- Written by Admin
- Category: Personal Savings
- Hits: 344
For better and for worse, 401(k) plans are a cornerstone of retirement in America.
With defined benefit pension plans fading out with the Baby Boomers, 401(k)s will be the most important, and in many cases, the only source of income for people in retirement other than their Social Security benefits. (For more, see: Tips on Delaying Social Security Benefits.)Not Saving Enough
That's a problem. Americans are not enthusiastic savers. While the personal savings rate of the average American trended up towards 7% of income during the financial crisis, it has now fallen back below 5% as the economy has recovered. (For more, see: How to Get Clients to Save More.)
The result is low balances in retirement accounts -- both 401(k)s and individual retirement accounts (IRAs) -- that likely won't last long when individuals stop earning income and start drawing on them. According to a recent study by the Employee Benefit Research Institute, at the end of 2013 less than 50% of American families had a retirement account and the median account balance for those who did was just $59,000.Auto-Enrollment
The single best way to address the shortfall in retirement savings is to make enrollment in corporate 401(k) plans automatic. The big issue with the plans is not what funds are available to participants nor how they allocate their assets (that's important too), but that people participate in them and contribute more money than they do.
- Written by Admin
- Category: Personal Savings
- Hits: 356
What's the number one concern of most retirees? Running out of money. It's the natural consequence of our expanding life expectancy. Living longer simply costs more. Since I haven't met anyone willing to volunteer to reverse this trend, that leaves only two options: a) increase your personal savings, or b) resign yourself to living on whatever help you might get from the government.
For decades the financial services community has implored us to "Save More!" The reality, however, is that whether you're in your 20s or 40s, saving for retirement takes a back seat ("It's years away!") to more immediate priorities such as paying the mortgage, an unexpected medical issue, braces and college for your kids and, of course, more immediately gratifying expenses such as vacations, a new car and other "necessities." And let's not forget the economy. Lay-offs and down-sizing not only prevent you from saving but may also force you to draw down some of the nest egg you've managed to save.
The Default "Retirement" Plan
Then one day you realize you're in your mid-fifties and "OMG! Retirement is just ten years away!" And you've got next-to-nothing saved to help pay for it.
That most Baby Boomers will tell you that their plan for retirement is "Keep working." The reality is that many of us feel we simply cannot afford to retire. Unfortunately, despite your intentions, research by the Employee Benefits Retirement Institute (EBRI) consistently finds that only about one-third of those who expect to work "as long as I can" or well into their late 60s, are able to do so. The majority are forced to exit the workforce for a variety of reasons, such as deteriorating health or the need to care for a spouse.
The Benefits of Continuing to Work
Still, if you're able to keep working in your 60s- even part-time and in a totally different field- there are a number of benefits. In fact, you can significantly make up for under-saving in your earlier years. First of all, since your salary is covering at least part of your living expenses, you may not have to withdraw money from your retirement account for this purpose. This gives the investments in your account more time to potentially grow.
Plus, since you have earned income and are over age 50, you can contribute up to $6,500 to an IRA this year.(1) Or defer up to $24,000 into a company-sponsored 401(k) or 403(b) plan.
Admittedly, the idea of continuing to add to your retirement plans sounds great - if that leaves you enough money left to live on. But what if your salary is less than $30,000? How are you supposed to survive if you take even $3,000 of that and put it into a retirement account?
The genius solution comes from George Fraser, a veteran financial advisor headquartered in Scottsdale, Arizona. Fraser specializes in helping small-to-mid-sized employers install retirement plans for their workers. But he doesn't stop there. Part of his service is to provide personal financial advice to every single plan participant who wants it.
It Takes Discipline, Not Mega-Bucks
Most of the folks who work at the companies Frazer covers make very modest salaries- less than $40,000/year. "When you throw out numbers like,
'We need everyone to save 15% of their salary,' most of them figure there's no way they can afford it," says Fraser.
So he starts small, asking employees to contribute just 1% of their salary to their 401(k). Each year contributions go up by 1% until they top out at 6% in the 6th year of employment. "If you can get a 20-year old to do this," says Fraser, "Even if they never make more than $25,000/year, they'll have more than $290,000 in 45 years."
