MONEY psychology of money

Why You Almost Never Dream About Money

woman sleeping at night
You're more likely to be dreaming about cats than checkbooks. rubberball—Getty Images

If your sleeping hours are filled with visions of your financial life, you're in the minority. Here's what that means.

In your sleep, do you dream about money? Surprisingly, most people do not—at least not literally. And if you believe the thoughts that enter your head while you sleep actually mean something, this may suggest we’re shockingly content.

Dream analysts say that winning the lotto or a boat, or getting a bonus aren’t even among the top 50 most common thoughts in slumber. Money is nowhere to be found on a state-by-state chart of popular dream symbols. The dream map is dominated by things like “family” in Texas, “cats” in New York, “pigs” in Nebraska, and “sex” in perhaps the most honest states Missouri and New Hampshire.

We each have three to nine dreams per night, and most of us think about money everyday. Yet up and down the list of most common nighttime visions are things like dancing, school, guns, drugs, movies, and food. Nothing about greenbacks. Zilch. “This shows that people place more importance on the quality of their real happiness,” says dream expert Anna-Karin Bjorklund, author of Dream Guidance. “If you never dream about money, chances are your happiness is not related to feeling powerful or having the means to acquire material possessions.”

That’s good, right? Our subconscious is telling us that our pets and friends and experiences are what we really care about—even if we’re carrying a credit card balance and haven’t earned a decent raise in five years. To a degree this confirms much of what polls have shown since the Great Recession: a broad rediscovery of basic values and things that money can’t buy.

But before we congratulate ourselves on being phenomenally high-minded, we need to dig a little deeper. For one thing, materialism creeps onto the dream list in the form of “beach house” in Alabama; in the fourth richest state in America, Connecticut, “shopping” and “malls” make the top-five list. “Cruise ship” sneaks onto the list in Florida.

Besides, dreams are rarely literal—and thankfully so because on the list of popular dream subjects we find cheating, adultery, cemetery, and murder. If you dream about doors opening or being given the keys to an important room—that may be dreaming about a cash windfall, says dream expert Kelly Sullivan Walden, author of It’s All in Your Dreams. And, she says, “If you’re stressed about money in your waking life, you might find yourself dreaming of a leaky faucet, animals fighting over food, or your teeth falling out.”

Got that? How you view whatever you are dreaming is far more important than the dream itself. “If you have a dream where someone is stealing your vegetables, this could indicate that you feel what you’ve been planting has been taken away,” says Bjorklund. According to dream expert Lauri Loewenberg, author of Dream On It, financial stress also shows up in dreams as:

  • Drowning (debt)
  • Bleeding (savings disappearing)
  • Falling (diminishing financial security)
  • Getting lost (directionless career)
  • Calling 911 but no one answers (poor financial advise)

“Dreams are symbolic and speak to us in metaphors,” says Loewenberg. “If you want to look for your dreams to help you with your financial situation, they will, but they may not use money to get the message across.” So maybe a good deal of our subconscious nighttime adventures are about money after all. We just don’t know it.

MONEY retirement planning

Why Americans Can’t Answer the Most Basic Retirement Question

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marvinh—Getty Images/Vetta

Workers are confused by the unknowns of retirement planning. No wonder so few are trying to do it.

Planning for retirement is the most difficult part of managing your money—and it’s getting tougher, new research shows. The findings come even as rising markets have buoyed retirement savings accounts, and vast resources have been poured into things like financial education and simplified investment choices meant to ease the planning process.

Some 64% of households at least five years from retirement are having difficulty with retirement planning, according to a study from Hearts and Wallets, a financial research firm. That’s up from 54% of households two years ago and 50% in 2010. Americans rate retirement planning as the most difficult of 24 financial tasks presented in the study.

How can this be? Jobs and wages have been slowly improving. Stocks have doubled from their lows, even after the recent market tumble. The housing market is rebounding. Online tools and instruction through 401(k) plans have greatly improved. We have one-decision target-date mutual funds that make asset allocation a breeze. Yet retirement planning is perceived as more difficult.

The explanation lies at least partly in an increasingly evident quandary: few of us know exactly when we will retire and none of us know when we will die. But retirement planning is built around choosing some kind of reasonable estimate for those two variables. But that’s something few people are prepared to do. As the study found, 61% of households between the ages of 21 to 64 say they can’t answer the following basic retirement question: When will I stop full-time work?

Even the more straightforward retirement planning issues are challenging for many workers. Among the top sources of difficulty: estimating required minimum distributions from retirement accounts (57%), deciding where to keep their money (54%), and getting started saving (51%).

