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Choosing A Retirement Plan For Your Business

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What type of retirement plan to use is a big question for employers. Not only do they want to do what’s right for the business, but they also want to do what’s best for their employees and future employees.

In the following article, we’ll break down three of the most popular options for employer-sponsored retirement plans.

What are your options?

If you’re an individual, your options are pretty straight forward. Outside of your employer-based plan, you can either contribute to a Roth IRA or a Traditional IRA.

As a business, however, you have many other options. For organizations that are for-profit and not a government body, you the SEP IRA, SIMPLE IRA, and the 401(k).

More than likely, you’re most familiar with the 401(k). We’ll explore each of these below.

SEP IRA

Stands for Simplified Employee Pension Individual Retirement Account.

This retirement account is typically used with one-man shops or small businesses with a couple of employees.

The reason is the money contributed to the employee’s accounts can only come from the business. Employees are not eligible to contribute to their SEP account.

Here the characteristics of a SEP IRA:

  • Must contribute the same percentage of salary for each employee
  • Don’t need to contribute every year
  • Maximum contribution is $54,000 per year or 25% of annual salary, whichever is less
  • Contributions are deductible as a business expense for the entity
  • Money grows tax-deferred
  • When funds are withdrawn, they are taxed as ordinary income
  • Rules similar to a Traditional IRA
    • Withdrawals prior to 59 ½ unless used for a qualified purpose (qualified meaning exempt from the penalty, which is 10%)
    • Required Minimum Distributions must begin at 70 ½

SIMPLE IRA

Stands for Savings Incentive Match for Employee Individual Retirement Account.

Designed for small businesses, and has an employee limit of 100. If you go over 100 employees, you need to switch to a 401(k).

The SEP and SIMPLE (compared to the 401(k)) are inexpensive to set up and administer, and may be a great option for small businesses that want to offer a plan for their employees, but don’t want to pay the costs associated with a 401(k).

Here are the characteristics of a SIMPLE IRA:

  • Contribution limit of $13,000. A catch-up contribution of $3,000 for those 50 or older
  • Employees can contribute to their own plan (unlike the SEP)
  • Employers match contributions
    • Match up to 3% of employee’s contribution (doesn’t have to contribute if the employee doesn’t contribute).
    • Contribute a flat 2% whether or not the employee contributes.
  • Similar to the last plan, withdrawals before 59 ½ are penalized.
  • Also similar to the last plan, distributions must begin at 70 ½
  • There’s a weird quirk with the Simple, as well. If you withdraw funds earlier than 2 years after your first contribution, you’re penalized 25%.

401(k)

The 401(k). The plan that most people are familiar with, and if you have an employer-sponsored plan, it’s more than likely, this one.

The 401(k) gained popularity as companies switched from defined benefit plans (pensions) to defined contribution, where it became the responsibility of the employee to save for retirement instead of the employer.

Here are the characteristics of the 401(k):

  • Contribution limit is $19,000 with a catch-up of $6,000 for people 50 or older.
  • Total contribution limit, including employer contributions, is $54,000.
  • The 401(k) is an expensive plan to set up and administer, especially when compared to the previous two plans.
  • Like the previous two plans, the 401(k) penalizes you if you withdraw before 59 ½ unless your reason for withdrawal qualifies for an exemption. And you must begin withdrawing funds when you turn 70 ½.
  • With this plan, however, you are able to take a loan out against your savings. This loan has to be paid back, usually in the form of increased monthly contributions.
    • If you are let go from your job while you have a loan on the plan, you will be forced to pay it back with 60 days. If you don’t you’ll be taxed on the amount, and if you’re under 59 ½, you’ll be penalized 10%.
  • This type of plan is designed for larger employers, though there is no maximum or minimum on how many employees you can have.
    • They have a type of 401(k) called the solo 401(k). It has all the same rules and quirks as the standard 401(k), but it’s designed for someone who works by themselves OR their only employee is a spouse.

How to choose

Unfortunately, I can’t say which plan is the best. Each one has its own unique advantages and disadvantages.

When deciding which plan is best for you and your business, there are a few things I would take into consideration.

  1. Number of employees – some plans disqualify you if you have too many employees.
  2. Matching ability – Most 401(k) plans match up to 6%. The SIMPLE requires you to match up to 3% or contribute a flat 2% for every employee.
  3. Cost – Some plans are less expensive to set up and service than others. In terms of the 401(k), the more participants and assets you have in the plan, the less expensive (per user) it becomes.
  4. Attracting talent – More and more employers are using benefits packages to attract employees rather than salary, in what’s called all-in compensation. If you want to get qualified candidates in the door, you have to offer good benefits.

