Employees who took a hit on their savings last year might finally be in for some welcome news: Companies are stepping up efforts to help them save more for retirement.
Question: I'm 34 and have yet to begin saving for retirement. I'm considering participating in my company's 401(k) plan, but I'm unsure whether to do so since my employer doesn't match my contribution. What do you advise? --Nikia, New York, New York
Question: My wife and I are both over 50 and plan to convert $115,000 in traditional IRAs to Roth IRAs this year to take advantage of the one-year reprieve on income limits on conversions. Our question: can we each also make regular annual contributions to a Roth IRA this year? We earn about $100,000 a year combined, but we're worried that the $115,000 of taxable income we'll have to recognize because of the conversion will put us over the income eligibility limit for annual Roth IRA contributions. Can you clear this up for us? -- Bob, Souderton, Penn.
With stocks up more than 60% since hitting bottom last March, the red ink is finally fading on the typical 401(k) account. Yes, it's safe to look at your statement again: Balances for boomers who have worked 10 to 20 years at the same company are now down less than 3% on average, compared with pre-crash levels; younger employees and 45- to 64-year-olds with less tenure are solidly back in the black.
Like many business owners these days, Bob and Joyce Stubbe are facing a cash crunch.
Question: During the market's dramatic drop in 2008 and the beginning of last year, I couldn't stand watching my 401(k) shrink. I didn't move the money I already had in various stock and bond funds, but I did shift my current contributions into conservative investments. I now want to rebalance my 401(k) and am wondering what my portfolio mix should be at age 42? -- Michael, Atlanta, Ga.
For two years, Dr. James Smouse of Atlanta Oral and Facial Surgery tried to convince his younger partners to participate in a cash balance pension plan, a unique defined-benefit plan that offers business owners the opportunity to make hefty, tax-deferred contributions toward their retirement savings. But until the recession hit, they weren't interested.
Question: I'm 57 and I think there's a good chance I'll be laid off this year. If that happens, I'll have to move my 401(k) balance to an IRA. On the recommendation of a finance professional, many of my former co-workers have transferred their 401(k) savings into annuities. Do you think this is the way to go? -- E.Z., Deer Park, N.Y.
Question: If I sell a mutual fund to write off the loss on my tax return, do I face any restrictions on reinvesting the money? -- Tom M., St. Paul, Minn.
Question: How do REITs work? And is it prudent to have them in a diversified retirement portfolio? --M. C., Indianapolis, Indiana
Employees who took a hit on their savings last year might finally be in for some welcome news: Companies are stepping up efforts to help them save more for retirement.
Question: I'm 34 and have yet to begin saving for retirement. I'm considering participating in my company's 401(k) plan, but I'm unsure whether to do so since my employer doesn't match my contribution. What do you advise? --Nikia, New York, New York
Question: My wife and I are both over 50 and plan to convert $115,000 in traditional IRAs to Roth IRAs this year to take advantage of the one-year reprieve on income limits on conversions. Our question: can we each also make regular annual contributions to a Roth IRA this year? We earn about $100,000 a year combined, but we're worried that the $115,000 of taxable income we'll have to recognize because of the conversion will put us over the income eligibility limit for annual Roth IRA contributions. Can you clear this up for us? -- Bob, Souderton, Penn.
With stocks up more than 60% since hitting bottom last March, the red ink is finally fading on the typical 401(k) account. Yes, it's safe to look at your statement again: Balances for boomers who have worked 10 to 20 years at the same company are now down less than 3% on average, compared with pre-crash levels; younger employees and 45- to 64-year-olds with less tenure are solidly back in the black.
Like many business owners these days, Bob and Joyce Stubbe are facing a cash crunch.
Question: During the market's dramatic drop in 2008 and the beginning of last year, I couldn't stand watching my 401(k) shrink. I didn't move the money I already had in various stock and bond funds, but I did shift my current contributions into conservative investments. I now want to rebalance my 401(k) and am wondering what my portfolio mix should be at age 42? -- Michael, Atlanta, Ga.
For two years, Dr. James Smouse of Atlanta Oral and Facial Surgery tried to convince his younger partners to participate in a cash balance pension plan, a unique defined-benefit plan that offers business owners the opportunity to make hefty, tax-deferred contributions toward their retirement savings. But until the recession hit, they weren't interested.
