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Your 401(k) Plan, Your Responsibility

Wed, 24 Apr 2013 18:00:00 EDT

NEW YORK (WisdomTree) -- One of the many challenges Americans face today is saving enough money for retirement. The generations of Americans currently in retirement have predominantly received income from two sources: Social Security and pensions. However, since the early 1980s, the burden of funding future retirements has fallen on the individual. A significant decline in the number of pensions and an increase in the number of 401(k) plans have contributed to the current shortfall of retirement savings for many. Before we discuss the trend, let's take a look at what these two different types of plans are and how they work.

A Defined Benefit (DB) Plan is a traditional pension plan in which the participant (employee) receives a benefit at retirement based on a predetermined calculation. An example of such a calculation would be receiving 75% of the average of the last five years' salary before retirement annually. If the average salary for the last five years before retirement is $40,000, then the pension benefit would be $30,000 annually in retirement for life. The employer usually makes the contribution into the pension plan for the participant based on actuarial calculations to fund the pension plan, and the employer controls the investment direction.

A Defined Contribution (DC) Plan is a retirement plan commonly referred to as a 401(k) plan, in which participants (employees) contribute a portion of their salary into an account that provides a variety of investment options designed to meet the needs of the participant. At retirement, the participant still controls the investments and determines what is taken out of the account as income. A 25-year-old who put $2,000 per year into his/her 401(k) plan could expect to have an account balance of $374,000 at age 65, assuming his/her account grew at an average annual rate of 6.5%. The participant makes the contributions into his/her account, with the employer in some plans making a matching or profit-sharing contribution to the participant's account. In most cases, the participant controls the investment direction. ...

Top ETFs for Your Retirement Savings

Tue, 09 Apr 2013 07:30:00 EDT

By Billy Fisher

Whether you are on the brink of retirement or have a ways to go, choosing the right ETFs for your portfolio can be a daunting challenge. At last check, there were more than 1,400 ETFs being tracked by Morningstar. Which ones are capable of enhancing your golden years? Here are some top ETF ideas for your retirement savings.

Global Diversity ...

Salmon: Beware Schwab's High-Cost Index-Fund 401(k)

Fri, 22 Feb 2013 16:28:25 EST

NEW YORK (Reuters Blogs) -- I like index funds, and I believe that the best way to maximize your retirement savings is, simply, to save more money. So I was intrigued to see a press release from Charles Schwab this week, touting its new 401(k) product, which combines index funds with opt-out advice services. The results, according to Schwab, are impressive: Investors save 77% on operating expenses, and also tend to put more money into their plans:

Nearly 90% of workers in Schwab Index Advantage plans are receiving low-cost, professional, third-party advice to help manage their 401(k) investments. Prior to the transition, only about 4% of these same workers elected to receive advice.

Schwab data shows that employees who have chosen to use independent, professional, point-in-time 401(k) advice services in the past have tended to save twice as much, were better diversified and stuck to their long-term plan, even in the most volatile market environments....

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5 Retirement Savings Strategies for 2013

Tue, 12 Feb 2013 15:17:01 EST

NEW YORK (TheStreet) -- Saving for retirement is an area of personal finance that makes your stomach churn. Saving for something decades away isn't as appealing as setting more short-term goals, in which the results appear sooner.

The two most common types of retirement accounts, the 401(k) and Roth IRA, are undoubtedly essential to any retirement savings plan of action. For this year, the contribution limits for both accounts have been raised by $500, to $17,500 and $5,500, respectively. >>> Also see: Your Happy Retirement Is Probably About $250,000 Short

Do you need a quick retirement tune-up? We asked personal finance experts to share five direct ways to jumpstart your savings for when you're no longer working: ...

3 Last-Minute Retirement Savings Strategies

Sat, 29 Dec 2012 17:13:31 EST

By Matthew Malone NEW YORK (TheStreet) -- The apocalyptic talk of the fiscal cliff likely has you worried about your own financial health, particularly your retirement savings, and what you can do before year-end to ease any looming pain. The good news is that there are moves you can make (or not make) to insulate your portfolio from pending tax increases and ward off the more general effects of a neglected retirement account.

