6 simple rules for retiring well-off - GoFuckYourself.com

Barefootsies · 03-21-2008, 04:46 PM

Employers are helping by putting some savings on automatic pilot. But paying for retirement will be mostly your responsibility. Here's how to get on track.

Retirement savings plans are undergoing an extreme makeover. After decades of trying to teach Americans how to save and invest for their own retirements -- with mixed success -- employers have come up with a simple solution: They'll do it for you.

Thanks to automatic enrollment in 401(k)s and other retirement plans, plus streamlined investment options, saving is so effortless that you can't help but succeed. And that's true whether you're starting your career, switching jobs or planning your exit.

To help their employees compensate for disappearing pensions and declining Social Security benefits, more than one-third of large companies have embraced the new reality of retirement saving: the automatic 401(k). That's up from just 19% in 2005.

* Calculator: Plan for your retirement

More than half of all employers expect to automatically enroll their workers this year. The trend also applies to 403(b) retirement plans for teachers and employees of nonprofit organizations, as well as to the 457 plans that many state and local governments use.

"Now you'll succeed at saving for retirement even if you don't do anything," says Jeff Maggioncalda, the president of Financial Engines, a pioneer in providing investment advice to workers.

The most effective new plans pair automatic enrollment with an option to increase the amount you contribute to your account each year. When Nationwide Insurance added an automatic-escalation feature to its 401(k) plan last spring, employees Sean and Lisa Kennedy signed up, promising to boost their contributions by 1 percentage point each year until they reached the maximum contribution level.

"We can tie it to our annual salary increases," says Sean, 38. "We'll never see the extra money in our take-home pay, so we won't miss it."

Aside from adding to their already substantial nest egg, the Kennedys will be able to cut their taxes -- a more immediate concern, says Lisa, 31. She and Sean, who live in Columbus, Ohio, contributed more than $25,000 to their retirement accounts in 2007, saving them more than $7,500 in taxes, assuming a combined state and federal rate of 30%.

The third piece of the automatic 401(k) model is built-in professional investment advice, whether in the form of target-date retirement funds, computer-generated model portfolios or managed accounts. Together, the changes amount to a total overhaul of 401(k) plans.

"It reverses our assumptions about what individuals are willing and able to do," Maggioncalda says. "It makes inertia work in their favor."
1. Sign up
Employees are nearly unanimous in their support for being automatically enrolled in their company's 401(k) plans, according to a recent study conducted for the Retirement Made Simpler coalition, made up of AARP, the Financial Industry Regulatory Authority and the Retirement Security Project. Nearly 95% of surveyed adults agreed that automatic 401(k) plans make saving for retirement easier, and 85% said they had started saving earlier as a result. Only 7% of those who had been automatically enrolled in a plan opted out. (If you are automatically enrolled in your company plan, you can get your money back without tax penalty if you back out within the first 90 days.)

Although automatic 401(k) plans are a major step forward, they have a downside. Pamela Hess, the director of research for Hewitt Associates, worries that some employees may be lulled into complacency, accepting default contribution levels as implicit savings guidelines when they should be saving more. Most employers set the initial deferral rate at 3% of salary, and many plans with automatic-escalation features top out at 6% of pay. That's well below the 15% of gross income (including employer matching contributions) that's generally recommended as a target for retirement savings.

The Kennedys, who are approaching that recommended 15% target, are well on their way to a secure retirement, even if they scale back future contributions to start a family. An early start on saving, coupled with the power of compounding, will work its magic over time. But if you're a late bloomer, don't despair. By starting now and increasing your contributions a little each year, you could still reach your goal.
2. Get help from the pros
If you are automatically enrolled in a 401(k) plan and you don't actively select an investment, your employer is now required to direct your contributions to an appropriate long-term investment, such as a target-date retirement fund, also known as a life-cycle fund. More than three-fourths of employers now offer a pre-mixed portfolio option, up from 63% in 2005, reports Hewitt Associates. For most workers, this investment strategy is more suitable than the more conservative default investments used in the past. But it could spook novice investors if the market nose-dives.

* Talk back: What is your retirement target number?

Still, even a weak stock market can be good news for investors in the long run, says Mary Schapiro, the Financial Industry Regulatory Authority's chief executive officer. Buying shares of mutual funds when prices are low positions you for big gains when the market rebounds. And most employees benefit from matching contributions from their employers -- often 50 cents on the dollar up to the first 5% or 6% of pay. A guaranteed 50% return on your investment is better than any fund can promise. With regular contributions, most newly enrolled workers will see their account balances grow, even in a down market.

Although automatic 401(k) features tend to target new hires and younger employees, you may benefit even if you are already enrolled in your company plan. Many employers now offer all workers access to personalized financial advice or all-in-one investment solutions, such as professionally managed accounts or target-date funds that invest in a diversified mix of stocks and bonds that grow more conservative as you near retirement.