Question: I'm 57 and I think there's a good chance I'll be laid off this year. If that happens, I'll have to move my 401(k) balance to an IRA. On the recommendation of a finance professional, many of my former co-workers have transferred their 401(k) savings into annuities. Do you think this is the way to go? -- E.Z., Deer Park, N.Y.
Question: If I sell a mutual fund to write off the loss on my tax return, do I face any restrictions on reinvesting the money? -- Tom M., St. Paul, Minn.
Question: How do REITs work? And is it prudent to have them in a diversified retirement portfolio? --M. C., Indianapolis, Indiana
Question: I'm changing jobs and would like to roll over my $150,000 401(k) into an IRA account. Since I already have other IRAs in individual mutual funds, I would like to put those funds as well as my new IRA rollover in one place so I can split the percentages invested in each individual fund just like my old 401(k) with 15 options. Do you recommend this approach? --Randy P., Montezuma, Iowa
Question: I'm 22 and want to get an early start on saving and investing for retirement, but I don't know where to begin. How do I start a retirement plan? --Jacklyne S., Kileen, Texas
With stocks up more than 60% since hitting bottom last March, the red ink is finally fading on the typical 401(k) account.
Question: My company currently matches my 401(k) contributions dollar-for-dollar up to 5% of salary. But starting in January my employer plans to do away with the match due to the poor economic conditions. I'm still early in my career and don't want to cut back on my retirement savings, so I plan on picking up the slack. I wonder, though, whether I should contribute an additional 5% of salary to my 401(k) or put the extra savings into a Roth IRA. What do you think? --Wes, Conshohocken, Pennsylvania
Question: I lost my job, so I have my retirement savings in three separate 401(k) accounts with three different employers. Should I just leave them there, roll them over into an IRA account or do something else? --Annie, Texas
Question: I've got many investing options in my 401(k) -- small caps, large stocks, emerging markets, fixed-income, etc. What would be the ideal portfolio for me considering that I'm 51 and plan to retire at 65? --D.D., Anaheim, Calif.
Question: I worked for the same company for more than 27 years and then was laid off eight months ago. Although at age 57 I have lots of experience, my employment prospects look bleak. My 401(k) has gone down the drain the past two years and is currently worth about $320,000. As I approach retirement, I wonder: Will this be enough to live on? --David, Los Angeles, Calif.
Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.
Question: I'm 47 years old and would like to begin participating in my company's 401(k) plan. But I don't know if this is the right time to do so. Do you think I should start now or wait until the economy gets better? --Frank, Brighton, Mass.
Jason and Patty Simkins, both 40, have saved next to nothing for retirement in the past year. They were rattled by the rocky market, which caused the value of their portfolio to tumble 40% at its low point.
Huge, scary numbers are lurking everywhere these days: The massive federal bailout (now on the taxpayers' tab)...the unemployment rate, which is now at a 26-year high...that daunting sum you are constantly told you will need if you want to retire comfortably...the six-figure mortgage balance you barely chip away at each month.
Question: I always heard that you will need 80% or so of your working salary to live on in retirement. But is that a percentage of your gross income or your take-home pay? --Mary Taylor, Chalfont, Pennsylvania
Among the swell of bad news that occurred courtesy of the financial crisis last fall is that 401(k) investors got slammed. And a new report released Tuesday quantifies just how hard.
Question: I'm 24 years old and feel like I've become a savings junkie. I've already maxed out my Roth 401(k) contribution for this year and now I'm thinking about opening up an IRA too. I have no debt, and I have about $13,000 in other savings as well. What do you think -- should I open the IRA? --Kyle, Boston, Mass.
The stock market keeps taking a hammer to the conventional wisdom about retirement investing.
Just one year ago, the world's financial sector was plunged into chaos and panic as Lehman Brothers -- one of the biggest investment banks -- collapsed. Consumers learned some hard lessons, including how to cope with substantial 401(k) losses.
Question: I'm 58 and have never opened any kind of a retirement account. Is it too late for me to do so now, or should I hope that Social Security will be there when I retire in a few years? --Vincent I., Denver, Colorado
President Obama on Saturday announced changes that the IRS plans to make to encourage workers to save more of their paychecks.
