Doesn’t it seem that once we are through Thanksgiving, Christmas is right upon us? Well, I feel that way and as a result, I am facing crunch time for my Christmas shopping. My girls are easy to buy for; they have no problem telling me exactly what they want, where I can get it, and why they “need” it. I can bang out their gifts in a couple of hours. But my lovely bride, Jill, makes it a bit more difficult for me. She’s less straightforward with what she wants, and after 22 years of marriage, I still don’t understand Jill’s style enough to find her something that she will love. When I walk into Nordstrom and scan the aisles, every pair of boots looks exactly the same to me!
Regardless, I do know that I’m not the only one who has this problem. Each year I think about what people traditionally buy for their true love. And seriously, who buys “. . . a partridge in a pear tree?” If I ever brought home “two turtle doves,” “three French hens,” or even “four calling birds,” well, I may not see year 23 of marriage. However, “five golden rings”—I may be onto something there.
But, seriously, I do find the song, “The Twelve Days of Christmas” to be a very interesting song. It is an English Christmas carol that actually has two meanings. On the surface, it is a song with a clever little list of gift ideas for your significant other throughout the holiday season. The deeper meaning relates to the fact that from 1558 until 1829, Roman Catholics in England were not permitted to practice their faith openly. Someone during that era wrote this carol as a catechism song for young Catholics. Each “day” in the carol has a code word for a religious reality, which the children could remember.
But this week’s conversation relates to the superficial meaning of the carol. I have come up with a list of Christmas gifts for your true loves, that will improve your family’s financial situation, no matter which stage of life you find yourself in. I’ll call it the List of Clever Little Gifts that Keep on Giving.
For those of you who are just starting your lives together or planning to start a family, one of the best clever little gifts you can give your family is a plan to save for your financial future. I cannot tell you how many times my colleague Susan Roman and I come across aging folks who have not put financial planning as a priority in their lives and who wish they had. In fact, I was recently reading a Money magazine article that cites if you save an extra $100 a month for retirement at age 27, assuming an average rate of return of 7 percent, by the time you are 67, that difference could account for an extra $240,000. That’s a quarter of a million bucks! If you wait to begin saving by just 10 years, or age 37, the value drops to $115,000, 48 percent less. Heck, imagine if you could save $200? The time value of money is a wonderful thing and it is a gift that can keep on giving. The earlier you give that gift, the more valuable it is.
Another idea to maximize your savings is to focus on any employer-sponsored plans that offer a match before investing in retirement plans without a company match. Let me give you an example. A young couple on a budget might only be able to save 5 percent of their combined salaries, but if one spouse has a company match and the other one does not have a match, it makes sense to fund the plan that offers the company match, up to the match, before contributing any to the other employer-sponsored plan, rather than contributing equally to each plan. The company match is “free” money and “free” is the best four-letter word I know.
Let’s say you are like Jill and me, in your 40s with three “bossy” teenage daughters. In your 40s, you begin to have a much clearer picture of your financial earnings and financial needs, which helps you to assess what you need for your retirement future. It is estimated that, at age 40, you should have 2.6 times your annual salary, as a couple, saved for retirement. At age 45, you should have 3.4 times saved. Part of your financial plan should include an assessment of your current financial situation, and whether your current savings plan needs to be adjusted to meet your goals. Folks, it is better to adjust in your 40s to avoid panic in your 60s.
Many of us in this age bracket are faced with that tsunami expense: college. Susan and I talk about it all the time, since both the Romans and the Cutters are in the same demographic. And we often talk about saving for retirement versus saving for our children’s college. We are not alone. In fact, a recent T. Rowe Price survey says that more than 69 percent of parents want to put college first, ahead of retirement. But the best gift you can give yourself and your loves ones is to stick to your retirement savings plan. Do not dig into retirement savings, or adjust your 401(k) contributions, in order to pay college tuition. Remember, you can get financing to pay for college costs, but there are no clever little gift ideas to help your retirement lifestyle if you run out of money deep into retirement.
If you and your true love are in your 50s, give yourself and your loved one the gift of making up for lost time. There are several different retirement plan catch-up provisions that will allow you to contribute extra money to these accounts if you are older than age 50. This includes up to $6,000 extra to a 401(k), and an extra $1,000 to your IRA. Take advantage of these provisions, and increase your retirement savings.
When you and your true love hit your golden years, do not ignore the gift of Social Security. Make the most of your Social Security income. Take the time to figure out your best claiming strategy so that you and your spouse time your benefits correctly.
You may not be able to wrap any of these gifts; I get it. But you know something? These are gifts that, when given, will keep giving and giving, year after year for the rest of your lives. Heck, it’s better than bringing home “seven swans a-swimming.” That would not be clever.
Susan and I wish you a wonderful Christmas, and hope that you always remember the true meaning of Christmas. Now that’s a gift.
Be vigilant and stay alert, because you deserve more.