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Color of Money

You Can't Save 'Too Much' For Retirement

By Michelle Singletary
Sunday, April 3, 2005; Page F01

When I solicit comments or questions, I don't want you all to think they go into the abyss, never to be read. I do read your questions and comments and, while I can't respond to all, here are answers to some:

Q I make $50,000 a year. When I include my company's contribution to my 401(k), I'm saving around $525 a month for retirement. I'm getting a new apartment this month, on my own so I can finally be rid of roommates. But I find it's difficult to afford my own place. Am I saving "too much"? Is it possible to decrease the amount I'm saving for retirement in order to have more money to live on each month?

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_____Column Archive_____
Tax Prep Calls for Careful Steps (The Washington Post, Mar 31, 2005)
Youth Is Fleeting, But Debt Isn't (The Washington Post, Mar 27, 2005)
Read Michelle's Past Columns

AHave you been reading all the controversy about Social Security? Since no one can say what will happen to Social Security benefits, I say you can't save too much for your retirement. Let's put that $525 in perspective. That's $6,300 a year, which is more than a lot of people are putting away. But will that be enough? You won't know without doing some calculations and making some assumptions (How long until you want to retire? What other retirement income will you have?). I suggest you use a few retirement calculators to help determine whether you are saving too much or not enough. But don't get scared off by the results. They are just estimates. You may need more or less depending on a lot of factors (your savings, if your job offers a pension, whether you plan on working in retirement, etc.). So here are a few calculators you might try:

• The Ballpark Estimate Retirement Planning Worksheet at www.choosetosave.org.

• Retirement calculators at www.bankrate.com/brm/calculators/retirement.asp.

• T. Rowe Price's at www3.troweprice.com/ric/RIC.

• Vanguard's at flagship3.vanguard.com/VGApp/hnw/RetirementSavings.

Finally, if your retirement saving is crimping your lifestyle (as in you're tired of eating canned soup), perhaps you weren't ready to get rid of your roommates. However, if you still want to live on your own, then you have just two other options: cut your expenses or make more money.

Here's the scenario: A parent has just sold a house (for under $50,000) and wishes to divide the proceeds equally among three grown children. Are there any tax considerations the parent (or the children) should keep in mind?

This is a situation where a gift tax might come into play. A gift tax is a tax on the transfer of property (or money) by one individual to another while receiving nothing, or less than full value, in return. The part that people often get wrong is who pays the tax. It is the donor (in this case the parent) who is generally responsible for paying any gift tax. The people who receive the gifts (the children) will not have to pay any federal gift or estate tax. Also, they don't have to pay income tax on the money.


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