Stop Thinking About Retirement

Last month a study by published by the Investment Company Institute revealed that IRA participation has steadily grown. The study found that IRAs now account for 25.4 percent of U.S. retirement wealth and at year-end 2008 IRA made up 8.5 percent of total U.S. household financial assets. This news illustrates a steady incline in IRA participation, but before we proponents of savings get all excited let me throw a negative at the statistics. Twenty-four percent means that just a quarter of our savings goes into a tax-advantage account. Only 8.5% of household wealth? We can do better and here’s how.

Stop thinking about retirement! The attitude that IRAs are for our golden years is the biggest deterrent to IRA participation. For most people in their 20’s paying this month’s rent and having some money for fun is a greater priority than saving for retirement. And for people in their 30’s supporting their family now is at the forefront of their financial plan. That’s why we don’t really start thinking about IRAs until we get older.

By age these are the stats:1
Ages 61-69—16% contribute to an IRA
Ages 51-60—10% contribute
Ages 31-40—participation is just 7%
Ages 21-30—a mere 3% contribute to an IRA

Saving for retirement is like preparing for death. No one wants to think about and we’ll do nearly anything to avoid it. So that’s what we do—avoid.

I propose that if you aren’t participating in a tax-advantage savings program (like an IRA) that you get a new attitude. Start thinking about wealth building. The maximum IRA contribution in 2009 is 5,000 dollars. That’s $5,000 tax-advantage dollars. The type of advantage depends on which IRA you choose. BTW you can still open and contribute to a 2009 IRA. The contribution amount can be limited by your Modified Adjusted Gross Income (affectionately known as MAGI). If you are over 50 years old, you get to add up to $6,000 to your IRA wealth building account.

I’m not going to bore you with the details on contributions and differences in the IRA plans during this posting. To find out more do the following, and start building your wealth and stop thinking about retirement…

• Call the Coors Credit Union and ask to talk with the Investment and Retirement Team. They’ll take a look at your situation and help you decide which wealth building tools will work best for you.
• Go to IRS.gov this site will give you the most accurate information and help you understand your choices. I know, I know it’s a government site, but there is a lot to be said for going to the source.
  
  1 Data released by Federal Retirement Thrift Investment Board, Analysis of 1997 Thrift Savings Plan Participant Demographics, December 1998; and Employee Benefit Research Institute, EBRI Databook on Employee Benefits, 4th ed., 1997.
  

Estimating Your Needs for the Future: 12 Times

Many have taken credit for the 12 Times Rule most often it’s been accredited to Jonathan Clements, former columnist for theWall Street Journal.

This formula assumes three things: 1) that your income will increase to match inflation, 2) you draw 5% of your savings as income the first few years of retirement, and 3) your return on ivestment is 5%.

The 12 Times Theory states that your wealth should equal 12 times your income. The amount you’ll need to set aside each month is dependent upon how long you have until retirement and your current savings-to-income ratio.

Using the 35 year-old that we’ve used before it might look like this:
$75,000 annual income X 12 = $900,000. But that’s not all…

This amount indicates 60% of your pre-retirement income. Combined with Social Security and other income, you might end up with 80%, a figure that most retirement calculators assume is enough. Alternatively, if your own calculations show that you need a higher percentage, then you need to amass more than 12 times your income.

It may seems like a crazy amount of money doesn’t it? But actually it’s not.

Yes, the ways you can look at determining future wealth needs are vastly different. In the end, however, though they may spit out amounts that vary slightly, they all seem to point in the range of $1 million. Pie in the sky? Possibly. But it’s not a bad thing to shoot for if you can make that your goal without getting too focused on the almighty dollar.

Estimating Your Needs for the Future: The 10% Beauty and Beast

We’ve all been told to start saving early and the 10% Rule proves this point. Save 10% of your income and invest it with long term returns around 10%, your portfolio will grow to the point that it can support your lifestyle from earnings in roughly 35-40 years. It doesn’t matter how long you live, you will not outlive your money if you follow this rule.

According to this rule we should all be wealthy and able to financially take care of ourselves well into old age, but that’s not real life. In real life we think that we can’t save either because we earn too little or have plenty of time for that later. Here’s the truth:

You might be young and earning very little, but then 10% of your income is small too. If you earn $22,000 and invest just $183/month ($2,196/year), you’ll be on track. But if you choose to wait until you are older you’ll need to invest much-much more to keep up.

Try it out by using this compound interest calculator.

In the above scenario a 25 year old earning $22,000 and investing $2,196 annually at a return of 10% would have over $1 million at age 65.

This is an easy it is to understand concept, it just seems that most people are reluctant to get started when they’re young.

Estimating Your Needs for the Future: The Millionair Next Door Formula

The following is the wealth building theory posed in the book Millionaire Next Door by Thomas Stanley and William Danko.

Your Age ˟ Your Gross Annual Household Income ÷ 10 = Your Net Worth Goal

This is a super quick way to estimate what your current net worth should be. It’s not an estimate for your future wealth goal. This rule does not consider inflation, taxes and varying interest rates. It does provide a useful estimate of your retirement savings goal. The formula is a good way to assess your current savings. Are you on track? or ahead? It can be eye opening.

So if you are 35 and earn $75,000/year your goal would be: 35 ˟ $75,000 ÷ 10 = $262,500

At 45 earning $75,000 your goal would be: 45 ˟ $75,000 ÷ 10 = $337,500

At 60 earning the same: 60 ˟ $75,000 ÷ 10 = $450,000

Liz Pulliam Weston of MSN Money had this to say about the Millionaire Next Door theory: “…this formula is problematic, at best. It requires substantial savings of people in their 20s and 30s, and it understates what people in their 60s will probably need.”

Note that the formula does not intend for you to include unexpected income from inheritance or other means. It should just be straight savings and investments. I have, however, known people who include the equity of their home in their personal net worth. In my opinion, it’s risky to consider your home equity as part of your net worth.

Estimating Your Needs for the Future: The Rule of 25

I’ve got a theory that you can’t get where you’re going if you don’t know where you want to go. Oh, I know someone else said that much more elegantly than I. This week I’m going to explore four common theories on setting your nest egg goals. Sure you can use calculators, but they can be complicated and cumbersome. The four methods I’ll cover simple yet great for setting tangible goals.

Today’s method: The Rule of 25

A simple explanation for the Rule of 25 is to add up your annual expenses, multiply by the number 25, and, voila, you get the amount you need for retirement. But it can be more complex than that. For one thing you’ll need to determine if your expenses today are comparable to what you’ll need in the future. If you are young and single you’ll probably need to increase the annual expenses a bit to compensate for your plans. Do you hope to have a family? pets? own a home?

Let’s look further at this theory. It’s just a mathematical simplification of the famous 4% rule where you expect to spend 4% of your savings during each year of retirement.

The rule assumes that you will be able to generate an annualized real return of at least 4% on your investments. A return of 4% return on a portfolio of $1.25 million yields $50,000. If you needed $40,000 to live on, you would need to save $1 million. If you needed $60,000, you would need to save $1.5 million. The amount you need to save to generate a specified annual income is always 25 times the annual income amount as long as you assume a 4% real return on your investments.

If your expectations for returns differ you can adjust the theory. Many people will downgrade the real return to 3% in which case you would then multiply by 33, instead of 25. Or multiply by 20 if you expect a 5% return. The more conservatively you approach the estimation, the more chances of success you will have, because you’ll sock away more savings.

Another way to apply the Rule of 25 is toward your current expenses and savings. If you take a look at an expense, say $4.00 each week for a latté which over one year would cost $208. Then multiply that expense by 25 you’ll find that for you’ll spend $5,200 during your lifetime on that treat. You might use this method to evaluate whether or not an expense is worthwhile.

So, the Rule of 25 is rather simple. It definitely gives you a goal to shoot for and I like that you can use it evaluate other savings and spending areas. Give it a try and then compare to some other theories that I'll cover this week.

