401k Blunders are far more common than most people think. They usually stem from a lack of information or bad advice.
Either way, they usually end up costing the Boomer huge amounts of money they can never recover.
As the saying goes, any financial information you get from someone not qualified to give it - is worth exactly what you paid for it.
Find a well recommended fee based Financial Advisor, an Accountant or a Pension Attorney to work with.
Ask all questions you can think of in creating a retirement plan and then follow the recommendations.
Be brutally honest with your advisor about your current financial situation and your retirement goals if you are serious about reaching them.
The only way any advisor can help you is by knowing exactly what your situation is and the goals you are trying to achieve.
Now, a few sobering facts that make the discussion of your pension plan so important.
Today, the average household debt has exploded to over $10,000 (thank you Visa & Mastercard!) and has a mortgage in excess of $120,000.
Last year the national savings rate fell to MINUS .17%!
The meaning of this is simple. With a high mortgage, increased debt and little or no savings the average household now has a net worth of $-0-. Where are you on the "Average" scale?
And don't think you are alone if you are "middle class".
Government statistics show that a person earning $250,000/year spends, on average, $350-500,000/year.
The only difference between the debt hole for the middle class and that for the wealthy is the depth of the hole!
To add more anguish to those scarry statistics, the Average Balance in 401k savings plans for Boomers 45 to 60 is $25,000 - a long way from the estimated $200,000 you will need to retire and maintain your current lifestyle.
This is the point where you need to wake up and start taking the necessary steps to a solution.
You must realize that you have to become more "Hands On" with your Pension Planning and savings.
And it is doubly important that you avoid any mistakes that could cost you a lot of your hard earned money you are saving for retirement.
These are some of the basic blunders not just Boomers seem to make repeatedly with their pension plans.
Most of them, unfortunately, are very costly mistakes that need to be avoided always. There are 9 of them that you shouldbe aware of:
1- Not being signed up in your employer's 401k plan.
Currently, over 30% of all employees are not covered by ANY kind of pension plan - so if your company doesn't have a pension plan you need to set up your own IRA as soon as possible and then start contributing to it regularly!
2- More than half of Boomers do not have a separate IRA.
You should also be contributing up to the maximum your employer matches in your 401k and then contributing the balance of the $4000 ($5000 if 50 or older) annual pension contribution to your separate IRA (talk to your Advisor about this).
Be sure to find out about setting up a Roth IRA as well.
3- You NEED some kind of financial guidance here more than you need a new Plasma TV.
This is your financial future we're talking about so if you are in the "Averages" mentioned above find a FEE BASED Financial Advisor to help you make and then follow a sound financial plan .
4- Failing to take advantage of the amount your employer contributes to your 401(k) by not matching it yourself.
Your employer is giving you "free" money here and you are missing a tremendous "dollar compounding" opportunity that could be huge when you retire.
The best strategy is to contribute whatever amount you need to qualify for the maximum 401(k) employer match - but not one dollar more.
5- Being too conservative in your investment options.
I'm not suggesting that you throw caution to the wind, but if you are under 50 you should have more "Growth" stocks than you have "Income" stocks in your 401k. Talk to your Advisor (NOT your Broker) for guidance.
6- Being too aggressive in your investment options.
If you are over 50 anything that is high risk, like tech stocks (with the exception of maybe Google), should be looked at very carefully. Again, talk and listen to your Advisor.
7- Investing to much of your 401k in your own company.
I know, you've been there for like 30 years and the company has always treated you fairly but you DO remember Enron don't you?
No more than 20% of your 401k should EVER be invested in your own company!
8- Borrowing against your 401k. This is to be avoided at all costs. The only time to even consider it is in the case of a life threatening situation.
If you have to borrow against your pension, set up a payment plan to pay Yourself back as fast as possible - just like any other loan.
9- Most Critical BLUNDER YOU CAN EVER MAKE!
If you leave your employer before retirement, DO NOT EVER cash out your 401k! You must roll it over into your own IRA after you leave or retire from your company.
If you don't, the IRS treats it as ordinary income, FULLY TAXABLE at your current tax rate, in the year you cash it out.
Plus, if you are younger than 59 1/2 , there are penalties and interest applied for the early withdrawal of your pension!!
Always talk to your Financial Advisor before you do anything with your 401(k).
You will pay a fee for the advice but they could save you thousands you would lose if you made a mistake!
Please feel free to e-mail this article to anyone you think might benefit from the information.
Copyright information and my Sig File must be included.
Copyright 2006 by Steve Wieland
http://www.healthylife-longlife.com
