chart: how much should I save?

401(k)s “Top” Financial Priority. Really.

A large majority of people in a survey released last week identified saving for retirement as their top financial priority. If that’s the case, then why aren’t Americans saving enough?

Stuart Ritter, senior financial planner for T. Rowe Price, the mutual fund company that conducted the survey, has some theories about that. Squared Away is also interested in what readers have to say and encourages comments in the space provided at the end of this article.

But first the survey: about 72 percent of Americans identified saving for retirement as “their top financial goal,” with 42 percent saying that a contribution of at least 15 percent of their pay is “ideal.”

Yet 68 percent said they are saving 10 percent or less, which Ritter called “not very much.” The average contribution is about 8 percent of pay, according to Fidelity Investments, which tracks client contributions to the 401(k)s it manages.

The Internal Revenue Service last week increased the limit on contributions to 401(k) and 403(b) retirement plans from $16,500, to $17,000. The so-called “catch-up” contribution available to people who are age 50 or over remains unchanged at $5,500.

The question is: why do Americans give short shrift to their 401(k)s, even as people become increasingly aware that their dependence on them for retirement income grows? Ritter offered a few theories in a telephone interview last week:

  • The financial industry is partially to blame. “We have done a really good job of conveying to people how important saving for retirement is,” he said, “but what we haven’t done as good a job of is telling them how much to save.”

Employers may also share blame. Further confusing the issue, the savings rate depends on when the employee starts saving – the percent of pay is lower for those who start in their 20s than for someone who waits until they’re 45. …

Baby boomer moms

Boomer Moms, Here’s A Radical Idea

Research shows that when children leave the nest, married couples spend 50 percent more on discretionary spending like eating out and vacations.  But whether you’re ready or not, retirement is bearing down hardest on women.

Here’s a radical concept for moms whose children have suddenly grown up: focus on your own financial needs. Women usually out-live their husbands and need to be on top of the situation. So getting a handle on your financial priorities should be at the top of your list.

Squared Away interviewed financial experts to come up with five priorities for baby boomer women whose kids have flown the coop.

Get Smart. If you haven’t had time to pay attention to the household finances, start simple.  Financial expert Wendy Weiss, on her blog, Hot Flash Financial, said the first thing to do is track down and inventory the types of accounts and the financial institutions that hold your money: savings, retirement plans, insurance documents, your and your husband’s latest Social Security statements – add them up and determine what you’ve got.  Then get a handle on the size of the credit card debts and mortgage.

“Just find out what you have,” Weiss says.  “There are questions you can ask later.”

Talk to Your Kids. You’ve poured your heart into nurturing your offspring.  So turn the tables and ask them to have a conversation about your needs once you retire.

Financial advisers swear by these wide-ranging discussions, the content of which reflects the diversity in families.  The children will be reassured if you’ve saved enough or will share your concern if you haven’t.  Perhaps they’ll have opinions about whether you should purchase long-term care insurance.  They should also know the beneficiaries on your financial and pension accounts and insurance…Learn More

app icons

How Smart Are Smart Phones?

Nearly half of people who have cell phones pay more than $100 per month for the service and 13 percent pay $200 or more, according to a survey by an online coupon company.

That doesn’t include the cost of the physical phone, the app and music downloads, the extra data plans. A certified public accounting organization in Oregon, Oregon Saves, estimates that the total cost for a two-year contract can easily reach $3,000.

And then there are the rogue teenagers who go over the monthly limits on minutes set by their parents’ cell plans – eventually, the parents relent and buy an unlimited data/text plan, which drives up their monthly charges permanently.

Wow, this habit is getting expensive.

The cell phone isn’t the only electronic habit that’s costing us.  We also pay hundreds for cable TV, the Internet on our home computers, the land line.  The automatic withdrawals for these services suck hundreds from our bank accounts each month – and we may not notice how much we’re spending since the transactions are electronic…Learn More

Paying Mortgage Faster Not Best Option

Americans have been paying down their high-interest credit cards like crazy. Once you do, financial advisers say, think hard about the best use of that spare cash.

With mortgage interest rates at historic lows – they’re scraping 3.5 percent on 30-year fixed loans and 2.8 percent for 15 years – paying extra on the mortgage should no longer be a priority. This simplifies what is a difficult decision for many of us: what’s next?

Saving for retirement and paying off student loans are now the top priorities, in that order, according to two financial advisers interviewed by Squared Away. But paying off the mortgage is a mistake that many people continue to make: mortgage debt outstanding has also declined in recent years, from $11.1 trillion in 2008 to $10 trillion currently, according to the Federal Reserve.

“Paying off a mortgage – I’m not a big fan of that,” said John Scherer of Trinity Financial planning near Madison, Wisconsin. He proposes that his clients funnel the extra money that had been used to pay credit cards into other personal finance “buckets.” …

Learn More

A Modest Solution to Your Financial Woes

Perhaps because our summer vacations are over and it’s time to increase our 401(k) contributions, Squared Away is on a jag about saving money.

Amitai Etzioni is one of the last old-school public intellectuals.  He has done everything from writing 24 books to serving in the Carter White House and currently directs George Washington University’s Institute for Communitarian Policy Studies.  But this video captures the wisdom of an 83-year-old man who taps deeply into the psychology of money in the 21st century. 

Etzioni also wonders why, when he suggests his prescription to people, they “get angry with me.”

Since everyone is unique – and uniquely motivated – you may prefer a video that ran last week. 

To support our blog, readers may also want to sign up for our e-alerts – just one per week – by clicking here. And there’s always Twitter!Learn More

Motivation to Save: A Simple Solution?

Quiz: by socking away $400 per month, earning 10 percent on your money, you can save $302,412 in 20 years. So, how much would you have in that same account in 40 years?

Yes, it’s more than double. But how much more?

Most Americans can’t do the math, explains Craig McKenzie of the University of California, San Diego’s Rady School of Management, in this video. And if they can’t do the math, then they are unable to comprehend how much easier their lives would be if they took advantage of the enormous benefits of starting to save early for their retirement.

That’s hardly surprising. What is surprising, however, is that McKenzie, a cognitive psychologist by training, experimented with a “simple, straightforward intervention” to get the point across to research subjects of the large boost to saving of earning compound interest over many years. Even better, it succeeded in motivating them to save, he said.


The solution is, as promised, simple – so easy that employers who offer 401ks, as well as mutual fund companies, banks and credit unions, could easily implement it…
Learn More

aluminum

Hard Labor Spells Earlier Retirement

Men with the most physically demanding jobs retire earlier – by choice or due to exhaustion or chronic pain – increasing the financial pressures facing this segment of the workforce once they reach old age.

The retirement age for most Americans continues to float upward as people delay the date so they can sock more money away or boost the eventual size of their Social Security checks. But that’s often not a viable option for people with highly physical jobs, such as the 1,500 Alcoa plant workers in a new study.

The retirement pattern for Alcoa workers studied by the Stanford University School of Medicine suggests that men in manufacturing jobs face a unique set of retirement issues related to the physicality of their work. Most of the workers in Stanford’s 2001-2008 study were employed in aluminum smelters. The study found that men in these demanding jobs retired, on average, at age 60 and six months – a full year earlier than their male Alcoa coworkers with jobs such as floor inspector or shipping clerk.

“Those with heavier jobs retire earlier. Those with more sedentary jobs retire later,” Sepideh Modrek, a Stanford medical school lecturer, said at the recent Retirement Research Consortium conference, where she presented the results of her working paper. [The Center for Retirement Research, which sponsors this blog, is a consortium member.] … Learn More

...10...1718192021...