Savings Fitness A Guide To Your Money and Your Financial Future

Content Highlights

A Financial Warm-up

Your Savings Fitness Dream

How's Your Financial Fitness?

Avoiding Financial Setbacks

Boost Your Financial Performance

Strengthening Your Fitness Plan

Personal Financial Fitness

Maximizing Your Workout Potential

Employer Fitness Program

Financial Fitness for the Self-Employed

Staying On Track

A Lifetime of Financial Growth

A Workout Worth Doing

Resources

text version
pdf version

Savings Fitness:
A Guide To Your Money and Your Financial Future

A Lifetime of Financial Growth

Managing For A Lifetime Of Financial Growth

As mentioned earlier, you probably will experience several major events in your life that can make it more difficult to start or keep saving toward retirement and other goals. The key is to have a clear plan, to stay focused on your goals, and to manage your money so that life events don't prevent you from keeping
on target.

Here are a few suggestions for saving for retirement while financially managing some common life events.

Marriage. Getting married creates new financial demands that compete for retirement dollars, such as changing life insurance needs and saving to buy a home. But it's usually less expensive for two people to live together, thus freeing up dollars. Also, you probably still have time on your side A spending plan is essential. Remember, every little bit helps.

Raising children. The U.S. Department of Agriculture estimates that it costs the average American family over $200,000 to raise a child to age 18. Furthermore, in some cases a spouse may stay out of the workforce to raise children, thus cutting into income and the opportunity to fund retirement. Having a child may alter your major financial goals, but should never eliminate them. Make the best effort you can. Also, many financial planners stress that saving for retirement should have priority over saving for a child's college education. There are financial aid programs for college-bound students but not for retirement.

Changing jobs. It's estimated that the average worker changes jobs 10 times and careers 3 times in a working lifetime. Changing jobs often puts you at risk of not vesting in your current job, or a new job may not offer a retirement plan. Consider rolling money from an existing company retirement plan into a new company plan or an individual retirement account (IRA). Don't cash out and spend the money, however small the amount.

Divorce. It's important that you know the laws regarding your spousal rights to Social Security and pension benefits. Under current law, spouses and dependents have specific rights. Remember, retirement assets maywell be the biggest financial asset in the marriage. Be sure to divide those assets carefully. It's also critical to review your overall financial situation before and after your divorce. Income typically drops for partners in the wake of a divorce, particularly for women.

Disability. A severe or long-lasting disability can undermine efforts to save for retirement. Although Social Security Disability benefits can help sustain a family if severe disability strikes, you may wish to explore the availability and cost of other forms of disability insurance.

Death. The premature death of a spouse can undermine efforts for the partner to save for retirement, particularly if there are dependent children. That's why it is important to check your Social Security statement to find out how much children will receive if a parent dies. Maintaining adequate life insurance is also important. Be sure that you have properly named the beneficiaries for any insurance policies, retirement plans, IRAs, and other retirement vehicles.

Coping With Financial Crises

Life has a way of throwing unexpected financial roadblocks, detours and potholes in our path. These might be large medical bills, car or home repairs, a death in the family, loss of a job, or expensive legal problems. Such financial emergencies can derail your efforts to save for retirement or other goals. Here are some strategies for managing financial crises.

Establish an emeryency fund. This can lessen the need to dip into retirement savings for a financial emergency. Building an emergency fund is tough if income is tight, but every few dollars help. Fund it with pay from extra working hours or a temporaryjob, a tax refund, or a raise. Put the money into a low-risk, accessible account such as a savings account or money market fund.

Insure yourself. Insurance protects your financial assets, such as your retirement funds, by helping to take care of the really big financial disasters. Here's a list of insurance coverage you should consider buying:

HEALTH. If you and your family aren't covered under an employer's policy, at least try to buy catastrophic medical coverage on your own.

DISABILITY. Did you know you are more likely before age 65 to miss at least 3 months of work because of a disability than you are to die? Social Security Disability Insurance can pay you and your family benefits if you are severely disabled and are expected to be so for at least 12 months. (Worker's compensation only helps if the disability is work-related.) In addition, your employer may offer some disability coverage, but you may need to supplement it with private coverage.

RENTERS. Homeowners usually are insured against hazards such as fire, theft, and liability, but the majority of renters aren't. Renter's insurance is inexpensive.

AUTOMOBILE. Don't drive "bare." It's usually against the law to drive without auto coverage, to say nothing of being costly if you are in an accident.

UMBRELLA. This provides additional liability coverage, usually through your home or auto insurance policies, in the event you face a lawsuit.

LIFE. Having life insurance can help you or your spouse continue to save if either one of you dies before retirement. Social Security maybe able to pay benefits to your spouse and/or minor children. On the other hand, you may not need life insurance if no one depends financially on you. There are many types of life insurance, with a variety of fees and commissions attached.

LONG-TERM CARE. This insurance can help pay for costly long-term health care either at home or in a health-care facility or nursing home. It protects you from draining savings and assets you otherwise could use for retirement.

Borrow. If you must borrow because of a financial emergency, carefully compare the costs of all options available to you.

Sell invesments. It's usually advisable to sell taxable investments first. Try not to touch your faster growing retirement accounts. Taking money out of your retirement accounts could trigger income taxes and penalties.