How Much Money Will You Need in the Future?

Yesterday I asked I posed the question of retirement, whether you intend to or not. My point was that it doesn’t matter if you don’t “intend” to ever retire; life may make the decision for you. And if the decision is made that you must stop working, you’ll want to be prepared. So just how prepared or how much money will you need in the future? Sorry, no crystal balls here. One calculator told me that I would need $1.6 million another just around $800,000.

The guideline used to be that you could live on 70-80% of your highest salary. People used to count on a lower cost of living because the kids were gone, the house could be smaller, and work expenses like transportation and wardrobe were gone.

It also used to be that you could count on pensions and social security to cover a good chunk of expenses. And while we’re on the topic let’s not forget where social security came from in the first place. It was a depression era invention to encourage older workers to move out and make room for younger employees (a.k.a economic stimulus).

But times have changed. Like I pointed out yesterday people aren’t retiring as planned for a variety of reasons. So we shouldn’t think of 401(k)s, IRAs and stock investing just as “retirement plans”. Maybe a better term would be future wealth plans.

If there is one thing that you can count on for the future is that everything will be more expensive. So if you think about building your future wealth the first thing you’ll need to think about is your future. What do you want it to be like? Set your goals for future wealth on things that are tangible, not just arbitrary numbers that might make you comfortable.

Someone looking to generate $40,000 a year in retirement strictly from personal savings would need a nest egg somewhere between $500,000 (12.5 times the initial withdrawal) and $1 million (25 times the initial withdrawal).

A conservative rule of thumb suggests that if you withdraw only 4% -- or one twenty-fifth -- of your retirement nest egg during the first year and adjust subsequent annual withdrawals to compensate for inflation, you'll never outlive your money. Another approach is to estimate how much you'll need to withdraw from savings during your first year of retirement and multiply that amount by 25 to determine your target number.

So exactly how much do you need?
Two answers: 1) it depends and 2) probably more than you think.

I know I haven’t given a straight answer about how much you should be stuffing away, but all I really hope to impose on you is that even if you have no intention of retiring, you still need to build wealth for future needs.

What if You Don't Plan to Retire?

Do you plan to retire? Whether you answer yes or no your financial actions should not be different—you still need to build a nest egg.

Retirement used to conjure up images of traveling the world and lazing on sandy beaches. Now many people think of retirement as just a chance to do something different. But a 2009 study by Employee Benefit Research Institute (EBRI) revealed that only 34% of current retirees actually continued to work in their golden years. That’s way down from the 72% that said they planned to continue working. EBRI found that the majority (89%) of those that said they planned to keep working attributed financial security as their number one reason to work.

ERBI also found that 47% of retirees actually retired sooner than they planned. The median age for retirement is 62. Health is often stated as the biggest reason for retiring. There is also the fact that older workers are sometimes encouraged to retire through company early retirement programs and/or layoffs.

The lesson learned from ERBI studies is that what we say and what we do are often different. When you are young and healthy you might think that you’ll keep working well beyond retirement age, but stuff can and does happen.

So if you’ve been acting as though retirement was too far off to think about squirreling away money, think again. And don’t count on Social Security. If there are no changes made to Social Security the program is projected to begin running out of funding in 2037. How old will you be then? And in the last few days the trustees who oversee Social Security announced that there won't be a cost of living adjustment for the next two years. That hasn't happened since automatic increases were adopted in 1975.

Regardless of what happens with Social Security we all know that we can’t expect Social Security alone to cover our financial needs.

Tomorrow we will look at how much money you might need for your upper 60’s and beyond.

It's Your Money and Nobody Else's

The following was originally posted August 5,2008, but I come across this topic again and again.

I have to tell you about this conversation I had the other day regarding 401(k)s. But I'm going to switch it around a bit--you know to protect the innocent.

So a, ehem, friend was talking with her husband about her 401(k) that's been sitting in her former employers account for over a year. She was vested in the account and contributed the maximum, so it's not a small amount. For reasons that aren't significant to this story she left her job with no intention of getting another. Anyway her partner had an idea that she should move her 401(k) funds into his. This is where I come into the conversation. "Can we do that?"

