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Patti Meglich, assistant professor of management at the University of Nebraska at Omaha, said a simple rule for getting the most from your 401(k) account, the title of her workshop session for Money Smart Nebraska Week, is to save early and often.
“That should be the mantra for anyone who is planning for retirement,” she said.
Her edited responses to other questions follow.
Q: Given the stock market meltdown, can people trust equity investments offered through their 401(k)s?
A: I am a bit of an optimist. If I am 30 and I will retire in 35 years, is the economy really going to stink for the next 35 years?
Q: Is a 401(k) the best vehicle for retirement planning?
A: A 401(k) is often the only employer-sponsored vehicle in which an employee can save. The tax benefits, coupled with the potential for a company match, certainly enhance the value of a 401(k) as opposed to saving totally on your own.
Q: What is the No. 1 mistake people want to avoid?
A: Failing to participate. Save at least to the level at which a company gives a maximum match. That is free money. And do it as soon as you can. There is nothing to replace the time value of compound interest. If your company stops matching, you still want to contribute. Another mistake is not increasing your contribution over time. Ratchet it up as your pay increases.
Q: How much money each year should a 25-year-old invest in a 401(k)?
A: Save to the point of not harming your ability to pay current bills. You don't want to run up debt to sacrifice for retirement.
Q: How much money will someone who is 25 need to retire?
A: There is no blanket statement. An important thing in retirement planning is the replacement ratio: If you are earning ‘X' number of dollars, what percentage of pre-retirement money will you have to replace? Factor in Social Security, which is a significant piece of the retirement pie for most people.
Q: Anything else?
A: When you change jobs, don't take the money out of that plan. If every time you spend the money, all that was done to save for the future is undone. You keep setting that clock back to zero.
Contact the writer:
444-1117, joe.ruff@owh.com
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