Chad Crockford, 27, still splurges on going out with friends on
the weekends, entrance fees for road races and the wedding he and
his fiancee have planned for next year.
Chad Crockford, 27, still splurges on going out with friends on the weekends, entrance fees for road races and the wedding he and his fiancee have planned for next year.
But he says he’s stopped going out to eat, cut back on grocery spending and doesn’t go to movie theaters.
Like many Americans, Crockford, a lawyer with Legal Aid of North Carolina, is saving more because of the recession. He says he saves 9 percent of his $40,000 annual income, putting three-fourths of that into a monthly online savings account. The rest he invests in several mutual funds for his 401(k), a retirement plan that allows workers to save without being taxed on the money or its earnings until withdrawal.
“I have a desire to take care of myself,” said Crockford, who helped to pay his way through college when his factory worker father couldn’t keep a job.
The government reported that the nation’s savings rate for May jumped to 6.9 percent, the highest level since 1993.
Financial advisers say that for those who have money, it’s smart to have a savings strategy in place. Generally, that means three things–putting money away for retirement, cutting out unnecessary expenses and, for those who can afford it, paying ahead on mortgages.
Keith Richardson, owner of Keith Richardson Consulting LLC, says 401(k)s have traditionally been an incentive to save for retirement because employers will match or pay a percentage of the amount a consumer has saved. But many companies have had to stop these benefits during the recession.
Right now, Richardson recommends putting retirement money into an individual retirement account (IRA), which is similar to a 401(k) but is completely controlled and funded by the consumer rather than the employer.
“It’s an opportunity to save and grow tax-free,” he said.
Judson Gee, an investment adviser and managing partner of JHG Financial Advisors in Charlotte, advises that people try to save 10 percent to 20 percent of their monthly income.
“We’ve got a lot of people hoarding right now,” he said.
Gee advised that consumers should try to divvy that saved money into three “buckets”: short-term savings to be used in the next six months, midterm savings to be used in 24 months to five years and long-term savings to be used for retirement.
Here’s how some people interviewed recently say the recession is affecting their savings:
n Carol Pennington, 62, has put the maximum amount of money the IRS allows to go to 401(k)s every year since 1984. A Detroit native whose business brought her to Charlotte for the week, Pennington said her job in Wachovia’s retirement planning division taught her about the importance of saving. She said she used to feel like she was among only a handful of people who understood how to save, but the sour economy has changed that.
“There’s more awareness of the need to do something, and saving for retirement is an easy way to save,” said Pennington, who could’ve retired in January but decided to keep working when she realized she wasn’t quite ready to leave a job she loved.
n Norman Levine, 73, put 10 percent of his monthly income into a retirement account every year since he started working at age 21.
As a result, he was able to retire 12 years ago from his job as a children’s clothing store owner in Pennsylvania. His responsible saving habits allowed him and his wife to maintain their retirement lifestyle even though the recession has caused the interest he receives to drop to 1.5 percent from 6 percent. Now, he’s just concerned about his kids, he said.
“We’re worried our children won’t have the same opportunities we had,” said Levine, who retired to Florida but has been in Charlotte visiting his daughter and grandson.
n Morgan Laney, 19, is learning from her parents’ spending mistakes. Growing up, the Central Piedmont Community College student watched her parents struggle to pay off the debt on maxed-out credit cards.
Now, Laney is paying her way through college with two part-time jobs at clothing retailers American Eagle and Hollister. She puts 10 percent of her $300 monthly paycheck into a savings account. She said she used to have a 401(k) when she worked for a grocery store, but that got cashed out when she switched jobs.
“I’m planning on saving for retirement as soon as I get out of college,” she said. “I don’t want to be in debt.”
n Keith Cross, 41, isn’t scared of losing his job, but he’s still focused on building his short-term savings rather than worrying about retirement. A cook for the Marriott Charlotte City Center, Cross said he cashes most of his weekly paycheck. He saves only one-fifth of his income, putting it on a prepaid card account at a local bank.
“I save (cash) better than I would in a bank,” said Cross, whose recent pay raise and cutback on “pleasure spending” has somewhat helped to increase his savings. “As long as I got a job, I’m fine.”
n Construction worker Tony Anthony, 54, saves when he can but says he doesn’t do it systematically. He has a 401(k), but mainly deposits money into a savings account so he can reach it if he needs it in a couple months. For instant access to cash? Anthony gets 10 one-dollar gold coins out of the bank each month and puts them in an 18-inch copper piggy bank. That’s come in handy when he needs to pay off credit card debt immediately.
“I recently paid the credit card company $1,265 with the gold coins,” he said.
