Five ways to wreck your retirement (and marriage)

July 21st, 2014

Spending your retirement in comfort depends largely on what you and your spouse do today.

Retirement, like marriage, comes under enormous strain when money is constantly an issue and recognizing this sooner rather than later can make the difference between traveling and living out your years together in relative comfort or having to scrape by for years as you get older and less healthy. It’s a pretty stark contrast.

Here are five things to avoid with your retirement today:

1. Not saving early or often

It’s the little things that add up. While you may think there’s plenty of time between your current situation and retirement, saving now means you won’t have to catch up later, when you may face other issues or unplanned expenses. It’s also the single most effective habit you can develop: saving a little bit all the time.

2. Underestimating your needs and lifestyle Read the rest of this entry »

Insuring your retirement is not unlike insuring your car

July 6th, 2014

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You can insure your home and car from disasters and accidents. Life insurance essentially protects your family from the loss of your income should tragedy strike. You can’t insure your retirement accounts in the quite same way, but there are a few tried and true strategies that can help safeguard them.

1. Save for retirement even during…retirement

There is no rule that you have to stop investing when you hit your golden years. One of the best hedges to outliving your retirement assets is to continue investing even when you reach retirement age. While there are mandatory age distributions from 401(k) retirement plans and traditional IRAs, you can continue to make investments in other assets during your retirement.

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Grow up financially while you’re still young.

June 23rd, 2014

imagesThe old adage of ‘the earlier you start to save for retirement, the better’ holds true today especially today. Here are a few questions you should ask yourself when starting to think about your options:

How much should I save?

Try to start out at around 15 percent, and that’s a minimum figure — 15 percent of your salary. It should be as easy putting that much away and more into a 401(k) plan. If you have a 401(k) with a match, up to half can of your savings can come from your employer.

Where should I invest my savings?

Index funds are a great way to get started since they allow you a wide range of investments including funds that invest in domestic stocks and bonds, and international stocks. A solid investment portfolio mixes equal parts of all three. The key aspect of an index fund is that it is generally cheaper.

What if I have a low paying job that doesn’t allow me to save much? Read the rest of this entry »

Hey, your 401(k) is not a piggy bank.

June 7th, 2014

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With a piggy bank, you put money in and take it out. It’s a fairly simple tool, and it’s great for what it’s used for. A 401(k), on the other hand, is a great tool to save for retirement. But increasingly, they are being used as something they aren’t: piggy banks.

Recent studies show that Americans are increasingly pilfering from their 401(k) accounts. With the economy being the way it has been since the financial crisis, that’s understandable on one level, but the choice can put your retirement plans on a slippery slope.

According to the IRS, a whopping $57 billion was withdrawn prematurely from 401(k) accounts in 2011, up 37 percent in inflation-adjusted dollars from 2003. You could argue that if a person needed the money to survive, then an early withdrawal from a 401(k), even with the tax penalty, is better than most other options – to a point.

Unfortunately, younger individuals are withdrawing the most. According to a recent study, nearly 40 percent of workers between 20 and 39 cash out their plans when they change jobs.

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Being financially savvy with your 401(k) can earn you more.

May 27th, 2014

If ever you needed an incentive to learn more about money, this might be it. A new study shows that the more financially savvy you are, the more you’ll earn on your 401(k) plan. And not just a little bit more, a whole lot more–up to 1.3 percentage points more per year on your retirement plan investments than your less sophisticated counterparts.

In fact, being financially literate could help you build over the course of a 30-year working career a retirement fund some 25% larger than that of less-knowledgeable peers, according to the study, “Financial Knowledge and 401(k) Investment Performance,” which was recently published as a working paper on the National Bureau of Economic Research website.

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Your 401(k) can start to blossom this spring with these handy tips

May 5th, 2014

Unless you scour the voluminous info about your plan (which you should, but probably don’t) you might miss some important tips that can make a real difference in your planning down the road.  Here are seven things to bear in mind when reviewing your porfolio.

1. You can rollover.  When you leave your employer, you can transfer your 401(k) plan to an individual retirement account – and it is not a taxable event. This type of transfer is called a rollover. Many 401(k) participants think that any type of distribution from their 401(k) plan is taxable and subject to penalties. That isn’t true.

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Happy retirement: Stop worrying about paying taxes.

April 28th, 2014

When you contribute to a Roth IRA you typically don’t have to worry about paying taxes on that money or its investment gains ever again. And employers are increasingly adding a Roth option to their 401(k) plans. Aon surveyed 400 employers covering 10 million employees in 2013 and found that half now offer a Roth 401(k) plan. Here are some of the benefits
of saving for retirement in a Roth account:

Having a tax-free account in addition to your pre-tax savings gives you more options to reduce taxes in retirement.
Tax complications don’t end when you leave the workforce. In fact, your taxes in retirement can actually be more complicated than in the years when you were working. For the most part, you’ll want to withdraw money you have in taxable and Roth accounts first and delay paying taxes on your savings in traditional retirement accounts as long as possible. But it’s also possible that you could pay significantly higher taxes if you delay too long and your traditional retirement account gets big enough for required minimum distributions to force you into a higher tax bracket. With money in different pots, you’ll have a chance to run different scenarios and maximize your after-tax retirement income.

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Key questions (and answers) for Plan Sponsors

April 7th, 2014

Q: Is there a relationship between automatic enrollment and employer decisions about matching contributions and total compensation?

A: Recent research by the Center for Retirement Research at Boston College (CRR) found that auto-enrollment is related to relatively low employer match rates and default rates, but not overall compensation. The How Does 401(k) Auto-Enrollment Relate to the Employer Match and Total Compensation? report indicates that auto-enrollment plans had a matching rate of about 0.4 percentage points less than plans without auto-enrollment, even taking into account other factors.

The researchers also investigated whether low-default contribution rates adopted by employers who have auto-enrollment in their plans. It appears that employers who have this feature may be using a relatively low default rate, with resulting lower matching, to offset the higher costs that occur from higher participation rates found in auto-enrollment plans. 
The study concluded that auto-enrollment increases saving for workers who would not have participated in the plan without that provision. However, employees who would have participated in the absence of auto-enrollment may, over time, save less because of relatively low employer match rates.

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Employers: How does your plan compare?

March 23rd, 2014

The good news is that the Participant Deferral Rate rose slightly year on year.

The average participation rate in 401(k) plans was 88% at the end of 2012, according to the 56th Annual Survey of Profit Sharing and 401(k) Plans by the Plan Sponsor Council of America (PSCA). The rate is defined as the average percentage of eligible employees who had a balance in the plan, as the average number of investment choices offered to participants remained at 19 across all employer plans.

The year before the rate was 86%. An average of nearly 81% of eligible employees made contributions to the plan in 2012. The average participant pre-tax deferral rate was 6.8%, compared to 6.4% the year before.  Here are some highlights:

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Saving for College 101: It’s a lot easier course when you take it today

March 6th, 2014

Good news is that college expenses show signs of leveling off but that’s hardly a reason to hold off on planning for the inevitable costs down the road

Your kid’s college may be years away but the old adage of “They grow up so fast!” holds especially true when planning for the event in the context of your retirement goals.  Here is a list of 7 tips that can lessen to the blow:

Get your retirement in order first – Your kids will have access to more sources of college money than you will once you stop working, so make sure you’re on the right path for your own retirement before you set aside money for college. Read the rest of this entry »