What Do Organ Donation and 401(k)s Have In Common?

 While taking a Duke University course on Behavioral Finance, which is a topic I find fascinating, the professor presented the following scenario on organ donation: 

While individuals around the world generally approve of organ donation, very few actually sign a donor card to grant permission, especially here in the US. 

According to the chart below, some countries like Austria and France have an extremely high participation rate, 100% of the population.  Why, then, is there such a difference from a country like Germany with only a 12% participation rate to Austria with a 100% participation rate?  They share a border and culturally don’t have vastly different beliefs.  

“Do Defaults Save Lives?”  www.sciencemag.org

The answer is actually much simpler than cultural differences or beliefs. It is Defaults.  Individuals love to take the easiest way out.  The fewer decisions we have to make the better.  Requiring people to opt out of something rather than opt in is a very effective way to push us toward a choice.

Defaults can be a very powerful tool, not only to increase organ donors, but also in investing for your retirement.  Many 401(k)s offered by employers opt to automatically enroll their employees in the plan.  If just a few percent is automatically deducted from employee’s paycheck, most individuals will not go out of their way to stop this as shown in the graphic below.

Automatic enrollment plans actually encourage individuals who are younger and have lower incomes to start saving for retirement much earlier than they normally would, when the effects of compounding interest are the most powerful.

While I will likely never live to regret being an organ donor, 401(k) contributions make me cringe just a little precisely every other Monday.  Hopefully though this delayed gratification will pay off in retirement!

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Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Year End Retirement Savings: From 401ks to IRAs

 It should come as no surprise that saving for retirement is a financial priority that takes discipline, diligence and oversight. One important year-end financial move to help keep your retirement savings in check is to review your contributions to 401k plans and IRA’s for the year.

If you received a year-end bonus, you may want to go ahead put some of it into your retirement to max out your contributions for the year (see our post on year-end planning for your bonus).  Likewise, if you’ve received a raise, can you increase your regular contributions? 

Year-End Tips for 401k Participants:

✔ Max out 401k contributions if cash flow permits. For 2012 the limit is $17,000 and if you are over age 50 you can contribute an extra $5500 per year.  To calculate your maximum percentage divide $17,000 by your annual salary.

✔ Review your employer match policy to make sure you are not leaving money on the table.

✔ Plan for 2013.  The maximum contribution amount for 2013 is $17,500; an increase of $500 from 2012.

✔ If you have left an employer and have an old 401k sitting around, you may want to consider rolling over to an IRA.

Year-End Tips for IRA Owners:

✔ The 2012 maximum contribution amount for IRA’s is $5000. 

✔ Don’t forget about the “Catch-up” contribution if you are 50 or older.  That’s an extra $1000 you can contribute for a total of $6000. (Note:  Total combined contributions to Roth and/or traditional IRA’s cannot exceed these amounts)

✔ Do you have multiple IRA accounts?  Consider combining them to simplify record keeping and management. 

✔ SEP-IRA:  Maximum contribution limits for self-employed and small business owners is 25% of salary or $50,000; whichever is smaller.

✔ Plan for 2013.  The IRA contribution limit is $5500 and the SEP-IRA limit is 25% or $55,000; whichever is smaller

So, before you bid farewell to 2012, spend some time with these checklists. Your future is worth the time it takes to properly plan today. If you need help, we’re always ready with answers.

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Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Retiring Comfortably

According to the Employee Benefit Research Institute the past few years saw a sharp decline in Americans’ confidence about their ability to obtain a financially comfortable retirement.  The 2011 Retirement Confidence Survey finds that the percentage of workers reporting they are not at all confident in a comfortable retirement has climbed to a new high of 27% (up from 22% in 2010 and a recent low of 10% in 2007).

If you believe you are behind in preparing for retirement there is no need to make the fundamental tenants like saving money and repeating the process over and over more complex. Here’s how to get started today:

1.  Remember your investment time horizon is the rest of your life . . .  and not your retirement date.  This means if you are 45 today and live to age 90, you have 45 years for your money to be working for you.
2. Ramp up retirement savings by contributing the maximum amount to your 401k plan; ($17,000 for 2012 and if you are over 50 the extra “catch-up” amount is $5500).  IRA and Roth IRA limits for 2012 are $6000 and the extra catch-up amount for those 50 and older is $1000.
3. Avoid speculative investments to try and make up for lost time or money.  If you don’t already have a financial plan to help guide you to a comfortable retirement make it a goal to call a financial planner today.   

It’s fair to say that retirement in the 21st century will be quite different than generations before. But that doesn’t mean you aren’t in control. By focusing on your own behavior, you do have the ability to create a map for your own future.

Please watch for our next post where we discuss generating income in retirement. 

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Don’t Leave Free Money on the 401(k) Table

In this economy (or in any economy, for that matter!), none of us can afford to leave “free” money on the table.  So why -- and how -- are so many Americans giving away free money?

According to an article in the November 2011 edition of Financial Planning magazine, FINRA recently issued an investor alert urging approximately 30% of American workers who are not contributing enough to their 401(k) plans to receive their full employer match.  Failing to take advantage of this match compromises these workers’ ability to step-up their contributions and to potentially increase their eventually retirement savings.  One of the most common employer 401(k) matches is a dollar-for-dollar match of up to 3% of an employee’s salary.

While most of us will need to save much more than the 3% that may be matched to fund a successful retirement, it makes sense for all of us to do at least the minimum amount needed to get the “free” matching funds.   

Make sure your 401(k) contributions are set-up for 2012!!  Once you’ve taken the first step to start saving (and getting a no cost boost from your employer), meet with a financial advisor to form a strategy for saving additional funds to meet your future retirement goals.