Live on one income, invest the other

Tuesday August 14, 6:00 am ET
Don Taylor

Dear Dr. Don,

My fiancee and I are 22, and recent college grads. I currently make $50,000 net, while she makes $35,000 net. We've made the decision to save all of her income and live solely on mine.

What is the best way for me to maximize this investment so that I can reap the benefits in my 40s? I don't necessarily mean retire in my 40s, as that is unrealistic. But I would like to have a nice nest egg during that time in my life. Our goal is to continually reinvest her money.

Thanks,
-- Erik Egalitarian

Dear Erik,
First, let me give you some marital advice a little early. Don't talk about investing her paycheck so that you can reap the benefits and for you to have a nice nest egg in your lifetime. You're a team. Think like a team.

That said, salting away income in your 20s to get a leg up on retirement and other life goals makes perfect sense. It's a message that the financial planning community is trying to get across to people in their 20s and 30s, but it doesn't seem to be taking hold.

If you aren't going to get a pension -- Social Security and Medicare benefits have a measure of uncertainty -- and health care costs are skyrocketing, then you need to take the reins and start working on that nest egg in the early years of your career rather than putting it off.

You comment about reaping the benefits in your 40s strikes a wrong chord for me. If you're not retiring, then what are your plans for the money? It's important because my standard advice would be to maximize your contributions to tax-advantaged retirement accounts before funding taxable investment accounts, but I wouldn't recommend that if you are planning on cashing in early.

On the investment side, people early in their careers often tend to be too conservative with their investments. You're investing for the long haul and you need to earn more than the inflation rate to stay ahead of the game in terms of purchasing power. That typically means investing a healthy portion of your retirement money in the stock market.

Best wishes to you and your fiancee.

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