Saving for retirement is a critical part of adulthood, but some people may want to rethink their priorities. Find out what Suze Orman had to say.
Orman’s Surprising Advice
Famed financial expert Suze Orman ruffled some feathers recently with her retirement savings advice, but she had a good reason for her take on the issue.
A Question of Priorities
Many Americans feel pressured to contribute to traditional retirement savings accounts like 401ks, but what about people who are struggling to make ends meet?
If you’re living paycheck to paycheck, should you still be prioritizing your retirement contributions?
Directing Your Money to the Right Place
According to Suze Orman, probably not. Her expert opinion is that there are other things you should focus on first if finances are very tight.
Emergency Funds
For starters, Orman says it’s imperative to put aside whatever you can afford in an emergency savings fund.
Most specialists think an emergency fund should be at least $1,000, but you may want to increase that if you have a history of unlucky surprise expenses.
How Much Should You Save?
Other experts in the field suggest calculating six months’ expenses and saving that amount in an emergency fund—that way, you’re covered in the event of a job loss.
Emergency Fund Before Debts
Orman said that while you may be tempted to put every spare dollar toward your debts, like credit card balances, you must first build an emergency fund. That way, you won’t be forced to dig a deeper hole to cover an emergency.
Contributing to 401ks
The financial guru said that if your employer offers a 401k match, you should contribute the minimum amount required to qualify for the match.
She says it only makes sense to prioritize 401k contributions if your employer matches them.
Paying off Credit Card Debt
Then, you should focus on reducing your credit card balances with whatever is left over. This will not only improve your credit score but also help you avoid paying extravagant amounts of interest.
“You’ve Got to Get Rid of That”
“With inflation having driven up the Fed rates, [there has been] a direct result on the interest rate that the credit cards are charging you on the credit card debt, so you’ve got to get rid of that, Orman advised.
Retirement Savings Plans
Only after you have established a healthy emergency fund and paid off your credit card debt can you shift your focus to retirement savings.
Save “As Much As You Possibly Can”
Orman encourages saving “as much as you possibly can” for retirement, but with the caveat that you have gotten yourself “totally out of credit card debt.”
401ks or Roth IRAs?
She also stressed that traditional retirement accounts may not be the best move for those who are living paycheck to paycheck. In those cases, a Roth IRA may be better suited, because the funds are able to be accessed without penalties in an emergency.
When Traditional Retirement Accounts Don’t Work
“If you’re living paycheck to paycheck or you’re not in a very high-income tax bracket, it makes absolutely no sense to do a traditional retirement account where you’re getting a tax write-off,” Orman said.
Why IRAs May Be a Better Fit
“You don’t even need a tax write-off,” she continued. “What you need is accessibility to funds without a penalty.
Orman’s Experience
Orman has made a career out of guiding people to make sound financial decisions. Her website is full of resources for preparing for retirement, and she makes it clear that retirement planning is of the utmost importance.
Eating Out Wastes Money, says Orman
Earlier this year, Orman discussed her own financial habits, generating buzz when she said that she never eats out at restaurants because she considers it “one of the biggest wastes of money out there.”
She also doesn’t buy her coffee at a counter.
“I Would Drop Dead Before I Bought a Coffee”
“I do Cafe Bustelo coffee every morning. I would drop dead before I bought a coffee,” Orman said.
A Penchant for Private Jets
However, Orman sparked confusion when she revealed where she directs the money she chooses to splurge with: air travel.
“I Seriously Splurge on Private Air”
“I seriously splurge on private air. Unless we go to Europe or something because that’s ridiculous,” she said.
Environmental Protests
The comment drew ire because of the environmental concerns surrounding private air travel, with some very wealthy people in the spotlight (Abigail Disney, for one) denouncing it altogether.
Orman has been in the financial sphere for decades, offering advice to people in many tax brackets.
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The post Suze Orman’s Bold Advice: Shift Focus from Retirement to the Present first appeared on From Frugal to Free.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
