How Pension Plans Rollover Into Savings and Investing Sources: MSNBC, CNBC
- September 3, 2021
The average American’s pension plan is still only a fraction of what it was in 2008, and many retirees who are still making their money from 401(k)s may not realize they have to rollover their plan into retirement accounts, according to new research from the Center for Retirement Research at the University of Michigan.
It was a similar story when Americans were making their first money in retirement in 2010, when nearly 70 percent of households had a plan in their savings account.
But even with those investments, Americans were still only about half of what they were in 2007, and the amount of money they invested in their retirement accounts has dropped by a whopping 60 percent since 2008.
According to the Center’s new report, “How Pension PlansRoll Over Into Savings And Investing,” the percentage of households with an annual income of $75,000 or more has fallen from 45 percent in 2007 to 35 percent in 2018.
That means for the average American, the difference between what they have and what they would have if they invested all of their money in 401(ks) is only about $1,200 annually.
And that’s the problem.
“The vast majority of Americans with modest or no 401(K) plans don’t have enough money to fund their retirement, meaning they’re stuck in the same cycle of financial uncertainty and stress they were during the financial crisis, which has left them unable to get out of their jobs and families and save for a comfortable retirement,” said Matthew S. Zucke, director of the Center on Retirement Security and Health at the university.
The researchers say that the problem is exacerbated because 401(p) plans do not offer investors the flexibility they need to get ahead in retirement.
For example, an individual with a $50,000 annual income will be forced to contribute $1 million in cash to a 401(m) plan.
In contrast, if they have $1.4 million in assets and make $75 per hour, they can roll that money into a 401k plan and contribute an additional $1 per hour.
However, that means they’re only contributing about 25 percent of their income to the plan.
And that means that, unless you have an additional set of money in a 401K, you’re only getting a small fraction of the benefits you might expect from an employer.
If you’re a single mom who’s working full-time, the amount you have is less than the income you might receive from your spouse and kids.
This means that if you want to have a comfortable, secure retirement, you need to invest your money in more flexible and diversified accounts, such as Roth IRAs or 403(b)s.
Zucke said the best way to help you with your retirement plan is to set up a plan with a retirement fund or 403b.
Even if you have a 401 or 403B plan, you can still use the 401 plan to invest in stocks, bonds, or other investments if you choose.
These retirement plans are also a great place to invest other types of money.
Many retirement plans require you to have at least $10,000 in savings and invest at least 10 percent of your earnings each year in your plan, which means you need a significant amount of your monthly income.
Most retirement plans also require you pay a monthly fee, and this can make it difficult to qualify for tax-free distributions.
What you can doIf you have to use a 401 plan or 403 b to invest, it’s a good idea to set it up so that you can choose investments that are better suited to your goals.
You can also create a personal portfolio, such the “Roth IRA,” to help track your investments.
As you start to plan for retirement, consider using your 401(b), 403(a), or 457 plan to fund your investments with the money you already have.
Once you have enough funds to retire comfortably, consider investing in stocks or other assets that are low in risk, and invest that money in your 401k, 403b, or 457 plans to take advantage of tax-advantaged tax breaks.
Make sure to check out our post for the top five retirement plans to consider.
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