Conclusion

It should be known that whatever you decide, it’s not set in stone. If you set up a SIMPLE and you need to hire more employees than you anticipated, you can set up a 401(k). The SIMPLE will have to stay in place, and you’d just have current and new employees contribute to the 401(k).

For more information on all of these plans and others, read this article here.

Be advised: The numbers and figures listed in this article are for 2019. Contribution limits tend to change over time. Please review the IRS website for up to date information.

Why I Love The Roth IRA

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The Roth IRA started in 1997 and it changed the retirement savings game.

It’s probably my most recommended retirement savings vehicle, other than your employer-sponsored plan of course. You have to get that match!

The Roth IRA can be your primary retirement account or a nice complement to a work-based plan.

Here’s why I love the Roth IRA.

Tax-free withdrawals! That’s right, if you save for retirement using the Roth IRA, you get to take that tax-deferred (don’t pay taxes while money grows) savings out of your account without paying taxes.

While you’re working, you generally have two options (besides contributing to your 401k or Simple IRA) do I contribute to a Roth IRA or a Traditional IRA? The amount of money you make plays a little bit of a factor, as the Roth IRA has an income limit ($137,000 – single, $203,000 – married filing jointly).

However, a back-door contribution is available. That’s where you make a contribution to a traditional IRA and roll the money from there into a Roth IRA. Be advised: You’ll be taxed at the time of the rollover.

That aside, contributions to a traditional IRA are tax-deductible (an income limit applies here). Conversely, contributions to a Roth IRA are not tax deductible.

Here’s why I like to recommend the Roth. I’d save for retirement, without getting that tax-deduction and pay $0 taxes upon withdrawal in retirement. At that point in time, your ability to earn more money is either dramatically reduced or gone completely.

It’s at this point when you need that money the most. I’d rather pay for it now and benefit from it later.

With all that said, I suppose I should list all the characteristics of a Roth IRA.

  • For 2019, the contribution limit is $6,000. If you are 50 or older, you can contribute an extra $1,000. Be advised: these contributions limits change often. Consult the IRS website for up to date information.
  • Because the money in the account was already taxed, there are no mandatory withdrawals. Uncle Sam got his cut already so you can let that baby grow for as long as you want.
  • If you withdraw before 59 1/2, you’ll pay a 10% tax penalty
  • There are exceptions to this penalty, however.
    • Death
    • Disability
    • Use up to 10% on your first home purchase
    • Pay for higher education
    • Medical costs are more than 7.5% of your AGI
    • Can pay health insurance premiums if you’re unemployed
    • The IRS has a tax levy against you
  • You can make contributions for the prior “tax” year up to April 15th.
  • If you withdraw your savings within 5 years of your first contribution, you’ll pay some taxes on your withdrawal.
    • Note: The 5-year clock starts ticking on January 1st of the year you made your first contribution

Conclusion

As I said, the Roth IRA is a great savings vehicle. Whether you use it on its own or use it as a complement to an employer-sponsored plan, it has a place in everybody’s retirement plan.

One last thing I want to mention. My reasoning behind why I recommend the Roth IRA so often is my personal belief. Please use your situation and your money/retirement philosophy when making this decision. It also pays to talk to a professional to see what they’re thoughts are, as well.

Creating A Financial Plan You Can Stick To

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The more I read and the more I meet with people, the more I realize that setting up a financial plan is more than dollars and cents.

Yes, the better financial plans have your typical items. Save this much, invest in these things, and contribute to this retirement plan.

But the best plans not only have this to take care of your financial needs but they’re also set up in a way that your psychological needs are met as well.

Can you stick with it?

The best plan is anyone that you can stick with. When setting up your plan, go through it slowly. Take each item one step at a time and consider possible scenarios when determining a particular section.

For example, when setting up a plan for your emergency fund, figure out what’s realistic for how much you’ll need and how long it will take you to get there.

Also, figure out how it will be replenished if/when it’s ever used. Perhaps you’ll have an automatic deposit setup indefinitely?

Another thing to keep in mind is including some flexibility in your plan. For example, if part of the process is setting up a budget and your weakness is eating takeout, include a little bit of money for it.

I generally advocate for eating your meals at home, but if it’s inevitable that you’ll go out to eat, it’s better to include a little bit of it, rather than trying to avoid it.

Will you gasp every time the market dips?

Investing is a vital part of your financial plan. Investing is what helps your savings grow, but at times, your investments can lose value.

Our psychology plays a big role in our success as an investor. It’s said that we experience the pain of a loss two times stronger than we experience the joy of a gain.

That said, you need to plan accordingly to keep your emotions in check. If you let them take control of your decisions, you could end up selling your investments after you’ve already lost value, at which point it may be better for you to stay in.

