Posts Tagged ‘401k’

How to Navigate your First 401(k)/Retirement Plan

Monday, May 7th, 2018

First 401k

Whether you’ve just started your first corporate gig, or if you’ve just been thinking about securing your future, you’ve probably heard the term “401(k)” thrown around a lot, and how you should open one that’s being offered through your workplace. So what is a 401(k) exactly?

401(k) in a Nutshell

Having the (k) in its name fools people into thinking it’s a very complex financial product or plan to grasp. But plain and simple, 401(k) plans are retirement plans set up and sponsored by your employer. For self-employed professionals like freelance writers or home-based accountants, you can open an individual 401(k) plan.

How it works is you set aside a certain portion of cash per month that’s automatically deducted from your paycheck. The amount to be set aside depends on how much you’ve elected to allocate for the retirement plan. You have the choice of investing in a broad range of assets, such as stocks and bonds, which can either be chosen from a prepared group of assets or selected manually by you.

Benefits of Owning a 401(k)

For starters, the monthly investments put into your 401(k) can compound into a large sum of cash, given that you maximize your monthly contributions and do not withdraw anything from the account prematurely.

Through a 401(k) account, your employer may elect to match every dollar of your contributions, which is basically free money. Most employers have a 401(k) match program, and they will usually match up to $4, if not dollar-for-dollar.

Just because you put your money in a retirement plan, it doesn’t mean you completely lock up the cash until you retire. It’s highly advised against, but you can borrow money from the account for particular purposes, such as purchasing a home, sending your kid to college, or paying for unforeseen medical expenses.

One downside to borrowing funds from your 401(k) is that you are usually charged interest that must be paid back. But as long as you work for the employer sponsoring your 401(k) plan that you used to secure the loan, you will not be liable for any income taxes.

Building Your 401(k)

Choosing the assets you wish to invest in through your 401(k) can be intimidating, especially for those who have close to zero experience and knowledge with regards to financial markets. Fortunately, your employer will already construct a list of asset choices with the help of an investment broker. The downside to this is that you get stuck with whatever list they come up with.

As a general rule of thumb, you should build a portfolio that aligns with your risk profile. There are basically five types of funds you will be choosing from – stocks, target-date, blended-fund, bonds/managed, and money market. A thorough analysis of each group of assets should give you a better grasp of which ones to choose.

The next thing you’ll have to figure out is the monthly contributions you want to set aside for your 401(k). It all comes down to your monthly expenses, for instance, you obviously want to make sure you have sufficient income to pay the bills and buy your family’s basic needs. Other factors that merit consideration include employer dollar matching and maximum allowed contributions.

Investing can be somewhat tedious, yet is something that’s crucial for your future self. Make use of all the resources given to you to make solid decisions, and navigate your first 401(k) retirement plan effectively, and with confidence.

What to do if your Retirement Savings Falls Short

Monday, February 26th, 2018

With so many older workers approaching their retirement years with meager savings, the big question is: What can they do to improve their financial security in retirement?

If you’re in your 50s or older, working longer — even by a few months — has a much greater impact on your ultimate retirement income than saving more or achieving a higher net rate of return on your savings. Of course, ideally, older workers would take all these steps — the paper just helps you focus on the most important one.

The report offers several examples that illustrate the power of working longer, using hypothetical workers of various ages. For example:

  • Workers age 66 who earn at the national average wage could increase their ultimate retirement income by 7.75 percent by working one more year and retiring at age 67.
  • For these workers, the total value of the additional lifetime retirement income generated by working for one more year is equal to getting a bonus of over 40 percent (43.27 percent) of this average wage earner’s annual salary.
  • Workers age 62 who earn average wages could increase their ultimate retirement income by almost one-third (32.7 percent) by working four more years until age 66 and by almost three-fourths (74.6 percent) by working eight more years until age 70.

(The report estimates that average annual wages for workers age 55 to 64 are about $52,350.)

Here are three reasons working longer increases your retirement income:

  • Your Social Security income will increase significantly — by 8 percent for each year beyond the full retirement age that you start benefits.
  • Your savings have more years to grow with investment returns.
  • Your savings need to last for a shorter number of years in retirement.

The paper shows that delaying Social Security accounts for most of the total increase in your retirement income — roughly three-fourths of it.

For low-wage earners, delaying Social Security benefits is particularly powerful. For example, consider such an earner at age 56: Delaying retirement by seven months has roughly the same impact as saving an additional 10 percent of pay for 10 years.

Many older workers aren’t willing or able to keep working at their current rate of pay or for the same number of hours. But you may not need to do either. For instance, you could pursue a “downshifting” strategy during which you reduce your hours and responsibilities, and earn just enough to cover your current living expenses while you let your Social Security and savings grow until you ultimately retire.

This strategy might free some time to enjoy life more and take care of yourself, and you’ll still reap most of the benefits of working longer described above.

It’s important to acknowledge that working longer may be “easier said than done” for many older workers. They’ll need to be resilient and creative to find work opportunities, and working longer will most likely take some planning. While working longer may not be the ideal solution, it may be the best option that many older workers have.

