Living Solo in the Big City

Erica Horne braces for unexpected expenses as she becomes a homeowner in New York

• Become educated about finance. Brown says that Horne should educate herself about the financial planning process, and advises visiting www.cfp.net/learn, a website that offers financial literacy information and a listing of certified financial planners, or www.nypl.org/financialliteracynow for local resources. Horne should also speak with the retirement plan representative at her job to learn more about investment options through her employer. Freeman also suggests that Horne enroll in a financial literacy course.

• Start investing for retirement. “She should invest in her work retirement plan first and see how the money grows before she goes to IRAs or brokerage accounts,” says Brown. With 30 plus years to plan for retirement, Horne can afford to be aggressive. Brown recommends that she place 10% of her salary in her employer’s retirement plan every year for the next 30 years. Assuming a salary increase of 3.5% every year and an asset allocation of 65% in equities and 35% in fixed income, with an investment return of 5%, Brown estimates that Horne would have $544,000 after 30 years.

According to Freeman’s projections, Horne would have approximately $50,000 in her retirement account to date if she had been following this model of investing 10% of her income since she began her job.

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