Most investable assets are in a retirement plan of some sort, so your time horizon is, more than likely, long-term. 20+ years for instance. Your risk tolerance is the other part to take into consideration.

How much are you willing to lose until you say, uncle? In a six month period, would you have to sell after you lost 10%, 20%, 30%, or more? Your answer to this will help determine what you are able to stomach.

The next thing to do is to stress test your portfolio. The popular investing/research websites will have this. You plug in your portfolio with dollar amounts and ticker symbols, and then (depending on the site) you can select a variety of scenarios to see how your portfolio would do during that scenario.

The 2008 Financial Crisis is a common one.

Conclusion

Creating a financial plan that has the potential to meet your goals is important, and having a plan that you’re comfortable with and one that will help you sleep at night is optimal.

Make sure, when you are developing your plan, that you are factoring in your behavior as an investor and as a human. We are emotional creatures, and that makes investing a little more difficult.

If you’d like to learn more about what was discussed here and for our disclosures, visit our website.

 

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How To Pump Up Your Finances

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By “pump up,” I mean to do something that improves your financial situation in any way. Reduce expenses, start a rainy day fund, invest for the future, etc.

With that said, let’s take a look at some simple strategies to pump up your finances.

Cut the fat

I’d start by creating a budget. Look at the past three months of income and expenses. Total the expenses, total your income and compare the two. This will give you a clear picture of how much you are spending versus how much you make.

After that, you can go back with a magnifying glass and see exactly where your money is going, and stop spending money where it is necessary, or at least reduce it.

You can also reduce the fees you pay to invest. Mutual funds and ETFs are the most popular vehicles used today, but they come with a cost. It’s listed as an expense ratio. That ratio should be as low as possible. Ideally, it’ll be under .20%.

A quick tip to cut your expenses – get rid of cable/dish. There are too many services available now. You don’t need to spend $100+ on TV anymore.

Increase savings rate

Hopefully, you are saving something. If you are having trouble setting money aside because of limited resources, give this article a read for some help.

You should be saving in at least two places. An emergency fund and a retirement plan.

  • Emergency fund – Say you are contributing $20 per month. This is a good place to start, but you’re going to want to save more so you have enough in case your car breaks down or you lose your job. After three months of saving $20/month. Increase that amount by $5. After another three months, at which point you’ll have gotten used to not having that extra $5, increase it again. Rinse and repeat.
  • Retirement plan – If you have a retirement plan with your employer and they match, you’ll want to contribute at least enough to get that match. That’s your starting point. Then you’ll follow the same steps as the emergency fund. After a few months, increase the contribution percentage. If you don’t have a plan with your employer, set up an IRA, start contributing what’s comfortable for you, and follow those same steps.

I mentioned you should have AT LEAST these two accounts. Personally, I have several savings accounts. They are set up for different reasons. I have one for holiday spending, one for car repairs, and one for travel expenses. Giving your money a “job” makes it more likely that you’ll use that money for that “job.”

Switch to an online bank

Most online banks have higher interest rates on savings accounts. They also, typically, have lower rates on loans (based on credit score).

If you are saving money for a rainy day and putting it with a brick and mortar bank, you’re most likely earning next to nothing. Better to put that money in an account where you’ll earn a little interest.

Refinance high-interest rate loans

I’m going to dedicate this section to credit cards because that’s what most people think of when they hear high-interest rates.

There are three strategies you can use.

  1. Balance transfer – Many credit card companies offer a 0% APR on balance transfers for a certain period of time. Some have terms for 21 months. The interest rate will jump after the 21st month, though, so make sure your balance is paid off before then.
  2. Personal loan – If you have credit card debt and don’t, or can’t, utilize a 0% balance transfer, then a personal loan is your next option. You get a loan for the total amount of outstanding credit card debt. Then the institution will send a payment to each credit card company and pay off your credit card debt. You’ll be left with one payment. Be advised, credit matters here (also for balance transfers) so if the interest rate on the personal loan is higher than the average interest rate of your credit cards, don’t do it.
  3. The last option is to call the credit card company and ask for a lower rate. More often than not, if it’s available, they’ll give it to you. It won’t lower your payment a whole lot, but it’ll definitely help.

If you want to learn more about credit cards, click here.

Improve your credit

Your credit score makes a difference. It can impact what loans you qualify for, the interest rate, where you live, and where you work.

If you want to start making moves in your financial life, you need to improve your credit.

There are three really simple ways to do this.

  1. Pay more than the minimum on your outstanding debt and pay on time – on time payments is the #1 factor when calculating your score.
  2. Call your utility company and see if they report to the credit agency. It’ll count as another credit account (a factor) and it’ll influence your on-time payments.
  3. Open a secured credit card – You open this type of card with a deposit. The deposit will act as your credit limit. If you deposit $500, you’ll have a credit limit of $500. Make regular, small purchases and pay the entire balance right away. Credit agencies like to so activity and, as I’ve said, on-time payments.

