Social Security may not seem like an important issue to most college students, but economic and financial experts say they’re going to have to start caring – and soon.
Students need to start planning for retirement while they’re still in school and this is the perfect time to start saving, said David Hoefferle, president of United Financial Center and a financial and tax consultant.
Hoefferle has been a guest lecturer at the UA for the last few years, giving students information about Individual Retirement Accounts (IRAs) and 401(k)s, among other advice on future financial planning.
While the idea of preparing for retirement may seem a little daunting and out of place, Social Security isn’t going to provide for the current generation what it has for generations of the past, Hoefferle said.
5 ways to stop spending and start saving:
? Eat fewer restaurant meals: You can save $50 to $100 a month by not eating out. The typical restaurant meal is two to three times costlier than the same meal prepared at home.
? If you smoke, quit now: You’ll save $600 to $800 a year by quitting. Plus, you’ll smell and feel better.
? While you’re at it, reduce your drinking: If you spend $50 every weekend drinking, and you take a break for a month, you’ll save $200.
? Entertain “”in””: Make dinner and entertain family and friends in rather than going out. Try to share expenses by having friends bring a dish to pass, and then do the same when you go to their house.
? Buy generic: Buying “”generic”” brands of food and health care products can also save you 25-50 percent or more. Experts insist that there’s virtually no difference in quality and if you compare labels, the ingredients are usually the same.
– compiled from
United Financial Services
“”The bottom line is that demographics are changing and people are living longer,”” said Marshall Vest, director of the Economic and Business Research Center. “”Baby Boomers, which are about a third of the population, are just about to retire.””
When Social Security was first established, lots of people were working and few were retired, Vest said.
“”The promises are much greater than the realities of the system,”” Vest said. “”You can’t depend on it. It’ll be there, but not enough.””
People are becoming more and more responsible for their own retirement plans, said Alexandre Sugiyama, a lecturer for the department of economics.
Sugiyama had some suggestions for students and graduates who want to start planning.
“”Start saving in case of an emergency, in a general savings account,”” Sugiyama said. “”You should always have enough for six months of living expenses.””
Sugiyama also suggests that students start saving for their retirement, even if they have student loan debt.
“”Many students want to pay off loans first, because there’s an idea that you need to do one before the other,”” Sugiyama said. “”But if you have no emergency fund, that’s not going to help you.””
Sugiyama also suggests that students try to live as cheaply as they can. This may mean getting a roommate and not buying a new truck as soon as they get a job, he said.
Hoefferle also offers some savings advice for students who want to get a head start.
“”Being in charge of your life today, means enjoying it later,”” Hoefferle said.
There are little things people can do that can help them manage their money better, he said.
“”Don’t go out to eat all the time or don’t buy a $4 latte two or three times a day,”” Hoefferle said.
Hoefferle said he has calculated that if students saved all the money they spend on lattes in one year, they would have saved the $3,000 they need to open an IRA.
Four-Oh-What?
Sugiyama said researching how retirement funds work can help students get the most out of their money.
Depending on what kind of job someone has, there are different options available.
A 401(k) is offered through an employer, who often matches what employees contribute to their account, Hoefferle said. It is named after the section of the IRS tax code and is typically from private companies.
Ryan Reese, a manager at Burlington Northern Santa Fe Railway in Portland, Ore., who graduated from the UA last May, said his company matches half of what he personally contributes to his 401(k).
Kevin Do, a mechanical engineering junior, has a Thrift Savings Plan, which he started when he worked at the Border Patrol. Do said it is essentially the same as a 401(k), but it is offered only to federal government employees.
Similarly, people in the non-profit sector or in school districts are usually offered a 403(b), Sugiyama said. Employers sometimes offer pension plans as well.
Sugiyama said one question to ask when deciding which job offer to accept is, “”What incentives does the employer give?”” He also recommends getting an IRA on top of what the employer offers.
IRAs are personal accounts set up through financial companies. There are two types: Traditional and Roth IRAs.
The two types work almost identically, but there is a key difference between them, Hoefferle said.
With a traditional IRA, which is ‘tax-deferred,’ someone can invest $4,000 at a rate of 8 percent and receive an immediate $600 refund from the IRS on their tax return, Hoefferle said. The money that is put into a traditional IRA is subtracted from a person’s annual income. But later on, when someone wants to take that money out, that $64,000 is going to be taxed, perhaps 15 percent, which would leave that person with $54,400.
With a Roth IRA, the money put in is income that has already been taxed, Hoefferle said. In an account at the same rate of eight percent, when someone wants to take out their money, they will get all $64,000 of it.
In both cases, though, taking money out before turning 59-and-a-half will result in transaction fees from the financial company, Hoefferle said.
