Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to AskKaren@mpt.org and post your comments below.

5

October

Save More for Retirement Now!

Karen Gibbs

Hi Karen, my husband I are both in our fifties and we want to aggressively save more money for our retirement.  What do you suggest we do?

- Paulette, Randallstown

 Couple
Hi Paulette.  This is probably the number one question I’m asked, regardless of age. Nearly one-third of people over the age of 50 have not saved enough for retirement. However, you and your husband have an advantage; you can play catch-up.


As of 2015, the Internal Revenue Service allows you to contribute up to $6,000 in an employer-sponsored saving plan such as a 401(k), 403(b) or 457(b), depending on if you work for a corporation, tax-exempt organization or government agency.  You can also play catch-up if you’re self-employed.


Once you’ve maxed out those contributions, consider establishing or adding to an Individual Retirement Account (IRA).  A traditional IRA is a tax-deferred account, meaning you put in pre-tax dollars and only pay tax when you withdraw money.  A Roth IRA uses after-tax dollars, and there is no tax on withdrawals of deposits or capital gains.  There are income levels, so do your homework before setting up an IRA.


Calculate how much you may receive from Social Security.  To get started, go here:  http://www.ssa.gov/planners/benefitcalculators.html


Next, estimate how much you think you’ll need in retirement.  What expenses will you incur?  Don’t underestimate what you may have to pay for healthcare.  Have you paid off your mortgage?  Would downsizing be cheaper?  Are you willing to try and live off of less before you retire?  Doing so will give you an idea of what you can live without and what you absolutely must have.


As with any age, you should take into consideration what you’re spending compared to your income stream.  If there is a negative gap (spending more than you bring in) you have two choices:  make more money or spend less.  Here are several steps that will lead you to financial independence:


1. Determine where your money is going.  That means track every nickel and dime that leaves your hand.  You may be surprised at how much money slips through your fingers.  By tracking your spending, you can identify areas where you can save.


2. Establish an emergency fund.  If something happens you have cash on hand to pay for it.  If no emergency, you have a nice cushion to fall back on.


3. Refinance your mortgage.  With interest rates at historically low levels, you may find that your monthly payments can be reduced with a lower mortgage rate, freeing up cash for paying down debt or increasing your savings.


4. Pay off your credit card balances.  With average credit card interest rates currently at 13%, carrying a balance is expensive. Paying off your debt gives you a 13% raise!


5. Constantly weigh your purchase. Is this a want or a need?  Using cash will help in the decision making process.  Studies have shown that it’s harder to spend with cash than with plastic.  You feel the immediate loss when you hand over cash.  You don’t consider that with plastic until the bill comes in the mail.


6. Maximize the “free stuff”.    Visit http://seniordiscounts.com.  Don’t be ashamed to ask for the “senior discount”.   Many retailers offer senior discounts on certain days.  Fast food and dining establishments such as Applebee’s, Chili’s and Dunkin’ Donuts offer senior discounts.  Consider joining AARP or another organization that offers discounts.  And don’t forget to take advantage of free events:  http://www.freefallbaltimore.org/ is just an example of offerings in Baltimore for the month of October.


Good luck and let me know how you’re doing!

 - Karen

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