Investing for 20-somethings

Dear Dave,

I'm in college and 21 years old. I've got $1,000 in the bank for my emergency fund, plus I'll be debt-free in about six months. Is it too early to begin saving for retirement?

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Andrea

Dear Andrea,

You could start a retirement fund, but I'd start a "graduation fund" on top of your emergency fund. You're going to experience lots of transition in the years after college with new jobs, new locations and new relationships. All these things are going to require cash, because you don't want to start your new life by going back into debt.

Once you have this in place, I'd suggest investing in mutual funds and maybe a Roth IRA. If you do all this at your age, you'll have a great start in life and you can look forward to being a very rich little old lady when you retire.

Dave

Co-signer wants out of loan

Dear Dave,

I tried to be a good son and co-sign on a home loan for my mom because her credit isn't very good. The loan was at a high interest rate, but the loan officer we spoke with said that even if things went bad it wouldn't go against my credit. Right now, I'm trying to save up the money to buy my own home. Is there any way to get my name off this loan? My younger brother still lives with her. He has a good job and good credit and will co-sign if that's possible.

Anthony

Dear Anthony,

First of all, the loan officer you spoke with is wrong. If this loan went bad it would definitely count against your ability to get a house because you have a contingent liability on your mom's loan.

I'd look at paying back a chunk of this loan if possible, and then help your mom try to refinance at a lower interest rate. But don't have your brother co-sign, or he'll just inherit your mess.

This way, your mom will be paying less money to the mortgage company every month, and you'll have the monkey off your back so you can go and buy the house you want.

Dave

Ill foster child needs security

Dear Dave,

My husband and I have adopted a foster child who is severely ill and will always be in need of care. We love her to death and don't want our older children to feel that they're financially responsible for her when we're not around. We heard about an insurance plan that doesn't pay until the parents die, but what do you think?

Laurie

Dear Laurie,

A special-needs trust is a great plan. I'd go with term life insurance until I had enough cash built up to fund the trust with a mutual fund.

Term insurance is very inexpensive. The plan you're talking about is a second-to-die plan, which usually tie you into some kind of cash value program. Whatever you do, stay away from cash value insurance like it's a rabid dog. It's a bad product.

You're great parents for looking at the future and making sure you provide for this special little girl.

Dave

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