3rd Quarter 401k Back in the Positive November 30, 2006
For the 2nd quarter 2006, I wrote that my 401k performance was negative. In the 3rd quarter 2006, I did better but not by much. At least it’s in the positive range. My personal rate of return for the period ending September 30, 2006 was: 3.54%.
Hope you’re doing better than that.
Lately I’ve been thinking of reducing my contributions to 401k to the minimum contribution dollar amount an employee needs to contribute to get the maximum employer match in order to pay off some home equity line of credit, which is at approx 8% or so interest rate. I’ve already maxed out the 401k in the past few years so I’m thinking that I can take a break until my higher interest line of credit is paid off. Is this a smart idea?
My 401K Performance is Negative August 24, 2006
I’ve been contributing the maximum allowed for my retirement for the past 5 years, so my balance has gone up quite a bit. But recently, my personal rate of return for the period ending June 30, 2006 was: -4.12%. According to this CNNMoney article today, those who saved for their retirement from 1999 to 2005 have done well. Here are the average account balance in 2005 for the following age groups:
- 20s who have had accounts since 1999 was $24,169
- 30s, it increased to $50,930
- 40s it rose to $91,848
- 50s had an average account balance of $127,766
- 60s was $140,957.
Are you on track with your retirement fund? I hope I get out of the negative territory for the next quarter!
What’s Your Nest Egg Ranking? July 7, 2006
That’s my score up there according to a new online calculator from A.G. Edwards that lets you figure out how well you are building wealth vs. the rest of the U.S. public (nesteggscore.com). According to the site, the national average is 631, a ‘fair’ ranking:
The 14 question survey told me that I have a score of 748, which gives me a Nest Egg Score ranking of “Good”:
You’ve done a respectable job of saving up to this point in your life. To improve your Nest Egg Score, you should focus on saving more — especially for retirement — and reducing debt, such as paying down credit cards or building more equity in your home (if you own one).
The scoring factors in age, housing, investments, and location (cost-of-living). With my ‘Good’ ranking, their suggestions are:
- Continue to manage debt.
- Maximize your retirement contributions.
- Consider your other financial goals.
- Review your investment mix.
- Create or review your estate plan.
While the suggestions sound like standard retirement planning advice, the scoring is an interesting indicator of how you’re doing. If I took this survey 3 years ago, my score would probably have been much lower. Since then, I’ve contriuted the maximum allowed in my retirement accounts, spent less than I make, and saved up to purchase real estate. How are you scoring?
My Definition of the 10% Rule April 20, 2006
Books, financial advisers, personal finance blogs often suggests that earners save 10% of what they earn. Since the US national savings rate is in the negative territory now, in the consumerism society of the USA, how is it that everyone expects America to save 10%? I’ve always wondered about that 10% number. None of the publications I’ve read were that clear on whether that 10% is pre-tax or after-tax or is it 10% of your disposable income. I know it doesn’t really matter, because either way, saving something is better than spending more than you earn. But it can make a difference. For example, the difference between my pre-tax savings of 10% and after-tax savings of 10% is approximately $5000.
Does saving on your 401k retirement count towards your savings? I’ve always trained my mind that anything put into my 401k is just money never seen. I don’t count it towards savings, net worth, etc. So when I do get to see it someday, it’ll be found money. So in my book, when people say we should save at least 10% of our salary, I see it as 10% of my after-tax, discretionary money. I’ve been able to do that without any major lifestyle changes by changing small habits, and reducing my fixed costs. From a MSN Money article, the savings picture in the US is pretty bleak:
In 1981, families saved an average of 11% and owed 4% of their income on credit cards. By 2000, the average savings rate had already fallen below zero, and credit-card debt had gone up to 12% of income. Today, she says, “boomers have a bigger problem with debt than anyone else. Half of them do not have a retirement account.”
In the same article, I agree with the quote by Jeff Seely, CEO of ShareBuilder.com, “Do not let people borrow against their 401(k). This is your retirement money. Don’t touch it.” That’s partly why I don’t even count that as my savings, because I don’t intend to touch it until I retire.
Do you count your 10% savings after-tax? Does retirement count? Inquiring minds want to know.
Source:
Why can’t Americans save a dime?
MSN Money
Would You Take GM’s Buyout Package? March 29, 2006
Last week, more than 120,000 hourly workers for General Motors and auto supplier Delphi were offered buyouts of up to $140,000. It’s tough to see such a large company having to cut so many workers.
If you took that offer, you’d have to give up retirement and health benefits. Given the choice, would you take a large payment and no benefits, or a smaller payment and continued health care coverage? $140,000 is no small sum, but it’s not an amount you can live off of, unless you are close to retirement. If you face such a choice, don’t underestimate the value of benefits because those costs will only go up over time. Consider tax implications too. If your buyout is considered severance pay, as opposed to a lump-sum pension payment, it will be taxed as ordinary income. That could push you into the next tax bracket, and the employer must withhold more tax, thus making the payout smaller than the stated number.
