MONEY Economy

5 Reasons Cheap Gas Isn’t Fueling Consumer Spending

Getty Images/Tom Merton

Why you're just not feeling that confident.

The American consumer is difficult to figure out these days.

We currently enjoy substantial, if not strong, tailwinds. Despite a recent hiccup, employment numbers are improving, and wage growth has (kinda sorta) started to kick in. While gas prices have crept up a bit lately, drivers will most likely spend hundreds less at the pump this year than last. And a strong dollar has improved our purchasing power overseas.

Nevertheless, Americans are not translating these positives into more spending—except perhaps at bars (more on that below). And readings of how people feel about the economy and their stake in it are all over the map.

To demonstrate, here’s a snapshot of how consumers are behaving in five key areas:

Spending Is Flat

Last week the Commerce Department announced that retail sales were flat in April, and up only 0.9% from the year before. That’s the smallest year-over-year increase since the fall of 2009. The economy struggled in the first few months of 2015, with GDP increasing by just 0.2%, which economists blamed on, among other things, severe winter weather. But the poor retail figures in April make the bad weather theory a bit less compelling.

One area of the economy that’s seeing lots of cash? The service sector. Spending at bars and restaurants has boomed lately. “It is clear that this is the place where U.S. consumers are spending some of the money they are saving by buying cheaper gasoline,” per Wells Fargo Securities senior economist Eugenio Alemán.

Saving Is Up

In the years leading up to the financial crisis, Americans’ personal savings rate—a ratio of savings to disposable income—bounced between 2% and 3%. These days it’s up to 5.3%. Moreover, household debt relative to GDP has fallen dramatically since the end of the recession. My spending is your income, and vice versa, so more savings and less debt can limit wage growth for workers.

Confidence Is Iffy

All of the above has led to a lot of noise when it comes to gauging the economy’s animal spirits. Consumer sentiment recently hit a seven-month low, as the initial cheap gas sugar high faded. Gallup’s economic confidence index has dipped lately, too, and rests in negative territory. That said, surveys show substantial improvement from a year ago. A recent Bankrate poll, for example, found that only 16% of Americans say their financial situation has deteriorated over the past 12 months, down from 35% in August 2011.

And while you’re paying more at the pump than a couple of months ago, prices are still much lower than last year. The Energy Department estimates that you’ll spend almost $700 less in gasoline, making this summer look to be the least expensive for car travel since 2009. That should boost household confidence a bit.

More People Are Quitting

Though the quit rate has held relatively steady this year, people are quitting their jobs at much higher rates than in the years following the recession, which suggests they are feeling good about their ability to land a new gig. With good reason: The jobs picture is pretty healthy despite a lackluster report in March. Employers have added roughly a quarter-million jobs a month since 2014, and the unemployment rate has dropped to 5.4%. Still, for many people there’s one major thing holding them back.

Wages Are Stagnant

What’s missing is wage growth. Median household income is still well below pre-recession levels, and wage increases have hovered around 2%, which is only slightly more than inflation. That’s pretty abysmal, so it’s not difficult to see why households might be cautiously optimistic in the face of good news—i.e. lower gas prices.

One silver lining can be found in a gauge called Employment Cost Index, which measures benefits as well as salary. The ECI rose 2.6% in the first three months of 2015 compared with 12 months ago. Per the Labor Department, that’s the best showing since the end of 2008. While it’s still in the early days, workers may be in for the raises they so desperately need.

MONEY Financial Education

The Surprising New Company Benefit That’s Helping Americans Retire Richer

chalkboard with graph showing increase in money over time
Oleg Prikhodko—Getty Images

Financial education at the office is booming—and none too soon.

Like it or not, the job of educating Americans about how to manage their money is falling to the corporations they work for—and new research suggests that many of those employers are responding.

Some 83% of companies feel a sense of responsibility for employees’ financial wellness, according to a Bank of America Merrill Lynch Workplace Benefits Report, which found the vast majority of large companies are investing in financial education programs. Among other things, companies are using the annual fall benefits re-enrollment period to talk about things like 401(k) deferral rates and asset allocation, and enjoying impressive results.

Workers are responding to other programs too. Another Merrill report found that retirement advice group sessions in the workplace rose 14% last year and that just about all of those sessions resulted in a positive outcome: employees enrolling in a 401(k) plan, increasing contributions, or signing up for more advice. Calls to employer-sponsored retirement education centers rose 17.6% and requests for one-on-one sessions more than doubled.