Last year's meltdown was a sobering moment for 401(k) holders who were used to a market that only went up. Many of them thought of investing as risk free.
Question: I just started my first job and have to decide how to allocate my contributions to my 401(k) plan. Since I'm only 23, I think I can assume more risk than older workers, but I'd like to know what allocation you would recommend. --Bob Dixon, North Andover, Mass.
Question: I'm 29 and I contribute 12% of my $109,000 annual pay to my 401(k). My company matches 100% up to the first 6% of salary I save. I'm concerned, though, that I could give up a lot of my 401(k) to taxes after I retire, so I'm considering diverting some of my 401(k) contributions to a Roth IRA account each year. Do you think that's a good idea and, if so, how much do you think I should be putting into the Roth? --Eric, Newark, NJ
Question: I'm 55 years old and have my entire retirement savings plan at work invested in a total stock market index fund. I'm worried, though, that my account is too heavily skewed toward equities given my age. Any suggestions for how I might take a more balanced approach? --Ray K., Oakland, California
For years a cardinal rule of retirement investing has been to put every penny you can into IRAs, 401(k)s, and other tax-deferred accounts. That advice rested on a commonsense assumption: that after you stopped working you'd move into a lower tax bracket. That was important because the money you take out of a tax-deferred account is subject to ordinary income taxes.
Question: I'm 25 years old and am considering upping my contribution to my 401(k) from 20% of my salary to 30%. My only hesitation is that I don't currently have any other savings. What do you think? Should I just go ahead and build my 401(k) as much as I can or should I set aside some savings in another account? --Jonathan M., Rockville, Maryland
For the first time in a year, more workers increased the amount of money they put into their 401(k) accounts during the second quarter than decreased their contributions, according to a report issued Wednesday by a retirement fund manager.
Target-date funds, those all-in-one portfolios of stocks and bonds that are supposed to be age-appropriate, have become targets themselves lately. The charge: that they failed to protect older investors from last year's downturn.
Question: I'm in my 30's and have a 401(k) from a previous job, 75% of which is invested in a variety of stock portfolios. Although my stock holdings have recovered a bit recently, I'm still down about $7,000 from my peak balance. I'm planning to roll over this old 401(k) into either the 401(k) at my new job or into an IRA account, but I'm wondering whether I should do the rollover now while stocks are still cheap or wait until the market has recovered and then do it. What do think? --Todd Gerecke, Lynden, Washington
Question: My 21-year-old daughter makes $80,000 a year working at a large firm. She has very low expenses, so I'd like to see her sock away a huge amount of money. I told her that if you get used to spending a lot each month on "fun" stuff, it will be much harder to save down the road. I'd also like to see her bypass the high-end investment firms in favor of less expensive alternatives. What do you suggest? --Tom F., Chatham, Illinois
Leave no nest egg unscathed. That seemed to be the mission statement of the market meltdown that began in 2008.
Leave it to one of the country's leading gerontologists to capture the gallows humor of planning for retirement in the post-2008 world. "The collapse of the economy has led me to drastically restructure my own retirement plan," says Dr. Richard Besdine, the 69-year-old director of the Brown University Center for Gerontology and Health Care Research. "It's a lot simpler now -- I'm just going to die in the office."
Question: Should I contribute more to my 401(k) than I have to in order to get the company match? --Terry, Kennett, Missouri
Max. It. Out. Of all the personal finance rules -- diversify your portfolio, pay down high-interest debt first -- perhaps no single piece of advice has been so widely touted as this: The key to financial security is putting as much money as you can into your 401(k). After all, what other retirement savings vehicle is portable, benefits from an employer match, provides a tax deduction, and allows the average clock puncher over the course of a career to rack up a seven-figure nest egg?
Old: The 1980s ushered in a lasting change: the systematic transfer of risk from the government and employers down to individuals. Tax cuts on income and capital gains, for example, were meant to encourage you to invest more in stocks, buy homes, and start up businesses. These activities became the pillars of what George W. Bush would later dub the "ownership society."