I think I know the answer to this question, but I'm not an certified expert. And so I called on an expert. Here's what Nelisha Wilson from LPL Financial had to say about merging 401(k)s:

No. You cannot roll your 401k into your husband's for a couple reasons.

1) 401ks are company sponsored plans. You have to work for the company in order to have assets in the plan.

2) 401k money is individually owned. The money can NEVER be co-mingled with your husband's. As long as you live the money must remain separate.

Your options are to keep it in the 401k, roll it to an IRA (Individual Retirement Account), or cash it out. It is not advisable to cash out due to the heavy tax load you will pay. If you are under the age of 59 1/2 the amount you withdraw is subject to your income tax bracket and a 10% penalty per federal regulations. Rolling your money to an IRA is a non-taxable transfer and allows you to take control of the money and invest it how you wish. For the best advice, I would recommend consulting a financial professional at the Coors Credit Union for a free consultation.

One statistic that always surprises me is that more than 50% of people cash out their 401(k) when they leave a job. I understand that at that moment when you are between jobs or switching jobs is usually when you need some cash. Probably most of this group have low balance 401(k)s. But with tax penalties and lost compound interest doing so is a big step backwards.

Why my kids don't have a college fund

Ugh, this is a sort of a big confession for me to put out there for anyone to read. I'm kind of embarrassed, but not at all sorry to admit that I have nearly zero dollars set aside for my kids' college funds. But after reading Will your parents’ financial decisions leave you holding the bag? by Millionaire Mommy Next Door I've decided to expose my secret.

It's not that big of a secret. My kids are quite aware. They are quickly nearing college and don't have any delusions of going to big money schools. But I wanted to tell you why we don't have college funds and it's all about my parents--especially my mother.

Here's the story: My mother was completely unaware of finances her entire life. Her parents were well off and so she never gave money any thought. Then she married my blue collar dad. He was practical, even frugal. He made a decent salary, but still couldn't save very much. When I was about to graduate from high school he told me there was no money for college and suggested that I just get a job. "Thanks, Dad!" I mean it. I was able to go to college through grants, scholarships, financial aid and working. It made me appreciate my education more. But that's not the real story....so back to my mother.

My parent's divorced eventually, but my mother still had no money skills. To make a long story short she purchased a condo in her late 50s, then became seriously ill. She did not have any health insurance, emergency fund, no savings, no investments, not even a job. She lost her home to a sheriff's sale because she skipped paying property taxes. Her biggest mistake was not admitting to anyone that she needed help.

This all blew up around 6 years ago. My husband and I felt obligated to step in to help her. We dipped into our own savings for a significant hit. We couldn't save her home, but we bailed out her bills. She now lives in subsidized housing, but is able to make ends meet with her meager social security check. It's not a bad ending, but I wouldn't want to be in her place. This week she will be 70 years old. She's struggled most of adult life because of money problems--mostly because she tried to ignore the reality and necessity of money.

What does this have to do with my kids' college fund? Plenty. Rather than putting money into their college education, my husband and I are saving for our future. The kids are practical. They're looking at taking core classes at the community college and later transferring. I know that we'll help them when they need it. There are also a variety of ways to fund their education. Plus, I know my kids and I firmly believe they'll put more value into making their own way.

However, my main point is that I don't want them to worry about supporting their parents. Of course, I can't predict what might happen, but that's my goal. I think it's the best gift I can give them. And if I have anything to thank my mom for it's that she taught me not to ignore money.

photo by AyelVee

What to do with your 401(k) when you're not working

It's not your typical 401(k)rollover to an IRA. You left your job for whatever reason and for whatever other reason you're not moving into a new job. So what do you do about your 401(k)?

You could just do nothing. You could just keep it in your previous employers plan. Of course, they won't put any money into it. So it would probably just sit there. (Well it wouldn't be idle, most likely it would be losing money.) Lots of people do continue to hold old 401(k)s just because it's easy. But many employers have started charging fees to former employee plans in order to encourage them to leave the plan.

