Updated: May 3, 2013 12:14PM
Originally published: July 11, 2005
This month is the start of a long lazy summer for many college grads. Those tough days of studying are behind you, and many won’t start jobs until the fall. A vacation is certainly in order. But there are three key elements of financial planning to take care of first.
You need to find health insurance coverage, deal with your student loans and start thinking about retirement!
Retirement? Yep. The month before you start work is the best time to think about the months after you finish your career!
Health insurance: Once a student has reached age 21 or graduated, he or she is removed from most parental health insurance policies. If you’re not starting work until fall, that leaves a big gap. Of course, 20-year-olds just assume they’re immortal. But accidents do happen, and it’s worthwhile having a temporary health insurance policy until the coverage at your new job kicks in.
Many college grads will start their own business, or go on to graduate school. That means an even longer period without company-provided health insurance. According to the U.S. Census Bureau, 25- to 34-year -olds are the largest segment of the uninsured, totaling 10 million people, or about 23 percent of the uninsured population.
Temporary health insurance
It’s easier -- and more affordable -- to find personal health insurance than those young people may believe. The easiest resource is online at www.ehealth insurance.com, where you can click on “short-term health insurance” if your needs are temporary. The cost of a typical policy could be as low as $55 a month. When you consider the risk, that’s a pretty good tradeoff -- less than the cost of a latte a day, according to a new survey by eHealthInsurance.
Student loans. I hope you didn’t miss that once-in-a-lifetime opportunity recently that I was writing about for months, to consolidate your student loans at the lowest historic rate. But even if you haven’t consolidated, you have to start making arrangements to repay your loan. If you do repay within six months of graduation, you can get a 0.6 percent break on the interest rate, and if you agree to make those loan repayments by automatic debit, most consolidators will knock an extra quarter point of your rate.
Don’t bury your head in the sand about these student loans. If you’ve graduated with a lot of debt -- you’re not alone: the national average is over $18,900 for college grads -- this burden will hang over your head.
Try to pay off this loan in 10 years, instead of stretching out the payments for 20 years or longer. Remember the longer the repayment period, the more in interest charges you will pay.
And you just might get another chance at consolidation at low rates next year.
So start repaying, and wait to see what happens to interest rates in the spring of 2006.
Retirement planning: If you and other younger workers are exposed to danger because of the lack of health insurance, your situation with retirement savings is even more dire. According to the Employee Benefit Research Institute, young workers are more likely to have employment-based health insurance than to participate in 40l(k) retirement plans.
For young workers age 21-to-24, about 26 percent have health insurance in their own name. But only 9 percent of workers in that age group participate in a 40lk plan, according to EBRI.
Signing up for the company retirement plan is a must -- as soon as you are eligible. And contribute the maximum allowed.
Remember the old Savage Truth: If you don’t see it, you won’t spend it! These pre-tax contributions will have years to grow, and can be rolled over into an IRA or another company’s plan if you change jobs. Even a small amount of savings done on a regular basis, and sheltered from taxes, can grow into a huge fortune over the years.
From $40 a week to $3 million
Giving up lattes and an occasional dinner out could allow you to save the $40 a week it would take to invest $2,000 a year in your retirement plan. And if stocks perform as well in the future as they have on average over the past 75 years, that regular investment would be worth $3 million when you’re ready to retire!
If you’re a college grad -- or the parents of a college grad -- clip this column, and use it as your checklist. Then, enjoy your summer. That’s The Savage Truth.
Terry Savage is a registered investment adviser, and appears weekly on WMAQ-Channel 5’s newscasts. Distributed by Creators Syndicate.