Learning to save and invest has become more important than ever before. The current forecast is that Social Security will begin taking in less money than it pays out by 2017. To fund future retirees, the government will most likely have to raise taxes, reduce benefits and demand that people work longer before they are eligible to collect benefits. Additionally, the percent of workers who are covered by a “Defined Benefit” Pension plan continues to decrease while the percent of workers who have a “Defined Contribution” Pension Plan (or no plan at all) continues to increase. Employers do not want to take on all the risk of a Defined Benefit plan which pays out a guaranteed monthly income for life. Instead, employers are opting to match their employee’s savings (typically 3 to 6%) and then the employee has to figure out how to invest the money.
Start Retirement Savings Early
Four Major Types of Savings
You should try to develop different types of savings to serve short-term needs, as well as meet long-term objectives.
Emergency fund - To serve as short-term financial back-up and should be replenished if it is used. It is recommended to have at least 3-6 months worth of monthly expenses in savings, in case of emergencies - such as a layoff or disability:
Short-term savings - Used for purchases that will occur in 1 year.
Longer-term savings - To meet long-term objectives, such as retirement.
College education savings - Savings to pay for college education.
How to Save
Spend less than you earn.
There is only one way to save money -- to spend less than you earn. This means you have to give up spending some of your earnings today so that you can save and invest the money for your future needs. Another way of stating that is to “live below your means”. To effectively save, one must do two things:
Pay Yourself First - Use Direct Deposit!
It is recommended that, if possible, you save at least 10-15% of each paycheck and one way to do this is to have it automatically deducted from your paycheck.
This site is brought to you by Towson University's Financial Services, DECO EEOL and the Maryland Coalition for Financial Literacy with a grant from the BRAC Higher Education Investment Fund, administered by the Maryland Higher Education Commission.
There are federal organizations geared towards teaching people how to save. Learn more by going to: smartaboutmoney.org
New types of retirement plans are being made available. To learn more, click on the video below: