Why Are Younger Workers More Interested In Saving For Retirement?

pensionThe current financial climate has brought plenty of uncertainty with it for workers young and old.

As incomes are being squeezed by high inflation rates and reluctance on the part of some bosses to raise wages in line with inflation, saving for retirement and the future might not seem like an option for many workers; especially those who are still saddled with student debts.

However, as a survey conducted by the National Association for Pension Funds revealed, younger workers who might be a long way from paying off debts accumulated while at university are more willing than their older peers. Surprisingly, a healthy 53% of 25 to 34-year-old workers said they planned to put some money in their pension fund over the course of 2013.

Youth trumps experience saving for retirement

While more than half of young workers said they planned on saving for retirement and the future, the same can’t be said of older workers. A disappointing 26% of workers between the ages of 35 and 44 said that they were willing to save for their pension at some point this year. The average figure for all workers stood at 38%, which equates to a disappointing less than four out of 10 people in employment.

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Are You Saving Enough For Retirement In Your 401k? Probably Not!!

The dangers of 401k loansAre you saving enough for retirement? How much is enough? Is there really such a thing as saving enough for retirement?

While there are a few rules of thumb that you can look at to find out how much money you need to save in your 401k for retirement, the sad fact of the matter is that we are simply not saving enough for retirement. Click here to learn more about Motif Investing

We Are Not Saving Enough For Retirement

Earlier this month, Fidelity Investments released its quarterly analysis of the 401k retirement plans that it manages. The report showed that the average retirement investor at Fidelity had an average 401k balance of $77,300. This is up 12% from the previous year if you count employer matching contributions. The problem is that this increase is simply not enough. The balances for most 401k retirement plans are far too low for the investors’ ages.

Life always seems to come along and knock people off of their retirement savings plan that they have set for themselves or have had a financial planner establish. That would not be too bad because we all know that Murphy is out there just waiting. But, we have compounded our problems by not saving enough for retirement in our 401k retirement plans like Fidelity found.

So, How Much Are We Really Saving?

According to the Fidelity report, here are the average 401k retirement plan account balances broken down by age group at the end of last year. Ages 50 to 54 had an average 401k account balance of $111,900. Ages 55 to 59 investors had $134,600. Those ages 60 to 64 had saved $133,100 in their 401k plans. And those investors who were 65 to 69 years-old only had $136,800 in their 401k plans.

These amounts are obviously not enough to retire on. For example, a typical annuity of $250,000 earning a 5% rate of return for a 20 year payout will only produce about $1,600 of income per month.

Even if you were to earn $2,000 from Social Security and/or a pension, you would still struggle to maintain the same standard of living that you have grown accustom to during your working years with only $250,000 saved for retirement. And, the savings are far lower according to Fidelity as we’ve seen.

According to the 2012 Annual National Survey Assessing Household Savings produced by the America Saves organization and the American Savings Education Council:

  • 66% of Americans spend less than their income and save the difference
  • Only 66% of Americans have sufficient emergency savings to pay for unexpected expenses
  • Only 42% of Americans say they have a savings plan with specific goals
  • 52% of non-retired Americans think they are saving enough for a retirement

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Which Is First: Paying Off Your Debt or Investing for Retirement?

This question has plagued financial planners for years. Should you pay off debt, or should they start a retirement account first? This assumes that the same amount of money is involved in each transaction. We will use $5,000 for our examples. Below we will take a look at the pros and cons of each option, and give our opinion. Paying Off Debt First Paying off debt is a great way to use a lump sum of money. Being in debt can be burdensome to the individual in debt, and feeling like you are never going to get out can be awful. If you do not have a lump sum, you may want to consider a debt management plan to help … Read more

The Dangers Of 401k Loans And Your Retirement

Dangers Of 401k Loans And Your Retirement

The dangers of 401k loansIf you are in a financial bind, seeing the money sitting in your 401k retirement account can be tempting. It is a tempting source that you may consider tapping in order to help alleviate some of your financial problems. However, your 401k retirement plan is there to be your safety net in retirement. Your 401k is not designed to be your emergency fund now. It may seem like it is not a big deal because you are essentially borrowing the money from yourself with interest, but it does not really work that way.   There are dangers of 401k loans. Here are some dangers of why you should avoid taking a loan from your 401k retirement plan.

You Must Repay Your 401k Loan

When you take out a 401k loan from your retirement plan, you must repay it. Defaulting on the loan can have serious tax consequences that can erode all of your hard work that took years to build up. Your employer is required to treat your 401k loan like any other loan or financial agreement. You must set up a repayment plan that starts immediately after taking the loan. Many 401k retirement plans now prevent future contributions to the 401k until the loan is repaid. This prevents you from continuing to grow your money and can serious degrade your future earnings that you will not be earning on the money you borrowed and on any contributions you are not allowed to make while you repay the loan. If you are lucky, you will still be allowed to contribute money to your 401k plan while repaying the loan. Or, you could consider forgoing contributions in favor of early loan repayment.

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How Debt Can Ruin Your Retirement

This is a guest post by Mike Egan who is the author of Your Stronger Financial Future.

Your Stronger Financial Future by Mike EganA recent article in the New York Times focuses on seniors who are considering mortgages on new homes when they retire. The article is a good summary of what seniors (or anyone considering a mortgage application) should expect and the specific items to have handy, such as proof of income and a good credit score.

What the article doesn’t address is the question of whether a mortgage is a good idea, either for a senior (65 and older) or anyone else.  Think about this – no matter what the term of the home loan, or mortgage, you’ll be paying interest to the lender, plus repaying the principal (the $$ you borrowed) for some period of time.  Home mortgages and student loans are the two main examples of what I call “good debt” – which are loans that result in you owning something of value at the end.  So, given that a mortgage generally results in you owning the house or condo when you’ve paid back the loan, let’s examine the math involved in a home mortgage.

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Your 401k Retirement Plan Is Not An Emergency Fund

Your 401k Retirement Plan Is Not An Emergency Fund

Your 401k retirement plan is not an emergency fundRecently, one of my coworkers asked my opinion about taking out a 401k loan to help replace a blown engine in his wife’s car. This is a horrible idea. Your retirement plan is not an emergency fund.

Car troubles, uninsured medical expenses, house renovations, and other everyday items are not great uses for money that you have invested in your retirement fund. You should not use your 401k as an emergency fund.

It was not designed for that, and you potentially ruin the benefits that the retirement plans were designed to give you. Some studies estimate that as many as 28% or more 401k retirement plan holders have taken out loans against their 401k plans.

Your 401k Retirement Plan Is Not An Emergency Fund

Ruins Future Earnings

Many people think that borrowing money from their 401k retirement plans is no big deal because they are simply paying themselves back with the interest on the loan. While that is true, borrowers are missing out on compounding interest that that loan amount would have produced over the life of that investment while it is not in the account.

One of the biggest mistakes I made was borrowing about $10,000 from my 401k retirement plan after only having graduated from college for five years. I paid back my loan with interest over a three year term. But, not only was my $10,000 not earning interest during those three years.

That interest does not compound over the course of my future career. And, after just five years out of the gate from college, I have probably another good 40 years of work in my future before I fully retire.

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