How much should I save?

labaton.top.jpgJulia Labaton, 38, public relations agency owner, New York CityBy Donna Rosato, Money Magazine senior writer


(Money Magazine) -- Julia Labaton has spent 10 years building her own business, a PR agency serving the beauty industry, and it has prospered through two recessions.

But like many entrepreneurs, she's plowed earnings back into the agency at the cost of her retirement. She has only $36,500 saved for that, and just $4,000 in cash earmarked for emergencies.

Income:
$100,000
Assets:
$36,500 in retirement plans
$4,200 in a money-market account
$2,000 in a brokerage account
Goals:
Feel more financially secure
Invest strategically for retirement
chart_labaton_2.gif
CDs & Money Market
MMA 0.39%
$10K MMA 0.35%
6 month CD 0.39%
1 yr CD 0.72%
5 yr CD 1.52%

Find personalized rates:
 

Rates provided by Bankrate.com.

"I have no idea where I should be at this age in terms of savings," she confesses.

What the planner says

As she fears, Julia is behind. To retire at 65, as she plans, and still maintain her lifestyle, she'll need a nest egg of $1.7 million, says New York planner Laura Mattia.

Fortunately, "Julia's young enough to catch up." But to do so, she'll need to put away a daunting $1,500 a month, more than double the $625 she's saving now.

She can also improve her investing strategy - she's currently in high-cost funds that have underperformed the market, and she's far too stock-heavy. While she's increasing her savings, she ought to be building a bigger cash cushion too - ideally a year's worth of expenses since she's single and self-employed.

What she should do

RAMP UP RETIREMENT. For now, Julia thinks she can stash $500 more a month, of which $300 should go toward retirement. (The rest can go to her emergency fund.) Longer term, she'll look to increase business revenue to get to $1,500 a month. She's allowed to set aside only $5,000 a year in her traditional IRA. But as a business owner, she can open a Simple IRA, and save up to $11,500 in 2010.

ALLOCATE FOR STABILITY. With 95% of her portfolio in stocks, Julia is taking on too much risk. A 38-year-old might normally be advised to have a 75% stock/25% bond mix. But with the added risk of being self-employed, she should be more like 60%/40%, says Mattia.

SWAP FUNDS. Mattia suggests Julia trade high-cost underperformers for lower-cost index funds and ETFs. Among the recommendations: moving 7% of her IRA to midcap U.S. stocks via MidCap SPDR (MDY), 7% to small-caps via the iShares Russell 2000 ETF (IWM), and 9% to an international ETF like iShares MSCI EAFE (EFA). To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.95%3.98%
15 yr fixed3.08%3.04%
5/1 ARM3.43%3.30%
30 yr refi4.04%4.05%
15 yr refi3.17%3.11%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,353.88 158.46 0.92%
Nasdaq 4,619.06 52.92 1.16%
S&P 500 2,011.99 17.34 0.87%
Treasuries 2.34 0.04 1.56%
Data as of 12:40pm ET
Company Price Change % Change
Bank of America Corp... 17.13 0.10 0.57%
Facebook Inc 74.80 0.70 0.94%
Intel Corp 33.71 1.13 3.47%
Apple Inc 107.56 0.58 0.54%
Crown Castle Interna... 78.22 -5.02 -6.03%
Data as of 12:25pm ET

Sections

Frightening vampires and zombies were no match for the chilling power of Princess Elsa this Halloween. More

BlackRock proposes stimulating the economy by erasing some student debt for first-time homebuyers. More

San Francisco-based Tumml is an accelerator fostering 'urban impact start-ups' that aim to tackle civic problems -- and turn a profit. More

Amy Kukec thought leaving her abusive husband would be the beginning of a new life, but so far she's hit one debilitating financial roadblock after another. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.