Perspective | Here are two retirement provisions that you should definitely make for the New Year

<pre><pre>Perspective | Here are two retirement provisions that you should definitely make for the New Year

The same applies to small moves in your old-age provision. Small steps can ultimately lead to big savings.

I've written quite a bit about what it takes to become a 401 (k) millionaire. Even if you can't reach this financial milestone, you can still learn from those who saved to get a two-comma retirement account.

So if you look at the habits of 401 (k) millionaires, here are two resolutions that you should make for 2020 if you're aiming for a safe retirement.

Push closer to the game offered by your employer. Many employers will find up to a certain percentage of what an employee contributes to their retirement savings. According to Fidelity Investments, one of the country's largest managers of company pension accounts, the average company allocation is 4.6 percent as of the second quarter of this year.

The most popular match formula for companies whose 401 (k) matches Fidelity is a 100 percent match with the first 3 percent that the employee contributes. then 50 percent match the next 2 percent.

If you've settled in to less than the full game, let go of your complacency. If you get the full match, you can add significant amounts to your retirement account. The average annual employer contribution for the twelve months ended September 30 was $ 4,080. This is free money that you may leave on the table.

Increase your savings percentage, One way in which workers at 401 (k) achieve millionaire status is to save a high percentage of their annual salary. They contribute at least 15 percent to their retirement savings, a percentage recommended by Fidelity. Employees often achieve this percentage through a combination of what they contribute and their employer's corresponding contribution.

Okay, 15 percent is not feasible for you. It is understandable that you live with accommodation, transportation, food and other expenses from paycheck to paycheck. Nevertheless, try to get closer to the 15 percent goal. If you contribute 3 percent, you will increase it by up to 4 percent by 2020 by questioning all expenses.

If you don't save anything in your work plan, start at 1 percent or 2 percent. I'd rather you start off small than do nothing.

And if you haven't missed the money at the end of the year, your employer will automatically increase your savings so you don't have to think about doing it next year. Between 70 and 80 percent of employers offer a program that, according to Fidelity, you can sign up for an automatic raise option.

If you save but don't even come close to the benchmark of 15 percent, increase your contribution by at least 1 percent next year. Since the money is withdrawn before tax, your monthly budget may be less strained than you might think.

In the second quarter of 2019, Fidelity reported only as a benchmark that the average contribution rate of employees rose to a record level of 8.8 percent.

In the end, according to Fidelity, you even save a small percentage of your remuneration.

For a 25 year old who earns approximately $ 40,000 a year:

– If you save an additional $ 1 a day, you can earn another $ 10 a day in retirement.

– If you save another $ 8 a week, you can earn another $ 74 a week in retirement.

– If you save an additional $ 33 a month, you can earn an additional $ 322 in monthly retirement income.

– If you save an additional $ 400 a year, you could earn an additional $ 3,900 a year in retirement.

In addition to age and starting salary, the assumptions for these examples include an average annual market return of 4.5 percent of net inflation, an average annual salary increase of 1.5 percent, a retirement age of 67, and an end of plan age of 93.

Use NerdWallet's 401 (k) calculator to mess around with your own numbers and increase your salary and / or return on investment) above a certain percentage can affect your retirement savings over time.

I understand that any reports of how much you need to save for retirement can be very scary and seem impossible to achieve. But as the joke says, how do you eat an elephant?

The answer: one bite at a time.

Start small and see where that takes you. Then push yourself to do more if you can.

Readers' question of the week

Last week I wrote about significant changes to the Secure Act. One rule provides that parents can deduct up to $ 5,000 each from their 401 (k) or similar job plans to cover childcare expenses. If you withdraw money from your plan before you are 59½ years old, early withdrawal will be punished with a 10 percent penalty. However, plan participants who make use of this new provision are not subject to the penalty, which makes them an attractive source of funds.

This new provision of the Secure Act has raised the following reader question.

Q: Am I eligible to take $ 5,000 from my 401 (k) for my 3-year-old son? At the moment I am short of cash and cannot pay some bills.

ON: I am very sorry for your situation, but unfortunately, due to the age of your child, you could not withdraw from your 401 (k) plan with impunity.

As I wrote earlier, parents who need cash can make a withdrawal and avoid the 10 percent penalty. If both parents have retirement savings, they could each withdraw $ 5,000. This includes money drawn from a traditional IRA. Please note that this rule only applies to distributions made after December 31, 2019, and the limit of $ 5,000 per child applies.

But here's the catch.

The redemptions must be completed within one year after the birth or adoption of a child. The law expressly states that withdrawal can take place from the child's date of birth or the day on which a legal "justified" adoption by the person is completed. The “eligible adoptee” must be 18 years or younger or “physically or mentally unable to support themselves”. The 10 percent penalty is Not canceled when you adopt your spouse's child.

The weekly live chats will continue on January 9th. Please take part in a live discussion about your money at noon (Eastern Time) – the first for 2020.

I live every Thursday from 12pm to 1pm. (Easter).

Retired rants and raves

Her thoughts: Are you planning provisions for the new year? If so, what promises do you make yourself and how do you plan to stay on the right path?

I am also interested in your experience or concerns about retirement or aging. You can rave or rave. Send your comments to, Please enter your name, city and state. Enter "Retirement Rituals and Raves" in the subject line.

Last week I asked: What do you think of the changes that result from the Secure Act?

Devon Brown from North Richland Hills, Tex. wrote: “After reading the Secure Act, it looks like there is something for everyone (from younger employees who are just starting to those who are getting closer to their goal). My problem with this act is the lack of publicity that results from changes to the Legislation. For me, the federal government should conduct a large information campaign to make the public aware of the changes that have occurred as a result of the signing of this expenditure law. There are some significant changes to this law, and I am sure that not everyone who needs to know will find out about it without some kind of information campaign. "

Andrea Ryan from the district wrote: “I had heard that the law would include new rules for adopting pension funds Low Inherit. "

Many readers were concerned about changes to inherited IRAs.

If you inherit an IRA or defined contribution plan such as 401 (k) from a non-spouse under applicable law, you must make the minimum distributions required. However, you can stretch the payouts over the life of your life to minimize the tax burden. Those who intend to leave their retirement accounts to their heirs and beneficiaries like this provision because the money can remain invested and there is an opportunity to further increase tax latency.

From 2020, however, the security law provides for a new ten-year window to withdraw the money. There are no minimum payouts, but beneficiaries have to withdraw all the remaining money and close the account after a decade.

There are a few exceptions to the law:

– The employee's surviving spouse

– A child of the worker who is not of legal age

– A disabled person

– A chronically ill person

– A person who is not older than 10 years than the deceased employee

For more information, Fidelity has a very useful FAQ about the Secure Act.

"This change requires some investors to reevaluate their pension and / or estate planning strategies," said Fidelity. "However, it is important to know that anyone who inherits an IRA from an original account holder who died before January 1, 2020 can continue their current distribution plan."