You could take the money. Oh this isn't the best idea, but you aren't working so you think you need money, right? It's just a shame to throw a big chunk that you've earned to penalties and taxes. Don't do it.

Or, open an IRA. The good thing about an IRA is that you can roll the money over without penalty. The bad thing is that your money will just sit there. You can't contribute anymore to your little nest egg since the government stipulates that you must earn to save, i.e., you must earn an income to contribute to an IRA. But WAIT!! There is a way around this......

You can open a Spousal IRA. This is like a joint savings account. And you open either a Roth or Traditional. Here's the deal....
A nonworking spouse can make a deductible IRA contribution of up to $5,000 for 2008 ($6,000 if age 50 or older as of 12/31/08) as long as the couple files a joint return, and the working spouse has enough earned income to cover the contribution. However, the deductibility of the nonworking spouse's contribution is phased out for couples with adjusted gross income (AGI) between $159,000 and $169,000, provided that the working spouse is covered by a qualified retirement plan (via a job or self-employment). The working spouse's ability to make a deductible contribution for 2008 is phased out starting at AGI of $85,000.

Okay, translation...
So if you open a Spousal IRA and you are not working you can contribute up to $5,000 for 2008 ($6,000 if age 50 or older as of 12/31/08). Where you came up with that money is not a topic for this post. Your spouse can also contribute if their AGI is less than $85,000 and is already contributing to an employer sponsored retirement program [401(k)].

Why would you do this?
Well, you might be looking to get out of a losing/dormant 401(k) without giving it to Uncle Sam. It also gives you the ability to put more away than you might with just your spouse's 401(k). And of course there are the tax advantages.

The Spousal IRA has actually been around since the early 1980's, but is just now gaining popularity.

Hidden fees could be killing your 401(k)

This is part one of a three part series on Bloomberg TV. If you want to watch more you can easily find it on YouTube by searching for "401k Hidden Fees" or, just click the subsequent videos below.

As if the market wasn't already killing your 401(k), hidden fees could also be stealing from you. Even if your fund is not earning anything fees can dip into your contributions. And the really maddening thing is that you can't easily detect it.

You could question your benefits administrator but it's not likely that they will know. You could read through your plans prospectus, but that thing is purposely written to confuse. You could take the prospectus to a lawyer who specializes in 401(k)s, but that will cost you money as well without a guarantee that you'll uncover or recover anything.

In July of this year the Dept. of Labor proposed that 401(k) plans disclose all fees. Meanwhile, there isn't much you can do expect try to scrutinize your plan by close watch on your account. Or you could try experimenting like The Finance Buff did.

In Are You Getting Your 401(k)s Money Worth? Dr. Shelby writes:
"So, what can you do? You can demand that low-load or index-linked or exchange-traded mutual funds are included in your plan. Ironically, not only are the fees lower on these fund selections but the performance is generally superior to those chosen by the high-fee, hyperactive managed dogs recommended by your broker. You can insist that your employer put an in-service, non-hardship withdrawal provision in your plan which allows you to take out of the plan the vested money your employer has contributed at an age below 59-1/2. Also, this non-hardship provision will allow you to take the money you’ve contributed at age 59-1/2 without penalty and without triggering taxes if done correctly. Sadly, your employer is generally not aware of such provisions and you can bet your last dollar that the broker or administrator are not going to break their silence."

Friday Encore: Is it ever okay to borrow from your 401(k)

Welcome to the Friday Encore where you'll get to read a past blog posting that I thought you might not want to miss. Okay, call it a repeat if you want. When necessary the post may be updated with new information or data to keep it relevant. The following was originally posted March 19 2008.

Is it Ever Okay to Borrow from Your 401(k)? by silverbelly

UPDATE: In the last weeks of the 2008 presidential campaign both candidates unveiled 401k and IRA borrowing as options as part of broader plans to bailout the middle class. For now these are just campaign promises. Don't be confused in thinking that they are law. Know all the implications of borrowing against your retirement before you take a dip.