In other words, in the first year the individual would contribute a total of $250/year spread out over 12 months. The next year, her contribution goes up to $500 or $60/month. In this example, by year six the employee is contributing $1500/year and does so for the next 39 years.
According to Fraser's calculations, assuming this worker never gets a raise and the employer never makes a company contribution to her account (ie a rare and extreme case), by the time she is 65, her 401(k) will have grown to $290,378, provided the investments earn a relatively modest 6% per year.
It's safe to say that most people who "only" make $25,000/year would never dream they could every build a nest egg that large. In fact, many people who earn far more than that have not managed to accumulate $300,000 in retirement assets.
Using Social Security to Your Advantage
Fraser's break-through involves harnessing the rules that govern Social Security to help lower-income employees who are willing and able to continue working to super-charge their retirement accounts.
Take two real clients we'll call John and Jane. Both are 66 years old- full retirement age, or "FRA"- and each has earned a Social Security benefit. Although he never made more than $26,000/year, 40+ years of work translate into a FRA benefit of $1,864 for John. Jane's is $848. John likes his job and figures he'll work another three years.
There are a number of Social Security rules that come into play:
- Once you reach FRA(2) and continue to work, you will receive 100% of your benefit amount- no matter how much you earn. (3)
- If you are FRA and choose to delay collecting your Social Security benefit, your benefit will increase by 8% for every 12 months that you postpone filing for it. (This "delayed retirement credit" stops once you reach age 70.)
- If you wait until you are FRA to file for Social Security you have additional choices in terms of how you can take your benefit.
- Your Social Security benefits may be subject to income tax if your "provisional" (aka. your "combined") income exceeds a certain amount.(4) If you file "married/joint" and your provisional income is less than $32,000, none of your Social Security is taxable.
Although other variables such as health come into play, in most cases, someone who earns more than John and who wishes to continue working past FRA, would be advised to delay the start of Social Security and thereby reap the benefit of a substantially larger Social Security check. After all, delaying until 70 (48 months) results in a benefit that is at least 32% larger than at age 66.
Fraser turns this on its head.
The Social Security Shuffle
Instead of waiting until age 70 to begin collecting Social Security, Fraser advised John to immediately file for his Social Security benefit of $1,864. Since she is also FRA, Jane can file for just her 50% spousal benefit of $932/month, allowing her own benefit to earn delayed retirement credits. Their combined income from Social Security will be $2,796/month. In other words, their annual income from Social Security will be $32,552- $7,000 more than what John will earn from his job!
The Triple Whammy
Because he is full retirement age, John's Social Security benefit is no longer subject to reduction. Since their combined benefits exceed John's salary, they can continue to afford their current lifestyle based upon their income from Social Security alone.
This enables John to use nearly all of his salary to make the maximum contribution to his company 401(k) plan- $24,000/year. If he does this for the three years he is planning to work, John's account will be at least $72,000 larger- providing significantly greater financial security for both him and Jane, who is likely to outlive him.
What's more, maxxing out his 401(k) contribution results in "a significant reduction in their income taxes immediately," explains Fraser. Since only a small part of their Social Security will be taxable, on an after-tax basis, they actually will have more money to spend!
At age 70, Jane will switch from her spousal benefit to the Social Security benefit she herself earned. By then, after 4 years of delayed retirement credits, it will be roughly one-third larger.
No wonder when Fraser relayed the news "she got up and hugged me and he walked out like he'd just hit the lotto."
While this approach isn't right for everyone, it underscores the need to understand the rules that surround Social Security- or find a financial professional who can navigate them for you. "When you help someone who has lost hope, that's better than winning a $20 million account," says Fraser.
Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.
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- Category: Personal Savings
- Hits: 351
By Maryalene LaPonsie/MoneyTalksNews
The personal savings rate may be rebounding, but there is little doubt most of our emergency funds could use a boost.