So a broad effort to educate Americans about money management is under way, including in government and schools—and none too soon. This year, Millennials became the largest share of the workforce. This is a huge generation coming of age with almost no social safety net. These 80 million strong must start saving early if they are going to retire. Given this generation’s love of mobile technology, it’s notable that Merrill found a 46% increase in visits to its mobile financial education platform. That means employers are reaching young workers, who as a group have shown enormous interest in saving.

“There is not a single good reason—none—that should prevent any American from gaining the knowledge and skills needed to build a healthy financial future,” writes Richard Cordray, director of the Consumer Financial Protection Bureau, in a guest blog for the Council for Economic Education. His agency and dozens of nonprofits are pushing for financial education in grades K-12 but have had limited success. Just 17 states require a student to pass a personal finance course to graduate high school.

That’s why it’s critical that corporations take up the battle. Even college graduates entering the workplace generally lack basic personal money management skills. This often translates into lost time and productivity among workers trying to stay afloat in their personal financial affairs. So companies helping employees with financial advice is self serving, as well as beneficial to employees. Some argue it helps the economy as a whole, too, as it lessens the likelihood of another financial crisis linked to poor individual money decisions.

 

 

 

 

MONEY First-Time Dad

The 3 Things All Millennial Parents Should Be Saving For

Luke Tepper

MONEY writer and first-time dad Taylor Tepper asks some financial pros for help prioritizing his competing financial goals.

No one aspect of parenting is in itself particularly difficult.

What makes it the hardest thing I’ve ever done in my life, however, is that one discrete task continuously leads into another and another, until you’re ground down and raw. Bedtime follows a bath, which follows dinnertime, which follows a walk, which follows a trip to the playground, which follows…which follows…which follows…

It’s exhaustion by a thousand baby steps.

Family budgeting presents a similar Sisyphean sequence. I know I should have a healthy emergency fund and contribute up to the match in my 401(k) and save for Luke’s college education. But in which order? And how am I supposed to do those things while also paying for child care, Brooklyn rent and the occasional whisky ginger?

Each financial responsibility can be fixed easily enough. In aggregate, though, it’s nearly impossible to see the forest through the trees.

One of the small advantages of reporting on personal finance, however, is that financial planners will take my calls and answer these questions for me for free. So I took advantage. What I learned may help you, too.

First: Start On Emergency Savings

“Emergency savings is about avoiding an immediate cash flow problem,” says Leesburg, Va.-based financial advisor Bonnie Sewell. “It’s the number one thing you should focus on.”

Here’s why, she explains: Without a sufficient rainy-day fund, your family is vulnerable to the vicissitudes of life (see: layoffs and car repairs and illnesses).

Now for the scariest part. Depending on your obligations and savings, and from whom you solicit advice, you should have anywhere from three to 12 months worth of expenses sitting in a bank account.

That’s madness. Between child care, rent, transportation and food, we spend at least $4,500 a month, or more than $50,000 a year. I can’t envision a world where I have $50,000 in cash, much less putting it to no use in a near-zero-rate savings account.

Pensacola, Fla. financial planner Matt Becker helped quell my panic.

He recommends tackling emergency savings in two steps: First, get about a month’s worth of expenses stowed away and then turn my attention to other priorities (see below). After I’ve found firm footing with those, I can try to build up my fund.

Next Step: Get a Start on Retirement

The next thing for me to consider is retirement.

Every expert I spoke with noted the costs of procrastinating on this one are significant. That’s because, by putting money aside for use at a later date, I’m giving up the power of compounding returns. To end up with $1 million in my 401(k) by 65, I’ll need to save almost $15,000 starting at age 30. If I wait to begin until I’m 40, I’ll need to put away around $23,500 more a year.

Of course, retirement accounts are illiquid by nature. They’re designed to reward people who wait to tap them until they’re nearing the end of their career.

Since I could also use liquid funds for things like a down payment on that house Mrs. Tepper hopes we’ll one day buy and savings for the college degree we hope Luke will one day get, Sewell says I should contribute up to my employer match and deploy the rest as follows…

Third: Set a Course for College

After I’m set up on retirement, Luke’s college savings comes into focus.

Everyone tells me to fund a 529, which allows me to invest tax-free so long as the money is used for higher education. I can also get a break on my state taxes. (Check out this article to see if you get a break on yours.)

As Melville, NY financial planner James J. Burns points out, every little bit I contribute for Luke’s college will go a long way.

For example, let’s assume that I contribute $200 a month and enjoy an average annual return of 8%. After 16 years, I’ll have amassed more than $73,000.