Those near or already in retirement have considerably less financial angst, the study found. Their most difficult task, cited by 33%, is estimating appropriate levels of spending, followed by choosing the right health insurance (31%) and a sustainable drawdown rate on their savings accounts (28%).

For younger generations, planning a precise retirement date has become far more difficult, in part because of the Great Recession. Undersaved Baby Boomers have been forced to work longer, and that has contributed to stalled careers among younger generations. The final date is now a moving target that depends on one’s health, the markets, how much you can save, and whether you will be downsized out of a job. Americans have moved a long way from the traditional goal of retirement at age 65, and the uncertainty can be crippling.

Nowhere does the study mention the difficulty of estimating how long we will live. Maybe the subject is simply one we don’t like to think about, but the fact is, many Americans are living longer and are at greater risk of running out of money in retirement. This is another critical input that individuals have trouble accounting for.

In the days of traditional pensions, many Americans could rely on professional money managers to grapple with these problems. Left on their own, without a reliable source of lifetime income (other than Social Security), workers don’t know where to start. The best response is to save as much as you can, work as long you can—and remember that retirees tend to be happy, however much they have saved.

Related:

How should I start saving for retirement?

How much of my income should I save for retirement?

Can I afford to retire?

Read next: 3 Little Mistakes That Can Sink Your Retirement

MONEY

Here’s the Only State Where Retirees Have Enough Income

Just one state plus the District of Columbia have typical retirees with more than 70% of pre-retirement income. Traditional pensions and low cost of living make a difference.

The problems retirees encounter trying to secure lifetime income know no bounds: In 49 states those past the age of 65, on average, fall short of a widely accepted benchmark for minimum income in retirement, new research shows.

Financial advisers generally agree you need at least 70% of pre-retirement income to maintain your lifestyle after calling it quits. Many say 80% to 85% is a more appropriate target.

But even using the lower bar, Nevada is the only state where the typical retiree has sufficient income to live comfortably in retirement, according to a study from Interest.com, a division of Bankrate, a financial information provider. The District of Columbia also makes the cut. But every other jurisdiction in the nation falls short, underscoring the scope of the retirement income crisis in America.

Nationally, the median income for those who are 65 and older equals just 60% of the median income for those aged 45 to 64, the study found. In Nevada, median income for those past 65 is 71%. In Washington D.C., the figure is 74%. States that get close to the minimum retirement income level are Hawaii (69%), Arizona (68%) and Mississippi (68%). At the bottom are Massachusetts (49%) and North Dakota (49%).

The national rate represents a jump of 10 percentage points over the past decade. But that is not as encouraging as it may appear, reflecting trends where older Americans stay on the job longer and young workers fail to see significant wage gains. The share of Americans working past 65 has been increasing for 20 years and reached 18.9% this May, one of the highest levels in the last half century.

Washington D.C. tops the retirement income list in large measure because of its huge population of retired federal employees, many of who have generous traditional pension plans. Nevada (along with Arizona and Mississippi) benefits from a low cost of living; the costs of food, housing, utilities, transportation and medical care in Reno, Nev., are just 67% of such costs in Washington D.C.

Hawaii is one of the most expensive places on Earth to retire. But it measures up well in this study because the state has a strong traditional pension culture. It may also help that wealthy people choose it as their retirement destination. At the bottom, Massachusetts (like much of the Northeast) has long suffered from a high cost of living while North Dakota recently has seen its cost of living soar amid an oil boom in that state.

MONEY Financial Planning

Here’s What Millennial Savers Still Haven’t Figured Out

Bank vault door
Lester Lefkowitz—Getty Images

Gen Y is taking saving seriously, a new survey shows. But they still don't know who to trust for financial advice.

The oldest millennials were toddlers in 1984, when a hit movie had even adults asking en masse “Who you gonna call?” Now this younger generation is asking the same question, though over a more real-world dilemma: where to get financial advice.

Millennials mistrust of financial institutions runs deep. One survey found they would rather go to the dentist than talk to a banker. They often turn to peers rather than a professional. One in four don’t trust anyone for sound money counseling, according to new research from Fidelity Investments.

Millennials’ most trusted source, Fidelity found, is their parents. A third look for financial advice at home, where at least they are confident that their own interests will be put first. Yet perhaps sensing that even Mom and Dad, to say nothing of peers, may have limited financial acumen, 39% of millennials say they worry about their financial future at least once a week.

Millennials aren’t necessarily looking for love in all the wrong places. Parents who have struggled with debt and budgets may have a lot of practical advice to offer. The school of hard knocks can be a valuable learning institution. And going it alone has gotten easier with things like auto enrollment and auto escalation of contributions, and defaulting to target-date funds in 401(k) plans.