Borrowing from your 401(k) is more like taking a loan than tapping into your own retirement savings, mostly because it's administered by your employer and because it's a pre-tax account. Most employers allow you to tap your account for things that qualify like buying a house, college or to repay debt. Here's the good, bad and possibly ugly of borrowing from the 401(k).

Good

1. It's fairly easy and convenient. Just talk to your human resources department.
2. If you are using your 401(k) funds to pay off high interest loans, you'll save money by borrowing at a lower rate.
3. It's not technically a loan, so there are no credit checks.
4. You'll have 5 years to pay it back (unless you leave the company, see below).

Bad

1. You'll lose interest. The money you take from your 401(k) is no longer appreciates in value from interest, dividends and/or capital gains.
2. Employers have the option to charge initiation fees for paperwork, etc.
   

It could get ugly...

1. If You Leave Your Job: The money you still owe to the account will be due in a lump sum shortly after leaving. If you are younger than 59.5 years you'll also pay a 10% federal penalty.
   
2. Not Tax-Sheltered: Whether you repay the 401(k) loan out of your salary or from a bank account, those payments are all made back into the 401(k) with after-tax dollars. Let's say your monthly interest payment is $300 and you're in the 28% tax bracket. You'll have to make $416 in gross earnings to make the $300 payment. Then, when you retire and take withdrawals, you pay taxes yet again.
3. Not Tax-Deductible: This is considered a consumer loan, so there is no tax advantage.
   If You Can't Pay it Back: You'll pay taxes as if the loan were ordinary income (higher) and you'll pay that 10% penalty if your are under 59.5 years.

So is it ever okay to borrow from your 401(k)? Sure. As long as you understand all of the possible implications. If you own a home a better bet might be to look at a home equity loan. At least with this loan you're more likely to be able to get a tax break on the interest paid.

Should you stop your 401(k) contributions?

Well yesterday was a good day on Wall Street, but no one is quite sure if this is the start of the upswing. Meanwhile, our family's personal investments have been tanking at a meager existence, probably like most people. So my husband was wondering if he should suspend his 401(k) contributions and instead use that money to pay down debt.

I am no expert on this, so I went straight to the Coors Credit Union Investment and Retirement Team and asked financial planner, Nelisha Wilson. Here's what she said...

Without knowing your specific situation, generally it is not a good idea to suspend contributions when the market is down. You've heard the old saying "buy low, sell high"... the market is "on sale" right now for long term investors. You may feel like the money you are putting into the 401k is disappearing, but it is not. Every dollar you are putting into it is buying more shares of your funds. Therefore, when the market rebounds you have more shares to accumulate wealth.

Why would you wait for the market to rebound and pay more for the same security? Is that how you shop for other things? If you see a shirt for sale for $100 do you buy it or wait for it to go onsale at $75? You purchase at the sales price-- same concept works in the market.

Also, unless you are extremely disciplined I doubt if you suspended your contributions any of that money would be used to pay off debt. You would find something else to spend the money on.

Ouch that last remark-the money probably wouldn't be used to pay debt-really stung, but was right on. If my husband and I were extremely disciplined we probably wouldn't be carrying debt anyway. And there's always something that comes up right? A car needs tires, the dog gets injured...

Each of Nelisha's points makes perfect sense. But when you see you dollars going down, down, down it's hard not to feel like you are drowning and panic. Thanks Nelisha for showing us the sensible side of the craziness that is our economy right now.

Friday Encore: 3 IRA Changes for 2008

Welcome to the Friday Encore where you'll get to read a past blog posting that I thought you might not want to miss. Okay, call it a repeat if you want. When necessary the post may be updated with new information or data to keep it relevant. The following was originally posted January 2008.


3 IRA Changes for 2008

1. Contribution Limits Increase

In 2008 IRA contribution limits rise to $5,000 ($6,000 for anyone 50 or older). This is a $1,000 increase over 2007. For the years after 2008 contribution limits are scheduled to be indexed with inflation in $500 increments.

