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Your January personal finance questions answered part 2

These questions and answers were originally part of a live chat that occurred on Boston.com on January 29, 2013.

Question: I’m doing a paid internship while in college, and the company offers a retirement savings plan. I could put the money in my savings account in case I don’t get a job right away after I graduate, but I’ve heard it’s really smart to saving early for retirement, which would pay off later on. What do you think?

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Debbie Levenson: Good for you. I think it is terrific that you’re already thinking about saving for retirement while in college. Since you are in an internship, rather than a full-time position, I think you may want to wait to participate in the retirement plan until you decide on a fulltime job after school. But then...yes. You should at minimum contribute to a 401k or 403b the amount that your company will match. And try to contribute more. Money put away while you are in your 20s has a very long time to compound and the results are dramatic.

Question: I do not own a credit card, and I never have at the age of 27. Is there any benefit of having one?

Levenson: Impressive. You’ve reached age 27 without a credit card? I’d say that as long as you are prepared to pay it off every month on time, there is no major downside to having one. In the event that you are hit with an unexpected expense (i.e. needing to travel to a funeral), having credit at your finger tips can be helpful. It also reduces the trips to the ATM. One more minor item is that some credit cards will give you cash back or miles for your spending. You can look for a no-fee credit card that might meet your specific needs at www.nerdwallet.com.

Question: What combined 401K amount for a couple would be a good amount upon retirement, do you think?

Levenson: Too tough to answer.. it depends on what type of retirement you are seeking. Generally, a rule of thumb is that you can safely withdraw 4% from your portfolio safely at age 65. So ideally you have put aside enough money, along with Social Security and/or a pension that you can pull out 4% from your portfolio and live the life you want. And remember that dollars in a 401k have not yet been taxed. So, when you pull them out, they take a haircut. The bottom line is save till it hurts! The more you put aside now, the more comfortable retirement you will be living.

Question: At what point would you recommend seeing a financial planner for the first time? I’m a recent grad and wondering at what point is a financial planner is needed?

Levenson: It varies by each person’s situation. A planner’s advice to a new college grad will be focused on budgeting (making sure that you are spending less than you are earning) and focused on how to save. You can learn a lot about those areas by reading instead of paying an hourly planner $200-$250 per hour for a few hours of advice.

Question: My Wife and I are tweaking our yearly budget. In the past I heard it was helpful to total your needs, wants, and savings. Is there a percentage for each that you recommend?

Levenson: First, let me congratulate you on having a yearly budget. Good for you! I have no hard and fast percentage rules to offer you. My advice is to block out the “needs” first and be very clear figuring out what is a real need. Then, I’d say pay yourself. That means setting aside savings for your future goals.

It is easiest to save by automating your saving. That’s how 401Ks work. You can also set up an automatic savings transfer each month to an online savings account or brokerage account. It is amazing how fast the savings accumulate when you put it on autopilot. The “wants” come last.

Question: Is it a good idea if you can afford to do so at age 51 to put in the max contribution into your 401K at work? Company match is discretionary.

Levenson: I think if your situation allows you to put the max contribution into your retirement plan at work, you should definitely do so. For 2013, the max contribution to a 401k is $17,500 if you are under age 50 and $23,000 if you are age 50 or older.

Question: I am looking to save for and buy a house in the next few years, but my fiancé and I have a lot of student loan debt. Would you recommend paying down the debt first, or doing both, contributing less to student loan payments? My gut tells me to get the loans out of the way, but I wanted to get your opinion.

Levenson: I agree with your gut. Yes, try to get the student debt under control before bidding on houses. Lenders are going to make you do that anyway, since your student debt will count against your borrowing capacity in taking on a mortgage. You should line up your loans by interest rate.

Pay off the highest rate loan first, then the second-highest rate, etc. Taking on loans for appreciating assets like your education and your house makes a lot of sense. Taking on loans for depreciating assets like cars isn’t a great idea.

Question: Is it smart to consolidate grad school and undergraduate loans into one, even though the loans came from different institutions?

Levenson: I am not familiar enough with student loans to answer your question. However, I’d start by contacting your lenders to see what type of consolidation deal they can offer you, if any.

Question: I have a large amount of student loans, and not the best personal income on the planet. My husband of almost one year does make a good income. I’m currently on the Income-based repayment plan, but am switching to the regular plan now that I’m married. Is there anything I can do to reduce my student loans?

Levenson: Pay them off as aggressively as you and your husband can stand to.

Question: Since tax time is here, my question is about finding ways to lower your tax obligation. I’m self-employed, married, file jointly and itemize deductions. My accountant says the only way to lower our tax is by increasing the amount we put toward retirement savings. Is this true?

Levenson: You could earn less…I think your accountant is right. The easiest single way to reduce your taxes is to contribute as much as possible to you and your husband’s retirement plans. If you give to charity...that would reduce your tax bill, too.

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