Should You Do An Ira Rollover, 401k, Or Just Save More Money?

By David C Lewis, RFA

For most Americans who have not started planning for their retirement,401k plans seem like a "good bet". A serious problem with this idea is the investor's reliance on employer matching for the plan. This may cause an employee to rely too much on the employer and not contribute enough to savings. Nothing will give you a wake up call like using a retirement calculator. You can find them on the internet from a variety of places. Retirement planning is hard, and it isn't something you just throw together haphazardly.

Even when you use a professional adviser, the financial planning process can be difficult. There are just so many variable to consider: how much your retirement savings earn over the years and into retirement, how much debt you have, if any, at the age you plan to retire, and the quality of your health entering retirement are just a few considerations.

You also need a way to account for fiscal irresponsibility on the part of Government (i.e. inflation) and what that will do to your retirement savings. On the internet there are dozens of retirement calculators available, sponsored by retirement organizations, investment companies and other businesses in the money management business that can help you do this. What most of the calculators will show you, is that for most people, even relying on Social Security, you will need a lot of retirement savings to maintain a near pre - retirement standard of living.

If the economy is able to grow enough to outpace inflation, your investments must be able to keep up. Even still, with inflation running 3%-5%, your investments are losing value and struggling to keep up.

$50 a week used to be a "normal" wage. Even during mid-life that respectable income had increased to $200 a week. Now, however, you would not even think of trying to live off of $200 a week, let along $50/week.

So, today's wage earners making $500 to $1,000 a week in income can expect similar changes when they reach retirement age. Today's calculations will show wage earners that they should expect to have a retirement nest egg of close to $1 million dollars to retire comfortably in 20 or 30 "Retirement Calculator" years.

An online calculator calculated that an adult starting with assets of $100,000 and adding $4,000 year to that would enter retirement with almost $900,000 but end up broke by age 85.

Part of managing your existing income is being able to save money and still having access to it when you need it (sometimes hard to do inside a 401K), and still being able to invest for your retirement (though here, a tax deferral helps). Estimating your retirement income and expenses can be extremely difficult, however, there are many different sources of information and assistance available on the internet to get you started.

About the Author:

Author: There is only so much information that can be covered in one article. If you want more information about any aspect of financial planning, please visit David's website.