401k Rollover Answers

I’m of the age where I’ve heard my whole life that I won’t be able to rely on Social Security to live on in my old age. According to the media, I’ll spend my golden years as a greeter at Wal-Mart because I won’t have enough money to live comfortably. While that may be the truth for some. it doesn’t have to be that way. With a little planning and preparation, your retirement years can be truly golden.

First, there are plenty of retirement calculators out there to help you figure out how much money you should be socking away. There are lots of different calculators. Some will simply ask for your age and your income. Others want that information plus information about money you already have saved in a bank account or money you have in a retirement account, like a 401(k). And then they’ll tell you a dollar figure for a yearly savings quota. Everything is very time-dependant. The younger you are, the longer your money can work for you. Compound interest is like a little miracle. So, what everyone says is true: start early.

First, plan to put some of your money in a tax-deferred account, a 401(k) or IRA. In many cases you can have both. Check with your accountant. You should contribute the maximum amount allowed for a 401(k), particularly if your employer matches some part of your contribution. If your employer doesn’t match, or the match is very low, you might just decide to go with a Roth IRA, where you have many more investment choices. And remember, Roth accounts are funded with post-tax dollars so any money that grows in them comes out (when you retire) without any additional tax hit.

There are several well known companies who offer great retirement plans. You can pick from giants like Charles Schwab, Merrill Lynch or Vanguard or you can look for small companies or even online banks for a retirement account. When picking one look at their 5-year track records. If they have a 10 or 15-year history for the fund, even better. Look at the fee structure. How much will it cost you to move money around inside the fund? It’s amazing how your money can be nibbled away by fees.

I’ll end with some good news. Even if you’re 50 years old and starting to realize that you should start saving for retirement, it’s not too late! Let’s say you save $250 a month for the next 10 years.  If you get a return of 7%, you’ll have about $43,000. If you work until you’re 65 – so adding just 5 years to this little calculation – you’ll have about $78,000. Not bad considering when you started. And $70,000 is a lot more than zero, which is what you have right now. Time to start saving!