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$100k, no debt and no IRA
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December 15, 2000: 11:38 a.m. ET
For a couple in their 20s who have little debt, what's the best savings plan?
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NEW YORK (CNNfn) - For a couple in their 20s with little debt and a combined income of $100,000, the road to retirement seems like it would be fairly direct. But where should they start, and what are the most aggressive investment options?
In response to a reader's question, Mark Groesbeck, director of financial planning at Stanford Group in Houston, and a member of the Financial Planning Association, suggested setting aside an emergency fund and then putting your investments into high gear.
Ask the experts a question
My husband and I are relatively young (28) and are starting to save for retirement. We earn $100,000 annually and have approximately $20,000 total in our 401(k) plan. We have approximately $10,000 in a money market account, and no real debt (other than one minimal car payment and our $1,000 mortgage). However, we have no IRAs, mutual funds or other investments. We are looking for suggestions on how to – and where to -- invest our money for retirement. Can you offer some advice?
It's important for you to maintain an emergency fund for unexpected expenses. It appears you have protected yourself with your current money market balance. Typically, three months of expenses should be in an emergency fund.
Next you can focus on saving for the future, which usually means retirement. When do you want to retire? How much do you want to spend? How much risk do you want to take? The answers to these questions can dictate how much you allocate to saving for the future and spend now.
When you are focusing on retirement one of the first tools is for you to maximize your 401(k) contributions. Make sure you are getting full benefit of any matching your company is providing. 401(k)s have the important advantage of tax-deferred growth.
After the 401(k), what is next? As you contribute to your 401(k) and also have income over $62,000, you are not eligible to deduct IRA contributions. If you're married and filing taxes jointly, the rules say you can't deduct contributions if you earn above $62,000 (but if you earn between $52,000 and $62,000, you can deduct smaller amounts).
Consider contributing $2,000 for each of you into a Roth IRA. The contribution to a Roth IRA is not deductible, but upon withdrawal, all earnings can be tax-free to you (if you hold the money for five years and reach age 59-1/2). You are eligible for a Roth IRA if your adjusted gross income is less than $150,000.
After you have established an emergency fund, maximized your 401(k), and contributed to a Roth IRA, what next? If you have excess monthly income and want to save more for retirement consider investing in a diversified set of mutual funds.
Invest in several funds based on your risk tolerance using a strategy known as "dollar-cost averaging." Typically, if you are investing in the stock market, you would want large and small company stock funds, as well as growth and value stock funds. Perhaps international funds and bond funds are also appropriate.
Educate yourself on what would be an appropriate asset allocation for your assets. If you don't have the time to select mutual funds for yourself, consider talking to a certified financial planner. 
* Disclaimer
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