Objective information about financial planning, investments, and retirement plans

7 Retirement Savings Tips to Help Avoid Regret

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According to TIAA-CREF’s Ready to Retire Survey “…more than half of people approaching retirement (52 percent) say they wish they had started saving for the future sooner.”    Some key findings from the survey include:

  • “Many respondents say they wish they had made smarter financial decisions earlier in their career, including saving more of their paycheck (47 percent) and investing their savings more aggressively (34 percent).
  • Forty-five percent of participants age 55-64 say financial readiness is the most important factor in determining when they will retire, but only 35 percent say they saved in an IRA or met with a financial advisor.
  • By not making the most of these options, many Americans now feel uncertain about their financial futures, with 68 percent of those approaching retirement saying they are not prepared for what’s to come
  • These retirement savings challenges are causing Americans to reconsider their vision of retirement. Forty-two percent of survey respondents age 55-64 say they plan on working in a part-time job, and 39 percent say they’ll be more conservative about how much they spend on entertainment and other luxuries.” 

Here are 7 retirement savings tips to help you avoid regret as you approach retirement. 

Start early 

If you are just starting out in the workplace, enroll in your employer’s 401(k), 403(b), or whatever type of retirement plan they offer.  Contribute as much as you can.  If there is a match try to contribute at least enough to earn the full matching contribution from your employer, this is free money.  There is no greater ally for retirement savers than time and the magic of compounding.  As tough as it may be to save early in your career put away as much as you can reasonably afford as early as you can afford it.

Increase your contributions 

The maximum 401(k) contribution limits for 2015 are $18,000 and $24,000 for those 50 or over at any point in the year.  No matter what you are currently contributing to your plan try to increase it a bit each year.  If you are currently deferring 3% of your salary bump that to 4% or even 5% next year.  Increase a bit more the following year.  You won’t miss the money and every bit can help fund a comfortable retirement.

Start a self-employed retirement plan 

If during the course of your career you become self-employed it is still important that you save for retirement.  Starting a plan such as a SEP or Solo 401(k) can be a great way for you to put away money for retirement.  You work hard at your own business and you deserve a comfortable retirement.

Contribute to an IRA 

Anyone can contribute to an IRA.  Traditional IRAs are subject to income limits as far as the ability to make pre-tax contributions, but anyone can contribute on an after-tax basis with no income limits.  All investment gains grow tax-deferred you do need to keep track of any post-tax contributions however.  Roth IRAs can also be a good alternative; again there are income ceilings that can limit your ability to contribute.

Don’t ignore old retirement accounts 

Today it isn’t uncommon for people to have worked for five or more employers during their career.  It is important that you make an affirmative decision as to what you with your old 401(k) or other retirement account when you leave your employer.  Leave it where it is, roll it to an IRA, or to your new employer’s plan (if allowed) but don’t ignore this money.  Even smaller balances can add up especially if you have several such accounts scattered about.

By the same token make sure that you stay on top of any pensions that you might be eligible for from old employers.  Make sure these companies can find you and be sure to carefully evaluate any pension buyout offers you might receive from old employers.  These can often be a good deal for you.

Beware of toxic rollovers 

Recently I have read a number of accounts about brokers and registered reps looking for employees of large organizations and convincing them to roll their retirement accounts into questionable investments with their brokerage firms.  Certainly rolling your 401(k) into an IRA via a trusted financial advisor is a valid strategy but like anything else you need to vet the person suggesting the rollover and the investment strategy they are suggesting.

Avoid high cost financial products

Many financial advisors who make all or part of their income from the sale of financial products will often suggest high cost financial products to implement their financial recommendations.  These might include annuities, certain mutual funds, non-traded REITs, and others.  Be leery and ask about the costs and fees associated with these products.  There is nothing wrong with annuities, but many of them that are pushed by registered reps carry excessive fees and have onerous surrender charges.

In the case of mutual funds, index funds are not the end all be all.  But you should certainly ask the advisor why the large cap actively managed fund with an expense ratio of 1.25% or more that they are suggesting is a better idea than an index fund with an expense ratio of 0.15% or less.

At the end of the day starting early, investing wisely and consistently, and being careful with your retirement savings are excellent ways to avoid the regrets expressed by many of those surveyed by TIAA-CREF.

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401(k) Loans by the Numbers

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The topic of borrowing from one’s 401(k) account is always a bit controversial.  Regardless of your view, the folks at TIAA-CREF have compiled some interesting data on 401(k) loans.

Key findings about 401(k) loans 

In their study of 401(k) loans TIAA-CREF found:

  • Getting Out of Debt – Paying off debt was cited as the top reason for taking out a loan from retirement plan savings (46 percent), yet only 26 percent of respondents said it was a good reason to take out a loan.
  • Paying for the Unexpected – The No. 2 reason overall for taking a loan was to pay for an emergency expenditure (35 percent).
  • Borrowing Against Their Savings – Nearly half (47 percent) of those who have taken out a loan from their retirement plan savings borrowed more than 20 percent of their savings, with 9 percent of respondents borrowing more than 50 percent. 

Moreover, they found that nearly One-Third of Americans Have Taken Out A Loan From Their Retirement Plan Savings and that 43 percent of those who have taken loans have taken two or more. 