According to the Bureau of Economic Analysis, Americans socked away 5.5 percent in January. Thats a vast improvement from the 2 percent we saved in May 2005, but a far cry from the double-digit rates in the 1960s and 70s.
So how do we save more? Yes, we all know we shouldcut cable and drop the morning mochas, but those suggestions seem like work, right?
Rather than make saving a chore, make it a game instead.
Here are five ways to play the savings game.
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- Category: Personal Savings
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Ally Bank ranked most often in the top 10 lists in our Best Bank series (tied with Bank5 Connect). Ally boasts a top savings account (ranked No. 5), checking account (ranked No. 6) and the third-best one-year CD, and was ranked the overall best online bank of 2015 by GOBankingRates.
As an online-only bank, Ally ensures its customers get the highest rates 0.99% APY on savings, 1.05% APY on one-year CDs and dont pay a monthly checking account maintenance fee, all while having access to 24/7 customer support over the phone, live chat with a bank representative and a mobile app for banking on the go.American Express Bank
An online bank available to anyone, American Express Bank ranked No. 9 for its High-Yield Savings Account, offering a yield of 0.85% APY. Showing that American Express offers more than credit cards, this personal savings account has no hidden fees and allows customers to receive alerts to better keep tabs on their funds and account balances. Like Ally Bank, this institution offers its customers 24/7 customer service over the phone.Andrews Federal Credit Union
As a military institution with membership open to those residing in Washington, DC, civilian personnel and military members of Andrews Air Force Base and McGuire Air Force Base, among other outposts in Germany, Belgium, the Netherlands, and 200 other employer groups in Maryland and New Jersey, Andrews Federal Credit Union ranked No. 3 on GOBankingRates list of best military banks and credit unions.
With services available internationally, this credit union helps its members traverse the financial complications that arise when deployed overseas. Access to branches and ATMs is available worldwide, helping members stay connected to their funds. The credit unions suite of online and mobile services SmartConnect online banking, SmartPay, SmartMobile and SmartCall also help bridge the gap between members and their accounts, no matter where theyre located.Arkansas Federal Credit Union
More than 500 select employer groups are eligible for membership with Arkansas Federal Credit Union, in addition to employees of Little Rock Air Force Base, Camp Pike, Camp Robinson, Fort Chaffee, and federal and state employees in Arkansas. Membership comes with the perks of interest-bearing deposit accounts, health savings accounts, IRAs and a unique, liquid high-yield account, the Member Freedom Money Fund. All of these product offerings helped Arkansas Federal Credit Union take the No. 2 spot on our ranking of the best military banks and credit unions.Bank of America
Bank of Americalsquo;s wide branch availability, boasting 5,101 locations, helped boost it to the No. 3 spot among best banks of 2015. Its deposit yields arent the strongest selling point for the institution, but its convenience, customer service, and commitment to providing tools and resources to strengthen its customers financial literacy might be reason enough to join its customer base.Bank of Internet USA
Bank of Internet USA ranked No. 3 for its checking account, offering a return of 0.47% APY with no monthly service or NSF fees. Customers benefit from peace of mind, as there is no minimum monthly balance to maintain and just $100 is required to open. Meeting additional requirements, however, can lead to a rate boost as high as 1.25% APY to push your funds even further while maintaining all the liquidity youre used to with your checking account.Bank5 Connect
Like Ally Bank, Bank5 Connect ranked in the top 10 for four categories: best savings account, checking account, one-year CD and online bank. Its High-Interest Savings account earns a handsome 0.90% APY (helping it rank No. 6), while its checking account ranked No. 1 with a low $10 minimum to open and high 0.76% APY return.
