New York Times Bestselling author and savings expert Pamela Yellen explains how boomers nearing retirement can get out of debt and build wealth. She can provide an article or interviews on the most common retirement planning mistakes:
1. 401(k) fees: Annual fees for managing 401(k) investments can eat up nearly 39 percent of an investor’s entire life-long savings Many fees are not required to be disclosed to you in the 401(k) prospectus, and “can eat up half the income in some 401(k) plans over a 30-year span,” according to an exposé on 60 Minutes. You could get a 25 percent “average annual return” for years and still not make a dime, or even lose money. Examine fees closely and find out exactly where your money is going.
2. Overestimating Value of 401(k) Match: Many companies have reduced or eliminated their 401(k) match. The 3 percent match is becoming extinct in this economy.
3. Taxes: Paying taxes later is one of the big appeals of tax-deferred accounts, like 401(k) plans. But what direction do you think tax rates will go over the long term? If, like most people, you think taxes are going to go up, and if you’re successful in growing a nest egg, you’re only going to pay higher taxes on a larger number.
Boomers are typically approaching retirement with 401(k) accounts that hold less than one-quarter the amount they need to maintain their standards of living when they retire, according to data from the Federal Reserve and the Center for Retirement Research at BostonCollege. So how can they catch up and build the nest egg they will need? Pamela offers important pointers:
1. Know the Difference between “Saving” and “Investing”: Money put in savings is money a person doesn’t want to (or can’t afford) to lose. Money invested is subject to loss. Most people today “invest to save,” but they have no idea what their nest egg will be worth when they plan to tap into it. The bottom line: Money a person cannot afford to lose should not be invested in stocks, real estate or other traditional investments.
2. Don’t Wait to Pay Down Debt Before Increasing Savings: Often people think they must pay down their credit card balances and other debt, before they can increase the amount they save. But that’s not necessarily true. Case in point: A woman in her fifties was paying $600 to $800 a month more than the minimum payment due on her credit cards. She discovered that by cutting back to the minimum payment and putting the difference into a guaranteed savings vehicle, she could have a nest egg worth about $50,000 more than she otherwise would when she retires at age 65.
3. Look Beyond Traditional Saving and Investing Methods: Many people do not realize there are proven and time-tested ways to grow a substantial nest egg without the risk or volatility of stocks, mutual funds, real estate, and other investments. Pamela explains a strategy of using the one asset class that has increased in value during ever period of economic boom and bust for more than a century.
About Pamela Yellen: As a consultant to financial advisors, Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Learn more at www.BankOnYourself.com.