Convert to a Roth IRA. A Roth IRA differs from other retirement accounts in that you don't take a current-year tax deduction for contributions. Instead, you pay income taxes now and don't pay any taxes when you withdraw money in your retirement years. That's particular important in an environment like today's when taxes are set to rise.

For instance, if you're in the 15% tax bracket this year and convert $1,000 from a traditional to a Roth IRA, you'd pay $150 in taxes on the converted amount. Put the $1,000 in a traditional IRA and you wouldn't pay anything in taxes today. But what if taxes go up to, say, 20% in the future? If both accounts increased to $2,000 by the time you retire, when you withdraw the money you would pay $400 in taxes with a traditional IRA. With a Roth, you pay nothing but the original $150. ...

401(K) Day-Trading Beats the Market

Sun, 16 Dec 2012 10:09:41 EST

By Richard SchmittMENLO PARK, CA -- In what has to be considered a bold proclamation of confidence in an investment strategy, I subjected my 401(k) day-trading strategy to the scrutiny of a public wary of day-trading retirement savings. Over the course of three weeks, just ended Dec. 14, my once-a-day fund transfers posted on my twitter account -- @401kDayTrading -- before each day's market close garnered a return that handily beat the broad U.S. stock market.

When asked about the wisdom of day-trading retirement savings, I replied: "What controversy. I have simple arithmetic on my side that steadily turns market volatility into lasting gains in retirement savings, where trades don't trigger immediate taxes or direct trading costs."

I posted a daily tweet, about 5 minutes before each day's market close, describing that day's single fund exchange between stock and cash funds within my retirement savings during the public trial period....

5 Ways the Election Results May Affect Your Retirement

Mon, 05 Nov 2012 12:05:24 EST

By Matthew Malone NEW YORK (TheStreet) -- Between all the debating, advertising and robocalls, it can be difficult to focus on the many everyday parts of life that will be affected by a Romney presidency or Obama re-election. When it comes to finances, for most of us "Big Bird" and "big government" are less important than the things, big and small, that will influence the way we spend and save.

Retirement planning, of course, is among the most important elements of a sound financial plan, so it's critical to understand how the incoming administration's policies will make that more or less secure. Also see: TheStreet Predicts Obama Will Win the 2012 Election >>

Here are the five most important ways the election can make our golden years more -- or less -- so. ...

Democratic, GOP Anxiety Over Retirement Looks Different

Tue, 23 Oct 2012 13:08:24 EDT

NEW YORK (TheStreet) -- Americans' viewpoint on retirement savings and the role employers pay in advancing workers' wealth depend significantly on political affiliation.

That's one conclusion drawn by a study from Wells Fargo . saying adults are "teetering on the edge of the retirement cliff."

Among other issues, the study focuses on 401(k) plans and "political party affiliations" associated with how consumer them, as well as what role their companies play in managing those plans. ...

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An Argument for Retiring in a Bad Economy

Thu, 27 Sep 2012 12:42:56 EDT

NEW YORK (BankingMyWay) -- U.S. workers are increasingly, maybe even exceedingly, nervous about achieving a stable retirement, and another looming shadow over the economy may give many good reason to stave off retirement for a few years.

Delaying retirement for a few year would provide a twofold advantage to workers: It would buy time to earn more cash for their golden years. It would help avoid retiring into a miserable economy, hopefully with the idea that in a few years things will be back on track and issues such as high consumer prices and a lousy real estate market will heal themselves.

A study from the Washington, D.C.-based Employee Benefit Research Institute supports the idea of delaying retirement from a cash accumulation point of view. The study says Americans are financially better off retiring at age 70 than at age 65 (left unsaid is the fact that workers who push off retirement will have to deal with five more years in the workforce). ...

More Young People May Enjoy Secure Retirements

Tue, 18 Sep 2012 09:28:55 EDT

NEW YORK (TheStreet) -- According to a variety of polls, many young people are glum about their retirement prospects. The pessimists fear their savings will be inadequate to cover living costs. Some members of the younger generation worry that Social Security will disappear.