2. Income Limits Increase

If your modified adjusted gross income (MAGI) doesn’t exceed $53,000 (for single filers) or $83,000 (for joint filers) your entire IRA contribution will be tax deductible.

You can make the maximum Roth IRA contribution if your modified adjusted gross income (MAGI) doesn’t exceed $101,000 (for single filers) or $156,000 (for joint filers).

3. Easier Rollovers
Previously to roll funds into an Roth IRA you first had to park them into a traditional IRA and then convert to a Roth. Now you can roll assets directly from a 401(k) to a Roth IRA. You’ll still have to pay applicable taxes, but the process is less complicated. However, there are income limits. In 2008 and 2009, you may be eligible for a direct conversion if you make less than $100,000. In 2010 income limits for Roth conversions go away.

Why You Can't Afford to NOT Save

Most articles that try to encourage saving for your future start to become blah, blah, blah. So after a while we're just not listening anymore. Calculators can give you startling estimates about how much money you'll need for retirement. While other calculators might amaze you with how much you'll have if you start socking away 10% of your salary to a 401(k) while in your 20s.

But consider this...

• Calculators can't predict the future. Anything can happen in the next 30-40 years. The market might go bullish. Maybe you'll stumble upon a fantastic investment. Or things could take a turn for the worse and you lose money. Thirty years is a long time and the market will fluctuate. Calculators are designed to show an average and are not a guarantee.
• Social Security is unpredictable. This is straight from the Social Security website: Social Security's financing problems are long term and will not affect today's retirees and near-retirees for many years, but they are very large and serious. People are living longer, the first baby boomers are nearing retirement, and the birth rate is lower than in the past. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled benefits at current tax rates.
• You never know what can happen. Life is unpredictable. You can hope or even pray for the best, but you never know what might happen or how it might affect your finances.

So to be prepared let some of the blah, blah, blah filter into action. The biggest problem isn't knowing how to save, it's actually doing it. It's easy to convince yourself that your budget is too tight to fit in savings. Or you might even rationalize that in this present moment the most important thing is to enjoy life. Well, you can always find some way to squeeze in savings (a 401(k) is painless). And you'll enjoy life just as well knowing that your future is a bit more secure.

It's Your Money and Nobody Else's

I have to tell you about this conversation I had the other day regarding 401(k)s. But I'm going to switch it around a bit--you know to protect the innocent.

So a, ehem, friend was talking with her husband about her 401(k) that's been sitting in her former employers account for over a year. She was vested in the account and contributed the maximum, so it's not a small amount. For reasons that aren't significant to this story she left her job with no intention of getting another. Anyway her partner had an idea that she should move her 401(k) funds into his. This is where I come into the conversation. "Can we do that?"

I think I know the answer to this question, but I'm not an certified expert. And so I called on an expert. Here's what Nelisha Wilson from LPL Financial had to say about merging 401(k)s:

No. You cannot roll your 401k into your husband's for a couple reasons.

1) 401ks are company sponsored plans. You have to work for the company in order to have assets in the plan.

2) 401k money is individually owned. The money can NEVER be co-mingled with your husband's. As long as you live the money must remain separate.

Your options are to keep it in the 401k, roll it to an IRA (Individual Retirement Account), or cash it out. It is not advisable to cash out due to the heavy tax load you will pay. If you are under the age of 59 1/2 the amount you withdraw is subject to your income tax bracket and a 10% penalty per federal regulations. Rolling your money to an IRA is a non-taxable transfer and allows you to take control of the money and invest it how you wish. For the best advice, I would recommend consulting a financial professional at the Coors Credit Union for a free consultation.

One statistic that always surprises me is that more than 50% of people cash out their 401(k) when they leave a job. I understand that at that moment when you are between jobs or switching jobs is usually when you need some cash. Probably most of this group have low balance 401(k)s. But with tax penalties and lost compound interest doing so is a big step backwards.