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Avoid the biggest pitfalls in 401 (k) retirement plansPosted by SEP-SOLO-IRA-401k-ROTH on: 2007-02-19 17:12:41 in category:
401(k) [ Print | Permalink / 0 Comment(s) ] Rex Truman Guess what is the biggest pitfall in 401 (k) retirement plans. It is not doing one at all! You see, when you are young you think: "I don't need a retirement plan yet - I won't retire for more than 30 years - and I might die before then." So you don't bother. Later, you think about it, but maybe you're not even sure whether your firm runs one, so you put it off. By the time you actually start a 401 (k) retirement plan, it turns out it is too late to save enough to retire on. So here are the two biggest pitfalls with 401 (k) retirement plans: 1.Not starting one ever 2.Starting one too late OK, so you're smarter than that, and so you've started a 401 (k) plan. Congratulations! But are you really getting the best out of it? You may not know that if you put 6% of your income into a 401 (k) retirement plan your employer will usually add an extra 3%, making the equivalent of 9% of your income going into your retirement plan. That sure beats putting in, say, 5% all on your own and getting no help from your boss. But is 5% or even 9% enough in these days when inflation is expected to increase, and stock market returns are not so hot? Well, at present it is reckoned that not even 9% of your income is enough to provide a decent income when you retire. It sounds a lot, if you're earning $60,000. That's $5,400 a year, and let's say you put that in for 30 years - actually you would hope that in that period your actual income would increase a lot but your buying power may not, and it is buying power we are talking about. After 30 years, you would have saved $162,000, and with income, your fund might be worth, say, $300,000-$350,000. That will yield a pension of about $20,000-$30,000 a year - not much when you consider that it will buy nothing like as much as $30,000 does today. So, to avoid the pitfall of under-investing for retirement you need to put 11-12% into your 401 (k) retirement plan - more if you can afford it. There is one more pitfall to avoid - and this is the most dangerous of all! If you put any of your fund into the stock of the company you work for, limit it to 10% of your total savings. You see, most of us have no idea of the actual strength of the company we work for, especially if it seems to be big. But big companies can go bankrupt overnight just like small ones, wiping out your entire 401 (k) retirement plan if you were rash enough to put all your money into your firm. So, to avoid these problems: 1.Start a 401 (k) retirement plan as early as you can - that's assuming you work for a company and are not self-employed, of course. 2.Put enough into it to provide a decent retirement income 3.Increase your contributions as your income goes up 4.Do not put more than 10% in any one company, and certainly not in the firm you work for - you have enough at stake with them just by working there! Rex Truman is not retied but should be - instead he gives information at http://www,retirewhenulike.com to help people save enough so they can enjoy retirement, ideally with an interesting job where they are in control About the author: Retirement Plans |
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