3 Big Money Mistakes American Workers Are Making

Money mistakes can add up

We all make mistakes with our finances. I’m not talking about making hard decisions and choosing which bills to pay and which to leave for another month. These are simple financial choices and the biggest money mistakes American workers are making with their paychecks. The economy is still struggling, and far too many employees are turning away free money and lending other money from their hard-earned paychecks to the government free of charge. Three Biggest Money Mistakes… 1. Not Capturing Their Employer Match According to a recent study conducted by the Financial Industries Regulatory Authority (FINRA), almost 30% of American workers do not contribute enough to their 401k retirement plans in order to capture their employer’s matching contribution. Typically, many employers … Read more

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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Reader’s Question: What To Invest In After The Company Match

What To Invest In After The Company Match
What To Invest In After The Company Match

Your 401k retirement plan is not an emergency fundHere is the next installment in our the Reader’s Questions Series which highlight questions emailed to me by you, the readers of Money Q&A. Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover if your money question is chosen to be featured on the blog.

If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It is one  of my top ten best personal finance books that everyone should read. Now….on to our reader’s question. I recently received an email from a reader, Ralph, who ask…

I’ve been investing more than my company’s match. So for instance if my401k company match is 5% and I invest 10%, is it better to continue or just invest the 5% that’ll get the match and invest the rest in a Roth IRA?

This is a great question that a lot of investors have to tackle when they are deciding where to put those finite investing dollars to work. You often can’t be everywhere at once.

So, the real question is where to start and where to go after you get going with your retirement investing. There are several things that you should consider in order to maximize your savings and minimize your tax liability as well.

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Understanding the Ins and Outs of 401k Retirement Plans

401k Retirement Plans

What if you were told that you could invest in a savings plan at work where each dollar you put into it is taken off the top? Or, the amount of your contribution will lower the amount you pay in yearly income tax? You need to understand the ins and outs of 401k retirement plans! Also, every dollar and cent you fund the account with will grow tax-deferred. Not only that, each of your 401k retirement plan contributions will make it possible for your employer to match those amounts as well. The Basics of a 401k Retirement Plan The 401k Retirement Plan is still the backbone of most Americans’ retirement planning, and it should be. When combined with the Roth … Read more

Should You Pay Taxes For Your Roth Conversion From Investments?

A reader recently wrote in with the following question about converting a 401k retirement plan to a Roth IRA and the tax consequences. Should you pay for the taxes when converting a 401k retirement plan to a Roth IRA from the proceeds of your plan? The short simple answer is no! You should not pay for your taxes from money that was in your retirement plans during a Roth conversion. Taxes On Your Roth Conversion You will have to pay taxes when you convert a 401k retirement plan to a Roth IRA. If you use money that was once in your 401k and you are not 59 ½ years old at the time of withdraw, you will not only owe … Read more