If you want to learn more about improving your credit, click here.

Conclusion

If you want to improve your financial life, it’s actually pretty straight forward. Spend less than you make, save money for the future, pay down debt, and improve your credit. If you do these four things (obviously, easier said than done), goals that once seemed far fetched, can be within reach.

Please visit my website for our disclosures.

 

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How much do I need in retirement?

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Conventional advice tells you that, for retirement, you need $1 million to $1.5 million saved, or that you need 10 to 12 times your current annual salary.

For example, if you make $100,000 per year, you’ll need $1 million to $1.2 million saved for retirement.

Are these numbers and calculations good enough? Is there a better, more accurate way to figure out what you’ll need to save for retirement?

In this post, we’ll look into that and more.

Check out retirement calculators

There’s a huge number of them out there. I recommend trying a few different ones, that way you can compare and average out the numbers. They’ll ask you things like age, current savings, current income, future contributions, etc.

Here are a few of the better ones.

Using some or all of these calculators, you can probably get a good idea of where you’re at currently, how to improve, and where you’ll need to be at the end.

What are the factors?

There are a variety of different factors at play. You’ll have different expenses and different income levels, and some of those numbers won’t stay steady throughout retirement.

For example, a couple’s health care costs in retirement are said to be $275,000 (Source). However, not all of that will hit you in the first few years of retirement.

More than likely, you’ll have minimal costs in the beginning, and they’ll slowly increase as you age.

Where will you live?

This can be a huge variable in retirement. Its widely known that different areas of the country have a higher cost of living. San Francisco is more expensive than Lincoln, Nebraska.

Another important factor regarding your living situation is if you have a mortgage or not. No mortgage means fewer expenses, which is less going out of your pocket, and more that can be saved for the future.

Not having a mortgage can also give you some leverage. If you decide that your current home is too big and would like to downsize, you can use the proceeds from the sale of your previous home to, hopefully, buy your new one outright.

Living Expenses

We’ve talked briefly about health care expenses during retirement and we talked about housing. Without a doubt, these are the two largest expenses during retirement. There are a few more to consider, however.

  • Transportation – did you relocate? Or do you have family in other parts of the country? Transportation and lodging need to be taken into account when figuring out your expenses for retirement, especially if you’ll be traveling regularly.
  • Entertainment – you might be looking for something to fill your time. It could be filled with expensive hobbies or other activities. If you are looking for something to do, or are looking to start a hobby, be sure your budget will allow for it.
  • Remaining expenses – the leftover expenses are ones you deal with right now (food, clothes, utilities, bills, insurance, etc.)

A budget is just as important in retirement as it is now, if not more so. Keeping track of your expenses and your income is very essential to your finances during retirement.

You often hear people in retirement say they are on a fixed income. What that means is they have lost their ability to earn more money. What they have is it. If you are spending more than your savings and your income allows, you are setting yourself up for failure.

Income

Your income from retirement could come from a variety of places.

  • Social security – provided by the government. The normal advice regarding social security is that it shouldn’t replace more than 40% of your income. Meaning 60% should come from another place. Your monthly payout from Social Security does increase the longer you delay taking it, and the reverse is true if you take it early.
  • Pension – these are becoming less and less popular as time goes on. They were huge back in the day when workers would stay with one company until they retired, but because people switch jobs so often nowadays, employers don’t want to take the chance. If you have one, consider yourself lucky.
  • Retirement savings – more than likely, this is where the other significant portion of your income will come from. This is where having a financial advisor is beneficial because you have to use enough of your savings to afford your retirement, but not too much so you don’t run out of money. Tricky.
  • Other areas – there can be other sources of income during retirement. You could have some dividend or interest income from your investments, you could work part-time to stay active and earn a little extra, or you could possibly have a rental property or several.

If you want to learn more about where your income could come from in retirement, click here.

Wherever your income comes from, it’s important to coordinate effectively so you maximize your current income without jeopardizing your savings.

What will you do in retirement?

How you spend your time will also have a huge effect on your expenses.

If you plan on spending most of your time with your grandkids, retirement could be more affordable than if you planning on golfing a few times per week. Although it could quite possibly be much more expensive than golf, we all know how grandparents are with their grandchildren.

If money is tight and you are looking for things to fill your day, there are many free or low-cost activities available to you.