Question: I'm in my 50s and I got a late start on my 401(k) plan at work. All my contributions go into a balanced fund, but when I get my statement each quarter, it seems that I'm losing as much as I'm contributing. Should I leave my money where it is or should I switch to another fund? --Linda Mandrell, Tampa, Florida
Question: Is there a listing that would allow me to see how my 401(k) plan compares with other companies' 401(k)s? --Debbie W., Mount Laurel, New Jersey
Q. I lost my job this year. Much of my savings is in a traditional IRA account. If I were forced to tap it, what would be the penalty for early withdrawal?
It's official: 2009 marks the 35th anniversary of the individual retirement account. I will now pause for a moment as spontaneous celebrations break out across the land.
Question: I was laid off recently and have been approached by several financial advisers who all want me to roll over my 401(k) into an IRA. Sometimes I feel like everyone is out to make a commission off my misfortune. Who do I trust? --Marcy, Hutchinson, Minnesota
Question: I'm 40 years old, and according to an online calculator I used recently, I should now have $900,000 saved to assure a comfortable retirement. I'm guessing I have only about $100,000 (I'm afraid to look). What is the best way of making up the $800,000 gap over the next 25 years? --Jeff, Canton, Michigan
Q. My company just announced that it is suspending its 401(k) match. Is it still worth contributing?
Will I ever be able to retire now? That's a question you're likely asking yourself these days. After a year in which your 401(k) has been hammered by the biggest stock losses since the Great Depression, your home equity has been whacked by the collapse of the real estate market and the specter of being laid off looms larger every day, no one can blame you for being skeptical.
Question: My wife and I hope to retire in five to seven years, but our retirement accounts got clobbered recently. We now have approximately $180,000 in cash that we need a game plan for. Can you help? --Pat C., York, Pennsylvania
The current stock market presents an opportunity for people who have time to watch their investments grow. Individual retirement accounts are one saving vehicle, but converting from one type of IRA to another involves careful consideration.
Question: I've lost a lot of money during this financial mess and I'm wondering when I should go back to putting 15% of my salary into my 401(K)? --Michelle Bonds, Rocky Mount, N.C.
Question: . I was laid off recently and want to roll over the substantial balance in my 401(k) into an IRA. But I don't know whether to do the rollover now and risk locking in losses or wait until the market recovers and then roll it over. What do you think? Steve, Wichita Falls, Texas
Question 1. If you have no credit card debt and have closed your credit card accounts, how can this hurt your credit score? - Nathan
Question: I'm trying to decide whether to participate in my company's 401(k) plan. I'd like to start contributing to it, but given what's going on in the markets and economy, I'm afraid this is just not the right time. Or is it? --Rudy H., Pearland, TX
Retirement may seem like a fantasy if you watched your 401(k) crater over the last year. The average retirement portfolio lost 27% by the end of 2008.
Q. I'm over 50, and I've taken a beating in the market. I'm maxing out my 401(k) and IRA. How can I get the 10% annual return I need to achieve a secure retirement without too much risk? - Matt, St. Louis A.
John Maynard Keynes, the Depression-era economist who's having quite the comeback, once quipped when he was accused of inconsistency: "When the facts change, I change my mind. What do you do, sir?"
Question: I've just received the statement for my workplace retirement savings account -- 99% of which is invested in an S&P 500 index fund -- and it shows a loss of 37.5% for 2008. I'm 60, make about $100,000 and I was hoping to retire next year. What immediate next step should I be taking to recover my account value? --Benjamin, Albuquerque, New Mexico
Question: Like many people, I've seen the value of my 401(k) drop considerably over the last year. I am invested for the long haul and am willing to ride out my current losses hoping for recovery. But I'm wondering whether I should re-direct my current and future contributions into my 401(k)'s money-market option until the economy settles. Do you think that's a smart move, or should I just continue investing my new contributions into my current fund allocations? --Mike, Baltimore, Maryland
In case you missed it, some bombshell news came out of the personal finance arena last week. No, I'm not referring to the Federal Reserve's rate cut or the record-breaking price of oil.
As a current Supreme Court case shows, even investors with the best intentions can lose big when their 401(k) plans mess up. The lesson: You should take advantage of a host of new investments that make sure that never happens to you.
You might be listening to the symphony of financial experts extolling the virtues of a 401(k) plan, often touted as the best way to save for your golden years. But that's not necessarily the case.
Last week, the federal government began sending out more than $100 billion in "tax rebates" to millions of Americans in an effort to stimulate the sluggish economy.