For one-year CDs, Bank5 Connect ranked No. 4 with its 1.00% APY and $500 minimum to earn the yield. These strong product offerings helped Bank5 Connect rank No. 2 in the best online banks of 2015.BankUnited
With higher yields than the institutions that ranked above it on GOBankingRates list of best brick-and-mortar banks, BankUnited took fourth place due to its more-limited branch availability of 106 locations. BankUniteds savings and one-year CD accounts beat out national averages, at 0.25% APY and 0.55% APY, respectively; the institution also offers a wide variety of checking options.Barclays Bank
Barclays Bank made three of GOBankingRates Best Banks lists this year best savings accounts, CDs and online banks. For its Online Savings account, the bank ranked No. 3, tied with iGObanking.com, offering a yield of 1.00% APY. Its one-year CD has no minimum account balance and a 0.80% APY return. Those interested in opening a CD have options, too; Barclays Bank offers nine termed accounts of varying lengths to its customers. It should be noted that Barclays Bank offers no checking accounts.
These factors helped Barclays Bank rank No. 10 on our list of the best online banks. Those hesitant to transition their funds to an online bank shouldnt be worried about customer service with Barclays, which offers 24/7 telephone support, live chat with a bank representative and a mobile app.BBamp;T
With the highest BauerFinancial Star Rating possible, of 5, BBamp;T ranked No. 7 for best banks. Those who bank with BBamp;T have access to 1,852 branches and a host of online resources to help them plan for all life stages, such as paying for college and building retirement savings.BBVA Compass Bank
Ranking No. 2 for best banks, BBVA Compass Bank offers above-average returns on its one-year CD, at 0.45% APY, along with a variety of products for customers to choose from, including four credit cards, several mortgage offerings and all the deposit products expected from a major financial institution.Capital One 360
With a lower checking interest rate, Capital One 360 still ranked No. 4 for beating the average at even its lowest rate tier, 0.20% APY. Those with balances upwards of $100,000 enjoy increased yields of 0.80% APY. In addition to these returns, the account comes with no minimum balance requirement, service fee or NSF fee; customers also have access to over 40,000 Allpoint and Capital One ATMs.Chase Bank
Its ample branch access, offering 5,710 locations to its customers, helped Chase Bank rank No. 8 for best banks. Chase offers most of the products GOBankingRates surveyed, from auto and mortgage loans to credit cards and investment services; online apps like Chase Quickpay further help customers live, and spend, easy.
Related: Does Chase QuickPay Really Do What It Promises?CIT Bank
CIT Banklsquo;s High Yield Online Savings account is just one product that helped it rank among GOBankingRates study of the best banking products and institutions. CIT Bank ranked No. 8 for its savings account, which offers a rate of 0.95% APY and no monthly maintenance costs. Its one-year CD ranked No. 5 among the best CDs of 2015 due to its high 1.10% APY and $1,000 minimum deposit requirement. These deposit products helped the bank take sixth place in the best online banks.
CIT Bank customers enjoy a variety of CD terms to choose from and can bank through the CIT mobile app, though live chat and 24/7 phone support are not available.Discover Bank
Discover Bank ranked No. 3 on GOBankingRates list of best online banks, thanks to its high savings yield of 0.90% APY, the 1.00% APY on its one-year CD and low savings account opening deposit of $500. Other high-yield deposit products include its 0.75% APY money market account and 1.45% APY three-year IRA CD.EverBank
Depositors with EverBank can beat the national checking account average, earning a 0.30% APY on their deposited funds when they open the Yield Pledge Checking account with a minimum deposit of $1,500. This account ranked eighth in our list of the best checking accounts of 2015; customers can make their money work extra hard by depositing right now and taking advantage of promotional rates. Accounts with up to $100,000, for example, are currently earning 1.40% APY for the first six months; accounts can also earn a tiered one-year introductory rate starting at 0.85% APY for balances under $10,000, with higher balances earning more.First Internet Bank
First Internet Bank ranked on two of GOBankingRates lists: best CDs and best online banks of 2015. Its one-year CD offers a yield of 1.00% APY with a minimum account balance of $1,000. Additionally, the bank boasts a BauerFinancial Star Rating of 5, a high savings yield of 0.60% APY, a mobile app and live chat services, all of which propelled it to the No. 9 spot among the best online banks.First National Bank of Omaha
