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Your questions on savings answered

Gallup reports on its latest findings: What Americans are doing with their money.

One key to being a successful saver: asking questions. Liz Weston, personal finance expert, joins the show to be your guide for your questions and to explain the basics behind savings.

The U.S. savings rate is at 3.2 percent right now. What does that number tell us about the economy?

Weston: "We need to be saving a lot more. It does tell you that people are still struggling with incomes that just aren't keeping up,  [incomes aren't] back to where we were in the late-90's. We've been losing ground all that time, and it is really tough for people when they don't have as much income and costs are rising.

Judy, a single mom from Eagle Rock, Calif., says she only has $10 left over to save after paying for her monthly necessities. What can she do?

Weston: "Try looking at your expenses ... see if you can get a roommate. But honestly, the better thing to do is make more money, get more income. There's great some resources for you, The Dollar Stretcher is one of the oldest websites that looks at frugal living, especially when it comes to groceries. That's probably where there's the most wiggle room in most people's budgets. But you can only cut so far, but it really is so easier if you're making more money."

Why are retirement accounts more important than emergency funds?

Weston: "It's kind of counter-intuitive until you understand the power of compounding, and how powerfully it can work against you if you don't take advantage of it. If you don't start saving for retirement by the time you're 35, it gets harder and harder to catch up, to the point that if you're trying to save in your 50s, you'll have to save half of your income to have any shot to not have a big drop in your lifestyle. The reality is, you probably can't catch up later. If you save adequately in your 20's and 30's, you've got a tail-wind behind you, and your life is going to be a heck of a lot easier." 

To hear answers to questions like where to keep your emergency fund, and an explanation of different retirement accounts and which could be the best for you, click the audio player above.

 

Have a question of your own? Leave it in our comments below!

About the author

Adriene Hill is a senior multimedia reporter for the Marketplace sustainability desk, with a focus on consumer issues and the individual relationship to sustainability and the environment.
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I agree Charles. I thought the same thing. The biggest problem with most 401Ks is that the investment options are limited and the costs are almost always much higher than Vanguard, or other low-cost options. I've never heard anyone ever suggest that you roll funds INTO a the 401K at a new job. For almost all people that would make no sense at all.

I also agree with Milly's comments. Overall, I wonder why they have Liz Weston on this program. She doesn't seem to have much knowledge or credibility, in my opinion. I think Chris Farrell is much better and much more knowledgeable.

@Jim McCorkell: To be fair, if the 401K has access to TSP funds or ultra low cost institutional funds (e.g. VITPX) then it would be worthwhile to keep it with or rollover to that 401K. But, I agree with you, this is a rare situation and not applicable to most people.

Liz Weston's answer for whether or not to roll over 401Ks is also very suspect. 401K funds are a lot more expensive than their retail non-401K counterparts. Also, a rollover IRA offers unlimited choices in investment options including Vanguard Admiral Funds and Fidelity Spartan Funds (cheaper than most fund offerings in 401Ks). If listeners took her advice and rolled over their 401K into another 401K, they are more likely to lose a lot of money to unnecessary fees. I suggest listeners do more homework on this subject at the Bogleheads website (http://www.bogleheads.org/).

Liz Weston continues to repeat information that she certainly knows to be factually wrong. Once again, she said that taking $1,000 from retirement saving would be the equivalent of $10,000 by retirement. This is obviously and clearly false. An investor would need to earn more than 8% above inflation for 30 consecutive year for this to be true. There has never in the history of the world been a 30 year period where the average return on any investment portfolio achieved these gains above inflation. I think most knowledgeable people agree with her main point that it is not wise to take money out of retirement accounts. I personally agree completely. This is at least the second time I've heard her repeat this lie (and the second time I've called her on it). It is totally irresponsible to lie to the public on such an important issue. Shame on Liz Weston. You have absolutely no credibility to advise the public if you keep telling obvious falsehoods.

The solution to saving given to a single mother with two boys is that she needs to make more money? ( "...easier if you're making more money") Liz Weston has apparently never raised children AND worked full time at one job, much less two. If this woman took on another job, who will care for her children, and how much will it cost? If she returned to school, will she be taking out a usurious loan that will keep her in debt for the rest of her life? Please, Marketplace, I'm very disappointed in your crass indifference to real peoples' struggles, and simplistic answers to complex questions; answers that should go beyond just looking at market solutions.

@Milly Bloom:

I don't think working people are their real audience. I mean, how could they have gone through a whole segment on saving money without bothering to mention how the economy's been doing these past few years or how income for working people (as opposed to you know who) has largely remained stagnant for decades?

The bozo from the UK, Steven Bierd, didn't once mention how the UK government has followed a policy of austerity for the past couple of years which has been a drag on the economy.

Bad times just might have an effect on the ability to save. The lack of context is amazing.

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