Last week's West Virginia election should frighten you.
I may write about retirement for a living, but that doesn't mean I like seeing my 401(k) crater any more than you do. Given what's been happening in the market, I sometimes catch myself thinking how great it would be if my financial future weren't tied to something as volatile as Wall Street's mood.
All money missteps matter, but there are ways to keep your financial foibles from costing you big bucks.
Question: My wife and I are 27 years old and have contributed to a Roth IRA the past two years. Our money is in a 2040 target-date retirement fund that has about 90% of its assets invested in stocks and the rest in bonds and money-market funds. Should we continue to contribute the maximum to our Roth IRA if this is our only retirement vehicle? And is a portfolio mix of 90% stocks and 10% bonds and cash right for this volatile market? Joe, Lancaster, Ohio
Given the havoc the market has wreaked on your 401(k) over the past year, you may be wondering what you might have done differently to stay in better shape for retirement.
The personal savings rate has been rising: In the last three months of 2008, it hit its highest level in six years.
Question: I'm 25 and currently contribute 8% of my salary to my 401(k) since that percentage assures I get the full employer match. But since stocks are so cheap right now, I'm considering bumping up my contribution for a few months. I won't miss the extra amount coming out of my paycheck, so do you think I should go through with this plan? --Mike, Houston, Texas
Alicia Munnell is a Harvard-trained economist. She served as an assistant secretary of the Treasury and is regarded as one of America's foremost experts on 401(k)s. You'd think she'd be terrific at managing her own retirement, but even she has to fess up to some mistakes. "When my son got married, I took some money out of my plan to help," says Munnell, who heads Boston College's Center for Retirement Research (CRR). "And I ended up paying a 10% penalty and taxes."
Question: My mother is 50 years old and has no 401(k), IRA or any type of retirement account that she can rely on when she is no longer able to work. What type of plan can I set up for her so she can start saving money? --L.K., Lancaster, Pennsylvania
Questions: I currently contribute 10% of pay to my company retirement savings plan -- my employer matches half of that amount -- and I'm heavily invested in both domestic and foreign stock index funds. I plan to retire in 16 years. Should I continue to ride out this market with risky funds or should I think about cutting back my losses? --Mike, Washington, DC
Mark Vilrokx, 37, and Carine Beysen, 35, ought to ace retirement. The San Mateo, Calif. couple have great jobs - he's a manager at Oracle, she's a research director for a biotech company - and they earn a combined $210,000 a year. They have no mortgage, no student loans, no car loans, no credit-card debt. They're also diligent savers who put away a hefty chunk of their income every year for retirement.
Question: I've reached the age where I've got to start taking mandatory withdrawals from my retirement accounts. I don't need the money, so I'm wondering where I can stash it to earn more gains and possibly get some tax advantages as well. Any suggestions? --Joe, Redondo Beach, Calif.
Question: My company has suspended matching contributions in my 401(k). I'm unsure what to do, but I'm thinking of rolling my 401(k) into an IRA account. Is that a good idea? --Brian, Taylor, Michigan
Question: Since I'm getting close to retirement, I've moved my money into the target-date retirement fund offered in my company's 401(k). Do you think these funds are good investments? --Lucia Cannon, Johnson City, New York
Ever made a financial decision you wish you hadn't, like buying a mutual fund that turned out to be a dog? Wouldn't it be neat if you could simply act as if it had never happened? Well, you have that choice when you convert a 401(k) or traditional IRA to a Roth IRA. That's right: Change your mind and you may be able to get a do-over.
Question: I'm 48 years old and have about 90% of my 401(k) invested in my company's stock and the rest in an international equity fund. I want to diversify further, but don't know where to turn. Any suggestions? --J.D., Glenville, New York
When it comes to retirement, I've got a whole laundry list of issues I wish President-elect Barack Obama and his counterparts in Congress would tackle as soon as they are sworn in this month. But the U.S. deficit has hit record levels, so I'm trying to be realistic about what we can afford. With that in mind, I'm paring down my retirement wish list to three things that can make a big impact - without blowing a hole in the nation's finances.