Still, financial institutions increasingly understand that millennials are the next big wave of consumers and have their own views and needs as it relates to money. Bank branches are being re-envisioned as education centers. Mobile technology has surged front and center. There is a push to create the innovative investments millennials want to help change the world.

Eventually, millennials will build wealth and have to trust someone with their financial plan. They might start with the generally simple but competent information available at work through their 401(k) plan.

Clearly, today’s twentysomethings are taking this savings business seriously. Nearly half have begun saving, Fidelity found. Some 43% participate in a 401(k) plan and 23% have an IRA. Other surveys have found the generation to be even more committed to its financial future.

Transamerica Center for Retirement Studies found that 71% of millennials eligible for a 401(k) plan participate and that 70% of millennials began saving at an average age of 22. By way of comparison, Boomers started saving at an average age of 35. And more than half of millennials in the Fidelity survey said additional saving is a top priority. A lot of Boomers didn’t feel that way until they turned 50. They were too busy calling Ghostbusters.

MONEY pension benefits

California Judge Rules That There’s Nothing Sacred About Pension Promises

A bankruptcy judge rules that bondholders are on equal footing with pensioners in California, sending tremors through the cash-strapped pension world.

In a shot heard round the pension world, a California judge has ruled that in municipal bankruptcies, public employees are no more protected than bondholders. The ruling opens the door for financially strapped towns across the state to cut pension obligations by filing for bankruptcy.

This is just the latest blow to public pensioners. A federal judge ruled similarly in Detroit. The giant California Public Employees’ Retirement System had argued as part of the closely watched case in Stockton, Calif., that different laws applied and required that public pensioners in California be paid in full before anything went to creditors.

But U.S. Bankruptcy Judge Christopher Klein decided against CalPERS, an influential institution that has been leading efforts to preserve defined-benefit pensions nationwide. The Stockton decision, coupled with rulings like the one in Detroit, has public pensioners in every struggling municipality across the country fearing for their retirement security.

CalPERS essentially argued that it was above bankruptcy law because of its statewide charter. For its part, Stockton wants nothing to do with reneging on promises to police and other public employees, arguing that they would leave and the town would not be able to function. But Judge Klein ruled that public pensions are just another contract, and adjusting contracts is what bankruptcy is all about. He came down on the side of Franklin Templeton Investments, a mutual fund company that had about $36 million of Stockton’s debt.

Like many private businesses in decades past, Stockton and other municipalities lavished unrealistic pension guarantees on employee unions while times were booming. The private sector began its reckoning first as autoworkers and airline employees, among others, were forced to take benefit concessions. Now teachers, police and other public employee unions are feeling the sting of flagging finances—part of the fallout of the Great Recession.

The Stockton ruling is a harsh reminder of how frail the retirement system in the U.S. has become. Scores of both private and public pensions are underfunded, and Social Security is scheduled to become insolvent in 2033. The system is not going to disappear. But change will come and almost certainly result in benefit cuts for some. Young workers are especially vulnerable because they have not paid much into the system yet and have many years left to save for themselves. So take a cue from the Stockton case and start saving now.

 

MONEY 401(k)s

Here’s the Least Understood Cost of a 401(k) Loan

401(k) loans aren't always a terrible choice. But make sure you keep saving at the same rate during the loan payback period.

A loan from your 401(k) plan has well-known drawbacks, among them the taxes and penalties that may be due if you lose your job and can’t pay off the loan in a timely way. But there is a subtler issue too: millions of borrowers cut their contribution rate during the loan repayment period and end up losing hundreds of dollars each month in retirement income, new research shows.

Academics and policymakers have long fixated on the costs of money leaking out of tax-deferred accounts through hardship withdrawals, cash-outs when workers switch jobs, and loans that do not get repaid. The problem is big. Some want more curbs on early distributions and believe that funds borrowed from a 401(k) should be insured and that the payback period after a job loss should be much longer.

Yet most people who borrow from their 401(k) plan manage to pay back the loan in full, says Jeanne Thompson, vice president of thought leadership at Fidelity Investments. A more widespread problem is the lost savings—and decades of lost growth on those savings—that result when plan borrowers cut their contribution rate. About 40% of those with a 401(k) loan reduce contributions, and of those a third quit contributing altogether, Fidelity found.

To gauge the impact, Fidelity looked at two 401(k) investors making $50,000 a year and starting at age 25 to save 6% of pay with a 4% company match. Fidelity assumed that at age 35 one investor stopped saving and resumed 10 years later. At the same age, the other investor cut saving in half and resumed five years later. Both employees earned inflation-like raises and the same rate of return (3.2 percentage points above inflation). At age 67 they began drawing down the balance to zero by age 93.

