Monday, October 15, 2012

Put and Take vs. Put and Keep Part 2: Put and Take Accounts

Are your retirement savings going to a put and take account?

At Kemp & Associates we often meet people who like to share how they’ve saved so much towards their retirement savings account1. A recent client told us how they saved at least $1,000 a month and had been doing so for five years successfully. I did the math quickly and determined that they should have saved $60,000. When I asked where the $60,000 was currently being held, they responded somewhat sheepishly that they only had about $4,000. I questioned them politely as to how they were able to save $60,000 but only had $4,000 and they explained that they were going in and using it for different impulse purchases and bills.

This type of retirement saving isn’t truly saving. Instead, it is a form of “put and take” or, a more modern version, would be called a “delayed spending account.”

Now, as a financial planner, my job is certainly not to be the proverbial wet blanket or kill joy. However, I don't want people to be self-deceived in thinking they are doing a great job saving for their retirement when what they are doing is funding a delayed spending account. Many times, these delayed spending accounts are used for emergencies, real estate taxes, school taxes and/or annual auto insurance premiums and there is certainly nothing wrong with that. These types of accounts are valuable but cannot be considered true retirement savings.

According to Econedlink.com2, “For most people, the put and take account is a checking account. A checking account holds the money that you're going to need immediately plus a little extra for emergencies… Experts recommend that you set aside three to six months' net pay in your put and take account. So if you're making $50 a week working at the movie theater, your goal for the put and take account should be $600 to $1,200.”

We all learn from our experiences. You should never shop for food when you're hungry, because your eyes are bigger than your stomach and you end up buying everything in sight. Financially, we should also avoid easy traps and impulsive buying. We want all our clients to have the tools to plan ahead and be diligent.

In the next part of this blog series we will discuss put and keep accounts.

At Kemp & Associates, we know how difficult retirement planning can be. If you need help preparing for retirement, contact us today.

"Retirement Savings Calculator" Kiplinger;

"The Five Stages of Investing" Council for Economic Education;

All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.

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