First National Bank of Omaha offers few branches just 127. However, its wide product offerings and no-fee checking account helped it rank No. 5 among the best banks of 2015.First-Citizens Bank amp; Trust Company
Criteria varies by product, but active-duty military members, full-time reservists and members of the US National Guard are among its customer base. First-Citizens Bank amp; Trust Company customers enjoy access to over 570 branches in 18 US states, along with a variety of loan and deposit products, helping First-Citizens Bank amp; Trust Company rank No. 8 among the best military banks and credit unions.Flagstar Bank
Those looking to maintain liquidity while earning higher returns in the next 12 months can do so with Flagstar Banklsquo;s SimplySavings account. For the first 12 months of account opening, depositors earn 1.10% APY on their savings an equivalent rate to the best CDs in our Best Banks lists and far above the national average. The minimal $3 monthly fee can be waived simply by averaging $300 in your account or by linking it to a Flagstar checking account.FNBO Direct
The low minimum balance requirement (just $1) of FNBO Directlsquo;s online checking account helped it rank No. 2 among the 10 best checking accounts of 2015. The account has no monthly maintenance fee, but carries an NSF fee of $33. Its APY is a competitive 0.65% APY, which beats the national average by more than four times.Fort Knox Federal Credit Union
Fort Knox Federal Credit Union ranked No. 5 on GOBankingRates list of best military financial institutions. Members have access to 24/7 member support, as well as a large, surcharge-free ATM network of 130,000 worldwide and 5,000 credit union service centers. Kentucky residents have access to more than a dozen branch locations for in-person banking.
Members of Fort Knox Federal Credit Union enjoy all the deposit and loan products available at larger financial institutions.GE Capital Bank
Ranking among the best for savings, CD and online banks, depositors at GE Capital Bank enjoy a number of benefits. The banks Online Savings account tied (with MySavingsDirect) for the No. 1 spot on GOBankingRates list, offering a yield of 1.05% APY with no minimum balance requirement and no monthly fee. Its one-year CD ranked No. 2 among the best CDs of 2015, with a yield of 1.10% APY and a $500 minimum balance requirement. Paired together, these benefits helped GE Capital Bank rank No. 4 in the best online banks of 2015.iGObanking.com
iGObanking.com ranked in the top 10 for two categories: best savings and best checking accounts. Its high return of 1.00% APY on its savings account, which also carries no fees, minimum balance or minimum deposit requirements, helped it rank No. 3, while its 0.25% APY checking account ranked No. 5 for having a low opening deposit requirement of just $1.KeyBank
Named appropriately, KeyBanklsquo;s Hassle-Free account ranked No. 9 among the best checking accounts of 2015. With no minimum balance requirements to meet, no NSF fee and no monthly maintenance charges, this account is simple, requiring just $10 to open.
KeyBank also ranked No. 9 on our list of the best banks of 2015, boasting a high 5 BauerFinancial Star Rating and 1,030 branches nationwide.Langley Federal Credit Union
Ranked No. 7 among the best military financial institutions is Langley Federal Credit Union. Among its offerings are special products for service members, like a free interest-bearing checking account, insurance and tax services, loans, and identity protection. Its rewards program, CURewards, lets members with a Langley Federal Credit Union credit card earn points and redeem them for merchandise and products online.
As a military financial institution, the credit union serves US service members along with those who work for select employer groups or select organizations, like churches and homeowners associations.MySavingsDirect
Tied with GE Capital Bank for the No. 1 best savings account is MySavingsDirect. Its 1.05% APY MySavings Account, which earns the same returns as GE Capital Banks, has no minimum deposit requirement or monthly fee.Nationwide Bank
Nationwide Bank nabbed the No. 1 spot for best CD account of 2015. Its one-year termed account offers depositors 1.14% APY on deposits up to $99,999.99 and bumps the rate up to 1.19% APY on accounts over $100,000; it only takes $500 to open the CD.Navy Federal Credit Union
In the No. 1 spot for best military bank is Navy Federal Credit Union. Its array of products is vast, offering its members everything from 100 percent financed VA mortgages to traditional deposit accounts and retirement planning services.
