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Chapter 5. Developing Your Retirement Pl... > Eight Steps to Financial Independenc... - Pg. 61

Developing Your Retirement Plan 61 · His employer's 3 percent matching contributions (50¢ on the dollar, up to 6 percent of John's pay). · His employer's profit-sharing contribution of 6 percent. Figure 5.14. Next, after adding and subtracting, we see that John has to save just an additional $1,500 every year--3 percent of his pay--to reach his goal. In other words, if John increases his 401(k) contri- butions from 6 percent of his pay to 9 percent, he'll get his wish of retiring comfortably at age 62. This means John will have to adjust his spending habits so he spends about $24 less each week (after his tax savings). Only $4 a day to secure the rest of his life? That's a bargain! Our Advice If you need to save more, where should you turn for advice? Be careful who you trust, because some advisors are more interested in making money than in helping you save money. Consider maximizing your contributions to your 401(k) first, before saving money elsewhere. Next, put up to $2,000 in an IRA ($3,000 in 2002 plus an extra $500 if you're age 50+). After that, consider saving in a brokerage account or buying annuities. This advice will work just fine for most people. To put what we just did into perspective, if John changes his 401(k) contribution level to 9 percent, he will achieve three objectives: · Ensure that he has enough money to live the kind of retirement he wants. · Protect his retirement income against inflation, so his last year of retirement will be as financially secure as his first.