  • Volunteer – not only is this a free activity. You’ll feel useful, you’ll get to use your brain, and you’ll have a sense of community, all are shown to increase longevity.
  • Go to the park – take a walk, bring a book, or just interact with nature and the community.
  • Community center – not all municipalities have one, but go to your local community center or go to your municipality’s website. There you will find local events, most of which are free.
  • Discounts – most places offer senior discounts. If you aren’t offered one, make sure you ask for it. This really could save you a lot of money on activities, food, etc.

How long will you live

The most depressing point in this post, but one of the most important. Unfortunately (or fortunately, depending on how you look at it), no one knows how long we are going to live for.

One way to get a little indication, but not really, is your family history. If your grandparents or parents lived into their 80s, 90s, or 100s, the chances of you living a long life are a little higher.

On the flip side, if most of your relatives passed away in their 60s or 70s, your odds of living into your 80s and 90s are lower.

However, this really is no indication on how long you’ll live for. One of the most important things you can do for yourself is to live a healthy lifestyle. Take a walk once or twice per day, do something daily that will engage your mind, interact with friends and people in your community, and eat better.

The 4% Rule

You’ve probably heard this before too. Here’s what it is. Once you retire, you withdraw 4% of your retirement savings every year. This is considered a safe withdrawal rate, as the withdrawals would consist mostly of interest, dividends, and unrealized gains from your investments.

Let’s say you have $1 million saved for retirement. The 4% rule would allow you to withdraw $40,000 per year. All else staying the same, you have 25 years worth of withdrawals using this method. Be advised that no growth was factored into this calculation.

Conclusion

I suppose you’d like an answer to the question we proposed in the beginning. Here it is. It depends. It depends on your current and future expenses, it depends on where you’re income will come from, it depends on how much income you expect (outside of retirement savings), and it depends on how you live your life during retirement.

Most importantly, you need to work with a financial professional, ideally someone that specializes in retirement planning.

To learn more about retirement planning and for our disclosures, visit www.crgfinancialservices.com.

How does Investment Strategy Change with Age?

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As we all know, as we age and our lives change. Our financial responsibilities and investment strategies change along with it.

In most cases, there are two truths to abide by. You have saved as much as you can and invest according to your risk tolerance, time horizon, and goals.

But what else is there? How do my financial life and my investment strategy change with time?

Starting career

Either you are just out of school or have been in the workforce for a few years. Regardless of which path you came from, there are two things on your list. Get rid of debt, or at least get it under control, and save for retirement.

There are several ways to plan for debt repayment.

  • Debt Snowball
  • Debt Avalanche
  • Balance transfers (credit cards)
  • Personal Loan (loan consolidation)
  • Refinance (student loans)

Check out this post on paying off your debt, here.

Step two is saving for retirement. If the company you work for offers a retirement plan, sign up for it. Max out your contributions if you can, but at the very least, contribute enough to get the employer match (if it’s offered).

Also, open a Roth IRA. If you have a little extra, contribute some to a Roth IRA in addition to your workplace plan.

Your investments. Time is your best friend at this point. Most of your investment allocation should be focused towards growth. Don’t put all of your eggs in one basket, diversify among stocks and bonds.

Again, the majority (at least 70%) of your portfolio should be in stocks, in some form or another.

Starting family

If you’re like the average American, your family starts to form around your 30th birthday. Hopefully, you’ve got a good head start on paying down your debt and saving for your retirement. Continue on that path.

With a family, comes saving for your kid’s college education, as well as other expenses (house, car, etc.). Contribute a little every month to a 529 College Savings Plan. The funds within this account can be invested aggressively, similar to your allocation in your twenties.

Your retirement savings is still in a good spot. Similar to your twenties, regarding the stock and bond allocation.

One last thing, get some disability and life insurance. If you have people that count on you, you need to protect them.

High earning years

More than likely, this will be your forties and fifties. At this point in your life, the average American is in their peak earning years, so take advantage of that and increase your retirement savings.

This will also be the time that your kids either go off to college or enter the workforce. Congratulations (kind of) you are empty nesters. You no longer have a college education to save for. More can go towards your retirement.

More than likely, though, you will have miscellaneous expenses from your kids that you will continue to pay for.

Your investment strategy will change slightly. You are getting closer to retirement so it’s time to start protecting what you’ve saved. A little less in stocks and a little more in bonds. Think 60/40 or 50/50.

Near retirement

You are in the home stretch! At this point, your debts (including your house, hopefully) should be paid off. All assets and your retirement savings should be looking healthy.

Your investment allocation will be similar to the last section. Definitely 50/50 if not 40/60, stocks to bonds.

Retirement

Congratulations, you’ve made it to your retirement. This can be liberating for some, but for others, this is an emotional challenge.

You’ve spent the last 40 or so years saving for retirement and now you are expected to start spending it. This is very tough for a lot of people.

