Closing The Gap

Our economists agree that homeownership and retirement planning are a potent pair when it comes to building net worth

“We’ve been following the news reports on Social Security,” says Jasmine, “and we hope there will be something there for us. Even so, we’re making our own plans and taking actions now to increase our chances of enjoying a comfortable retirement.”

Simms says the current debate over Social Security has people thinking more about retirement. “You need to plan,” she says, “whether Social Security is there or not. People are realizing that they need to think about how much they really must have if they expect to live well beyond retirement.”

GET RICH, ONE MILESTONE AT A TIME
“Wealth building is not a one-time event,” says Marc Wright, a financial consultant with AXA Advisors in New York. “It’s an ever-changing process. Your present situation might not be the same in six months or a year, so you need to be able to adapt.”

Nevertheless, you should have a basic game plan if you’re going to accumulate sufficient assets to provide a comfortable lifestyle for you and your loved ones. You can tweak your plan over time, but if you begin with a roadmap, you’re more likely to move in the right direction. Wright’s firm provides this timetable:

  • WHEN YOU GET YOUR FIRST”REAL” JOB Start a savings account to build a cash reserve of at least three months’ worth of living expenses. Start a retirement fund and make regular monthly contributions, no matter how small.
  • WHEN YOU GET A RAISE Increase your contribution to your company-sponsored retirement plan. Invest after-tax dollars in municipal bonds that offer tax-exempt interest. Increase your cash reserves.
  • WHEN YOU GET MARRIED Determine your new investment contributions and allocations, taking into account your combined income and expenses.
  • WHEN YOU’RE PREPARING TO BUY YOUR FIRST HOUSE Invest some of your non-retirement savings in a short-term investment specifically for funding your down payment, closing, and moving costs.
    * KEEP IN MIND THAT WITHDRAWALS MADE PRIOR TO AGE 59 1/2 ARE TAXED AS ORDINARY INCOME AND MAY BE SUBJECT TO A 10% FEDERAL PENALTY.

  • WHEN YOU HAVE CHILDREN Increase your cash reserves. Increase your life insurance. Start a college fund.
  • WHEN YOU CHANGE JOBS Review your investment strategy and asset allocation to accommodate a new salary and a different benefits package. Consider your distribution options* for your company’s retirement savings or pension plan. You may want to roll over money into an IRA.
  • WHEN ALL YOUR CHILDREN HAVE MOVED OUT OF THE HOUSE Boost your retirement savings contributions. Review your potential estate tax liability with your financial adviser, attorney, and tax professional.
  • WHEN YOU REACH AGE 55 Review your retirement fund asset allocation to accommodate the shorter time frame until you start accessing money from your retirement plan. Continue saving for retirement.
  • WHEN YOU RETIRE Carefully study the options you may have for taking money from your company retirement plan. Discuss your alternatives with a financial professional and tax adviser. Review your combined potential income. Afterward, reallocate your investments to help provide the income you
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