$6-a-day road to retiring rich

By Jennie L. Phipps · Bankrate.com, May 13, 2015

My friend has a $50,000 student loan, which he is paying off as fast as he can with every penny he can scrape up. ”Every day that I owe that student loan, I pay $6 in interest,” he complained. “That’s a six-pack a day – $42 a week that I could be spending on something else, something fun.” Like Retirement. My friend’s not saying that, but he should be because one of these days sooner than he thinks, retirement, especially if he can afford to live well, will be a lot of fun.

Forgoing lattes to retire rich: A 25-year-old who saves $6 a day, just one less six-pack or latte, will accumulate about $1.2 million over 50 years, says Chris Carosa, author of “Hey! What’s My Number?” and chairman of the board of Bullfinch Fund. ”By then, 70 is when people will retire,” Carosa says. “The beauty is a 25-year-old has the advantage of time,” he adds.

Follow three more pieces of his advice if you are starting out young to save for retirement:

  • Work for a company that has a 401(k): At a minimum, a competitive employer ought to be offering the mechanism to save automatically, and it’s not too much to also expect a 6 percent match on your savings.
  • Make it automatic: Let your employer increase your savings level the longer you work and as your salary goes up.
  • Find a savings mentor: Pick somebody that you trust who is knowledgeable about saving and investing.

“The key to success is self-discipline,” Carosa says. “And that can be a challenge for someone who has just graduated from college and is enjoying newfound freedom. But think about: Becoming a millionaire is worth it.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Millennials flock to 401(k) plans

CNBC.com  May 13, 2015

Youngest employees stand to benefit the most from participating in retirement plans as they have the longest time frame to allow their investments to grow before they need them. But historically, they’ve been the least likely to participate.

That may be changing…A whopping 64 percent increase of employees between ages 18 and 34 started contributing to 401(k) plans last year compared to 2013, according to a new Bank of America Merrill Lynch analysis of the 2.5 million people participating in the retirement plans the company administers.  The increase helped boost overall participation to nearly 80 percent among American workers with access to plans, up 2 percent from the previous year.

Some of the growth might be explained by improvements in the economy and job market. ”Millennials are feeling a little more stable post-financial crisis,” said Steve Ulian, BofAML’s head of institutional business development. But the rise of auto-enrollment programs and new streamlined sign-up processes have also played a big role in drawing in young workers.

Research has found participation rates jump overall after companies adopt auto-enrollment programs, but the difference is particularly dramatic among younger employees. One report published this spring by BMO Retirement Services, for example, found participation rates among workers 25 to 34 years jumped 22 percent in plans with an automatic-enrollment feature. And for workers under 25, participation in auto-enrollment plans was more than double that in voluntary enrollment plans (29 percent versus 68 percent).

Bank of America Merrill Lynch found that 64 percent of clients offered retirement plans in 2014 that not only had automatic-enrollment features but automatic annual contribution increases as well, a 25 percent jump from 2013. ”Millennials are reaping the benefits of these plan designs,” said Geno Cufone, senior vice president of retirement administration at Ascensus, which provides administrative and record-keeping services for retirement and college savings plans that cover 6 million people. “They have everything at their fingertips. They can enroll in their 401(k) and change their contribution rate on their smart phones.”

That’s leading many to enroll earlier than their predecessors did: The average millennial starts investing in a retirement plan at age 22 compared with age 27 for the average Gen Xer, said Cufone. Financial education at the workplace has also helped boost retirement plan participation, said Ulian. And retirement is a hot topic across generations, as concerns grow about Social Security funding and rising health-care costs. Ulian noted that calls from plan participants of all ages to Bank of America Merrill Lynch’s retirement help center increased by nearly 18 percent between 2013 and 2014.