“That’s pretty darn good,” says Burns, who estimates that will go along way toward paying for two years of in-state tuition by the time Luke goes off to school.

Of course there’s a reason the 529 comes after retirement. “You can borrow money for college,” says Burns. “You can’t borrow money for retirement.”

Last: Grow Some Liquid Savings

Burns also recommends going over my budget annually, seeing if I can’t find more to save. If I do, I can divide that money between my emergency fund, retirement, Luke’s 529 and a taxable account through a portfolio of broadly diversified, low-cost funds for the house and our other goals.

Now that I’ve heard from the experts, I’m willing to take a more holistic approach as they suggested—patiently building up our anemic rainy day fund, contributing as much to our retirement accounts as we can afford, and making incremental additions to Luke’s college account. Whenever we earn a raise or unburden a significant cost like child care, we’ll judiciously target those extra dollars into the different buckets that will fund our lives.

But we’ll also set aside money for vacations and a few fancy dinners, even if that money could be leveraged elsewhere. The universe may be infinite, but our lives are short, and I intend to relish the occasional whisky ginger without pangs of guilt.

More From the First-Time Dad:

MONEY Retirement

These Simple Moves By Your Employer Can Dramatically Improve Your Retirement

150512_RET_MillennialSaving
Sarina Finkelstein (photo illustration)—iStock (2)

Easy enrollment procedures and automatic escalation of contributions dramatically increase 401(k) participation rates and savings.

Nearly four decades into the 401(k) experiment, employers and policymakers may finally understand how to get the most from these retirement accounts—and it all boils down to a principle that Warren Buffett has long espoused: Keep it simple.

Nothing promotes participation and sound investment practices in 401(k) plans more than simple plan choices, according to a report from Bank of America Merrill Lynch. Last year, 79% of workers offered Express Enrollment in Merrill-administered plans followed through and began contributing to their plan. That compares to just 55% who enrolled after being offered a more traditional experience requiring choices about investment options and deferral amounts, Merrill found.

These findings jibe with other research that has found that inertia is most workers’ biggest obstacle to saving for retirement. A TIAA-CREF survey found that Americans spend more time choosing a flat-panel TV or a restaurant than they do setting up a retirement account. The Merrill report underscores the inertia factor, noting that, when considering how much of each paycheck to contribute, workers typically just choose the first rate listed.

Features like automatic enrollment and automatic escalation of contributions, with an opt-out provision, turn inertia into an asset. These features are now broadly employed and have greatly boosted both participation and deferral rates. Among companies with a 401(k) plan, 70% have some kind of auto feature, reports benefits consultant Aon Hewitt. Merrill found that plans with auto enrollment had 32% more participants, and those with an auto escalation feature had 46% more participants increasing their contributions.

Merrill oversees $138 billion in plan assets for 2.5 million participants and credits simplified enrollment for big gains in the number joining a plan or contributing more. The number of employers adopting Merrill’s simplified Express Enrollment more than doubled last year. Meanwhile, the number of participants raising their contribution rate jumped 18%.

A key feature of any simplified enrollment system is that workers are put into a diversified and age-appropriate target-date mutual fund, or some other option with similar characteristics, and that they begin deferring 5% or more of pay—generally enough to fully capture any employer match. Many employers also add auto escalation of contributions to keep up with raises and inflation—or to catch up if the initial deferral rate was lower. In many plans, the default rate is just 3% of pay.

Merrill found that 64% of employers now have plans with both auto enrollment and auto escalation. One in four employers who did not have both plan features in 2013 did last year.

Taking simplification further, more employers are now using the annual health benefits enrollment period to educate workers about 401(k) plans, Merrill found. As a result, twice as many workers enrolled in a plan or raised their contribution rate the second half of 2014 vs. the first half—a trend that Merrill says has been in place for several years.

 

 

 

 

MONEY retirement planning

1 out of 3 of Workers Expect Their Living Standard to Fall in Retirement

skinny piggy bank
Getty Images

But you don't have to be among the disappointed. Here's how to get retirement saving right.

One third of workers expect their standard of living to decline in retirement—and the closer you are to retiring, the more likely you are to feel that way, new research shows.

That’s not too surprising, given the relatively modest amounts savers have stashed away. The median household savings for workers of all ages is just $63,000, according to the 16th Annual Transamerica Retirement Survey of Workers. The savings breakdown by age looks like this: for workers in their 20s, a median $16,000; 30s, $45,000; 40s, $63,000; 50s, $117,000; and 60s, $172,000.

