Talking Retirement

Why You Should Spend Everything You Earn and Not Save a Dime.

If I said to you, “You can have $10,000 to spend now—or $9,500 to spend in 10 years,” which would you choose? Probably the $10,000 now. And in doing so, you would be making the same choice many Americans make when deciding whether to save or spend their hard-earned cash.

The problem is how we tax investment gains.

If you’ve been reading TR for a while, you know I would still encourage you to save for retirement, but I found the article interesting. The article does say that long-term investing in stocks does avoid some of the problem, as he sees it, but it’s not for everyone.

Unless you’re in your 20s or 30s and saving for retirement, stocks are too risky to represent your entire portfolio. So, given current tax policy, it’s no wonder we’re not saving anything.

Mr. Bloget does offer some suggestions for fixing the tax code to encourage more savings, but I’ll let you read them in the full article.

Retirement Myths

Sorry it’s been so spotty lately. Work has been a little overwhelming. I’m back today though with an article debunking some popular retirement assumptions, Retirement Myths Revealed. The first one is the one I think it’s hardest for young people to overcome, “‘I’m too young to worry about retirement.” Read the rest of the myths here.

Solid Numbers For Savings Goals

The analysis suggests you need a surprisingly large amount of money to keep up your standard of living. A couple that has gone through life with two children and with an income of $136,000 needs to have $850,000 in the bank, and a paid-off house, if they expect to maintain their living standard.

Skinner lists a number of markers along the way that can let you know whether you’re on track. At 40, this couple should have $167,000 in the bank, and at 50 they should have $399,000.

That same couple with an income of $272,000 needs to save a lot more, of course. They should try to have $1.53 million when they retire, and would need to have $316,000 at age 40, and $590,000 at age 50. Skinner also lays out a wide array of other incomes and scenarios.

It’s a large amount of money to save, but at least it’s something to mark your progress against. The rest of the article is worth your time too. Be sure to read the story here.

People Still Aren’t Saving

Instead of me saying the saying the same thing, I’ll let the opening paragraph of Yes, Retirement Still Seems an Impossible Dream do it for me.

It’s time for another retirement study to make you feel anxious and afraid. These studies always come to one conclusion: No matter how much you are saving for retirement, it isn’t enough, and you should save much, much more. So you’d better stop spending money on anything related to your present life.

Read the article.

Many Don’t Take Advantage of “Saver’s Credit” When Doing Their Taxes

A recent survey found that many people aren’t aware of a “tax credit designed to help low- to middle-income Americans build their retirement nest eggs” typically called the Saver’s Credit. Officially, it’s name is the Retirement Savings Contributions Credit. One important way to know if you’re not taking advantage of it is if you’re using the Form 1040EZ to file your taxes. Form 1040EZ doesn’t allow you to take advantage of it because it can “only be claimed using the Form 1040, Form 1040A or Form 1040NR (along with the accompanying Form 8880).” Even if you’re already contributing to your company’s 401(k) play, the Saver’s Credit may still be able to be claimed.

Read the article on the survey here and check out the U.S. Government’s site about the Saver’s Credit here.

Okay, Maybe We’re Not Saving Enough After All

The basic arguement that the average American was saving too much was based around the fact that most financial services companies suggest that a person needs to be able to have 85% of their annual income available during retirement to maintain their standard of living but a group of economist suggested that we need only about 65%. But a new survery throws some cold water on the situation.

Americans on average were saving only enough to provide them with 58 percent of their preretirement income, counting personal savings, Social Security benefits and pension income.

Fidelity, one of the finanical services companies whose retirement calculators defaults to the 85% figure says the problem is actually even worse. One Fidelity rep says in regard to replacing 85% of a persons income, “Our sense is that is not nearly enough.” Read the story for more.

Retirement Options for Small Businesses: The 2007 Version

The 2006 Pension Reform Act changed some of the rules that govern the retirement saving options for all companies, including small businesses. Business Week, in New Rules for Retirement Plans, takes a look at what a small business owner should do for him/herself and the employees. Read the article.

Another Look at Small Business Employee Savings Options

There are potential bright points in working for a small business, especially if you’re the owner and sole employee. In that case, you can open an Individual 401(k) plan and put away money as both and employee and an employer, putting away as much as $44,000 a year, more if you’re over 49. Of course many people won’t fall into that situation, and the article outlines options for those people as well.

There is also a good sidebar to the story that gives a few bullet points of the different plans that apply for the small business employee. Good stuff. Read the article.

The Pitfalls of Automated 401(k) Plans

Have you been automatically enrolled in your company’s 401(k) plan? It’s a good start, but the New York Times has some advice in a recent article, Don’t Let an Automated 401(k) Lull You to Sleep.

Financial planners at T. Rowe Price argue that workers should really be saving at least 15 percent of their paychecks every year. And the Schwab Center for Investment Research says that workers in their 30s who have yet to start saving need to sock away even more—perhaps as much as 25 percent—to prepare adequately for retirement.

There’s much more information in the full story. Read the article.

5 Stupid Reasons Not to Save for Retirement