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How Much Should You Save in Your 401(k) Plan?

Posted by Frank McKinley on

May 10, 2021

To make sure you’re on track for retirement, you should have an idea of how much you need to set aside to reach your retirement goal.

Know Your Limits — Before you come up with an annual savings target, it’s important to understand how much you’re allowed to contribute to a 401(k) plan. In 2021, workers younger than 50 can save $19,500 in a 401(k), 403(b), or similar plan, while those age 50 and older can save $26,000 annually, an extra $6,500 per year.

Contribution limits usually go up slightly every year; if you’re an aggressive saver, you’ll also want to pay attention to that and adjust accordingly.

At a Minimum, Get Your Match — The first rule of 401(k) plans is to save enough to get your full employer match. You’ve probably heard it before, but not contributing enough to get your employer’s matching contributions
is like leaving free money on the table. Even if you’re not impressed with your company’s 401(k) plan and would prefer to save in some other way, it still makes sense to at least get that free money.

But How Much Do I Really Need? — So you know how much the government will let you save and that you should be contributing enough to get your employer match. But how much should you be setting aside to prepare yourself for a comfortable retirement? That’s the ultimate question.

Unfortunately, there’s no magic number because every individual situation is different. People have different tolerances for risk, market performance varies over time, and everyone has their own idea of an ideal retirement. That’s why it’s best to talk to a financial advisor who can help you determine how much you need. But in the meantime, there are a few rules of thumb that may help you get a sense of where you stand.

One guideline suggests saving a certain percentage of your salary every year for retirement. Between 10% and 15% is usually the recommended number. If you started saving when you were young, your target savings percentage is usually lower, but if you procrastinated, you’re more likely to be looking at having to save 15% or even 20% of your pay to get you on track to a comfortable retirement. The good news is that your employer match counts in that number, so if your goal is to save 10% and your employer match is 5%, you only need to save 5% of your pay.

Categories : Blog, financial planning, Financial Services, IRA, ROTH

Tags : savings goals

Tips to Teach Children to Save

Posted by Frank McKinley on

April 23, 2021

Think of all the lessons parents teach their children, but what about learning to save? Short- and long-term savings are important life lessons that should start early and remain an ongoing conversation. Here are some tips you can use:

Wants versus Needs: To a child, most everything is a need. A toy, a new bike, and a video game are all needs to them, so the first important lesson of
saving is helping them understand the difference between wants and needs. You’ll want to explain that needs are the basics, such as food, housing, and clothing, and that anything beyond the
basics are wants. You could use your own budget to help illustrate that wants are secondary to needs.

Their Own Money: To help your child become a saver, they need to have their own money. Giving your child an allowance in exchange for chores will be a step in helping them learn to save as well as understanding the value of work.

Set Goals: Setting savings goals is a way for your child to understand the value of saving and what a savings rate is. For example, let’s say one goal is a
$40 video game, and they get a weekly allowance

of $10. You can help them understand how long it will take to reach that goal based on how much of their weekly allowance they put toward the goal.

A Place to Save: Kids need a place to save their money, so take your child to a bank or credit union to open a savings account. This will allow them to
see how their savings grows over time, as well as the progress they are making toward their savings goals.

Track Spending: Knowing where your money goes is a big part of being a better saver. Have your child write down their purchases and then at the
end of the month add them all up. Just like adults, this can be an eye-opener. Help your child understand that if they change their spending habits, they will be able to more quickly reach their savings goals.

Mistakes Are a Good Lesson: A parent’s natural reaction is to step in to prevent mistakes, but part of learning to control money is letting your child learn from their mistakes. A bad purchase
decision can be a great lesson to understanding
that a savings goal will now take much longer than they thought based on decisions they made.

Beneficiary Designations Override Wills

W hen was the last time you looked at your
beneficiaries on your retirement accounts, insurance policies, annuities, and bank accounts? Many people forget to update their beneficiaries, especially if they’ve held the accounts for a
long time. If you marry, divorce, or have other changes to your family situation, you need to update your beneficiaries.

Some people think their will or trust is all they need to ensure their assets go to the desired recipients. A beneficiary designation is a legally
binding document that supersedes a will or trust. That means that regardless of your current family
status or what your will or trust says, the assets will go to the beneficiary you named when you
last updated it. And if you don’t have anyone named as your beneficiary on these types of
accounts, state laws will determine who receives the benefit.

It is also a good idea to get into the habit of reviewing them on an annual basis to ensure your assets will be distributed based on your
wishes.

Financial Thoughts

Companies with a lot of passive fund ownership are more likely to repurchase shares in order to boost their short-term stock price, subsequently harming performance over the long term. Higher passive ownership was shown to negatively impact the relationship between buybacks and future capital expenditures, employment, cash flow, and return on assets and equity (Source: Centre for Economic Policy Research, April 2020).

