Teens should start saving for retirement

Teens who have summer jobs should consider allocating some of their wages to retirement savings.

Retirement savings? What 16-year-old in her right mind is thinking about retirement?

A savvy 16-year-old, that’s who.

Consider these two contrasting scenarios:

• Starting at age 20, if you put $1,000 a year into an IRA for 11 years and earn 7 percent annual returns, your account will be worth $168,514 at age 65.

• If you don’t start until age 30, and save the same $1,000 a year for the next 35 years, you will have deposited three times as much money, but your account will grow to only $147,913 by age 65.

Not every teenage summer worker will be able to eke out $1,000 in savings. But even a seemingly tiny amount can translate into a formidable stash years later.

Save $25 a week for 16 weeks in a Roth IRA (where withdrawals will be tax-free) and earn 7 percent interest for the next 43 years. Presto! At age 59 and a half, that $400 will grow into more than $8,000, according to www.math.com. If you work year-round and save the same $25 a week starting at age 16, you’ll find that you have painlessly accumulated a $353,000 lump sum by age 60.

Retirement savings lag

Lack of retirement planning may be causing more people to retire later — much later.

A new study by John Hancock Financial Services in Boston indicates that people are expecting to retire when they reach age 65 — at the earliest. That’s several years later than previous annual surveys, which date to 1995, have shown.

The change is “a realization that they’re well behind where they need to be,” says company spokesman Wayne Gates.

To help your 401(k) plan achieve its maximum potential, he recommends you look for a fund in which your allocation is chosen automatically. He says one good but little-used option is a lifestyle fund, in which allocation is periodically rebalanced to reflect the investor’s age and risk tolerance.

You, too, can live in luxury

Think that Coach leather handbag is out of your price range? How about that set of Callaway golf clubs?

Not anymore, according to a report recently released by American Express Publishing.

“The State of Luxury” concludes that luxury is no longer just for the rich, nor should it be considered a product or service that comes with an upper-crust attitude.

Rather, it’s something that appeals to a consumer’s emotional need.

That new line of thought has made luxury shopping a $400 billion market, one that could become a $1 trillion market by 2010.

“Luxury is about status and exclusivity,” said Jill Corcoran, a consultant with the Boston Consulting Group. “Some of the middle-market shoppers who want a Coach handbag are willing to shop for other things at Wal-Mart, Target and Costco.”

Get more value out of your home

Making your summer more enjoyable and increasing the value of your home can go hand in hand.

Two Florida State University professors and the National Association of Realtors analyzed home improvements, calculating the average amount each added to or detracted from a home’s value. They examined 28,828 home sales in the Philadelphia area between January 1996 and March 2003.

The study indicated that buyers were more interested in homes that had these features, and were willing to pay more for them in combination with the house’s other attributes:

Central air conditioning, 12.4 percent increase in value

•Whirlpool, 7.3 percent increase in value

•Skylight, 3.0 percent increase

•Sunroom, 2.7 percent increase

•Patio, 2.1 percent

•Outdoor sprinkler system, 8.7 percent

•Deck, 1.9 percent

•In-ground pool, 7.9 percent

•Playground equipment, 1.3 percent

•Dock, 1.3 percent

But watch out — the study also indicated that adding a porch can decrease your home’s value by an average of 2 percent. An aboveground pool decreases value by 1.9 percent.

It’s time to work on that will

Only 42 percent of Americans have a basic will, according to Lawyers.com.

If you’re among that group of people, you’ve made an effort to ensure that your assets are distributed the way you want after you die. But if your wealth has recently swelled or shrunk, consider revising your will.

Instead of assigning a specific amount to each beneficiary, allocate your money using a combination of percentages and dollar amounts. That will help distribute your wealth according to your wishes, no matter how your estate and the inflation-adjusted value of the dollar continue to change.

Think also about the effect of current estate taxes on your will. Spouses can inherit unlimited assets tax-free, but other heirs can be taxed if you leave more than a designated amount.