Planning & Research: Establishing Roots - T. Rowe Price

At this stage in your life, you may be taking on new commitments like marriage, starting a family, or purchasing a home. Budgeting and having an emergency fund are now more important than ever because there are more and more demands for your money. You should also consider buying life insurance to protect yourself and your dependents from unforeseen events.

Establishing Roots Tips

Here are ways to meet your financial obligations while putting money away for retirement.

You and your spouse should continue contributing 15% of your income to tax-deferred retirement plans despite other financial commitments. If either of you leaves the work force (for example, to raise children), consider opening a spousal IRA, which will allow you to continue contributing for retirement even if you are not receiving an additional paycheck.

A 529 College Savings Plan account is a tax-advantaged way to help you reach your college savings goals. Saving early can put the power of time and earnings potential on your side.

Life insurance will help supplement lost income for your family in the event something happens to you. Be sure to purchase a policy that will sufficiently cover your household and other expenses.

Streamlining your portfolio makes it easier to manage and minimize costs. If you and your spouse have had multiple jobs, you may have several workplace retirement plan accounts. You can’t combine your retirement accounts with those of your spouse, but you can roll over your 401(k)s and consolidate your individual retirement accounts (IRAs) through an IRA transfer.

Draw up a will to direct how your property and other assets should be dispersed upon your death. Without a will, your state of residence will distribute your assets according to its laws. If you have children, be sure to appoint a guardian; otherwise, a court will make this decision for you. It’s also important to consider a durable power of attorney for your finances and medical care. Power of attorney should be given to someone you trust. He or she will have the authority to act on your behalf should you become incapacitated. You should also update the beneficiary designations on your retirement accounts for life-changing events such as marriage, birth, divorce, death, or a job change.

See How You Are Doing

Percentage to Save

This chart shows the percentage of salary you should be saving, in combination with contributions from your employer, to replace about 50% of your current salary in retirement. The results are based on your age and how much you have already saved, assuming you retire at age 65. For example, if you are 35 years old and have already saved one times your salary, you need to save at least 12% of your salary each year from now until your retirement date. The chart assumes your salary increases 3% annually for inflation and that you earn 8% on your investments in a tax-deferred account before retirement. When you retire, it assumes your initial withdrawal amount will be 4% of your balance at that time.