From my experience and in my opinion, you should retain some sort of activity. Something that gets you out of the house, something that forces you to socialize, and something that makes you use your brain.

Staying social and sharp mentally could add some extra time to your life.

Your investments should be conservative. At least 40/60, but the more conservative the better. And it’s usually not a bad idea to keep some of your savings in cash, for emergencies such as health expenses (which will certainly go up at this point).

You don’t have many or any, more chances to earn more money, so it’s very important that you protect what you’ve saved.

Conclusion

The above information can be very useful to the average person. Paying off your debt and making your retirement savings a priority is very important.

Unfortunately, there is a retirement savings crisis in America. People aren’t saving nearly enough for retirement. They are counting on other sources, like Social Security or pensions to fund their retirement.

This isn’t enough. You won’t receive enough from Social Security to support yourself and pensions are few and far between, nowadays. We all need to do a better job of saving.

This article was created for informational purposes only. The above items are not to be taken for personal financial advice. Please consult with a professional about your personal situation.

To learn more about retirement savings and investing, and for our disclosures, visit our website: www.crgfinancialservices.com.

 

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Will My 401(k) Last for the Rest Of My Life?

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If you’re starting to think about retirement, and your career has largely been in the private sector, your 401(k) balance could be the most important factor in determining whether you’re on track to retire or not.

Whether your 401(k) will cover your spending needs until the end of your life will depend on a lot of factors. It’s important to not just pin your hopes on a certain target for an account balance–a million dollars, two million dollars, whatever–and instead look at the whole picture. So let’s start with a few other questions that are just as important.

Are You Saving as Much as You Can in Your 401(k)?

There’s almost no way around it: You have to save money to make money. There is often a bit of a free lunch–call it a free appetizer–when it comes to 401(k)s, though: The amount your employer matches your own contributions. It could be a dollar-for-dollar match up to point, or some percentage of what you contribute yourself that increases over time. Either way, you definitely want to contribute at least this amount, or you’re leaving that free appetizer on the plate.

But that should really only be the beginning of any 401(k) savings plan. Fidelity advises saving 15% of pretax income.  If you’re 30 or 40 years old and haven’t given the issue much thought until now, that number should serve as the minimum you should save.

Get into the habit of increasing your contribution percentage each year. Psychologically speaking, if you never see it hit your paycheck (because it’s going straight to your retirement account), you won’t miss it. Set an annual calendar reminder to increase that contribution, even by a half a percentage point. Between the contribution increases and salary increases, you should be able to put your contributions on a sharp upward trajectory.

What Else have You Got?

Once you have your plan for annually boosting 401(k) savings in place, consider what other sources of income you are counting on at retirement. Social Security is an obvious one. If you’re lucky you might have a pension of some sort. Brokerage accounts, rental property, or the planned sale of some asset like a business should all be taken into account as well–and will almost certainly affect how long you can expect your 401(k) will last.

Will you run out of 401(k) money in retirement?

Another reason not to simply come up with an arbitrary hit-your-number mark: Spending matters. At the risk of stating the obvious, your 401(k) and other investment assets will generally last longer if you plan to sip rather than gulp.

You’ll want to have a very solid grip on your plan’s MPG–that is, your projected spending in retirement–to get an accurate reading.

Will your 401(k) plan last long enough?

What Is It Costing You?

Even if you are diligent about saving to your 401(k), you probably haven’t considered what the plans might be costing you.

And why would you? The plan administrator’s fees–in addition to the fees paid to the fund companies themselves–are largely out of your control.

But it’s important–especially the further you are from retirement. Fees can really chip away at account balances over time. Consider a 401(k) returning about 7% annually. Here’s what happens if we modify the fees by half a percentage point and assume contributions of $18,000 per year.

Will Your 401(k) Plan Last Long Enough

Your main recourse here is to talk to your HR department and start asking questions. What are the fees of running the plan? How do they compare with fees offered by other plan administrators for companies of your size? Making sure the HR team has done their due diligence on this could mean tens of thousands of dollars to you.

You can also look at the fees charged by the funds themselves. Funds have expense ratios; actively managed funds generally have higher expense ratios than passively managed funds. To keep things really simple, consider a target-date retirement fund, which shifts its asset classes toward less risk the closer you get to retirement. (And if your plan does not offer a target date retirement fund, it should.)

Your 401(k) Is One Piece of a Larger Puzzle

A large 401(k) balance could have a big effect on when you can retire and your living standard when you do. But looking at it in the context of everything else we’ve talked about here is more important than an absolute dollar figure. Total savings, where you plan to invest your assets, the cost of those investments, and your spending habits are all complementary forces that will factor into a successful retirement plan.

