Are your retirement savings going to a put and take account?
At Kemp & Associates we often meet
people who like to share how they’ve saved so much towards their retirement
savings account1. A recent client told us how they saved at
least $1,000 a month and had been doing so for five years successfully. I did
the math quickly and determined that they should have saved $60,000. When I
asked where the $60,000 was currently being held, they responded somewhat
sheepishly that they only had about $4,000. I questioned them politely as to
how they were able to save $60,000 but only had $4,000 and they explained that
they were going in and using it for different impulse purchases and bills.
This type of retirement
saving isn’t truly saving. Instead, it is a form of “put and take” or, a more
modern version, would be called a “delayed spending account.”
Now, as a financial planner, my
job is certainly not to be the proverbial wet blanket or kill joy. However, I
don't want people to be self-deceived in thinking they are doing a great job
saving for their retirement when what they are doing is funding a delayed
spending account. Many times, these delayed spending accounts are used for
emergencies, real estate taxes, school taxes and/or annual auto insurance
premiums and there is certainly nothing wrong with that. These types of
accounts are valuable but cannot be considered true retirement savings.
According to Econedlink.com2,
“For most people, the put and take account is a checking account. A checking
account holds the money that you're going to need immediately plus a little
extra for emergencies… Experts recommend that you set aside three to six
months' net pay in your put and take account. So if you're making $50 a week
working at the movie theater, your goal for the put and take account should be
$600 to $1,200.”
We all learn from our
experiences. You should never shop for food when you're hungry, because your
eyes are bigger than your stomach and you end up buying everything in sight.
Financially, we should also avoid easy traps and impulsive buying. We want all
our clients to have the tools to plan ahead and be diligent.
In the next part of this
blog series we will discuss put and keep accounts.
At Kemp & Associates,
we know how difficult retirement planning can be. If you need help preparing
for retirement, contact
us today.
1 "Retirement
Savings Calculator" Kiplinger; http://www.kiplinger.com/tools/retirement-savings-calculator.html
2 "The
Five Stages of Investing" Council for Economic Education; http://www.econedlink.org/lessons/index.php?lid=707&type=student
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