Q. Iām on Baby Step 1 of your plan, and I work at a community college that takes a mandatory 20 percent from our pay for retirement. I know you say retirement contributions should be put on hold until all debt except for your home is paid off, so do you have any thoughts on this kind of system? It feels like itās hard to get traction with getting control of my money when so much is being taken out of every paycheck.
A. That is a lot to take out. Iāve heard of a few places that have a mandatory 12 percent contribution, but 20 percent? Thatās very unusual. And itās unusually high.
Iām not sure what to tell you. I mean, you took the job. Itās what you signed up for. But if it becomes enough of an issue with your finances, you may have to decide at some point if you still want to work there. My recommendation is to begin setting aside 15 percent of your income for retirement after youāve paid off all debt except your home, and you have an emergency fund of three to six months of expenses in the bank.
At least youāre not losing the money, so itās not the end of the world. Itās your money thatās going in there for your use some day. I donāt know the exact structure of the retirement account, but it is going toward retirement savings of some kind ā¢ and thatās important!
Return of premium?
Q. Iām thinking about signing up for a return of premium life insurance policy. It costs more per month than other policies, but it allows you to get all your money back after 30 years assuming you live that long. Is this too good to be true?
A. Itās not too good to be true, but it is a rip-off. Never buy a return of premium life insurance policy.
You said it costs more than other policies, right? Well, if you were to take that extra money youād be paying and put it into a good mutual fund, youād get all the cost of your policy back after 30 years 100 percent of the time. Return of premium policies are just a gimmick.
When it comes to life insurance, always go with a good, 15- to 20-year level term policy. And always stay away from that return of premium garbage!