The guy at the SS office explained it like this – while you could realistically expect maybe an extra $100 per month (more or less) for life if you wait a little longer, you are also giving up a few thousand dollars each month by waiting to take anything. Let’s look at the math for a second, with some hypothetical numbers:

Scenario #1 – Mom waits 2 years to start taking monthly payments. Payment at that point is $2,000 per month. If she lives till she is 85, that’s a total of $432,000 being paid out over 18 years.

Scenario #2 – Mom starts taking payments now at 65 years old. Payments would be $1,875 per month. If she lives to the same 85 years old, she would be paid a total of $450,000 over 20 years.

See the difference? Just by giving up $125 per month and starting to take the payments now, she has the potential to receive much more in payments over the long term. The guy at the SS office was right – sure, you may be giving up a little per month for life by taking payments now, but how many thousands are you giving up per month until you start taking the payments? So if you or a loved one is nearing Social Security age and contemplating when to take the benefits, make sure you do the math and see the whole picture – not just the monthly dollar amount. Giving up a little bit each month could mean getting much more in the long term!

Photo by Fabricator of Useless Articles

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Until now, an objective evaluation of 401(k) plans has been extremely difficult because of the complexity of these plans and the cleverly hidden costs which would take a pension actuary to uncover. These excessive fees have dramatically reduced employees account balances. By some accounts, the combination of poor investment options, high expenses and poor planning have caused many plan participants to have a zero return on their 401(k) investments.

Brightscope crunched 401(k) plan data from public resources and compiled an extensive database of information. Using over 200 data points, including plan costs, amount of matching contribution and quality of investment options, it assigned a numerical rating to each plan. It then compared the rating to the lowest, average and highest rating in the peer group. It also calculated how many additional years an employee in a given plan would have to work, and how much was lost in retirement savings, compared to the highest rated company in that peer group.

401(k) plans have been accurately described as The world’s largest skimming operation – a $7 trillion (now $12 trillion) trough from which fund managers, brokers, and other insiders are steadily siphoning off an excessive slice of the nation’s household, college, and retirement savings. Now that this dirty secret is open to public scrutiny, maybe employees will be able to get the retirement plans they deserve.

Ouch. I don’t have a typical 401(k) because I work at home for myself as a freelance, but those of you with 401(k) plans at work might want to take a look at yours and see how it stacks up to other plans!

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If you are closer to retirement, you probably want to shift your allocation to something a little more conservative. This does not mean you should head over to your broker and pull all your money out, which would cost you early withdrawal fees and taxes. Leave the money in there! However, it does mean that you might want to ask them about moving your portfolio to a more conservative stance to protect some of your money in this time. Granted, if you are so close to retirement that you are worrying about losing your retirement money, you should already have a pretty conservative setup. But if you aren’t, now is the time to maybe ask your broker about moving some things around.

I have not moved any of our money out of any situation we are in. Believe me, it’s tough to look at our accounts and see how much money we “lost” – but for me, it’s all on paper. Investments are for the future; for retirement, kids’ college funds, etc – they are not for short term needs. The money we are saving for our house is in a money market savings account right now, as we did not want to lose any of it if the market tanked – which it has. But everything else is in retirement vehicles of different sorts, and the money will be staying in them. Sure, I might lose a lot of it in the next couple months/years, but I have 30 years before retirement and I am guessing that the markets will probably go through another cycle like this one by then.

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Dunedin, FL – 20 miles west of Tampa, 3 bedroom houses go for around $200,000 and condos near the water range from $100,000 to $200,000. I know a lot of people love living in Florida, and my Aunt & Uncle do too, but I don’t know if I could deal with the threat of hurricanes through my retirement!

Beaufort, SC – Prices in old Beaufort start at $500,000, but nice houses in newer neighborhoods just 10 minutes away average about $300,000. Doesn’t seem that cheap if you ask me, and the humidity would kill me. I went to college in the south and remember it well…

Sequim, WA – This seems like a place I could live. Located two hours north of Seattle, Sequim offers a lower cost of living and for about $300,000, you can get a three-bedroom house.

Durango, CO – After living practically in the Rocky Mountains, here is another place I could see myself living in retirement. Sure, Colorado is not exactly on the ocean, but they have plenty of water – but typical three-bedroom home goes for $500,000. Ouch.

St. Joseph, MI – I have heard some great things about Michigan, as long as you don’t mind winter. Three-bedroom houses here within walking distance of the water typically cost only about $250,000, which makes this a very affordable place to retire.

Marble Falls, TX – Hot, hot, hot summers. But only 47 miles northwest of Austin and in the middle of a chain of seven large lakes on the Colorado River. With house prices averaging about $250,000 near the water, this is another very reasonable retirement spot.

So what do you guys think? Anyone live in or around any of these places? I always find it interesting what magazines have to say about lists like this compared to what locals have to say!

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Roll The Money Into A Rollover IRA

Pros Include:
Maintains tax-deferred status
Allows penalty-free withdrawals for certain circumstances

Leave The Money In Your Former’s Employer’s Plan

Pros Include:
Maintains tax-deferred status
Offers familiar investment options
Allows for penalty-free withdrawals if you separate from service and are 55+ (in most cases)

Cons Include:
May have minimum balance requirements
May restrict withdrawal options for beneficiaries

Move The Money Into Your New Employer’s Plan

Pros Include:
Maintains tax-deferred status
May permit loans
Allows for penalty-free withdrawals if you separate from service and are 55+ (in most cases)
May allow for delayed minimum distributions while you are still working

Cons Include:
Limits investment options to those of the new plan
Limits your access to withdrawals if you are still employed
May involve a waiting period prior to moving your money
May restrict withdrawal options for beneficiaries

Cash Out From Your Previous Employer’s Plan

Pros Include:
Provides immediate access to retirement plan assets

Cons Include:
Removes potential for tax-deferred growth and compounding
May incur an immediate 20% withholding on the distribution for prepayment of federal income taxes
Generates a 10% early withdrawal penalty if under 55 years old

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Today’s installment of Money Mistake Monday has to do with saving for retirement. Sure, it seems like a long way off, but the earlier you get started, the easier it will be to reach your necessary goals. A lot of young people cannot see the future that far out, and that is why they put off starting to save for retirement, and I was one of them. I did not start really saving for the future until I was 28 years old…6 years after getting my first full-time “real job”.

Unfortunately for me, my first 2 real jobs after college did not have 401K’s, so I was not even given that option. Instead, I spent my money on cool electronics, expensive vacations, the newest computers/cellphones and other assorted things that were not necessary. Add in the expensive girlfriend from last week, and it all adds up to a big wake-up call when I turned 28.

Starting to save for retirement/the future at 28 is not really that bad compared to some people who start much later. But those 6 years would have given me a hell of a headstart on my retirement plan. Even if I had been able to put away $50 a month, I would have already invested $3,600 in principal by 28, never mind the interest accrued over that time or over the next 30 years. But I didn’t, and now I probably put away a lot more than I would have to if I had started earlier. Fortunately, I am able to put the money away, but life throws curveballs sometimes, and if I wasn’t able to today either, I would be in a lot of trouble come retirement time.

A piece of advice for those just starting their careers or only a few years along: I know retirement seems a long way off, but trust me on this – you want to start investing NOW. Immediately. As in, TODAY. If you can only afford $50 a month, sock it away. If you can do $50 a month comfortably, go for $75. If your company offers a retirement program, take full advantage of it to get their matching funds. On your own you should open a Roth account asap. Try an index fund as well. Just start doing it!

Years ago I wish I knew what I know now; don’t let that be you. There are plenty of websites and information out there to help you get started, but do not delay. A minimum investment today in the early years will save you from trying to play catch up later on when you have a spouse, some kids, and a mortgage. Take advantage of time, and it will pay you back handsomely!

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Adjusted Gross Income
Tax Filing Status
Yes or No to participating in a program at work
Anticipated Earned Income for this year
Age you will be come December 31

Once you enter all of these numbers, the calculator at FinCalc will tell you plans you are eligible for and how much you can contribute for this calendar year. Hopefully this will answer the questions I got and give readers a baseline as to how much they can put away in an IRA. Enjoy!

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I cannot imagine being 50 something years old and not having a dime for retirement. I imagine there are quite a few people that find themselves in this position, so hopefully this article will be of some help to them. But really, the part that got me, as well as Mr. Updegrave, is that these people actually think they WILL be retiring in 10 years; that is what their letter said. It actually says:

Question: My husband and I are retiring in 10 years, but haven’t set up any retirement accounts….

Um, maybe you won’t be?

Anyway, check out the article, if only to read their question and his first response. Scary.

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