WHEN'S the last time you explored the possible consequences of your 401K rollover into an IRA? Will you choose Roth or Traditional? How aggressive a portfolio? Is your money growing or leaving?
If all this is Greek to you, you too could have benefited from the Class of 2000 seminar on spending money wisely. The seminar, put on by the class trustees and presented by the University's own Professor Karin Bonding, may have discussed concrete bundles of money, but it was invaluable.
After graduation, students here will be faced with a great number of fiscal realities. For some, it will be a soft landing, for others maybe not so soft, and for others student loan payments may make reality rather frightening. No matter what the situation, however, we all need to learn to manage our money.
Social Security has been a central campaign issue this year for a good reason -- it could become a serious headache for everyone alive today. Our parents, the baby boomer generation, will be a serious tax on the system over the next 30 years. We will be paying for their retirement just like they paid for their parents; the only problem is that there are a lot more of them. The retirement of millions of baby boomers has the potential to bankrupt the Social Security system, leaving little to nothing in its coffers for our generation.
In addition, Europe and parts of Asia are actually showing downward trends in population growth. If the same trend carries over into the United States, there might be even fewer of our children to carry the Social Security torch, leaving us out in the cold. Remember -- the program is not a given. It was invented by the Roosevelt administration during the Depression a mere 70 years ago. It does not have to continue to exist, either -- if a government can invent a program, it can revoke it too.
Our generation therefore has several options. We can cross our fingers and have lots of children who might possibly pay for our retirement. It's doubtful this will happen, though, with more and more families becoming not only two-worker families, but two-career families, and with women waiting longer and longer to have kids.
The second option is to vote for candidates who champion continuing and even revamping Social Security, and trust the government to implement it properly. Though a more concrete option, remember that the past few years have been the first time in a long time that our government has not run a deficit and can afford to overhaul large programs -- we're just now getting to the point where there's money to pay off our massive debt. And as far as government regulations are concerned, think Savings and Loan scandal.
The third option: Learn to plan your money. IRAs (Individual Retirement Accounts) and 401Ks (a similar savings plan) aren't as complicated as you might think, and they are two of thousands of options. No matter what option you choose, though, start early -- this is not something to put off until age 40. In fact, someone our age who puts $2,000 a year for 10 years into an IRA, then leaves it alone until age 60, will have about $1.5 million just sitting in the bank by retirement time. That's a conservative estimate on a return, too -- some more aggressive plans could bump that $1.5 up into multimillionaire status. Starting that same plan at age 40 won't even earn half as much, and will be a super headache on top of kids' college tuition, a higher tax bracket and mortgage payments. Now is the time -- while we are young and have few fiscal responsibilities to put the money aside.
Some of us will be out in the "real world" for the first time after graduation. A salary of $50,000 a year may seem like striking gold after unpaid internships and minimum-wage college jobs. But Prof. Bonding made the seminar participants look more closely at that salary, once taxes, rent, and bills had been taken out. She proved just how fast numbers can shrink with Uncle Sam and FICA taking 30 percent, New York or D.C.'s phenomenal rents taking their chunk, and oops oh yeah I forgot about that credit card taking its toll.
Prof. Bonding also gave practical advice on shopping for a car, reviewing your own credit history and buying a house. For example, if a car dealer has your Social Security number -- often your license number -- they can check your credit report. Too many checks in a short amount of time can mean denial on a loan application. And more than half of credit reports are wrong. You can fix them, but it's your responsibility to get it done.
Many more than the 50 people in attendance need this kind of advice -- the more programs like this, the better off we will be. They don't have to be only for fourth years, either -- many underclassmen make enough money with summer jobs to put at least some of it away in an interest-bearing account and start that IRA earlier. A U.Va. education may set us on the right path, but without some fiscal responsibility who knows where that path may lead. So amidst the graduation celebration, look farther than the end of beach week and think about how much beach $1.5 million could buy. Retirement doesn't have to be boring.
(Emily Harding's column appears Fridays in The Cavalier Daily.)
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