Help! My 401(k) Has Fallen - And Must Get Up!, one of the most common questions I am asked is this -
What is the one thing I can do to fix my 401(k)?
Of course, the person asking wants a simple answer, not a lot of broker speak. So here it is. Regardless of age, gender, or income, the simplest best answer I can give is:
Save More Money!
How's that for simple? Money Magazine released some new information in a study from their Retirement Guide 2011 (Oct. 2010 issue). If you are 35 years old and earn $70,000/year and you save 10% of your pay, you'll have saved $936,100 by age 65.*
By waiting just 5 years to start and doing the same - saving 10% at age 40, your nest egg at age 65 will be $697,700.* (*Assumes 3% annual pay increases and 7% average annual returns on investment into a tax-sheltered account - IRA, 401k or 403b.)
While both figures sound like a lot of money, the difference of $238,400 means a difference of what you can potentially use for income. Assuming you take out 5% per year from your nest egg ($238,400 x .05 = $11,920/year) means that by starting at age 40, you could be cutting your future income by nearly $1,000/month!
Ben Franklin often preached on the virtues of compound interest. He called it the 8th wonder of the world.
So how do we save more money? As Nike might say, "Just Do It!"
It is much easier though if you can have someone to hold you accountable. This is where Facebook might come in. What if you posted a notice on your Facebook page to your friends and tell them to hold you to it. You could "tweet" it also.
"I promise, starting TODAY to pay myself first and put 10% of my pay into my 401(k)."
Honestly, when you see some of the others posts on Facebook (i.e. "I hate rainy days.", "Halloween is coming.", "Out walking the dog."), you'd have to feel a bit proud posting something inteligent that will make a positive difference in your life, wouldn't you? You could start a trend. Have your friends (or at least one or two) hold you accountable.
You could also set e-mail reminders which are specific. use a personal website such as http://www.mint.com/.
Send a message to your e-mail Inbox such as "Put $1000 into my Roth IRA this month." or "Every 3rd of the month I put $400 into my Roth IRA." You could arrange these to hit your Inbox when you get a bonus or unexpected money.
Don't despair if you've turned 45 and still haven't done much. Remember we had talked about how you could still achieve an added $1000/month of income at retirement by starting now and following a disciplined goal. I'll be reviewing some other ideas from the Money Magazine retirement guide in upcoming posts.
My book, Help! My 401(k) Has Fallen – And Must Get Up! has several ideas and strategies which will help you in your retirement savings journey. Get your ‘Fallen’ 401(k) back on its feet. Contact me to reserve your copy today. You can also get a FREE report at my website. The 5 Biggest Problems With 401(k) Plans – And How To Fix Them. I also host a 30 minute weekly radio program - Improving Your Financial Health on WHME-FM in South Bend. Archives can be heard on my website as well.
If you live in the South Bend, IN area, I am also happy to help with 401(k) rollovers or IRA reviews. You can follow me on Twitter, Linked In, or Facebook.