Posts Tagged ‘retirement savings’

Americans Are Unprepared For Retirement

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November 29th, 2011

Retirement problems among small business owners at crisis levels

Retirement? Ah, I can’t wait to read those Golden Years. Let’s see, I’ll be 59 in February, meaning I have only another 6 years or so until I hit the deck chair and the beach. Wow, I can hardly wait! Dream on. Unless you have been saving for those Golden Years since you were in your twenties I have news for you. And if you have been saving all those years, I have other news for you.

Those Golden Years

Seventy-five percent of small business owners said that Americans are so financially unprepared for retirement that it’s becoming a crisis, according to a survey by Nationwide Financials released Monday. Still, less than 20 percent of small business owners say they offer employees a 401(k) or other employee self-funded retirement plan.

More bad news

Americans are becoming increasingly concerned about retirement as the economic downturn stymied income growth and wreaked havoc on investments such as stock portfolios and homes. More than three quarters of middle-class Americans said they don’t think they’ll be able to afford to retire until they’re 80, according to a recent survey from Wells Fargo. And two-thirds of Americans ranked not having enough money for retirement as their top financial concern in a recent Gallup poll, up from 53 percent 10 years ago.

Retirement anxiety

Despite the retirement anxiety, only 11 percent of small business owners said they plan to offer an employee-sponsored 401(k) plan in the next two years, the Nationwide survey found. And while nearly 80 percent of small business owners say having a retirement plan is important for attracting more qualified employees, more than half say it’s too expensive.

Congress

That’s why some members of congress are trying to get a bill passed that would encourage small business owners to pool their resources and offer plans that are less expensive than single employer plans, potentially making some of the administrative responsibilities easier, according to Nationwide officials.

Not only the US

The US isn’t the only country where small business owners are struggling to offer retirement options. Due to the economic climate, the British government recently decided to delay auto-enrolling workers at businesses with fewer than 50 employees in pension programs by one year, according to the Telegraph.

What to do?

Start thinking today about an alternative to retiring. It’s a difficult project and requires creative thinking. I was hit with enforced retirement at age 63. At that stage I was aware that the retirement clock was ticking faster than usual and I was busy feeding money into my pension fund as fast as I could. I thought that I would like to work until I was about 70. The engineering company I was managing was closed down overnight and I found myself on the sand on the beach, no deckchair.

Creative thinking

I sat on that beach for about 6 months with a pen and notebook, writing down every crazy retirement and money making idea that flashed across my mental screen. Today I am a writer.

Tags: 401(k) Plans, Retirement Preparation, retirement savings, Saving For Retirement, Savings
Posted in Business, Economy, Employment, Finance, Money, Retirement | No Comments »

Can You Save Too Much For Retirement?

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October 5th, 2011

How much is enough?

Life is an ever-changing scene. We have no idea what will be tomorrow, or next year or at the time we are about to retire. We have to find some sort of balance that makes sense today and will make sense in the future, not an easy task. Will taxes go up? What about inflation? How much do I need in retirement to continue my lifestyle? With so many questions, spread out across so many years, it’s hard to know if you’re saving too much or too little unless you do a little planning.

Retirement plans

Most retirement investment planning, at least when you’re in your early twenties, focuses on two accounts – a 401(k) and an IRA, typically a Roth IRA. The contribution limits are $16,500 for the 401(k) and $4,000 for the IRA, higher if you are permitted a catch-up contribution due to your age. If you were to max out your contribution to both, that’s a hefty $20,500 a year towards your retirement. That’s a lot of money for anyone to be contributing and I’d argue that contributing $20,500 each year until you retire is too much. Unless you make a lot of money, contributing that amount will put a significant strain on your current lifestyle and that’s a tradeoff that you may not want to make.

Calculating How Much

How much will you need in retirement? Ask ten people and you’ll get ten numbers. They will all be wrong. I do something simple, I calculate how much money I need to live on today and use the 4% rule. The 4% rule is a retirement rule of thumb that says you can only spend 4% of your nest egg each year if you want it to last for the rest of your life. With appreciation and interest, a 4% drawdown is ideal. That means if you want $40,000 a year in income, you’ll need a $1 million in retirement savings. If you want $80,000 a year, that’s $2 million. Calculating how much you need will depend on your lifestyle, so that’s up to you.

Retirement age

From there, you’ll want to set the finish line at 65 (or whenever), and calculate how much you need to save each year in order to reach that number. Then, calculate how much those savings will grow given rates of appreciation (minus inflation). You can use whatever growth rate you feel comfortable with, I personally use 7% (and 3% inflation). That will give you how much you need to save each year.

Taxes

One point I purposely overlooked was taxes. Contributions to your 401(k) are tax deductible but you pay income taxes on the disbursements during retirement. If you need $80,000 a year and it comes entirely from a 401(k), you’ll need to save for more because you’ll be taxed on that income. I conveniently ignored it because it complicates things and I just figured that any Social Security payments would help offset that tax so that the math would come out close enough. I could be wrong but for the sake of simplicity, that’s where we’re going.

So, are you on track with your retirement savings?

Tags: Retirement, retirement savings, Savings, Taxes
Posted in Business, Economy, Employment, Finance, Health Insurance, Money, Retirement | No Comments »

Everyone Can Use Cash Advances

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April 10th, 2011

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