Those on the cusp of retirement, workers ages 50 and older, have the most reason to feel dour—after all, they took the biggest hits to their account balances and have less time to make up for it. If you managed to hang on, you probably at least recovered your losses. But many had to sell, or were scared into doing so, while asset prices were depressed. And even you did not sell, you gave up half a decade of growth at a critical moment.

Despite holding student loans and having the least amount of faith in Social Security, workers under 40 are most optimistic, according to the survey. That’s probably because they began saving early. Among those in their 20s, 67% have begun saving—at a median age of 22. Among those in their 30s, 76% have begun saving at a median age of 25. Nearly a third are saving more than 10% of their income.

Workers in their 50s and 60s are also saving aggressively, the survey found. But they started later—at age 35. And with such a short period before retiring they are also more likely to say they will rely on Social Security and expect to work past age 65 or never stop working.

Interestingly, the younger you are the more likely you are to believe that you will need to support a family member (other than your spouse) in retirement. You are also more likely to believe you will require such financial support yourself. Some 40% of workers in their 20s expect to provide such support.

By contrast, that expectation was shared by only 34% of those in their 30s, 21% of those in their 40s, 16% of those in their 50s and 14% of those in their 60s. A similar pattern exists for those who expect to need support themselves—19% of workers in their 20s, but only 5% of those in their 60s.

Workers are also looking beyond the traditional three-legged stool of retirement security, which was based on the combination of Social Security, pension and personal savings. Those three resources are still ranked as the most important sources of retirement income, but workers now are also counting on continued employment (37%), home equity (13%), and an inheritance (11%), the survey found.

Asked how much they need save to retire comfortably, the median response was $1 million—a goal that’s out of reach for most, given current savings levels. Strikingly, though, more than half said that $1 million figure was just a guess. About a third said they’d need $2 million. Just one in 10 said they used a retirement calculator to come up with their number.

As those answers suggest, most workers (67%) say they don’t know as much as they should about investing. Indeed, only 26% have a basic understanding and 30% have no understanding of asset allocation principles—the right mix of stocks and bonds that will give you diversification across countries and industry sectors. Meanwhile, the youngest workers are the most likely to invest in conservative securities like bonds and money market accounts, even though they have the most time to ride out the bumps of the stock market and capture better long-term gains.

Across age groups, the most frequently cited retirement aspiration by a wide margin is travel, followed by spending time with family and pursuing hobbies. Among older workers, one in 10 say they love their work so much that their dream is to be able stay with it even in their retirement years. That’s twice the rate of younger workers who feel that way. Among workers of all ages, the most frequently cited fear is outliving savings, followed closely by declining health that requires expensive long-term care.

To boost your chances of retiring comfortably and achieving your goals, Transamerica suggests:

  • Start saving as early as possible and save consistently over time. Avoid taking loans and early withdrawals from retirement accounts.
  • In choosing a job, consider retirement benefits as part of total compensation.
  • Enroll in your employer-sponsored retirement plan. Take full advantage of the match and defer as much as possible.
  • Calculate retirement savings needs. Factor in living expenses, healthcare, government benefits and long-term care.
  • Make catch-up contributions to your 401(k) or IRA if you are past 50

Read next: Answer These 10 Questions to See If You’re on Track for Retirement

MONEY everyday money

The New College Grad’s Guide to Money

So long, college! Hello, adult life! Here's a quick and painless lesson in real-world finances for the class of 2015.

Person putting coin in mortarboard
John Kuczala—Getty Images

Graduates of the class of 2015, it’s time to further your education. Yes, you just spent four years amassing a crazy amount of knowledge. But despite all you’ve learned, you possibly still have an incomplete in one subject: money. Suddenly you’re at a financial turning point, facing challenges like finding a place to live and starting a new job. At the same time, your college friends have scattered across the country, the clock is ticking on your student loan grace period, and you are feeling broke, really broke.

Don’t worry. The basic money skills you need to get on your feet are easy to master. And by doing so right out of the college gates, you’ll have more opportunities off in the future—and greater peace of mind right away. So, drawing from the advice of recent graduates and experts familiar with your challenge, MONEY offers you this cheat sheet for launching your post-college financial life.

  • BUDGETING

    Money

    Make Technology Your Friend

    Remember life before college? Seasonal wardrobe updates, lots of dinners out, new cellphones on a regular basis? Well, Mom and Dad worked a good 20 years or so before they could afford that lifestyle, so don’t expect to carry on as you did when you lived at home.

