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Your Financial Future

What I’ve Learned

Take these five tips to heart. If you’re divorced, you get six.

2. Don’t take financial advice from someone who is working on commission. While I don’t doubt that there are many wonderful, smart, conscientious people who work on commission, there is always the fact that their interests are not aligned with yours. That pricier product they’re recommending? Higher commissions for them. Instead, look for a fee-for-services planner.

3. If you’re job-hunting, you need to pay attention to benefits. If you can find a job that provides a traditional lifetime pension (they’re a vanishing species, but they’re still out there), consider its value. The employer contributes more to your retirement than it will by matching your retirement savings through a 401(k) or other plan; an expert (someone who is not you) picks the investments, and the risks are pooled with other workers rather than resting on your shoulders alone.

Also, the government guarantees the benefits even if the company goes under. Although there is a cap on the amount guaranteed—this year it’s $54,000 annually for those who begin receiving benefits at age 65—that’s high enough to cover most workers.

4. Save early and often. The benefits of starting to save for retirement when you can’t imagine you will ever be that old can’t be overstated. Save at least up to the amount that the employer will match. Otherwise, you’re leaving your company’s money lying on the table.

5. The Roth IRA is too good to pass up. There are earning limits on investing in a Roth IRA, but for young people at the beginning of their work lives, that’s not a worry. This year presents an opportunity for workers at many income levels to convert to a Roth and spread the taxes over two years.

Here’s why the Roth is so great: You pay taxes on the money when you contribute and then, never again. That’s exactly the opposite of how it works with traditional IRAs. With traditional IRAs, the money contributed isn’t taxable, but it will be when you withdraw it.

Roths are particularly good for people in their 20s or 30s because they have many years ahead in which their savings may appreciate—tax-free. So tell your kids and grandkids. As soon as I realized what a good deal they were, I sent my daughter money to open one for herself. (Most mutual fund companies require a minimum investment.) I’m happy to say she’s added to the account herself since then.

Martha M. Hamilton writes Your Financial Future for the AARP Bulletin. This is her final contribution, which she concluded with “it’s hard to say goodbye.”

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