Chaco Credit Union - January 2007

Saving for Retirement:
It's All about Choices

By now you've probably heard, and possibly heeded, suggestions to skip the morning latte, brown-bag your lunch and resist the urge to splurge in order to increase your retirement savings. All good advice, but it may be time to make a real commitment to saving by limiting your major expenses like mortgage and car payments.

Weighing Your Options
If you've been dreaming of driving off in the latest model luxury vehicle, you may want to reconsider. For example, the average cost of a 2007 new vehicle is $26,930.* A luxury model could easily cost $35,000 or more. If you put $3,000 down and obtained a 48-month car loan at 6.94%, your monthly payment for the lower-priced car would be $572, versus $765 for the luxury model. That's a savings of $193 a month.** Over 25 years, increasing your contributions to a tax-deferred traditional individual retirement account (IRA) by that amount could add nearly $133,748 to your retirement fund.***

Home buying is another area to consider carefully. Low interest rates have tempted many individuals to purchase pricier homes than they need, and many couples buy houses they can afford only as long as they have two incomes. That could lead to major trouble down the road if home prices plummet, or if one spouse loses or leaves a job.

Just because you may qualify for a substantial monthly mortgage payment doesn't necessarily mean you should take it on. For example, if you're approved for a $250,000 loan but choose to buy a more modest home and borrow $200,000, at a 6.18% interest rate your monthly payments will be about $306 less.^† Tuck that away and it could mean an extra $212,000 in retirement savings after 25 years.***

Choice, Not Sacrifice
Choosing to live just a bit below your means doesn't have to entail great sacrifices, just an adjustment in outlook. Forgoing the Italian marble in the bathroom and professional-level appliances in the kitchen, as well as fine leather and custom chrome wheels on your vehicle, won't make a significant difference in your lifestyle. If you don't stretch your budget to the limit and you use any extra money to save for the future, you could reap a double benefit: less financial stress today and more money in your retirement fund tomorrow.

*	Average price based on models at www.automotive.com.
**	Source: Bankrate.com, based on the national average annual percentage rate (APR) on a 48-month new car loan as of Jan. 3, 2007.
***	Based on an average annual return of 6% in a tax-deferred account; annual return is for illustration only and is not meant to represent the performance of any particular investment. Your results will vary. Taxes will be due upon withdrawal at ordinary income tax rates. Withdrawals prior to age 59½ may be subject to a 10% IRS penalty.
^†	Source: Freddie Mac, www.freddiemac.com; based on the national average APR on a 30-year conventional mortgage loan as of Dec. 28, 2006.

Investment products:
Not federally insured
Not a deposit of this financial institution
May lose value

Choose the Less Costly Option and Save
The following chart illustrates how much additional money you may be able to accumulate by choosing a more modest home or car and using the savings to increase contributions to an individual retirement account (IRA).*

	Additional Monthly Savings
	$100	$200	$300
10 years	$16,388	$32,776	$49,164
15 years	$29,082	$58,164	$87,246
20 years	$46,204	$92,408	$138,612
25 years	$69,299	$138,599	$207,898
30 years	$100,452	$200,903	$301,355

Based on an average annual return of 6% in a tax-deferred traditional IRA. Rate of return is for illustration only and does not represent the return of any particular investment. Your results will vary. Taxes will be due at ordinary income tax rates upon withdrawal at retirement. Withdrawals prior to age 59½ may be subject to a 10% IRS penalty.