How Much to Put in 401K [and Other Crucial Retirement Questions]

Updated : Aug 28, 2019 in Articles

How Much to Put in 401K [and Other Crucial Retirement Questions]


More than seven million retirees live in poverty
and tens of millions more are just scraping by because of mistakes in 401K investing. By the end of this video, you’ll know the
five worst 401K mistakes and how to avoid them. In fact, I’m going to show you how avoiding
just one of these mistakes can lead to big savings in your nest egg. We’re talking 401K investing today on Let’s
Talk Money! Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s talk money. Joseph Hogue with the Let’s Talk Money channel
here on YouTube I want to send a special shout out to everyone in our community, thank you
for taking a part of your day to be with us. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. Fidelity has released its annual survey of
retirement account balances and it’s not a pretty picture. The average person just before retirement
has about $167,000 in their 401K account. That’s about five-times the annual salary
of around $35,000. And not nearly enough to retire on. If you go by the rule of thumb that you can
take out about 4% of your investments to pay for expenses in retirement, that $167K means
retiring on just $6,700 a year and that’s before taxes. It’s easy to see why two-in-three retirees
depend on social security for most of their expenses but even added the average $1,360
monthly SSI check means you’re living on just over $1,900 a month or about $23,000
a year. Now I don’t know what state you live in
but you compare that with your expenses and I don’t know anyone that can live on $23,000
a year. Even for married couples with two SSI checks,
it comes out under $3,000 a month. These were supposed to be the golden years,
the years you worked your whole life to enjoy. You’re enjoying them alright, if you enjoy
ramen noodles and bus passes. It doesn’t have to be like this! We all think that people don’t save or invest
enough but a big part of the problem is the mistakes they make when they do invest. Investing just $250 a month starting at age
35 can grow to over $350,000 by the time you retire if you keep your fees and costs low. Invest that same amount but lose 4% of it
to fees and all the hidden costs that come with 401K plans and you’re stuck right back
in that studio apartment eating ramen. Of course, the beauty of that 401K plan is
your employer match. If your company matches just half that $3,000
a year and you avoid those high fees and other costs, that nest egg can grow to over half
a million by age 67. That’s enough for an income of $3,100 with
SSI for a single person or almost $4,500 for a married couple. It might not be filet mignon but it’s a
nice little start. The key here is to avoid those huge fees,
mistakes and pitfalls in those 401K plans and that’s exactly what we’re going to
talk about in today’s video. Not only will I reveal the five worst mistakes
people make with their 401K investing, I’ll share three tips to avoid these pitfalls and
a way to get a free 401K analysis to save you from those hidden fees. It’s all part of a three-part video series
in partnership with Blooom. Now Blooom is an independent 401K manager
that works with your existing retirement account. You can connect your 401K account and Blooom’s
software will show you the investment fees you’re paying, and how to get back on track. I’ll tell you more about Blooom later and
share a special offer to get your free 401K health analysis but first let’s get to those
five 401K mistakes. First here is being too aggressive or too
conservative with your 401K investments. With retirement balances what they are, it’s
easy to chase those returns in stocks even all the way to retirement. The problem is, and you can ask anyone that
was planning to retire in 2008, that as you get closer to retirement, you need to start
thinking about protecting your money as much as growing it. Having too much in stocks is just setting
you up for a stock market crash to wipe out half your nest egg. Being too conservative is also a big problem
though, especially for millennials still gun-shy after the 2008 crash. If we look back on that investment of $250
a month but only earn a 6% annual return from too much in bonds then even the best case
scenario yields just $237,000 by retirement. The second mistake a lot of people make with
their 401K investments is putting everything in a Target Date fund. Now these are popular because supposedly,
they invest according to your age and rebalance with stocks and bonds as you get older. The problem here is these things are so darn
expensive. For example, the Principal LifeTime 2040 fund
charges 1.14% annually. That’s almost five-times the average index
fund. Another problem with these target date funds
is they tend to be wildly over-conservative. Some funds I looked at have more than 20%
of the investments in bonds for investors with 20+ years to retirement and that’s
going to seriously limit returns. Our third major 401K mistake is just forgetting
to rebalance the investments in your account. This is important because you might start
with a great mix of stocks and bonds in your 30s but if you’re not rebalancing and shifting
how much you want in each, you could be way off by the time you reach retirement. You’re going to be more exposed to a stock
market crash and the amount you have in stocks versus bonds will be way off from what you
need. In fact, a survey of 5,500 Blooom clients
found that 59% didn’t regularly rebalance their investments and 21% didn’t even know
about rebalancing before they started using Blooom. The fourth 401K mistake, and this is probably
the worst, is not watching those fees. Inc magazine found that 92% of Americans don’t
know what fees they’re paying in their 401K accounts. That same survey by Blooom found that just
one-in-five investors were active in minimizing their fees. We know what a huge difference just a small
change in fees can mean to your retirement savings. Forbes found in one study that a difference
of just 0.93%, less than 1%, in fees can cost a single investor up to $215,000. Considering the average Blooom client in a
target date fund sees their fees reduced by 42%, that can mean a big change in your retirement. Our fifth 401K mistake before we get to those
three tips is one of the biggest 401K misconceptions of all, that someone is managing your account. Just because you invest through your company’s
plan and with an investment company, doesn’t mean anyone is managing your 401K investments. The investment company is busy selling to
new clients, they may not be doing anything with your account. You set your 401K investments when you sign
up to the plan and they don’t change unless you change them. That’s going to set you up for all the pitfalls
we talked about in this video. As bad as these 401K mistakes are, there are
a few things you can do to avoid them and make sure your money is there when you need
it. First, understand how your investments should
change as you age. There are rules of thumb like 100 minus your
age for the amount you want in stocks but these leave a lot of risk to your personal
goals. As you get older, your needs shift to protecting
your money rather than chasing those high returns so you need to be proactive in shifting
your investments. You also need to rebalance your investments
regularly. This isn’t about timing the stock market
but about staying on track according to your needs. If you’re constantly investing the same
amount in stocks and bonds, the stock-portion of your portfolio is going to grow much faster
during a bull market. That means it’s going to get out of whack
with that perfect mix you need according to your goals. Finally here is just to watch those fees. Make sure your 401K plan isn’t charging
you load fees to buy or sell and compare the annual fees on your funds. Some of the easiest solutions like those target
date funds charge the highest fees. This last tip is where Blooom really shines
and it’s shown people how to save over $608 million in investment fees on their 401K accounts. They also take care of all the rebalancing
and management as well. The best way to make sure you’re not making
these 401K mistakes is to get that free analysis with Blooom. It takes less than two minutes to connect
with your 401K plan and Blooom will do a complete health checkup on your retirement account. It’s going to show you where your investments
are, where they should be and all the fees you’re paying. There’s no obligation to the analysis. If you don’t know exactly what’s going
on inside your 401K account, click through that link and find out exactly which of these
mistakes you’re making in your 401K. I’ll leave a link in the video description
below. Don’t forget to also be watching for the
next video in our 401K investing series. Next week, I’ll be answering your questions
about 401K and retirement investing so make sure you ask those in the comments below. We’ll also take a closer look at the average
401K balance by age and how to get yours back on track. We’re here Mondays, Wednesdays and Fridays
with the best videos on beating debt, making more money and making your money work for
you. If you’ve got a question about money, just
scroll down and ask it in the comments and we’ll answer it in a video.

