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Ask Jean Chatzky: Can Our Reader Have It All? 

Jean Chatzky  |  September 8, 2020

Travel? Retirement, a home of her own? Yes, yes, and yes.  But getting there means setting priorities and sticking to them. 

Q:  Hi Jean. I’m 55 years old and after being downsized from my previous employer of 10 years, I thankfully started a new job in June of last year. I rolled over my $225,000 401k into a LifePath Fund IRA making quarterly deposits of $250. I have a $27,000 rollover pension in a money market account, making monthly deposits of $50. I also contribute 12.5% of my salary to my company 401k and will be eligible for a 5% match in June. I set up yearly increases of 1%. Last week, I opened a Roth IRA, contributing 0.8% of my salary also with 1% yearly increases. I also have $12,650 in a high-interest savings account that I make automatic deposits of a hundred dollars twice a month, and a regular savings account with about $1,080 and I make automatic deposits there of $75 twice a month. 

With the volatility of the market due to coronavirus, should I continue with my contributions, or take my money out of the market and put it into a high-interest savings account? Should I stop saving in the low-interest savings account? I’m currently renting my apartment at $2,000 a month and want to buy a co-op or condo in the next year or so, but am I too old for a mortgage? My credit score is 823 and I’ve earned this score by progressively paying down my debt by using the severance money I received from a previous employer. I currently owe approximately $6,500 in credit card debt, and my goal is to pay that off in the 12 month time frame or sooner. Lastly, I’m single, a late bloomer with big dreams, and in addition to saving for retirement and buying a co-op or condo, I want to travel at least once a year. These goals seem gigantic since I don’t have anyone to share the financial load with. Have I missed my opportunity? Can I have it all?

A: Oh boy — you can and more.  I am just stunned by the amount of money that you’re saving. You didn’t tell me what you’re earning, but the percentages you’re socking away are really, really high. 

A couple of thoughts, and then one overarching recommendation. First, get rid of that credit card debt. I don’t know what you’re paying on it, but even if you have to dial back on your contributions into savings a little bit, just kick that in the bucket. You can even pull money out of savings (where it’s tough to earn 1% even in a high yield account these days) to pay that off.  You win on that transaction because credit card interest rates are so high.

When it comes to the regular savings account versus the high-interest savings account, I’m mostly concerned not with interest rates (because they’re both puny right now) but with access to your money. These are your emergency funds. I’d like that account to be a full three-to-six months worth of expenses eventually (add to it once that credit card debt is gone) but I also want you to have access to that money in a true emergency. High-interest rate savings accounts are fantastic, except if you need the money sometimes overnight, because some of these accounts don’t come with ATM cards. Sometimes, you have to transfer the money back to your brick and mortar bank in order to actually get it out of there quickly. That can take a couple of days, so having some cash in that regular savings account might be worthwhile as well. The other thing you can do is talk to your local bank about whether they offer a high-interest rate product, and what sort of minimums you need in order to qualify for it.

One more thing before I give you the overarching recommendation. We’ve already mentioned the fact that interest rates are super low.  The silver lining is that that makes it exactly the right time for you to look at buying something. With your credit score, you should have no problem whatsoever qualifying for a mortgage. At your age, I’d look at a 15-year mortgage, so that you’re out of it very shortly after you enter retirement. 

Finally, that overarching recommendation which has to do with pulling  pulling all of this information, plus your goal of traveling fantastically at least once a year, and making them a reality. You need a financial advisor because you need a step-by-step plan that looks at all of these variables, ties them together, and sets you on a path so you understand what you have to do in order to check off all of the boxes. 

But I can see from your letter that the drive is there, the goals are there, and most importantly the money is there.  So go get it! 

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