In fact, the outlook may not be so bleak. In recent years, more people have begun saving. After facing pressure during the financial crisis, the Social Security program has rebounded and remains on solid footing.

The improvement in savings patterns is particularly noteworthy. According to a survey by TD Ameritrade, young people are proving to be better savers than their parents. While 46% of people aged 48 to 66 have regular savings plans, the figure is nearly 60% for those aged 23 to 47. ...

IRA Cheats Become Focus on IRS Cop Beat

Mon, 17 Sep 2012 06:00:00 EDT

NEW YORK (AdviceIQ) -- The word is out that the Internal Revenue Service is less and less lenient regarding individual retirement account mistakes. Potential penalties are large.

Failing to take a required minimum distribution (RMD) from your IRA socks you with a whopping penalty that is 50% of the RMD itself. The penalty for an improper IRA contribution is 6% annually, potentially accumulating for years on end. As a result, you should be more cautious than ever complying with all IRA rules.

A recent article in the Wall Street Journal described how the IRS appears to be cracking down on IRA snafus with increased audits and less leniency in forgiving penalties and interest. ...

Four Money Questions to Answer Before Retirement

Sun, 16 Sep 2012 06:00:00 EDT

NEW YORK (AdviceIQ) -- Every now and then you probably ask yourself, "When should I retire?"

Is it simply a matter of finances? Or do you retire when you've "had enough" and are simple unwilling to take it anymore? Of course, there is no one answer for everyone. But you can ask yourself the following four questions and easily come to a better-informed conclusion:

1. How much does it cost you to live on average each month? Before you quit your job, find out if you have the money to start living the life of Riley or not. And to determine if you have enough money to retire, you must first know what it costs you to live. ...

A Cautious System for Tapping Retirement Portfolios

Tue, 04 Sep 2012 10:21:03 EDT

NEW YORK (TheStreet) -- People who retired in September 2000 were extremely unlucky. During the next two years, the S&P 500 dropped 38%. The big downturn upended the careful plans of many retirees who expected to cover living expenses by selling stocks. Savers who retired in December 2007 suffered another big setback, as stocks dropped 48% in the next 15 months.

To protect against such big downturns, financial advisers have developed techniques that call for dividing portfolios into sections or "buckets." The first bucket holds cash and other safe instruments, while the other sections take on more risk. Retirees tap the cash bucket to cover living expenses.

Critics of the bucket system note that keeping a big cash stake could hurt long-term returns. That is true enough. But the bucket system may be useful because it calms nervous savers who could panic and sell during downturns. Advisers say the approach is particularly useful for clients who might be afraid to invest in stocks otherwise. "By creating greater security with one part of the portfolio, you enable investors to take more risks with other areas," says Stephen Freedman, an investment strategist with UBS Wealth Management Research. ...

Retirement Planning: How Long Will You Live?

Mon, 20 Aug 2012 10:22:32 EDT

NEW YORK (TheStreet) -- A generation ago, it was rare for anyone to live to 100 years of age. But now when a couple reaches 65, there is a 10% chance that at least one of the partners will live to 100, according to recent data from the Society of Actuaries. There is a 1% chance that one partner will reach 107.

The gains in life expectancy present a challenge for anyone who is developing a retirement plan. To maintain comfortable living standards, retirees may require savings that can cover expenses for four decades. But many planners fail to consider the new data on life expectancy.

Instead, people in their 60s plan for retirements of 10 or 20 years. ...

Don't Let Frugality Define Retirement Quality of Life

Mon, 13 Aug 2012 14:19:16 EDT

NEW YORK (AdviceIQ) -- You've heard about spending too much. What about people who spend too little? This is especially a problem for retirees who habitually tighten their belts, long after they need to. It harms their quality of life.

My usual advice is: "Be frugal." "Save for the future." "Live on less than you make." This is well worth repeating, even though too many Americans aren't following it.

Accumulating wealth typically requires people to live on much less than they earn. Frugality is the common denominator of almost every first-generation wealth builder. ...