Never Too Late To Build A Nest Egg

The Beasleys are getting a crash course on investing for retirement

Meaning, they are giving Uncle Sam an interest-free loan. Ideally, at the end of the year, you don’t want to owe the IRS or vice versa. Folmar suggests they change their wage withholding allowance from zero (married status) to two. This would save them about $106 a month.

  • Pay off credit card balance. They have a $1,500 debt at 12.5% interest that they are paying $100 a month toward. Out of their $7,000 savings, which is earning 1.5%, they should pay off that debt. Consequently, this would increase their cash flow by $100.
  • Get new life insurance policy. When the Beasleys purchased their home, they bought a term-life insurance policy to ensure that money would be available to pay off the mortgage in event of either’s death. However, they have the most expensive type of insurance because it has a premium refund rider. They are paying about $88 a month for a $170,000 30-year term policy. They would be better off getting cheaper term coverage that does not have this rider attached to it. At their age, they can purchase a 20-year term policy for about $23 a month. This would be another $65 a month in savings, which in 30 years at 8% interest equals nearly $97,000.
  • Invest newfound cash savings. The Beasleys need to convert some of their savings into investments. Currently, William is saving $800 a month at 1.5% in a regular savings account, which means he isn’t really earning anything. He should begin contributing $300 a month into a money market mutual fund account (which pays 4% on average) for their short-term emergency cash reserves. He should then invest the remaining $500 in a tax-free 529 College Savings Plan. The couple should each open Roth IRAs using the $2,000 from BLACK ENTERPRISE and then begin regularly contributing their surplus cash flow of $271 per month (savings from the IRS, insurance policy, etc.) into a growth mutual fund such as Alliance Growth Fund A (AGRFX) and an international mutual fund such as American Funds New Perspective (ANWPX) to start.
  • By following this advice, the Beaselys will be on their way to retiring nicely in the future. They plan to settle down in Atlanta in about seven years, which means they’ll get the maximum pension benefits for serving more than 20 years in the armed forces while they’ll only be in their mid-40s. And Folmar says the real estate market should improve so that they’ll be able to sell their Virginia home for more than $200,000 and a tidy profit.

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