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Planning and Investing for Retirement

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Getting an early start with your retirement planning is important because it generally takes quite a few years to gather the funds that will be necessary for you to have a comfortable living when you get to retirement age. If you start investing early in your career, your investments have the time they need to grow throughout the decades while you work so that your retirement years can be comfortable.

Today’s life expectancy has grown with the advance of science and medicine. This means that there will be more years in between retiring and death. Because of this, you will need even more money so that it will last you that much longer.

You can’t expect to retire on Social Security alone either. Today’s average benefits for Social Security are just about $1,180 per month, which just isn’t enough to live on. Also, the age for collecting complete Social Security benefits is going up. If you were born after 1942, you won’t be eligible for full benefits until you are 66 or older.

This is just one of the reasons you need to start investing for your retirement now. You also need to think about medical issues that you might have to deal with in your dotage. Why don’t we take a look at some of the investment options that are available and a tip or two for saving and investing money?

Bitcoin and Ethereum

Bitcoin and Ethereum are two types of cryptocurrency. Cryptocurrencies are a relatively new type of virtual money that is digital. It isn’t controlled by any sort of central financial institution, but every transaction is recorded digitally in what is known as the blockchain. Cryptocurrencies have value because there is only a finite number that will be produced. Also, more and more businesses are using and accepting them. You might have even noticed that when HBO was hacked earlier this year, the hackers demanded a ransom in Bitcoin.

If you are interested in investing in a cryptocurrency such as these, you can buy them outright if you want to go the easy route. Then, you can hang on to what you get and sell it for a profit at a later date. Alternatively, you can invest some time and money into mining for it by using a company like Genesis Mining.

Junk Bonds

Most of the time, when people think about bonds, they think of those low return for low risk type of investments. That being said, this theory is based on an assumption that whoever is actually issuing the bond has a credit rating that is outstanding. Companies with great credit ratings don’t have to pay interest rates that are high in order to attract their investors. Junk bonds however, are actually bonds that are issued by companies that have credit ratings that are very low. This means that they have to offer higher rates of interest, but it also means that they can default on the bond altogether. This is a risky investment strategy, but it does offer a higher return on your investment if it pays out.

Saving for Investing

If you want a helpful money saving tip or 3, you have come to the right place. One tip that everyone should know is to not spend more than you make.

Another thing you can do to save a bit of money is to change your bank so that you can take advantage of different perks and possibly earn more interest. You might be paying a monthly fee right now for your savings and checking accounts. If so, you might want to check on some of the offers other banks have. Some banks will even offer bonuses to people who open new accounts and set up their direct deposit. Others offer interest rates that make switching worth it.

One last tip is the 30-day rule. If you see something that you want to buy – be it big or small, and it isn’t an absolute necessity, wait for 30 days before you buy it. Often, once that period of time has passed, you will no longer have the urge to buy whatever it is and you will have saved all of the money that you would have spent on it.

By saving and investing, you will have the best chance possible to retire comfortably.

Five 401K Alternatives You Need to Know About

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A 401K is a savings plan for retirement that is sponsored by your employer. Employees can save a piece of their paycheck before taxes are taken out, and put it toward their retirement.

Talking about far-off retirement plans can be overwhelming and boring. After all, it’s way easier to think about the here-and-now. We budget, save for vacation and pay the bills. That seems like enough… right?

On the contrary, planning for retirement is incredibly vital and cannot be forgotten or overlooked.

The 401K may be a good fit for your lifestyle, but there can also be cons. Your employer may not be matching the money that you contribute, and also could require tenure before allowing you to withdraw. If you aren’t sure about the 401K, there are many different options out there to consider.

Here are some alternatives to the typical 401K that may compliment your lifestyle and finances better.

  1. Index Funds- These are funds invested on an index of stocks. (You may have heard of S&P 500 or the Dow.) By investing in an index fund, you basically are investing in all the companies that make up that particular index (instead of investing in certain stocks). You are at the same risk as those who buy stock individually, but since the market typically increases over time, index funds could be used as an investing option for retirement.
  1. Roth IRAs and Traditional IRAs- IRA stands for Individual Retirement Account. Roth and Traditional IRAs differ from the 401K by bypassing the employer altogether. You save completely on your own for retirement. The biggest difference between the Roth and Traditional lies with when you pay your income taxes. Check out the two and see if one of these may be a better retirement plan for you.
  1. Simplified Employee Pension IRAs- SEP IRAs are a great option for any of you independent contractors, free-lance workers, or business owners out there. It is very similar to the Traditional IRA and could be very beneficial with your taxes. It doesn’t matter how small your business is, so definitely check it out!
  1. Variable Annuities- These are contracts between you, the investor, and an insurance company. The investor purchases a variable annuity upfront or over a period of time, and the insurance company makes periodic payments to you after retirement. However, there can be high fees and tax penalties, so do your research and insure that the contract is safe and beneficial for you.
  1. Bonds- Bonds may be great to dabble in addition to the 401K or any of the other retirement options listed above. Bonds essentially are saving accounts that pay interest rates. You set these rates at the time of purchase, and it’s an incredibly safe and stable investment. Because of its safety, they typically return less money than other higher risk investments. However, your money will be safe and making interest for retirement.