    If you play it right, though, you can enjoy a taste of what’s important to you, with enough left over to start building a cushier future.

    The plan: Automate. Direct deposit and auto-deduction make it easy to set aside money before you can spend it. To make sure you have enough for large, regular monthly outlays like rent, savings, and student loans—more about those expenses later—set up your pay-check for split deposits. Put money for big necessities in one account, cash for everything else in another.

    Then it’s just a question of making those remaining funds last until your next paycheck. To do that, you don’t need a life of self-denial; just think about spending in terms of tradeoffs: Would I rather buy x now or y later?

    Handy tool: The Mint app tracks your cash and can build a budget from your past spending.

    One grad’s story: When Sean Starling, a 2013 Morehouse College graduate, started his first job out of school, he thought he was set. “I was like, ‘I’m making money now, and I can spend whatever I want,'” says Starling, 25. Repeatedly running out of cash—and failing to save enough—changed his mind. He used Mint to track his spending, then moved to Excel for more detail. With his budget now under control, Starling, a cost analyst, is repaying student debt and saving up for his September wedding. “Whether you use a piggy bank or Mint or an Excel spreadsheet,” he says, “find a way to make the savings process your own.”

  • HOUSING

    Money

    Share and Save

    Most likely, you’ll share your first home post-college with a roommate or two. And there’s a good chance their names will be Mom and Dad. Whomever you’re living with, make it a time for saving money.

    The plan: Moving out of your childhood home? Aim to spend no more than one-quarter of your income on rent, advises Ben Barzideh, a financial planner with Piershale Financial Group in Crystal Lake, Ill.

    Moving back in with the folks? Be sure to wash your dishes. But you’ll really warm their hearts if you take advantage of your rent-free digs and set aside at least 25% of your salary—the money you might have paid for rent—to start a getaway fund.

    Handy tools: Splitwise makes it easy for roommates to figure out who owes whom for different housing expenses. “It’s super-fast and streamlined,” says Zach Feldman, a 24-year-old New York University graduate living in Brooklyn. “It takes maybe 10 minutes out of the month to get my bills done.” The Venmo payment app makes it simple to settle up and verify that everyone has paid up.

    One grad’s story: Kristine Nicolaysen-Dowhan, 24, moved in with her mom and stepdad in Grosse Ile, Mich., after graduating from the University of Michigan in 2012. Her first paycheck went toward clothes for work; her second paid off debt. Within four months Dowhan was saving a whopping 75% of her salary. “The rest I just had as fun money,” she says.

  • CREDIT CARDS

    Money

    Handle With Care

    Credit cards are great—in moderation. They’re useful as backup in emergencies, and paying on time helps build your credit score—good for lower rates on future home and car loans. (Employers and landlords also use your score to gauge your reliability.) The downside: Plastic makes it easy to spend money you don’t have, at a high cost.

    The plan: Get a card—just one—and use it sparingly. (Starling reserves his card for emergencies and online purchases.) Activate text alerts in your account for upcoming bills. To help your score, pay on time and keep charges to one-fourth of your credit limit. And pay each month’s bill in full; if your card charges interest of, say, 20%, keeping a balance for a year means that every $100 you spend will cost you an extra $20.

    Handy tool: MONEY’s credit card guide points you to the best available cash-back credit cards—good if you pay your full bill each month—and the best card for first-time card users.

  • STUDENT LOANS

    Money

    Pick a Plan

    You can’t wriggle out of repaying student debt, but you can choose how you pay. Instead of a standard 10-year plan, you have other options: lower initial payments or more time to repay, in return for higher interest costs. You have six months after graduation to choose a plan (which you can change later).

    The plan: Run numbers to see what you can manage. On the average federal loan balance of $27,000 for a four-year public college, you’d pay $272 monthly under the standard plan; under another one that bases payments on your income, a person making $35,000 would begin paying just $146 but owe $3,100 more in total interest. Automatically deduct payments from your bank account; paying on time helps your credit score. At tax time, deduct your interest payments, up to $2,500, on your return (the deduction is phased out for singles making more than $80,000). Tax savings: up to $625.

    Handy tools: Get a list of your federal loans at nslds.ed.gov. Use the government’s Repayment Estimator to ballpark payments under different plans.

  • YOUR JOB

    Money

    Don’t Say Yes So Soon

    Relax. Based on horror stories of recent years, maybe you’ve decided you’re lucky to get a job, any job, at any salary. But you may have more bargaining power than you think. In the best market for new grads since the financial crisis, nearly two-thirds of employers—an all-time high—plan to raise starting salaries over last year, reports the National Association of Colleges and Employers.