A Look at the 2018 IRA Contribution Limits

Monday, December 18th, 2017

You may or may not have caught the news, but the IRS announced last October that it was increasing the 401K contribution limit from $18,000 to $18,500. This is the first jump in that ceiling since 2015. The new limits were announced last October, and they also apply to 403(b)s, the majority of 457 plans and the federal government Thrift Savings Plan for 2018.

Catch up contributions

The feds didn’t change the limit for catch-up contributions for employees ages 50 and over, however. That amount still is $6,000.

Contribution limits for traditional and Roth IRA plans also stayed flat at $5,500, with catch-up contributions of $1,000 for those 50 and over.

Those covered by a workplace retirement plan such as a 401K, the income ranges for IRA deduction phaseouts also changed for 2018.

  • For single taxpayers with a workplace retirement plan, the deduction is phased out for those making $63,000 to $73,000, up from $62,000 to $72,000.
  • For married couples filing jointly, where the IRA contributor is covered by a workplace plan, the income phase-out range rises to $101,000 to $121,000, from a range of $99,000 to $119,000.
  • And for couples where the individual contributor is not covered by a plan, but their spouse is, the income phase-out range climbs to $189,000 to $199,000 from $186,000 to $196,000.

Increases

There were increases in the income phaseouts for Roth IRA contributions.

For single taxpayers, the phaseout range is now $120,000 to $135,000, up from $118,000 to $133,000. And for married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000.

Each year, the IRS assesses contribution limits for pension plans and retirement saving accounts to accommodate for cost of living adjustments. Last year, the IRS made no significant adjustments to either 401K or IRA contribution limits.

Here are the Stats: Why You Should Start Retirement Planning Today

Thursday, October 22nd, 2015

Retirement stats

According to the 2014 Survey of Household Economics and Decisionmaking, conducted by the Federal Reserve, American’s are very ill-prepared for retirement. A whopping 38% of the more than 5,800 respondents answered that they had no intention of retiring, or planned to work for as long as possible. 31% of non-retirees had no retirement savings or pension whatsoever, including a quarter of the people in the survey age 45 and up.

If this trend keeps up, and we’re unable to make up this deficit, a big majority of American’s could be forced to rely on Social Security in their would-be retirement years, or may have to work passed the desired age. The biggest issue with working well into retirement age is that unfortunately you can’t know for sure that your health, or your employer will accommodate you working 60 and beyond.

The problem with us relying on Social Security is that ideally, it’s only meant to make up %40 of retiree’s income. With people living longer than before, and baby boomers beginning to retire, it’s no wonder that Social Security is making headlines lately with talks of it possibly drying up.

start saving today

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Fortunately, there are several options when it comes to retirement planning, 401K’s and pensions offered through your employer, the rollout of myRA through the government, individual IRA’s and Self-Directed IRA’s hosted through IRS approved custodians, SEP IRA’s for self-employed people or small business owners, and more.

Talking with your financial advisor is important when making retirement decisions, they’ll give you an objective view on where you are, and what can be done to help you reach your goals. The most important thing is to not throw your hands up in defeat. Small victories and goals can be met, and make a big difference in the long run.

Click here to open an IRA today, and click here and fill out the form on the right to get more information on how you can get started today.

Author: Tanya

Biggest Retirement Mistakes That Can be Easily Avoided

Thursday, October 1st, 2015

Retirement mistakes 2

You’ve probably heard it all over the news lately, that people nowadays, of all ages, are simply not saving enough — if any — for retirement. Earlier this week, we talked about President Obama’s retirement plan called “myRA” and with tools such as a myRA, there’s hardly a reason not to get your head on straight and getting to planning.
What we’re going over today corresponds with last week’s blog, and we’re going to talk about today is retirement mistakes that are easily avoided.

Passing up money on the table

If you’re lucky enough to work for a company that offers a 401k program with a matching contribution, we cannot say this with enough enthusiasm, take FULL advantage. The main reason most people don’t take full advantage of a match is they either don’t know how it works, or don’t know how much they can get out of it. The problem is that every company does it differently, some match dollar for dollar up to a certain limit, and others match up to 50% of contributions.
Missing out on those dollars really adds up fast. It can be up to $1000 that you’re missing out on yearly (again, depending on what your employer offers), and that in turn can boost your nest egg by tens of thousands over several decades of saving, plus compounding interest.
The solution is that you need to talk to your human resources department. Write them out a detailed email, have all your questions up front, get all your bases covered, and then sign up, and start saving.

Not fully participating in your planning

The biggest issue with this is that you don’t know where your money is going, or how it’s doing. Don’t give someone else the reigns to your financial future. You may right now have an advisor, and that’s wonderful, but think about how much better two heads are over just one. If you’re watching out for yourself, and your financial advisor is as well, then I’d say that you’re in for a pretty stellar retirement.
Though, getting yourself to that point is where some hard work comes in. You have to choose yourself, pay yourself, and be kind to yourself. It’s all about self-education and responsibility.

Ignoring the obvious

As the song by Dusty Springfield goes, you’re wishin’ and hopin’ and thinkin’ and prayin’. And as we all know, that is no way to get anything done. Ignoring the fact that you will have to retire, or even putting off retirement planning is a surefire way to get you into some deep water. We at Accuplan challenge everyone to either schedule a meeting with a financial advisor, or just a serious sit down by yourself, and really start planning today, because wishful thinking can be dangerous.

Author: Tanya