Class of 2009: Learn How to Save Now


Recent announcements of thousands of layoffs at companies such as Sprint Nextel (Stock Quote: S), Wyeth (Stock Quote: WYE), Caterpillar (Stock Quote: CAT) and Home Depot (Stock Quote: HD) is bad news for recent and upcoming college graduates.

This year's college grads are less confident than last year's that they will be able to find the jobs they want, according to the College
Graduate Career Confidence survey conducted by Philadelphia-based consultant Right Management.

In fact, nearly two-thirds of recent and soon-to-be college graduates the company surveyed expect to remain with their first employers for less than three years, which means they won’t be around long enough to vest in their company’s retirement savings plan or pension scheme when they finally do find work.

Start Saving Early
That’s why new and up-and-coming graduates will want to start a regular savings plan just as soon as possible, says Certified Financial Planner Vincent R. Barbera of TGS Financial Advisors in Radnor, Pa., whose quarterly newsletter to clients includes a “Young Money” piece devoted to young people interested in financial independence.

Only about 10% of the clients he works with are in their 20s, and they're the children or grandchildren of existing clients. He recommends that new grads look for 9 to 5 office positions—even it means starting out at a temp agency— and begin saving for a rainy day immediately, with the intention of expanding that to a broader savings scheme.

“Saving doesn’t come naturally. Spending does. So graduates need to get into the habit of saving just as soon as possible,” says Barbera.

What You Need to Know
The adviser offers the following tips to graduates wanting to get their savings and retirement planning houses in order, either on their own or with the help of new employee benefits:

1. Make it automatic. Set up an automatic transfer with your bank or employer that will transfer 5% of your salary into a savings account. (If you can manage to put aside 10%, that's even better.) Use this to establish an emergency fund providing three to six months of living expenses, usually $5,000 to $10,000 for twenty-somethings.

2. Think IRA.
Look into a Roth IRA so you can begin to accumulate money for retirement. If your employer offers you the choice of a Roth 401(k) or a traditional 401(k) plan, go for the Roth, which is better for new employees who’ve yet to maximize their earning potential. A traditional IRA or 401(k) reduces taxable income in the years you are making contributions, and defers the tax until retirement, while the Roth program taxes what you put in when you put it in, allowing the money to grow and be withdrawn tax-free.

3. Sign up for the plan.
If you begin working with a company offering any sort of 401(k), be sure to join the plan, and make sure you know what the employer match is. You absolutely want to contribute enough to earn the entire employer match, which means if the company contributes 50 cents on the dollar up to a maximum 6% of your salary, put away that 6% of your salary. You will never find a better investment return anywhere.

4. Consider target-dating. If you are confused about how to invest your 401(k) money, think about a target-date lifecycle fund designed to shift strategies and maximize return with your retirement date in mind. Such funds will usually have a name like "the 2050 fund.”

5. Ask questions. This is your money. If no such target-date fund is offered, Barbera says to make sure to get exposure to U.S. equities, international equities and bonds. And don’t be shy about calling the human resources department. Often, HR will refer you to a financial planner or mutual fund specialist who can help you understand the asset allocation process.



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