The rising retirement perils of 401(k) ‘leakage’
Workers who withdraw from their 401(k) plan lose about 25% in compounded growth when calculated over 30 years, according to this article from The Wall Street Journal that cited an analysis by experts at Boston College’s Center for Retirement Research. Companies are discouraging their employees to make 401(k) withdrawals to avoid hurting their retirement prospects. “Employers have done a lot to encourage people to save in 401(k) plans, such as automatically enrolling them. But there is a growing recognition that if the money isn’t staying in the system, the objective of helping employees reach their retirement goals isn’t being met,” says an expert.
Why underfunded pensions are a disaster waiting to happen
Government pensions are doomed to suffer a major financial fiasco in the foreseeable future, according to this article on MarketWatch. These pensions depend on investment returns to pay their retired workers, but the actual return rate is much lower than government assumptions. A study by the Pension Task Force of the Actuarial Standards Board found that these pension plans are underfunded by $5 trillion, and the government should use "market rate of return" as basis for its investment return assumptions.
Paying for college while saving for retirement
Striking a balance between saving for retirement and covering college costs can be a challenge, according to this article on USA Today. A financial planner says that clients should put retirement saving ahead of education costs and check all possible options to make the right decision. An option is to get a loan and act as a co-signer instead of a sole borrower. “Using a lender like College Ave Student Loans, you can do fixed or variable rates. At variable rates, you could see loans as low as three to four percent interest," says an expert.
An investing road map for mid-career accumulators
Saving for retirement and education is the financial challenge that clients face in the middle of their career, according to this article on Morningstar. To do both, they should look at a 529 college savings plan and retirement savings wrappers, such as IRAs and 401(k)s to take advantage of the tax benefits. For those who have high deductible health insurance, another savings vehicle option is a health savings account, which is funded with pretax dollars, offers tax-free compounding on investments and allows tax-exempt withdrawals in retirement.
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