A study found that although retirement plays a role in alleviating some of the stress the body undergoes while working a manual labor job, when those workers retire they can accumulate health deficits faster than individuals whose jobs do not require manual work. The health of men working in manual labor was more positively affected after retirement than women. Individuals with low education, in blue collar jobs, and in physically or psychosocially demanding occupations develop new health deficits faster than white collar workers. People who perform manual labor jobs display
on average almost 30% more health deficits than their counterparts who do not (Source: AAII Journal, September 2020).

If you would like more information or to discuss your financial concerns

Categories : Blog, Financial Services, Savings, Savings Goals

Tags : beneficiary, chiuld, savings goals, spending, wills

How To Know If You Are Saving Enough

Posted by Frank McKinley on

April 2, 2021

Most people think when they start earning more money, they’ll start saving more money. But what often happens is the more you make, the more you spend. If you want financial independence,
you have to establish a savings routine. The more money you make, the more your savings rate needs to increase.

While it may seem like a daunting task, it can be accomplished. The only way to reach financial
independence is to save and live within your means. Your savings should include retirement account contributions, matching funds from
your company if available, cash savings, and any other investments.

Savings at Every Age

Your 20s: You are just starting out and, hopefully, you’ve found a good job that pays a reasonable
salary. This is the beginning of the accumulation stage, so start by paying off any debt you have and work to save at least 10%–25% of your
income. If your employer offers a 401(k) plan, start investing right away. Try to contribute as much as possible or at least as much as your
employer will match.

Your 30s: Hopefully, you have now found out what you want to do for a living and have had a jump in income. You are still in the accumulation
stage, so you should be increasing contributions to your retirement account and trying to contribute the maximum per year. By the end of your 30s, you’ll want at least twice your annual salary saved. A simple example: If you’re making $50,000 annually, you’ll want to have $100,000 accumulated in savings by age 39. But remember this includes retirement accounts.

Your 40s: This is the decade of major responsibilities, as you probably have dependents. Your income may have increased as you climbed the ladder at your job or moved to a
new one. And even with the increase in expenses, you should also be increasing your savings rate. By the end of your 40s, you should
have saved four times your salary. Now you will want to max out your contributions to retirement accounts as well as monitor your investments
for performance.

Your 50s: You are now at your peak earning years and your saving rate needs to be at its highest. Your expenses are still pretty high; but by the end of this decade, you will most likely be an empty-nester, and expenses should decrease. By the time you reach 59, you’ll want to have saved seven times your income. Monitor your investments so you can make adjustments to
increase your returns.

Your 60s: You’re getting close to or have retired. Your mortgage may be paid off and expenses have decreased. Your saving should be at its peak, which is 10 times your income prior to retiring. You can now start to relax as you will
receive distributions from your retirement accounts as well as Social Security benefits. You’ll need to make sure that you are informed
about distribution requirements of your retirement accounts.

Your 70s and beyond: Now all of your expenses are covered by your retirement account distributions and Social Security benefits. Hopefully, you are reaping the benefits of all those years of saving.

Watch for These Warning Signs

As you go through the journey to retirement, you may not be able to accumulate the level of savings you need, but you should have acquired a good amount of savings for a comfortable retirement.

Take stock of how much you are saving every year and look forwarning signs that you are not saving enough. If you experience any of the following, you need to take a hard look at your financial situation to get on track:

You have no idea how much money you’re spending every month, which means you are most likely overspending.

You don’t have savings goals or a savings plan. If you don’t have goals and a plan to achieve
them, you will have a hard time saving for important milestones.

You’re living paycheck to paycheck. It’s time to take a serious look at your finances to see what can be reduced or eliminated.

You’re putting off saving for retirement. It will get here quicker than you think, and this is
the one thing you really need to start saving for as early as possible.

You can’t pay your credit card balance in full, which means you probably have significant debt.

You don’t have an emergency fund. You know the unexpected will happen and need to be prepared.

Frankly Speaking

“When they call the roll in the Senate, the senators do not know whether to answer ‘present’ or ‘not guilty.’ ” -President Theodore Roosevelt

“I never gave anybody hell! I told them the truth and they thought it was hell!” -President Harry S. Truman

Whether you pay income taxes on April 15 or file for an extension, PLEASE be sure to do so. And get your final 2020 Traditional & ROTH IRA contributions in by then. Consider a monthly Systematic Investment Plan to help budget your contributions and ‘Pay yourself first!’ for 2021.

An extension to Oct. 15 is usually available IF you request it and pay at least 90% of the tax due. You also have until then to make 2020 contributions to SEP and SIMPLE IRAs which offer tax advantages to the self-employed with different filing guidelines. Do you know what they are or how they could help you? If not, it’s time we spoke. Please contact me ASAP!