Retiring financial writer has some last advice

WASHINGTON — As I step off into retirement I thought it might be useful for readers, especially younger ones, if I took note of some of the strategies I have used, and lessons learned, over the years building financial security.

Today's twenty- and thirtysomethings, more than any generation since before the Great Depression, seem destined to be left to their own devices when it comes to reaching their financial goals and securing a comfortable retirement.

People this age have time — to save, invest and build assets. But they must have the discipline to do it.

And that's no small matter, because for many lower-paid workers the necessary savings will require economic sacrifices throughout their careers. It won't be easy, but it can be done.

All those books and articles you see about squeezing everyday expenses to generate savings are right.

Almost everyone who has a job can manage to save a little every day. Simply substituting a thermos of homemade coffee (tea is even cheaper) for the $3 latte could generate $500 a year, a good start on an individual retirement account.

But while the savings strategies work, they work best if you combine them with serious investing.

Start with IRAs

My wife began putting $2,000 a year into an IRA in the late 1970s. I began when they became deductible for everybody.

We both continued, using stock mutual funds, until the early 1990s, when it became clear that IRAs, by then no longer deductible for us, had ceased to make tax sense. Today our IRAs together total about $500,000.

The things we buy fall into two categories: those that lose value or disappear, and those that gain value.

Borrowing to pay for the latter — a house, a college degree — is likely to be a winning proposition. Borrowing to pay for the former — a vacation, a pizza on a credit card you don't pay off — at best makes these items much more expensive; at worst it's money down a rathole.

The moral here is not to fear debt but to use it wisely.

If you are going to be in one place a long time, and that place's economy seems solid, buying a house is a good long-term bet. But remember, house prices may move in the opposite direction from interest rates — buying decisions often boil down to the payment amount, which is a function of both the loan size and the interest rate — so with interest rates rising now, caution is in order.

Benefits are beneficial

Young workers taking a first or new job rightly focus on the type of work, pay and prospects for advancement. And today, many also want to be sure they get medical insurance.

But because of the time factor in 401(k) and similar plans, it is also important for young workers to look for employers with good plans. And they should sign up, pick a growth investment such as a stock mutual fund and contribute at least enough to get the full amount of any employer match.

Remember, though, traditional pensions have not entirely disappeared, so if you're talking to a prospective employer, ask if it offers one. This is important for several reasons.

First, you should understand your benefits, how they work and how they might change.

For example, if you are fortunate enough to work for an employer with a pension, don't short the 401(k) plan if there is one. The employer might eventually freeze or terminate the plan, preventing you from getting the full projected benefit even if you work there 30 or 40 years.

Also understand that traditional plans don't provide a large benefit for workers who leave after a few years, even though they may have "vested" (become entitled to a pension).

On the other hand, if the pension is a "cash balance," you may be entitled to a lump sum that can be rolled over into another employer's plan or an IRA where it could continue to grow.