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Question from Jessica:
My husband, who is the primary breadwinner, is preparing to go to law school full-time in the fall. His tuition, fees and our living expenses (a set amount for rent, etc.) will be covered by the post 9/11 GI Bill. The only debt that we have is $15,000 in my student loans. We have approximately $35,000 in IRAs/mutual funds and $10,000 in savings. We are looking for some tips for the next year in order to get ourselves in financial shape to halve our income. Should we stop contributing to our IRA and mutual funds? Should we focus on saving as much as possible? Answer from Sharon Epperson:
Jessica, DON'T STOP SAVING! You should definitely contribute the maximum to Roth IRAs if you can -- $5,000 for each of you this year -- and also contribute enought to your employer's 401(k) to receive a matching contribution, if one is offered. But just as important, perhaps more important for the time when you will be living on one income, is to have adequate emergency savings. Ideally you should save this money in a money market or high yield savings account. Compare rates at bankrate.com. But you can also withdrawal contributions to a Roth IRA at any time, so it can be used for short-term savings in a pinch. Question from Kathy:
Thanks Sharon for doing this! My husband is 53 years old and is considering retirement from the military. His current annual income is $200,000. His annual retirement pay will be $125,000 and will start as soon as he retires. He will be seeking a second career. We have just under $500,000 in savings and investments. We have approximately $250,000 equity in our house. Our only child is an adult. We have one car payment that is $575 per month and our mortgage payment (principal, interest, taxes and insurance) is $2900. We have no other debt. He is worried about our finances. I think we are in pretty good shape. Would love to have your opinion. Thanks Answer from Sharon Epperson:
Kathy, It looks like you're in pretty good shape, especially since your husband will continue working. Are you working too? The money that you'll need in retirement depends a great deal on what you intend to do in retirement and where you'll do it. If you live or move to a city that is not too expensive, continue working, not overspending and saving diligently in your retirement accounts, you should be fine. Remember you can contribute extra money into IRAs and 401ks after age 50 -- make sure you're contributing the max. And look into long-term care insurance, if you don't already have it. It's not cheap, but can greatly reduce your out-of-pocket health care expenses down the road. Complete Q&A: