts.Automatic contributions are the bestway to turn good intentions into actual savings, says Godwin.And ifyour kids haven’t left homeyet, know thatyour retirement savings may rise by up to 1 percent once they do, according to a study by the Center for Retirement Research at Boston College. Downsizing to a housewith cheaper upkeep, lower taxes, and a pint-size mortgage could free up money to invest.

4

I’m retired but finding my income isn’t enough.

Even thoughyou’re feeling pinched, it’sworth paying for a meetingwith a finance pro. “There are three things they’ll look at: Canyou loweryour taxes? Canyou increaseyour returns by investing differently?And areyour Social Security benefits as high as possible?” says Matt Fellowes, PhD, founder of United Income, a money-management firm for aging households. Go to plannersearch.org to find a certified financial plannerwho specializes in retirement for people withyour networth.Thinking of heading back towork? Loop inyour adviser. “Youwant to make sure the net effect of the job is going to make up for any moneyyou might lose due to higher taxes or lower benefits,” says Fellowes.