I’m in College. Should I Start Saving for Retirement?

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It is never too early to start saving for retirement. In fact, the sooner you start, the less you will need to save in the long run. This means more money in your pocket to spend on non-retirement over your lifetime, and if you want to retire early rather than working to 65 or 70 like so many Americans, this is your golden ticket.

The Power of Compounding Interest

As a millennial, you have the greatest retirement tool: time. It’s a commodity that you can’t get back as you get older and one many boomers would be jealous of. The earlier you start investing, the more time you’ll have to let compounding work for you. You add less now but have more later. Use a retirement calculator to determine your savings goal, a compounding tool to see the numbers, then create a plan and stick with it.

It can be difficult for a young person to save big money during and right after college, considering many students only work part-time or not at all while in school. Entry-level salaries may also not provide a big savings cushion, and high levels of student loan debt, too, can eat into a young person’s savings.

However, let’s assume for illustrative purposes that Christine saved $600 per month in college for 5 years, from the time she turned 18 until she turned 23. She saved $1,000 per month for 7 years after college when she began working, from 23 until she turned 30. Then she stopped saving and left the money in her account, where it continued to accumulate interest at an annual rate of 5% until she retired at age 65.

Now let’s compare her to Jason, who didn’t start saving until after college on his 24th birthday, when he got his first “real” job. He put away $1,000 per month for 13 years, until he turned 37. He also left the money in his account, where it continued to accumulate interest for 28 years at a rate of 5% per year until he turned 65.

Over that 13-year period, Jason contributed about $156,000 and Christine contributed about $120,000. Christine saved $36,000 less than Jason, but she wound up with about $21,000 more than Jason had saved for retirement.

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If Christine chooses, she can stop contributing at age 30 and have more money in her pocket for other goals (if she has determined that this retirement amount at age 65 is sufficient). Jason, on the other hand, is saving in his 30s when other constraints like starting a family or mortgage payments may make it difficult to save for retirement.

Christine can use that money from age 30 to 36 to travel, save for a house or add to her retirement account to help it grow even more. The latter would very easily contribute to the possibility of her retiring earlier than 65, creating a more secure retirement and helping to ensure that she will not need to work due to poor planning. The point is, she has more options – saving earlier has created the financial freedom to let her live the life that she wants.

How to Super-Charge Your Savings

These results can be further enhanced by utilizing an employer match in a deferred plan such as a 401K to reduce your actual weekly out-of-pocket contribution to your retirement account. Plus, it’s free money (as long as you meet your company’s vesting requirements).

The bottom line is, saving is like a muscle; it takes discipline, much like going to the gym. Start slow and early and keep building, and you lessen the chance that you may face the painful task of trying to catch up later in life.

You can consider consulting a Certified Financial Planner (CFP®) for comprehensive advice on calculating your retirement goal amount and strategies to support savings for this and other life goals. (Full disclosure: I am a CFP®.) And as you work toward those goals, you can see how your habits are affecting your credit by viewing two of your credit scores, updated each month, for free on Credit.com.

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What Should I Do With My Old 401K?

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Q. I will be changing jobs and I have a small 401K. Should I leave it there or move it to my new employer’s plan?
— Working

A. You have several options for your 401K.

It will partly depend on the balance in the account.

If the account has less than $1,000, your employer is permitted to cash out the account when you leave the company, said Marnie Aznar, a certified financial planner with Aznar Financial Advisors in Morris Plains, New Jersey.

She said you should be sure to fill out the necessary paperwork to roll the account over and avoid having it cashed out prior to your departure.

If the balance of your account is large enough — typically at least $5,000 — you may be able to leave the 401K with your old company, she said.

But there are two other good options to consider.

Aznar said you can either roll the balance into your new company’s 401K plan or roll the 401K into an IRA rollover with the custodian of your choosing. (This guide to common retirement lingo might be helpful as you navigate this decision.)

You also have one bad option: Take the money and run. That choice would mean the money is taxed at ordinary income tax rates and would probably be subject to penalties.

Not a good choice, Aznar said.

She said if you think that the investment options in your new company’s 401K plans are good and the cost structure of the new plan is competitive, that would be the simplest and most efficient approach.

If, however, you do not think that the investment options in the new 401K plan are very good and/or you believe that the underlying expenses in the new plan are high, it would be worth considering doing a trustee-to-trustee transfer of your old 401K plan into an IRA rollover, Aznar said.

“When you opt for a trustee-to-trustee transfer, there are no income tax consequences associated with making the move and you are able to choose any investment options available to you at the new custodian,” she said. “This option would give you the most flexibility from an investment perspective.”

[Editor’s note: Sound retirement planning can help you avoid costly debt, and potential credit damage, later in life. You can manage your financial goals, like keeping tabs on your credit scores, for free on Credit.com.]

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Why We Decided Not to Have Kids

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With the legalization of same-sex marriage, queer couples have been solidifying relationships as fast as they can say “I do.” However, queer couples have familial considerations that, until June 2015, were like AstroTurf to grass.

Having children is not easy, financially or emotionally, and for older couples, the financial and emotional burden may be hard to overcome. That’s why we decided not to have children. We made this choice not because we don’t like kids but because of the time and place in which we were born.

In part, because our relationship experiences were five to 10 years behind our straight peers, we settled down about 10 years later. When our relationship evolved to a point where we could think about supporting kids, we felt it was too late.

At the time, we already had $51,000 in credit card debt. We knew we needed to pay that off as quickly as possible and then focus on saving for retirement. We couldn’t do that to the degree we felt necessary while giving our kids the life we felt they deserved.

The Financial Costs of Kids

According to the U.S. Department of Agriculture, the average cost to raise a kid until 18 as of 2013, the most recent year for which data was available, was $245,340. When we considered these costs in addition to our credit card debt and retirement needs, we were overwhelmed.

And when we considered the Human Rights Campaign’s estimate that the cost for a gay couple to have a domestic adoption ranges between $5,000 and $40,000, the prospects of having kids seemed downright impossible — and even selfish. We didn’t feel we could give our kids the life they deserved without sacrificing our retirement. If we did the latter, we feared we’d be a burden if we got to a point where we could no longer care for ourselves.

The Emotional Costs of Kids

Had we been more emotionally and financially mature when we were younger, having kids may have been more viable. Having suffered our financial insecurity, we didn’t want to put ourselves in a precarious position again.

We’ve shared many times that one of our best financial decisions was figuring out what we most want in life. This gave us the focus to pay off our credit card debt and helped us stay out of it. One of those two wants is being prepared for retirement.

Knowing what we do now, we would be on an emotional roller coaster, stressed about our retirement, while raising our kids. The expectations (read: costs) for children are high in dwindling middle-class America. Our relatives once told us they spent $2,000 each on their two kids for six weeks of soccer camp. That doesn’t even factor in costs for the rest of that season or the fact that neither of those kids will ever become professional soccer players. Still very young, those kids will be lucky if they’re able to stay interested in soccer, much less good enough to receive a college scholarship.

Cynics will say we shouldn’t get caught up in the superficiality of raising kids today, but we know that’s easier said than done. It’s not socially acceptable to advise people to not have kids, and there’s often a stigma for couples who don’t. Some even make the decision not to have kids out to be selfish and self-serving.

For us, our concern was exacerbating the financial mistakes we made in our younger years and being a burden on our kids. When deciding whether or not to have kids, it’s important to remember your kids’ whole life — not just the day the stork brings them home.

[Editor’s Note: You can monitor your financial goals, like building a good credit score, each month on Credit.com.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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