In a special series called “Today’s Money for Women,” “Today” and Money magazine recently surveyed 500 women about their financial problems. Five concerns stood out: living within your means, affording, health insurance, getting rid of debt buying a home, and saving for retirement. Then, we asked our viewers to email us about their financial concerns, and we found five women whose problems matched the survey results. “Today” financial contributor and Money magazine editor-at-large, Jean Chatzky answers questions to help these five women solve their money problems and each day, a different national association will take your phone calls, toll free, to help you with your financial problems. Here’s some advice on how to save for that retirement nest egg.
“I have spent the past 10 years as a single mother raising 3 children. Financially, I am at the top of my career. I will go back to school when the youngest one leaves home (she’s 14) so my income to debt ratio has been increasingly off kilter in the last 4 years. Home prices have doubled, 401k is gone, health insurance has tripled and my income has not increased in correlation. Please help!”
— Robin W., Centennial, CO
DEFINE YOUR RETIREMENT
Some people believe a great retirement is buying an RV and parking in the driveway of each of her kids for 3 months. If planning to go the RV route, this isn’t a lavish form of living, and you may very well be able to put away exactly what you need in a relatively short number of years. But before you understand how much you need to save for your retirement, you need to know approximately what it’s going to cost.
WORKING MIGHT BE A NECESSITY
Four out of five retirees are now planning on working — at least part time — during retirement according to the AARP. Some do it not for the money but to stave off boredom. If working is something you’d like to continue doing, focus on creating opportunities — consulting, franchising, etc — for yourself during your last few years on your regular job.
GET BACK IN THE MARKET
Historically, stocks are still a better performing category than bonds and cash, which means that if you’re investing for the long term, it’s still important to have some money in stocks. If you’re still sitting on the sidelines (and many investors are) try to start dollar cost averaging your way back in through a 401(k) plan or discretionary account that you use to pump a few dollars into stocks each and every month. This is insurance that you’re buying at all levels.
The bigger issue, though, is fear. “First… separate the concept of an IRA from stock investments. Put money in an IRA and invest it in treasuries or CDs,” says Evensky who believes it’s always time to invest. “Nobody says you have to invest in equities — but if you don’t you just have to plan for lower returns. Putting her money in stocks and pulling out if the market takes a dive six months from now is far worse than accepting the reality of a lower return and planning accordingly.”
And the biggest mistake investors made during the last bull market was forgetting to rebalance. We got so enamored as our tech stocks ran up that we forgot we were holding too much — overall — in stocks in our portfolios. Had we realized some of those gains by selling, poured the money back into bonds to keep our asset allocation in line we would have been better off. Don’t make the same mistake this time around.
WATCH FEES AND EXPENSES
Market watchers — everyone from Bill Miller to Warren Buffett — is expecting modest returns from the market over the next few years. In an environment like this, the amount you spend on expenses and fees for your investments eats away a bigger slice of your overall returns. How to keep costs to a minimum? Look at index funds and exchange traded funds which are cheaper to own than actively managed mutual funds. Overall, they’ve done better than managed funds during both the bull and the bear market which makes it tough for me to find a reason NOT to go in that direction.
Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Information provided courtesy of Jean Chatzky and Money magazine. Copyright © 2003. All rights reserved. For more financial advice, visit the Money magazine Web site at: