401(k) 101

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While the prevailing notion seems to be that people from my generation will never be able to retire, I figure it still doesn’t hurt to start looking into my 401(k) options. But I as I have so little experience in this area, I’ve needed to do some research to make sure that I understand everything that happens with my money when I invest in a retirement plan.

So for those of you who are about my age and also trying to learn about retirement accounts for the first time, here are some general ideas about how a 401(k) works:

1. You decide how much money you want to contribute to the 401(k) on a monthly basis. This amount automatically gets deducted from your paycheck and put into your account. Remember that there are contribution limits involved here. If your employer offers a match, try to contribute enough to the plan to get this match. Otherwise it’s like giving away free money.

2. Your company acts as what is known as the “plan sponsor.” There is then another company involved that actually does all the handling of your finances, which could be a mutual fund company or a brokerage firm.

3. You generally can choose how your money gets invested. Some people prefer to be more aggressive than others; it all depends on what your financial goals are and how quickly you’re looking to build up savings.

This is an extremely general overview, but it’s helped me to better understand what a 401(k) is and how it works. Tim from MoneyMix

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

How Much Do You Really Need to Retire?

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Article originally appeared on SIU Credit Union Blog by 

How do you know if you need to save more for your retirement, are right on target, or are going overboard?

The rule-of-thumb formula is to plan to live on 70% to 80% of your preretirement income during your retirement years, while increasing your replacement income annually at the inflation rate for 30 years.

This is a reasonable starting point.

But these assumptions can over or underestimate the true cost of your retirement. One size does not fit all. Your actual replacement income requirements will more realistically range from 54% to as much as 90% of your preretirement income

One important factor in determining your replacement rate is your proportion of pretax expenses (contributions to a 401(k), for example) to post-tax expenses (contributions to a Roth, mortgage payments, and so forth).

The more you put aside in pretax retirement accounts before you retire, the lower your replacement requirements.

To help you evaluate other factors that affect your replacement rate, consider:

  • Some of today’s expenses will decline or disappear when you retire, for example, Social Security and Medicare taxes, saving for retirement, and work-related expenses.
  • As you progress through retirement, even if you take into account the inflation rate for retirees (3.15% compared with a general inflation rate of 3%), your expenses will decrease in real terms at first and then increase toward the end. That’s because your consumption most likely will change over time.
  • The relative amount you’ll spend on insurance and retirement plans will decrease significantly as you age.
  • Your life expectancy might be a lot less, or more, than 30 years. You can use Social Security’s online calculator (found on ssa.gov) to estimate your life expectancy.
  • If you have a low preretirement income, for example, $20,000 a year, your replacement rate likely will be higher than that of someone who makes $100,000 a year.
  • The relative amount you will spend on health care could increase significantly as you age.
  • After age 65, you stand a good chance (70%) of requiring long-term care and help with basic daily activities, even if only temporarily.
  • Many households would benefit from claiming Social Security as late as possible. Keep in mind that, by delaying, you’ll get a higher inflation-adjusted benefit for life.

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

Savings Accounts and IRAs and 401(k)s! Oh My!

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This article was originally posted in Money Mix

When you’re just starting out in life, it’s difficult to imagine the day you’ll ever be able to retire. It seems so far off that it’s easy to put it out of your mind. Starting a retirement account just seems like a lot of work; why not sock what extra money you have away in a regular savings account and call it a day?

If you’re not making the effort to plan for your retirement in your 20s and 30s, you’re missing out on some valuable saving potential.

There’s a reason people contribute to 401(k) accounts and IRAs (individual retirement accounts), and that reason is compound interest. When you contribute to a retirement account, you’re not only saving the money you put in. You’re compounding, or earning more money, based on the money you put in and the money you’ve already contributed to the account.

Some investing experts describe compounding as a snowball effect: You start with the money you contribute and, over time, that amount grows exponentially based on the amount you continue to contribute and the savings that’s already there.

Here’s a real example from a financial professional at Fiduciary News:

Let’s say Person A saves in a regular taxable account, while Person B saves in a tax-deferred retirement account. Each saves $1,000 a year for 30 years. Both earn 8% on their savings. Person A will end up with about $89,500 after 30 years. Person B, however, will have about $132,000 after 30 years. The difference? The compounding effect of Person B’s retirement account resulted in about $42,500 more.

The best part about compounding: It’s easy to set it and forget it. Talk to your human resources manager or your financial adviser about making sure you’re saving at the right rate. Continue to contribute that amount, and you can sit back and watch that money grow. While it might be hard to see that money going into your retirement account instead of into your bank account, keep the concept of compounding in mind. Remember that your retirement money is earning even more money just by sitting in your retirement account, and you’re barely lifting a finger to make that happen. Chances are, you’ll start to come around to the idea of putting that 401(k) or IRA to good use.

Are you saving for retirement?

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

National Save for Retirement Week Kick Off!

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The eight annual National Save for Retirement Week (NS4RW), started on Sunday, October 19th and runs through Saturday, October 25th, provides a great opportunity to reflect on your personal retirement goals and determine whether you’re on target to reach them.

National Save for Retirement Week is the first congressionally endorsed, national event formally calling on all employees to take full advantage of employer-sponsored retirement plans. It is also an effort to raise public awareness about the importance of saving for retirement.

It is important to begin saving today for retirement – or increase your contributions if you aren’t meeting your goals. Experts predict that retirees will need from 80 percent to 100 percent of their pre-retirement income to maintain their lifestyle after retirement. Yet, surveys show that most Americans remain unprepared for retirement.

Take advantage of National Save for Retirement Week by researching what your savings options are, using savings calculators and benefit assessment tools to determine what your retirement goals should be, and using tools like the America Saves pledge to stay on track. Not sure where to start? Here are a few tips and tools for you:

 Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

 

Keep Your Credit Card Information Secure

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Credit card security breaches that can be costly, inconvenient and downright scary. Chris Miller is Senior Manager of Asset Protection at UFCU, and he gave Studio 512 advice on how to keep your information secure. Consumers can expect to see more chip-and-pin cards which are credit and debit cards with an embedded microchip on them. Instead of  the usual swiping and signing to make payments, point-of-sale machines read the chips, and cardholders enter PIN codes to verify their identity. It’s recommended that the consumer monitor their accounts for any fraudulent activity.

Tired of having to remain vilgilant when someone else doesnt protect your data like they should?  You can do more:

  • Share this information with friend and family, and encourage them to take action via StoptheDataBreaches.com campaign site.
  • Stay engaged with the campaign by following @CUNAadvocacy, @aSmarterChoice, #StoptheBreaches, as well as the CUNA Advocacy and aSmarterChoice Facebook pages.
  • Continue to stay abreast of new developments by checking the latest news, following the social media platforms above, and keeping in touch with your local credit union.  You can find one at asmarterchoice.org

It’s time to tell Congress we need to stop the data breaches and raise awareness about the impact databreaches have on credit unions and credit union members when financial information is stolen.

International Credit Union Day: Local Service, Global Good

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Today the credit union movement celebrates International Credit Union Day, first observed 67 years ago to remind credit unions, staffs and members around the globe to take a step back and recognize the work credit unions do in their communities all year long.

The credit union movement, reflecting our philosophy of “People not Profits” is growing and as more and more Americans choose credit unions as their financial partner, you can see the impact in your local community. In Kansas, credit unions are carrying on their tradition of surprising people in their local communities with special “Make a Difference” events today.  Earlier this week, credit unions in Louisiana, Illinois, Michigan, North and South Carolina participated in a lunch time cash mob supporting local restaurants.   Events like these are in addition to the countless hours of community service, financial education and other forms of community involvement that credit unions offer. You can follow the events and activities on social media using #ICUDay.

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Internationally, there is a lot to celebrate, as credit unions have played critical roles in supporting the communities and the nations they serve.

In the Philippines, for example, credit unions helped members get back on their feet after a devastating typhoon ravaged the country late last year. In Mexico, impoverished and marginalized citizens have more access to bank services thanks to credit union field officers who bring mobile banking services to poorer populations.

These actions embody the theme of International Credit Union Day:  Local Service, Global Good.  If this philosophy about contributing to a financial institution that supports your community instead of shareholders appeals to you, join a credit union.  Find your best match here or visit asmarterchoice.org 

Easy money: Take advantage of 401(k)

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Long gone are the days of traditional pensions. With many companies offering 401(k) plans, how successful you are in saving for retirement is up to you (USAToday.com Oct. 8).

Here’s advice to help you engage in your 401(k) and how to maximize this opportunity:

  • Take advantage of your company match. Contribute at least as much as you need to get your employer’s match. If you don’t, it’s like leaving free money on the table.
  • Play catch up. If you’re age 50 or older, take advantage of the catch-up provision which lets you contribute an additional $5,500 into your plan each year.
  • Increase your contribution each year. Even by increasing your contribution by 1%, this amount will add up quickly. Also consider bumping up your contribution percentage each time you get a raise or a bonus.
  • Don’t forget about 401(k)s at former employers. If you leave your job you have several paths you can take with your 401(k): Leave savings with your former employer, roll over your plan to a traditional or Roth IRA (individual retirement account), move savings to your new employer’s plan, or cash out and pay taxes. Each scenario will require research to determine what’s best for you. Cash out your plan only as a last resort.
  • Don’t take early withdrawals. Experts advise not borrowing from your 401(k). Think about whether you’ll be able to contribute to your 401(k) while you’re paying back your loan. If you can’t, this is derailing your savings even more. If you leave your job, you’re responsible for paying back the loan usually within 60 days. If you can’t pay it back you’ll be subject to taxes and penalties. A better alternate for borrowing money is getting a low-interest loan from your credit union.
  • If you delay retirement, keep your 401(k). Once you turn 70 1/2 you have to start withdrawing a minimum distribution. If you’re still working you don’t have to take the distribution until you actually retire.
  • Aim to save 10%-13% of your gross pay. This includes your employer match if you get one. If you’re already saving enough in your employer’s retirement plan to get the company match, consider opening a traditional or Roth IRA at your local credit union as well.

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

Let’s CU Lunch Local!

As a kickoff celebration for International Credit Union Day on October 16th, many local credit unions are supporting their community businesses by lunching local today.  Started in 2012, this cash mob of credit union members, employees, directors and volunteers aims to help local restaurants, food trucks, markets and businesses like the Spotted Dog Cafe.

Participate in this fun event with your friends and colleagues.  Take a picture and post to social with #CULunchLocal, #100MM and the location where you’re eating to show your impact!  We’ll be sharing through out the day on social so be sure to follow us all day!

Many credit unions support their communities with programs like these.  Consider joining a credit union for additional benefits like financial education and community contributions. You can find a credit union that’s a match for you at aSmarterChoice.org  At a credit union you’re not just an account number, you’re a member-owner who can impact the lives of those around you!

Time for Congress to Protect your Financial information

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Are you concerned over the now-common merchant data breaches? So are we.

Merchant data breach is a chronic issue that costs credit unions millions of dollars each year.  Large scale breaches like Target, Michaels, Home Depot, Neiman Marcus, Jimmy Johns and now Dairy Queen and Kmart get national attention, but small breaches at local stores also increase costs for credit unions.

Over 500 data security breaches have occurred in 2014 which have exposed over 75 million data records.

Did you know that merchants are not subject to the same federal data protection standards as financial institutions, such as credit unions? This means that some merchants fail to invest sufficiently in data security measures. When a data breach occurs, the merchants are not required to pay the costs to send individuals their new cards and generally pay none of the fraudulent charges an individual may have on their cards or accounts. In fact, when merchants are responsible for the breach, they are rarely required to pay ANY costs incurred by others. Who is stuck paying these costs for data breaches? Credit unions—and ultimately, credit union members.

Credit unions have been there to protect their members from fraudulent charges on their cards due to a breach, and the cost is generally picked up by the credit union, not by the merchant where the breach occurred. In addition, credit unions pursue criminals through available legal channels on behalf of their members, saving them time and legal expenses. Ensuring members’ data safety is a top priority of your credit union.

What can you do to help make sure your data is secure?  Read this helpful blog post; be aware about how and where you share information; monitor your accounts regularly; and more importantly, encourage Congress to make a policy change to protect your information:

  • Share this information with friend and family, and encourage them to take action via StoptheDataBreaches.com campaign site.
  • Stay engaged with the campaign by following @CUNAadvocacy, @aSmarterChoice, #StoptheBreaches, as well as the CUNA Advocacy and aSmarterChoice  Facebook pages.
  • Continue to stay abreast of new developments by checking the latest news, following the social media platforms above, and keeping in touch with your local credit union.  You can find one at asmarterchoice.org

It’s time to tell Congress we need to stop the data breaches and raise awareness about the impact databreaches have on credit unions and credit union members when financial information is stolen.

Credit Unions are a Smarter Choice!