Continued: Check your progress

http://articles.moneycentral.msn.com...ngWellOff.aspx

03-21-2008, 04:46 PM	#1
Barefootsies Choice is an Illusion Industry Role: Join Date: Feb 2005 Location: Land of Obama Posts: 42,635	6 simple rules for retiring well-off Employers are helping by putting some savings on automatic pilot. But paying for retirement will be mostly your responsibility. Here's how to get on track. Retirement savings plans are undergoing an extreme makeover. After decades of trying to teach Americans how to save and invest for their own retirements -- with mixed success -- employers have come up with a simple solution: They'll do it for you. Thanks to automatic enrollment in 401(k)s and other retirement plans, plus streamlined investment options, saving is so effortless that you can't help but succeed. And that's true whether you're starting your career, switching jobs or planning your exit. To help their employees compensate for disappearing pensions and declining Social Security benefits, more than one-third of large companies have embraced the new reality of retirement saving: the automatic 401(k). That's up from just 19% in 2005. * Calculator: Plan for your retirement More than half of all employers expect to automatically enroll their workers this year. The trend also applies to 403(b) retirement plans for teachers and employees of nonprofit organizations, as well as to the 457 plans that many state and local governments use. "Now you'll succeed at saving for retirement even if you don't do anything," says Jeff Maggioncalda, the president of Financial Engines, a pioneer in providing investment advice to workers. The most effective new plans pair automatic enrollment with an option to increase the amount you contribute to your account each year. When Nationwide Insurance added an automatic-escalation feature to its 401(k) plan last spring, employees Sean and Lisa Kennedy signed up, promising to boost their contributions by 1 percentage point each year until they reached the maximum contribution level. "We can tie it to our annual salary increases," says Sean, 38. "We'll never see the extra money in our take-home pay, so we won't miss it." Aside from adding to their already substantial nest egg, the Kennedys will be able to cut their taxes -- a more immediate concern, says Lisa, 31. She and Sean, who live in Columbus, Ohio, contributed more than $25,000 to their retirement accounts in 2007, saving them more than $7,500 in taxes, assuming a combined state and federal rate of 30%. The third piece of the automatic 401(k) model is built-in professional investment advice, whether in the form of target-date retirement funds, computer-generated model portfolios or managed accounts. Together, the changes amount to a total overhaul of 401(k) plans. "It reverses our assumptions about what individuals are willing and able to do," Maggioncalda says. "It makes inertia work in their favor." 1. Sign up Employees are nearly unanimous in their support for being automatically enrolled in their company's 401(k) plans, according to a recent study conducted for the Retirement Made Simpler coalition, made up of AARP, the Financial Industry Regulatory Authority and the Retirement Security Project. Nearly 95% of surveyed adults agreed that automatic 401(k) plans make saving for retirement easier, and 85% said they had started saving earlier as a result. Only 7% of those who had been automatically enrolled in a plan opted out. (If you are automatically enrolled in your company plan, you can get your money back without tax penalty if you back out within the first 90 days.) Although automatic 401(k) plans are a major step forward, they have a downside. Pamela Hess, the director of research for Hewitt Associates, worries that some employees may be lulled into complacency, accepting default contribution levels as implicit savings guidelines when they should be saving more. Most employers set the initial deferral rate at 3% of salary, and many plans with automatic-escalation features top out at 6% of pay. That's well below the 15% of gross income (including employer matching contributions) that's generally recommended as a target for retirement savings. The Kennedys, who are approaching that recommended 15% target, are well on their way to a secure retirement, even if they scale back future contributions to start a family. An early start on saving, coupled with the power of compounding, will work its magic over time. But if you're a late bloomer, don't despair. By starting now and increasing your contributions a little each year, you could still reach your goal. 2. Get help from the pros If you are automatically enrolled in a 401(k) plan and you don't actively select an investment, your employer is now required to direct your contributions to an appropriate long-term investment, such as a target-date retirement fund, also known as a life-cycle fund. More than three-fourths of employers now offer a pre-mixed portfolio option, up from 63% in 2005, reports Hewitt Associates. For most workers, this investment strategy is more suitable than the more conservative default investments used in the past. But it could spook novice investors if the market nose-dives. * Talk back: What is your retirement target number? Still, even a weak stock market can be good news for investors in the long run, says Mary Schapiro, the Financial Industry Regulatory Authority's chief executive officer. Buying shares of mutual funds when prices are low positions you for big gains when the market rebounds. And most employees benefit from matching contributions from their employers -- often 50 cents on the dollar up to the first 5% or 6% of pay. A guaranteed 50% return on your investment is better than any fund can promise. With regular contributions, most newly enrolled workers will see their account balances grow, even in a down market. Although automatic 401(k) features tend to target new hires and younger employees, you may benefit even if you are already enrolled in your company plan. Many employers now offer all workers access to personalized financial advice or all-in-one investment solutions, such as professionally managed accounts or target-date funds that invest in a diversified mix of stocks and bonds that grow more conservative as you near retirement. Continued: Check your progress http://articles.moneycentral.msn.com...ngWellOff.aspx __________________ Should You Email Your Members? Link1 \| Link2 \| Link3 Enough Said. 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