If you’re young, you have time on your side. If you’re able to put all the $140,000 in an interest bearing account such as ING Direct for 5 years with an interest rate of 4% compounded monthly, you’d end up with $170,939.52. That’s $6000 per year of income if you were able to get another job that pays for your living expenses. The problem with many of the GM workers is that getting another job is probably not that easy, since the US auto industry is not exactly booming. At my age (30s), I’d take it since I wouldn’t know if GM would cut me later without the buyout package.
So, would you take the buyout?
Expect no Inheritance from Your Parents March 27, 2006
There was an interesting article from yesterday’s NY Times about the expectations of receiving an inheritance. According to the article, the majority of the US households (86%) do not expect to receive an inheritance. I’ve read that hundreds of billions of dollars are being passed on every year. However, most elderly Americans can probably forget about passing on an inheritance to their children.
After all, the evidence shows that baby boomers are going to need it: working Americans are unprepared for their own retirement, economists say. They have little savings of their own, and are facing the possible erosion of Social Security and the limits of company pensions…
In 2004 median inheritances — half were bigger and half were smaller — amounted to about $29,000 in today’s money, according to a Federal Reserve analysis of the Survey of Consumer Finances.
The two biggest reasons for the decreases in inheritance are healthcare costs and longer life expectancies. The poor and middle class will spend more and more on healthcare and retirement living, while the small percentage of wealthy families are getting a bigger slice of the inheritance pie. The wealth and inheritance $782,000 is concentrated in the top 2 percent of the richest.
It’s a good idea to live and spend as if you will not receive any inheritance. We shouldn’t have a sense of entitlement about getting things from our parents. Plus, we should feel lucky that our parents will live longer than previous generations. I’m not even sure my parents will have anything left to pass down, but we’re saving as much as we can into our 401k retirement plan since we don’t expect any inheritance. In fact, we should plan on taking care of our parents as they took care of us growing up.
Source:
NY Times: Inherit the Wind; There’s Little Else Left
By EDUARDO PORTER
Published: March 26, 2006
7 weeks left to fund your IRA for 2005 February 28, 2006
You have less than 7 weeks left to fund your IRA for 2005. If you qualify, the Roth IRA is the one you want to put money into because even though you are putting in after tax dollars, as long as you keep the money in until you are 59 there is no further tax on it, ever. The growth is tax FREE.
The traditional IRA, on the other hand, is typically after-tax dollars as well, but the growth is tax DEFERRED. so you will pay tax on the capital gain between now and age 59, but you don’t have to pay it until you are 59 (or later). This is helpful because you can take money out whenever you want and presumably wait until you are not making any money and in a lower tax bracket before you take the tax hit. But there will be a bill to pay eventually. So the balance is between paying the tax every year, versus getting the deferral. definitely advantageous, but nothing close to the Roth IRA.
You’re eligible to make a regular contribution to a Roth IRA even if you participate in a retirement plan maintained by your employer. These contributions can be as much as $4,000 for 2005 through 2006. (If you’re 50 or older by the end of the year, add another $500 for 2004 and 2005, and $1,000 beginning in 2006.) There are just two requirements.
- First, you or your spouse must have compensation or alimony income equal to the amount contributed.
- And second, your modified adjusted gross income can’t exceed certain limits. For the maximum contribution, the limits are $95,000 for single individuals and $150,000 for married individuals filing joint returns. The amount you can contribute is reduced gradually and then completely eliminated when your modified adjusted gross income exceeds $110,000 (single) or $160,000 (married filing jointly).
How much do you need to retire? February 16, 2006
MSN Money has an interesting article about how much money you need to save up for retirement. The MSN article states:
Young workers don’t need to get hung up on a specific target for their retirement nest egg. Save as much as you can as early as you can and you’ll be off to a great start. Although there is no hard-and-fast rule, Christine Fahlund, senior financial planner with T. Rowe Price, recommends that young workers try to save 15% of their gross salary (including employer matching contributions) in order to replace 50% or more of their salary in retirement (the later you start, the more you’ll need to save).
I started putting money into my company’s 401k program relatively late at age of 27. But since then, I’ve put in the maximum allowed. We try to put away about 25% of our gross income into retirement savings. I’m assuming that by the time I retire, there will be no government assistance as the US as the current national debt is US$8.2 trillion dollars. There’s an interesting book called “The Number” which talks about “how much money do you need to secure the rest of your life?”
I don’t have “The Number” for myself, but as MSN says:
The sweet spot for the optimum retirement-savings number seems to lie between the two extremes. So someone looking to generate $40,000 a year in retirement strictly from personal savings would need a nest egg somewhere between $500,000 (12.5 times the initial withdrawal) and $1 million (25 times the initial withdrawal).
Do you have your Number?
Source:
By Kiplinger’s Personal Finance Magazine on MSN Money