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VOL. 127 | NO. 155 | Thursday, August 9, 2012

Dana and Ray Brandon

Sign Up for Your Co.’s 401(k) Plan

By Ray and Dana Brandon

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Ray’s Take The most important thing to know about 401(k) retirement savings accounts is pretty simple: Do it, and participate to the maximum you possibly can. Don’t wait and don’t quit.

After all, 401(k) accounts lower your taxable income, are often matched in all or in part by free money from your employer and happen automatically so you don’t have to remember to make deposits. That’s three good reasons why 401(k)s are one of the most popular retirement plans available. If that money isn’t included in your paycheck, it’s a lot tougher to spend.

However, you have to enroll in order to benefit. Don’t limit yourself to the amount your employer is willing to match, either. Depending on your employment situation, you could have the option of contributing up to $17,000 to your 401(k) in 2012, and that maximum amount is expected to go up each year. Even if that amount is beyond your means, remember that the more you sock away in one of these accounts, the lower your federal income tax on earned income will be now, and the larger and faster your retirement nest egg can grow.

If your employer offers target-date retirement investment options, this can be a good choice for younger savers. These funds include investment options selected by a professional plan provider based on the year in which you hope to retire – your target date.

The mix of investments changes as you age to help you reach your retirement goal; however, as you grow older, you should also look at additional diversification options.

Even job changes don’t need to impact your 401(k) savings plan. You can simply roll it over into your new employer’s plan and let it continue to grow there. Just be sure to have the check written out to the new plan and not to your name as there are penalties (and taxes) from withdrawing from this type of retirement plan early.

Dana’s Take Our grandparents’ generation could count on a lifelong employer and a guaranteed pension. That kind of financial security sounds like a dream today. As parents, we must prepare our children for a world where pensions – and possibly Social Security – are extinct.

First, the word “retirement” may need to be retired. The concept was based on cushy pensions and depression-era savings habits. A more relevant term today might be “long life” planning and savings.

For younger kids, the image of a camel may help illustrate the concept. Just as a camel carries his own water supply for survival, adults must provide for when they no longer work.

Educate teens to expect that if they are working, they need to save from the first paycheck.

Also, teach by example that 401(k) and long-term savings are not a grownup piggy bank but a life preserver for lifelong security.

Star Trek’s Mr. Spock said it best, “Live long and prosper.”

Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at raybrandon@brandonplanning.com.

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