Save This

SAVE THIS
THE FAMILY GROOVE LOOKS AT THE BEST WAYS TO PREPARE YOUR FAMILY FINANCES
FOR RETIREMENT, COLLEGE EDUCATION—AND THE OCCASIONAL RAINY DAY

With the rising costs of higher education, staggering home prices and longer life spans, families need to
have a plan of attack when it comes to their financial future. “The hot topics [for families] are education for
their children, retirement planning and the purchase of a home,” says Mark Porter, a San Francisco-based
financial advisor for Ameriprise Financial Services. Porter also reports that, more than ever, individuals are
also interested in putting away money to take care of their aging parents.

Save This

According to Porter, it’s important to have some basic insurance plans in place before starting to save for additional costs, such as higher education or retirement. On the top of the list is disability insurance. “The most likely thing to happen is that one spouse won’t be able to work for a period of time,” says Porter. Families should also set up policies for car, health and renters insurance as well as life insurance, the latter of which is commonly offered by an individual’s employer. “People don’t realize what is available [through] work,” he says, “from 401Ks and IRAs to scholarships for their kids.” In addition to insurance coverage, Porter recommends that his clients have a security fund equal to six-months of expenses available in cash.

After families have taken care of the basics, according to Porter, the most important savings plan is for retirement. Couples should plan to save enough money to cover 70 percent of their current expenses—and more, if possible. The first place individuals should look to save for retirement is their employer, he says. Companies may offer ways to save, such as a 401K plan, as well as the benefit of matching a set percentage of an individual’s own contributions. When deciding where to save money for retirement, the most important question to ask is, “How do I cash out?” says Porter. He recommends Roth IRAs and Roth 401Ks because they are completely non-taxed when used for retirement.

After setting up a retirement plan, parents can then tackle saving for college. According to Porter, the best ways to save for college are a 529 account or a Coverdell Education Savings Account. While a state or educational institution operates a 529 account, a Coverdell ESA can be set up via a bank, brokerage or mutual fund company. According to Porter, both options offer good tax breaks. “The money that goes in gets invested and when you take it out, there are no taxes [on that money],” said Porter. “You can also transfer the money to other family members if the individual it was intended for does not go to school.” Additionally, a Coverdell ESA allows parents to save for elementary or secondary education expenses.

Those families in the market for a first — or second— home should look for “ safe and stable” investments, says Porter, such as a money market account or laddered CDs. According to Porter, a general rule of thumb is that if you are currently paying rent, you can expect to double that amount each month when you purchase a home. Also, future home buyers should check their credit rating. Those individuals that don’t have a credit card should get one and start using it to build up a credit history, says Porter.

In addition to a family’s plans for retirement savings and college costs for the kids, Porter has noticed that more and more individuals want to make sure they can take care of their parents financially as they get older. A top priority of caring for aging parents is long-term care insurance, which will provide help to those individuals that can no longer care for themselves. Says Porter, “You can buy these policies to cover any time frame and any dollar amount.”

—Jennifer Carofano

After a decade of subways, bagels and window shopping in New York City, Jennifer Carofano now lives with her husband and their two cars in sunny Los Angeles.

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