Do some research on what your employer offers and which option may be the best fit for you. Regardless of what you choose to use, saving for retirement should be a priority in your life.

The Failure of Retirement Plans in the USA

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face-774839_640It is difficult to believe but some surveys recently have suggested that the average couple has just $5,000 in a retirement savings account. The Economic Policy Institute has analyzed Federal Reserve data and has stated that the top 10% have at least $275,000 which in itself is not fantastic bearing in mind that life expectancy is increasing and many people can expect to live well beyond 80.

There was a dramatic change in retirement saving in the 1980s. Previously companies guaranteed pensions to their employees. The introduction of the 401(k) changed the emphasis. Workers were given control of their retirement rather than having to rely on their employers’ generosity or the Social Security System. Instead companies made contributions up to a certain level into their employees’ individual plans but has no responsibility for their success or failure. Hindsight is a wonderful thing but it has been little short of a disaster with the vast majority well short of what they will need to fund a comfortable retirement.

The figures are so poor because it appears that nearly have of couples of working age have no savings at all and almost 40% of those within 10 years of retirement are in the same position. The problem is compounded by the fact that the Social Security System is fragile at best. Without a significant injection of funds existing benefits will fall by as much as 25% early in the 2030s. That significant injection can only come from taxation and that is a very unpopular topic, especially among Republicans.

Even now the average benefit is little over $1,000 a month which can hardly provide any real source of comfort.

401(k) Policy Hasn’t Worked

The theory that the introduction of the 401(k) would ensure that everyone would have the retirements they wanted has been thoroughly misguided. Their reliance on Social Security has risen dramatically rather than fallen. Those in the low tax bracket have little financial benefit in saving and this is the band of people who are in the greatest need. Tax breaks are therefore fairly irrelevant for the majority. Tax breaks are great for higher earners but they are not in as great need. All those with that $275,000 mentioned above come in the middle to top wage bracket. They would have probably saved anyway without the need for a tax incentive policy.

The Impact of the Recession

The question is whether the plans are wrong or whether people have simply found themselves unable to make proper provisions for themselves? The recession certainly caused widespread misery especially for those tempted to take on too much credit. The real estate market had been buoyant and everyone had expected to make money from investing before the Collateralized Debt Obligation crisis hit their plans. Plenty of people took out multiple credit cards and spent money they simply did not have. Their logic, if they had any, was that there were other cards offering 0% balance transfers where they could move their debt to avoid paying interest. Those deals were temporary and the escape routes soon closed.

“The mistakes made in pension strategy decades ago have been compounded by people’s reluctance or inability to save anyway. Everyone needs to look at their finances and take whatever action needed to improve their future.”

Defaults, unemployment and utter misery followed. Many were unable to meet their liabilities and although debt has been written off and the economy has recovered it seems that personal finances in the Country have barely improved. The figures of what retirement savings the average working family have are proof enough. If you add the average credit card debt in the USA exceeding $5.000, dividing the debt by the number of cards in circulation, the picture gets worse. When you take away the number of cards whose owners pay in full at the end of each statement period, the debt goes up to over $15,000.

It is what it is. Every family will know how they stand or at least they should. There is no point in ignoring financial problems because they will not disappear as if by magic. Everyone should take time to write down their income and regular expenditure as well as their debts and assets. If the figures are to be believed there is only a small minority that can feel satisfied with what they see.

Courses of Action

The rest will need to take one or more of the following courses of action:

  • Credit Card Debt. If you have significant debt and you cannot afford to pay off your balances you will be paying a high rate of interest as well as having core debt. You should look at taking out a consolidation loan to pay those balances off in full. The rate of interest you will be paying on the nation 21 cash loans are much lower than credit card companies charge.
  • A budget. You must start to discipline yourself when it comes to spending. There is no point in paying off those balances simply to build them up again.
  • Look at whether you can make savings on some of your regular bills. They can include utilities and insurance for example. There are comparative websites that will do much of the initial research for you.
  • After you have created a surplus don’t suddenly think you can begin to spend. This surplus should be put towards retirement or an emergency fund. Both are important and ideally you will create an emergency fund worth about 3 months of your regular expenditure.

If your financial situation is poor you have to act. Retirement can be a cold and lonely place if you have not got the money to make it comfortable.