Active-duty members of the US Army, Marine Corps, Department of Defense, Navy and Air Force are all welcome to join Navy Federal Credit Union, as are US government employees assigned to Department of Defense installations and others.Presidential Online Bank
Presidential Online Bank ranked No. 10 among the best CDs of 2015. Its one-year termed account requires a $1,000 minimum deposit but offers high returns to its customers of 0.95% APY. Those whod prefer a different CD term length can choose from eight options at the online bank, starting at 30-day investments.RBFCU
You dont have to be an active military member to join Randolph-Brooks Federal Credit Union. Ranking No. 4 among the best military banks and credit unions of 2015, RBFCU membership is also available to Texas residents, students of local schools and family members of current RBFCU members.
Among its product offerings are cash-back credit cards and rewards debit cards, a truly free checking account, and competitive auto loans.Sallie Mae Bank
This online bank ranked No. 7 in that category due to its high BauerFinancial Star Rating of 4, high-yield savings rate of 0.80% APY and the even higher 1.15% APY on its one-year CD. Unfortunately, Sallie Mae Bank doesnt offer its customers a mobile app, 24/7 telephone support or live chat; however, its other high-dividend accounts, like its 0.90% APY money market account, likely make up for that for many customers.Simple
Simplelsquo;s checking account tied with KeyBank for the No. 9 spot, offering a completely no-fee product, but with a low 0.01% return. Those with a Simple checking account dont even have to worry about overdraft fees, which the bank doesnt charge. Customers have access to a large, surcharge-free ATM network of 55,000.Synchrony Bank
Ranking No. 5 among the best online banks, Synchrony Bank also ranked No. 7 for best savings account and No. 9 for its one-year CD account. Its savings account ranked highly due to its competitive 1.00% APY and no minimum opening deposit requirement. The banks one-year CD offered a 1.10% yield that was increased to 1.15% APY following the completion of GOBankingRates study.TIAA Direct
TIAA Direct ranked among the best for checking (No. 7), CDs (No. 6) and online banks (No. 8). Its checking account comes with no monthly maintenance fees or minimum balance requirements, and even earns interest at a modest 0.05% APY, while its one-year CD offers a high return of 1.01% APY. In addition to these product features, TIAA Direct ranked No. 8 for best online bank, offering a mobile app for convenient on-the-go account access.Tyndall Federal Credit Union
Although not exclusive in its membership to military personnel, Tyndall Federal Credit Union ranked No. 9 among the best military banks of 2015. The credit union, located in Panama City, offers a variety of products to meet any members needs, from competitive rates on loans and deposit products to IRAs and young adult accounts. Even outside of Panama City, members can maintain access to their funds through its network of 55,000 fee-free ATMs around the world.US Bank
With a BauerFinancial Star Rating of 4 and a variety of deposit accounts geared toward young people including its Student Checking account and Star Savers Club Account US Bank ranked No. 10 among the best banks of 2015. US Bank customers enjoy the convenience and accessibility that comes with 3,239 branch locations.USAA Federal Savings Bank
USAA ranked No. 6 among the best military banks and credit unions. Its eligible customer base is vast, with the bank offering its services and products to US military service members (active, retired and honorably discharged), in addition to cadets and midshipmen in US service academies, those in ROTC programs, and eligible family members.
Customers of USAA benefit from free ADT home monitoring and vehicle storage during deployment, along with a variety of products expected from a national bank, including retirement accounts, investment vehicles and deposit accounts.Wells Fargo
Coming in at No. 1 for the best bank of 2015 is Wells Fargo. The bank boasts a vast customer base and a large number of branch locations (6,353, to be exact), as well as a BauerFinancial Star Rating of 4, $1.7 trillion in assets and all the products GOBankingRates surveyed for its ranking of best banks: auto loans, mortgages, credit cards, insurance and investment services.Zions Bank
Zions Bank ranked No. 6 among the best banks thanks to its lack of maintenance fees on its checking account and above average savings yield. Zions Banks savings account earn returns of 0.45% APY; the bank boasts a BauerFinancial Star Rating of 5 but somewhat limited branch access, with just 145 locations.
GOBankingRates.comis a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.