Making The 401 (k) Retirement Plan Work

• Increase Your Savings

In today’s economic climate where several households have suffered reduced income and stagnation coupled with unemployment, increase your savings, is easier said that done. None the less, if you want to be able to retire comfortably, it might be a good idea to increase your savings pattern. The last 10 years were supposedly one of the worst as far as returns on stocks were concerned. In comparison to this it is believed that the next 10 years will provide above par returns. However it would be unfair to expect that the market would take care of all your problems. Where the market cannot meet your requirements, you might to meet those yourself by increasing your savings. In addition to this it might also be beneficial to remember that if your 401(k) account has the increase your savings option, take it. This will help you by making it easier to be disciplined.

• Be Prudent With Your Investments

It should be remembered that larger accounts are more susceptible to market movements than smaller account. The reason for this is that larger accounts are usually held by individuals who are nearing retirement or are about to retire. Hence they stand to stand to lose more with a fall or correction in the market. The solution to this is asset-allocation and portfolio rebalancing. Put simply this means that based on your time to retirement and risk tolerance investment in a diversified range of investments, ranging from direct stocks, to managed funds, bond funds, mutual funds, property funds, commodities etc. Moreover it is also essential that you from time to time rebalance your portfolio to make sure that your are not over or under exposed to any one sector thereby being affected adversely by one while losing out on the gains of the other.

Having said all of the above we also feel that one of the mantras to making your 401(k) work for you is to be flexible. Depending upon the way the market is moving make sure that you are moving in the similar direction. If stocks are falling in value and bonds are rising, it may be time to off load a few stocks and get some bonds and do on and so forth.  The trick is to stay tuned in and take advantage of opportunities that may arise in the market.

Reference:

1. Three Tips to Make Your 401 (k) Work For You – Yahoo! Finance

Retirement And Savings

It may be interesting to look at some figures with regard to retirement savings to decipher whether we are in a bit of a

Put a Retirement Savings Plan in Place

spot. Experts are of the opinion that Gen Xers are probably going to be the worst affected as nearly 49% of Gen Xers will have to reduce their current lifestyles in retirement. On the other hand, baby boomers are in a better spot with studies showing that only 35% have had to downgrade their lifestyles for retirement and savings. It is more important for Gen X and Gen Y to consider their retirement savings options owing to the simple fact that the ’saving for retirement’ options such as company pensions, full social security benefits from early sixties  and 401(k) savings accounts are not available to Gen X and Gen Y. Hence it is very essential for the current generation to save for retirement and use unconventional channels apart from their mainstream options as mentioned.

Retirement Savings Account

The Bush government, in an attempt to enable consumers to be able to make after-tax contributions towards their retirement introduced a retirement savings account (3). This retirement savings account was meant to replace the traditional IRA, Roth IRA and Simple IRA accounts. Although this could be a tax haven and could help you save for retirement with tax free dollars, it is essential to keep the following points in mind to avoid any tax liabilities or implications:

• If your employer offers you a 401(K) retirement savings plan with a matching plan, make sure that you contribute enough to get the maximum amount as offered by your employer.

• In case you are switching jobs rollover your funds in the 401(k) account into an IRA account as this gives you more flexibility.

• Ensure that you nominate your children as beneficiaries for your IRA account. This will give your children tax- deferred and tax-free growth by allowing them to stretch the IRA payouts over their lives.

Retirement Savings Plan

The IRS (Internal Revenue Service) (1) has developed several programs to help individuals save for retirement. Some of the initiatives from the IRS are as follows:

• The IRS have expanded ways in which individuals and sponsors can automatically enrol into in retirement plans.
• By making the process of saving tax refunds easier and
• By helping individuals roll-over their lump-sum payments like payments for unused leave and other similar payments into various retirement plans.

In addition to this, with the help of the IRS, consumers can also receive their tax refunds in the form of government bonds, should they elect to do so. Moreover the IRS also provides information and advice on rolling over distributions received from unused vacation or employee termination and retirement lump-sum distributions.

Apart from these, there are several other savings plans available. It might be beneficial to consult your financial planner to get more personalised advice that is best suited to your retirement savings needs and objectives.

It is obvious from the abundance of options out there that it is possible to have a comfortable retirement. The only requirement is to have the drive and commitment to out the wheels in motions. Let us not forget that retirement savings are the need of every individual and it is never too late to start saving for retirement or to put a retirement savings plan in place.

References:

1. Retirement and Savings Initiative – Internal Revenue Service
2. Is there really a retirement savings crisis? – MSNBC
3. The President’s Savings Proposals – U.S. Department of the Treasury