Question: I've lost money in my 401(k) and I'm not interested in losing any more. So I'm thinking of moving my money into more secure investments. I know I can always change my allocations later, but what's the best way to keep my 401(k) stable until this roller coaster ride is over? --Michelle, Moravian Falls, North Carolina
Question: My adviser charges me between 5% and 6% of what I invest in the mutual funds for my IRA. He says this fee is extremely fair to me. But I previously had an IRA for which I paid only $20 a year. What is an acceptable fee for an IRA? --Teresa Nagengast, Deptford, New Jersey
Question: I'm 60 years old and in good health. I can afford to put off drawing Social Security until after age 62 to get a higher monthly check, but I'm not sure if I should. What factors should I consider when deciding whether I should hold off collecting Social Security? Robert Walker, Austin, Texas
The news on the economic front is grim. But there are strategies you can do now to help make the best out of a bad year.
As the economic crisis continues to hammer Americans, many are turning to desperate measures by dipping into their retirement funds to make ends meet, according to a survey released Thursday.
Paul Heck owns EveryHome, A successful real estate brokerage in suburban Philadelphia. The 53-year-old never considered making a Roth IRA part of his retirement plan. While Heck understands the substantial tax advantages of a Roth, he makes too much money to qualify. Recently, however, he got a tip from his financial planner about an upcoming change in the tax law that will allow Heck - and many other business owners - to seize a back-door opportunity to open a Roth.
Without a doubt, the past few months have ranked as the most tumultuous - and scariest - times that I've seen in the more than 20 years I've been at Money magazine. We've witnessed events that up to now had been almost unimaginable: the stock market fluctuating wildly and governments around the globe taking extraordinary steps to unlock frozen credit markets. And it's still unclear when the economy and the markets will hit bottom.
It's one of the most widely accepted benchmarks in retirement planning: You'll need just 70% to 80% of your pre-retirement income to maintain the same standard of living when you leave work behind. This rule of thumb can be traced to the replacement-ratio studies done for 20 years by Aon Consulting and Georgia State University. The idea is that since you'll no longer have to plow money into 401(k)s and other accounts and your expenses and taxes are likely to drop, you'll be able to live well on less.
Lawrence Ferreira, 56, has become bear-market road kill. The New York City attorney's 401(k) plan, which is split between four stock funds, is down 35% this year, erasing tens of thousands of dollars in retirement assets.
The decade before you quit the work force, along with the five years immediately after, is the most sensitive period in an entire lifetime of retirement planning. The saving, investment and career decisions you make during this time will dictate in a major way whether you'll spend the next 30 to 40 years enjoying the life you've always looked forward to or eating the early-bird special at Denny's.
With most Americans doing a lousy job saving for their Golden Years, Barack Obama says the government has to step in.
Americans are becoming increasingly worried about saving for their retirement as the nation's economic outlook continues to darken, according to a new survey of workers and retirees released Wednesday.
Question: I'm looking to retire in the near future and want to know how an "everyday" investor like me can develop a good strategy for taking income from my savings. Any advice? --Nate, Carbondale, Illinois
Question: I've been contributing 15% of my salary and bonus to my 401(k), as well as investing in a Roth IRA and other accounts. With everyone so sure we're headed for a recession, I'm wondering whether I should move my money into more stable investments to avoid losses as some people suggest or whether I should just view this time as an opportunity to buy in at cheaper prices. What do you think? --Sandy R., Los Angeles, Calif.
Question: It's my understanding that starting in 2010 the rule that prohibits you from converting from a traditional IRA to a Roth IRA (for modified adjusted gross incomes over $100,000) will be eliminated. If that's the case, can I convert all types of IRAs - deductible IRAs, nondeductible and even rollover IRAs that contain money moved from a 401(k) plan? How long do I have to do this? Do the new conversion rules expire at some point? --Hussam, Bergenfield, New Jersey
Question: I'd like to reduce my tax liability for 2007. Can I still make a contribution to my 401(k) or to an IRA and have it count toward the 2007 tax year? Or is too late for me to do that now? --J. Scott
Question: I'm 24 and my employer matches up to 5 percent of my salary in my 401(k) plan. If I want to save, say, 8 percent of my salary, would I be better off putting it all in the 401(k), or limiting my 401(k) contribution to 5 percent of pay and putting the rest in a Roth IRA? -Dave Meyer, Corpus Christi, Texas
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