    That positions you well for a salary negotiation, which can pay big dividends over time. A bump in pay of $5,000 by the time you’re 25 years old translates into a $634,000 boost in lifetime earnings, according to a study out of Temple and George Mason universities.

    The plan: Don’t accept an offer right away. Salary.com says 84% of employers expect applicants to negotiate their salary. And compensation data provider PayScale found that 75% of workers asking for more money got at least some of their request.

    When you do ask, tie your case (politely) to other offers you may have or to experience you bring—say, a previous internship—that will help you hit the ground running.

    Handy tools: PayScale, Salary.com, and Glassdoor will give you a realistic sense of salary ranges, taking into account factors such as company size and location.

    One grad’s story: When Kirk Leonard, 24, a 2013 graduate of Lamar University in Beaumont, Texas, was offered a job as an office manager at a local dialysis facility, he laid out the case for his future boss as to why he deserved higher pay: Having worked for the company before, he knew its operations. And he could start right away—saving the company the time and hassle of a job search. The payoff: a salary 10% higher than the original offer.

  • HEALTH INSURANCE

    Money

    Get Covered

    Another reason to worry less this year: Thanks to Obamacare, it’s easier and cheaper than ever to get health insurance to cover major medical expenses. Any plan you sign up for should include a free annual checkup and access to prescriptions for birth control.

    The plan: The cheapest route is probably to stay on (or return to) a parent’s plan—open to you until you turn 26. You may not want to, though, if you live far from your parents; finding in-network doctors and hospitals might be difficult, says Carrie McLean of eHealth.com.

    Insured through work? Since being young means you’re (probably) healthy, you might pick the company plan you’re offered with the lowest upfront cost and highest deductible (the amount you pay before insurance starts kicking in). But, warns Karen Pollitz of the Kaiser Family Foundation, be sure you can quickly scare up the deductible, which can be as much as $6,600 this year; a broken leg, for example, can easily cost thousands.

    On your own? Hit the government exchange. Plan labels range from Bronze to Platinum, based on premiums and out-of-pocket contributions. You’re likely eligible for subsidies if you make less than $46,680 in 2015. The silver plan is a good pick, since a break on out-of-pocket costs (if you earn less than $29,175 this year) is available only with that choice.

    Handy tools: To buy through the government exchange, start at healthcare.gov/lower-costs and see if you qualify for discounts. Making less than $16,105 this year? Check the map at kff.org/medicaid to see if your state offers a free plan.

     

  • EMERGENCIES

    Money

    Stash a Little Cash

    Stuff happens—stuff that costs money. Your car might break down… or a friend might invite you to his spur-of-the-moment Vegas wedding. Be ready without having to fall back on a credit card you can’t pay off.

    The plan: An emergency fund of about $1,000 is enough for you, says Barzideh. Set a little money aside from any graduation checks you might receive, and add $50 or so a month into a bank account—one that’s separate from your day-to-day account, so you won’t be tempted to raid it for everyday needs.

    Handy tool: Keep your money in an online bank like Ally.com. There’s no minimum balance or monthly fee; the interest rate is now 0.99%.

  • SAVINGS

    Money

    Get Richer Now

    You too can be a millionaire later in life. The earlier you start saving, the easier it is, and the more freedom you’ll have later on. “You don’t know what choices you’ll be considering in 20 or 30 years, but you do want to have choices,” says Brenda Cude, a professor of financial planning at the University of Georgia.

    The plan: The best place to save long term is in a 401(k) retirement savings plan, offered by employers of nearly 80% of workers. You aren’t taxed on the money you put in that 401(k), and it grows tax-free over the years (you’ll pay taxes on withdrawals). Most employers will match a portion of your contributions, typically 50¢ for every dollar on the first 6% of pay. Start small, putting aside $50 or $100 a month.

    If you don’t have a 401(k), you can put up to $5,500 this year in an individual retirement account called a Roth IRA, where your investments will grow tax-free. (You can open one up through any major fund company, such as Vanguard, Fidelity, or T. Rowe Price.) You get no upfront tax break, but you won’t be taxed when you take money out. And that’s good, since your tax rate will probably be higher later on than it is now.

    Wherever you save, the best starter investment is a mutual fund called a target-date fund. It will give you, in a single investment, a package of stocks and bonds that’s right for your age.

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