8 Comments

  • Don't miss last week's video with the 5 Biggest 401K Mistakes and How to Invest Your Retirement Money https://youtu.be/CTU-HUYjrik

  • I'd love to drop you a very smart comment or a question, but it's a whole different game over here in Europe so, I will have to do some research first, lol!

    I did however enjoy your way of speaking, even after years of experience you're still improving every day, great job!

  • Thank you 4 sharing…I just turned 50, make $32,800 here in NYC and I'm woefully behind in my retirement savings but I do have a fundamental question…what percentage, if any should I contribute to my company's 401k plan if they don't offer a match? Any wisdom you can part in this regard will be greatly appreciated…thank you again…

  • I love this overview Joseph. Thank you for pointing out how unrealistic those savings figures are. Regarding the 401(K) loans and the interest you pay on the loan. Who does that money go to? My co-worker took out a 401(K) loan and he was under the impression that he interest payments were benefiting his account, but i'm not sure how true that is.

  • I love your channel, and you give great detailed information, but not every sentence you say needs to be exaggerated. Your content is effective enough without the exaggerated influx in your voice. It's almost distracting and takes away from points that should be exaggerated to stand out. This is not meant to be an insult but rather constructive feedback. Thank you for the video.

  • How much percentage should I contribute per check to my 401k ? I'm bearly 18 but I'm trying to start my retirement plan early

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