Common ¢ents - May 13 edition
In this week's issue, we learn two more reasons why we aren't rich, let you know if you should get insurance for your smartphone, and answer a Common ¢ents question from one of our members about her 401(k). Enjoy!
10 Reasons You're Not Rich
Reason #5: You Pass Up Free Money
Would you ignore a hundred-dollar bill on the sidewalk? Of course not. You’d bend over and pick it up. So why are you passing up other opportunities to get free money? If your employer matches employee contributions to a 401(k) but you’re not participating in the retirement plan, then you’re passing up free money. If you let rewards points from loyalty programs or credit cards expire, then you’re passing up free money. If you claim the standard deduction on your tax return when you qualify for itemized deductions that could lower your tax bill even more, then you’re passing up free money.
Believe it or not, there might even be free money out there that you forgot about -- or never knew of in the first place. There are more than $41 billion worth of unclaimed assets ranging from old tax refunds and paychecks to forgotten stocks and certificates of deposit being held by state agencies, according to the National Association of Unclaimed Property Administrators. Do a search on MissingMoney.com to find out if there are unclaimed assets that belong to you.
Reason #6: You Neglect Retirement
It’s easy to focus on the present -- the bills you have to pay, the things you want to buy -- and assume you’ll have time in the future to start saving for retirement. But the longer you wait, the tougher it will be to amass a sufficiently large nest egg. For example, if you wait until you are 35 to start saving for retirement, you'll have to set aside $671 a month to reach $1 million by age 65 (assuming an 8 percent annual return). But if you start at age 25, you'll need to save just $286 a month to hit $1 million by the time you’re 65.
Even if you’re creeping closer to retirement, it’s not too late to start putting away money. In fact, Uncle Sam makes it easier for procrastinators to catch up on retirement savings. If you’re 50 or over, you can contribute up to $23,000 annually to a 401k (versus $17,500 for those younger than 50). The contribution limit for older savers to traditional and Roth IRAs is $6,500 a year (versus $5,500 for everyone else)..
Should You Insure Your Smartphone?
Before we share this article with you, let's take a quick survey. Do you think you should insure your smartphone? Click here to submit your answer. Then, check out the results - see what other members answered.
Now - here's what Kiplinger's Cameron Huddleston has to say about the matter:
When you buy a smart phone, you might get the hard sell to pay a little extra each month for a protection plan for your device. The question, of course, is whether it's worth it....Whether it's worth the extra cost comes down to personal factors that you will need to evaluate for yourself. Are you especially clumsy or forgetful? [continue reading…]
I Need A Common ¢ents Answer
Last week, one of our members submitted this question:
My company has a 401(k) plan with no employer matching. I contribute 5% of my pay. What's the maximum I should contribute?
Here is the response:
There is no "one" or "right" answer to your question. The maximum you should contribute to your 401(k) depends on several factors including, but not limited to:
· Your savings objectives: If you've set a particular dollar figure for the amount of savings you want to have at retirement or some other goal, you may or may not need to increase contribution
· Your current tax liability: Since 401(l) contributions affect pre-tax dollars, you can reduce the amount of taxes you pay by increasing your contribution to your 401(k)
· and so on
Many people contribute between 3 - 10% of their income to their 401(k) plans. If you have debt (not including mortgage debt - so credit card debt, car note, student loan debt, medical bills, etc.), then you should contribute less to your 401(k) plan and focus on paying off your debt first. This approach will free up additional income for you to invest in your 401(k) and other investment options in the future. If you are currently debt free, and your budget allows you to contribute more to your 401(k) plan, you should absolutely do so!
Tax law indicates that the maximum that an individual can contribute to a 401(k) plan in 2014 is $17,500 (about $673 per pay period if you are paid bi-weekly). The government periodically increases this amount; you can visit the IRS' 401(k) Contributions Limits page to stay on top of these changes.
You may want to consider making an appointment with a certified financial planner so that you can, if you haven't already, establish your savings objectives and put specific plans in place to achieve them. Congratulations on the step you have already taken - taking advantage of the 401(k) program your company offers!