401(k) loans – some statistics 

The TIAA-CREF study offered some interesting numbers regarding 401(k) loans:

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 “Women were more likely than men (52 percent vs. 41 percent) to take out a loan to pay off debt; however, men were more likely (40 percent vs. 29 percent) to take out a loan to pay for an emergency expenditure. 

Nearly half (47 percent) of those who have taken out a loan from their retirement plan savings borrowed more than 20 percent of their savings, with 9 percent of respondents borrowing more than 50 percent. 

In addition to borrowing funds from retirement savings plans, many Americans are also contributing less to their plans while they are paying back the loan. More than half of respondents (57 percent) who took out loans decreased their contribution rate during the payback period. Those age 18-34 were the most likely to decrease their contribution amount (81 percent). Forty-eight percent of women kept the same contribution rate while paying back the loan, compared to only 39 percent of men.”

Questions to ask before taking a 401(k) loan 

Morningstar’s director of personal finance Christine Benz recently wrote an excellent piece 4 Key Questions to Ask When Considering a 401(k) Loan.  Christine suggested answering these four questions before deciding to take a loan from your 401(k) account:

  • Does my intended use of funds promise a higher rate of return than leaving the money be?
  • Is my job secure?
  • Can I realistically pay this back?
  • Is my retirement plan on track? 

Is a 401(k) loan right for you?

I’m generally not a fan of using your 401(k) as a piggy bank but the reality is that there can be situations where the money is needed.  Things like a medical situation, a job loss, or other dire situations might necessitate a 401(k) loan. 

In the words of TIAA-CREF Executive Vice President Teresa Hassara: 

“Too many people have struggled since the 2008 financial crisis and have looked at loans from their retirement plans as a way to ease financial stress. However, individuals should weigh all of their options carefully before borrowing from their plan savings or reducing their contributions. Loans can undermine retirement savings and cause investors to miss out on earnings from rising markets. It’s important to evaluate the benefits of taking a loan now against the need for those earnings to build long-term retirement security. Working with a financial advisor can help people make the best decision for their life stage and retirement goals.”

I couldn’t agree more.  Make sure you consider all factors in your financial situation before going the 401(k) loan route.

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Lessons the Financial Services Industry Could Learn from Visiting Lambeau Field

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My son and I attended the Green Bay Packers game against division rival the Detroit Lions this past Sunday at Green Bay’s Lambeau Field.  I’m glad his first NFL game was at Lambeau and that I was able to experience this with him.  If you are a football fan and have never been, a trip to Lambeau on game day is a must for your bucket list.  Here are some lessons that the financial services industry could learn from a trip to Lambeau Field.

The folks are friendly 

As you enter Green Bay you will be struck by the fact that the whole city is pretty much all about the game.  Many houses near the stadium turn their front lawns into parking lots, as did at least one gas station and local motel.  Some will let you tailgate right on their lawn and even use the restroom in their home.  We parked on the lawn of an elderly couple for $20.  The husband who was in a wheel chair directed us as to where to park even before taking our money.  In fact I had to find him to make sure that we paid him.  He didn’t seem the least bit worried about me stiffing him.

I can’t tell you how often a prospective client has told me that the reason they were leaving their financial advisor was that the advisor talked down to them.  I’ve never understood this and the only reasons that I can come up with here is either true hubris or that the advisor really doesn’t want the client to understand where they are putting their money.  In the latter case this could be because the investments are sub-par or there is some sort of fraud ocurring.

There are many good choices 

Wisconsin (I’m an ex-patriot Cheesehead) is all about good food and drink.  Like to tailgate, these folks are pros.  Want to buy your food, no problem.  Before you even get into the stadium there is a permanent bar in the parking lot, plus other choices like a McDonald’s food truck.  Once inside, the atrium is much like a shopping mall including a food court with a great selection of reasonably priced “game food.”

Sadly all too often employees have a menu of lousy 401(k) investment choices.  Clients of commissioned registered reps also are frequently offered financial advice that may be suitable for them but not totally focused on their best interests.  This may include being sold products such as high cost annuities.

The game day experience is fantastic

I’ve been a Packer fan since 1966 when they won the first Super Bowl.  A couple of weeks ago I was so fanatical during the debacle against the Bengals that my wife and dog left our family room.  I care who wins.

Being there with my son on Sunday transcended who won or lost.  The fact that we were able to get down to the bottom row of the stands and watch pre-game warm-ups was as much fun as the game.  Mike is a Communications major at Northern Illinois University where he also works for the Athletics department.  He was very interested in watching the media setting up for the game  as well as seeing the likes of Clay Matthews up close.

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Sadly the financial services industry doesn’t always offer the investing public a great game-day experience when they are seeking financial advice.  A recent study by TIAA-CREF noted:

  • Forty-eight percent of Americans say it is hard to know which sources of financial advice can be trusted.
  • Thirty-seven percent of Americans say they don’t like talking to anyone about their finances.
  • Forty-six percent of Americans say that more than ever, they need a trusted place to go for financial advice.
  • Two-fifths of Americans think good financial advice costs more than they can afford.
  • One-third of Americans say they lack the time to get proper financial advice.
  • More than half (58 percent) of Americans say they would prefer to get financial advice from a single point of contact or location.

The financial services industry could learn a lot about service, the quality of the financial products and advice offered, and the need to serve clients for a reasonable fee by visiting Lambeau Field on game day.  It’s an experience like no other.

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