Millennials may also be influenced to contribute more to their 401(k)s by their baby boomer parents, many of whom haven’t saved enough for their own retirement, Cufone said. “More millennials know zero savings is not acceptable,” he said. “And anything above zero is a good first step toward retirement.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


6 Ways Employers Plan to Change 401(k) Plans

US News & World Report, By Emily Brandon, May 18, 2015

Many employers are tweaking their 401(k) investment options by reducing the number of funds available and adding low-cost index fund options. They’re also increasingly looking for ways to convince workers to save more and make more appropriate investment decisions. Here is how companies expect to adjust their 401(k) plans in the coming year.

Fewer investment options. Many 401(k) plan sponsors are planning to reduce the number of investments offered to participants. The proportion of plans offering 20 or more investment options has declined from 31 percent in 2010 to 26 percent in 2014, according to a Towers Watson survey of 457 large and midsize U.S. companies that sponsor 401(k) plans or similar types of retirement accounts. About two-thirds of plans now offer between 10 and 19 investment options. And 19 percent of companies plan to remove or replace investment options in the next 12 months. “If you have fewer funds, the company can do a better job monitoring them and make sure that they picked the best funds,” says Robyn Credico, defined contribution practice leader at Towers Watson. “Too many options confused employees.” Only 6 percent of companies are preparing to offer a wider array of investment choices.

Adding index funds. There’s an increasing amount of interest in adding index fund offerings to 401(k) plans. Some 22 percent of companies offer a tier of index fund options, up from 18 percent in 2014, and another 40 percent of employers say they are very or moderately likely to change some or their investment options from actively managed to index funds, according to an Aon Hewitt survey of 248 companies that sponsor 401(k) plans. “We’ve seen a number of plan sponsors use more of an index investment lineup or shift a higher percentage of their investment options to a passive or indexed approach,” says Steve Anderson, head of retirement plan services at Charles Schwab. This switch to index funds might be motivated by reducing costs for participants because index funds tend to have lower expense ratios. The proportion of companies that have changed their fund lineups to cut costs grew from 27 percent in 2014 to 34 percent in 2015, and 34 percent of companies say they are very likely to select more inexpensive investment options in the coming year.

Higher fees for participants. Employers are planning to pass more of the costs of administering the 401(k) plan along to participants. The proportion of companies requiring employees to pay recordkeeping fees has jumped from 33 percent in 2009 to 58 in 2014, Towers Watson reports. Less than a quarter (23 percent) of employers absorb the cost of the recordkeeping fees, down from 58 percent in 2009. Some companies also split the costs with employees.

Automatic features. Most companies (68 percent) automatically enroll all or newly hired employees in the 401(k) plan, up from 57 percent in 2010, Towers Watson found. And 54 percent of companies provide an automatic escalation feature that increases employee saving rates over time until they reach a target savings rate selected by the plan. Another 21 percent of companies are considering adding automatic escalation to their 401(k) plans in 2015 or 2016. “We’re seeing a lot more employers adopt contribution escalation, which will have their savings rate move up automatically over time,” says Rob Austin, director of retirement research at Aon Hewitt. “The time when it gets turned off is getting higher and higher. For a long time, it was 6 percent, but we are seeing more employers go up to 10 percent or 15 percent.”

Adding a Roth option. A Roth 401(k) doesn’t get you a tax deduction in the year you make the contribution, but withdrawals in retirement are often tax-free. More than half (54 percent) of employers already offer a Roth option, and another 18 percent of firms are planning to add Roth features to their 401(k) plan by 2016, Towers Watson found. However, the Roth option isn’t particularly popular among workers, with only around 11 percent of employees using the Roth 401(k) feature.

More communication with participants. A majority of employers (84 percent) say they plan to increase efforts over the next two or three years to educate employees about saving and investing, Towers Watson reportsMuch of this increased communication is likely to occur online rather than in person. Aon Hewitt’s survey found that the proportion of employers offering online investment guidance increased from 56 percent in 2014 to 69 percent in 2015, and 18 percent of the remaining employers say they are likely to add this service within 12 months.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®