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Jul 8, 2008 12:34 pm US/Pacific

Retirement Savings Confusion

QUESTION:  I am so confused when it comes to 401, IRAs etc. I live paycheck to paycheck and can barely put money in a savings account but I need to save for retirement and whatever else I need for when I get older, so what can I do besides a savings acct and what retirement I have in CalPERS?

ANSWER: It's great you want to get started saving for retirement.  A 401k which you have available to you, allows you to automatically have funds taken out of each paycheck and deposited into your retirement account.  This is done on a pre-tax basis, which means the funds are deposited into your account, before having any income taxes assessed against those dollars.  I would suggest you begin with deducting 5% of your pay on a pre-tax basis.  I would also change your w-4 tax withholdings to reflect the fact that your taxable income is going to decrease.  I think you'll be surprised at how your budget will be able to adapt to your new lower paycheck.  Once you get acclimated to making contributions to your 401k, I would use future pay raises as a good opportunity to increase the percentage you are contributing.  The first step of enrolling is the hardest!

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Money Matters is provided by:

David Schauer, CFA, MSFA, CFP®
Financial Planner
Hanson McClain
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