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How to Prioritize Saving for Retirement

By U.S. News & World Report

Saving for retirement involves several levels of financial planning. You need to get and stay out of medical, credit card and other types of debt. And you must resolve to invest a part of your income on a regular basis. If you save in the right places, you might get some help from your employer or qualify for tax breaks. You will also need some cash on hand to cope with emergencies without disrupting your savings plan. Here’s how to get your financial priorities in order so you can accumulate a nest egg for retirement.

Deductibles covered. You need to have enough money saved to cover basic emergencies. Covering insurance deductibles should be the very lowest level of cash you keep on hand.

Match from your employer. Everyone who has access to a retirement plan that provides a match should work to take advantage of that free money. Many matching structures provide a 50 percent or even 100 percent rate of return on money you save in the account up to a certain percentage of your salary.

Eliminate credit card debt. The priority between an employer match and credit card debt is a coin toss. Consumer credit card debt and punitive interest rates charged should be avoided if you are going to be on the path to financial independence. Credit cards should be treated as a convenience with the understanding that accounts will be paid in full monthly. If you struggle with keeping credit cards paid off, you may need to enlist the help of a debt specialist.

Emergency reserves. You need to save three to six months of living expenses for a rainy day and the unexpected events that can make life scary. If you’re trying to determine where you fall in the range between three to six months, do a quick career analysis to estimate how long it would take to find another job. If you carry lots of financial responsibility, such as having several people who rely on you financially, or have a volatile income, as many entrepreneurs and freelancers do, you might want to err on the side of caution and build a bigger emergency fund.

Roth contributions. The thought of tax-free growth is exciting. Imagine investing $10,000 in a S&P 500 index fund while you are in your 20s and then using that money in retirement after it has grown to over $60,000. That $50,000 of growth will be tax-free if you saved that money in a Roth IRA. You can save up to $5,500 per year in a Roth IRA if you are under 50. If you’re 50 or older, you can save as much as $6,500.

Max out retirement accounts. Retirement accounts are great for building wealth for the future. 401(k)s and 403(b)s allow you to save $18,000 annually. It is not uncommon for employers to offer a traditional tax deductible account as well as the option to make after-tax Roth contributions that will be tax free in the future. However, outside of hardships, your access to this money could be limited prior to 59 1/2 years of age, and early withdrawals will trigger taxes and penalties.

Set an accumulation goal. With the loss of pensions, the majority of us will have to build and provide our own assets for financial independence. You should aspire to save 15 to 20 percent of your gross annual income. Retirement assets stashed in 401(k)s, 403(b)s and Roth IRAs will provide the foundation for that savings goal. Once retirement account opportunities are maxed out, consider opening an individual or joint investment account to complete your accumulation goal.

Debt prepayment. The desire to be master of your financial life includes being completely debt-free. There is nothing wrong with paying down debt early on mortgages and student loans if you are covering your other financial obligations. There is a tremendous psychological benefit when you don’t owe money to anyone else.

Prioritizing these financial obligations requires you to sit down and organize your personal financial situation. That organizing process is the first step in building a long-term vision for your financial journey toward retirement.

The plan will also uncover if you have weaknesses in how you manage cash flow. No one expects that you will make it through the entire list of financial goals immediately, but it is fulfilling when you know that you have a plan to reach success.

Brian Preston and Bo Hanson are fee-only financial planners who host the podcast, “The Money-Guy Show“.

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How to Prioritize Saving for Retirement originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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