The investor who stopped saving for 10 years wound up with $1,960 of monthly income; the investor who cut saving in half for five years wound up with $2,470 of monthly income. Had they maintained their savings uninterrupted each would have wound up with $2,650 of monthly income. So the annual toll on retirement income came to $2,160 to $8,280.

Nearly one million workers in a Fidelity administered 401(k) plan initiated a loan in the year ending June 30, the company said. That’s about 11% of all its participants and part of rising trend, the company says. The typical loan amount is $9,100 unless the loan is to help with the purchase of home—in that case the typical amount borrowed is $23,500.

These figures are generally in line with data from the Employee Benefit Research Institute, which found that the typical unpaid loan balance in 2012 was $7,153 and that 21% of participants eligible for a loan had one outstanding. The loans were relatively modest, representing just 13% of the remaining 401(k) balance.

Workers change their contribution rate for many reasons, including financial setbacks and a big new commitment like payments on a car or mortgage. But cutting contributions to make loan payback easier may be the most common reason—and the least understood cost of a 401(k) loan.

MONEY Impact Investing

How to Change the World—and Make Some Money Too

Young adults flock to investments that promote social good. This was a hot topic at a big ideas festival over the weekend and is front and center with financial firms.

Social investing has come of age, driven by a new generation that is redefining the notion of acceptable returns. These new investors still want to make money, of course. But they are also insisting on measurable social good.

Millennials make up a big portion of this new breed, and their influence will only grow as they age and accumulate wealth. The total market for social investments is now around $500 billion and growing at 20% a year. As millennials’ earning power grows and they inherit $30 trillion over the next 30 years, investing for social good stands to attract trillions more.

So what began in the 1980s as a passive movement to avoid the stocks of companies that sell things like tobacco and firearms has broadened into what is known as impact investing, a proactive campaign to funnel money into green technologies and social endeavors that produce measurable good. Clean energy and climate change are popular issues. But so is, say, reducing the recidivist rate of lawbreakers leaving prison.

Impact investing was a hot topic this weekend at The Nantucket Project, an annual ideas festival that aims to change the world. Jackie VanderBrug, an analyst at U.S. Trust, noted that 79% of millennials would be willing to take higher risks with their portfolio if they knew it would drive positive social change. Based on data from Merrill Lynch, that compares to about half of boomers with a social investing screen and even fewer of the oldest generation. VanderBrug also noted that women of all ages, an increasing economic force, tend to favor these strategies.

Speaking at the conference, Randy Komisar, a partner at the venture capital powerhouse Kleiner Perkins Caufield Byers and author of The Monk and the Riddle, said, “This generation is the most different of any since the 1960s.” He believes millennials are chipping away at previous generations’ affinity for growth and profits at any cost. Young people embrace the idea that you work not just for money but also for experience, satisfaction and joy.

Komisar noted the rise of B corporations like Patagonia and Ben and Jerry’s. These are for-profit enterprises that number 1,115 in 35 countries and 121 industries. Since 2007, the nonprofit B Lab has been certifying the formal mission of companies like these to place environment, community and employees on equal footing with profits. There are many more uncertified “Benefit” corporations. Since 2010, 41 states have passed or begun working on legislation giving socially conscious Benefit corporations special standing. Legally, they are held to a higher standard of community good, but they have cover from certain types of shareholder lawsuits.

Both types of B corporations acknowledge that their social mission gives them an important advantage hiring young adults, who in surveys show they place especially high value on the chance to make a social impact through work. “If your company offers something that’s more purposeful than just a job, younger generations are going to choose that every time,” Blake Jones, chief executive of Namasté Solar, a Boulder, Colo., solar-technology installer and B Corp. told The Wall Street Journal.

Industries that do not address the wider concerns of millennials will increasingly become marginalized. The financial analyst Meredith Whitney, who rose to prominence calling the subprime mortgage disaster, told the gathering in Nantucket that financial services firms have been among the slowest to consider sustainability issues—“and that’s why I think they are in trouble.”

Yet banks may be starting to come along. Bank of America clients have about $8 billion invested along sustainability lines, the bank says. And its Merrill Lynch arm has been a leading explorer of “green” bonds, which raise money for specific causes and pay investors a rate of return based on whether the funded programs hit certain measures of achievement.

Late last year, Merrill raised $13.5 million for New York State and Social Finance for a program to help formerly incarcerated individuals adjust to life outside prison. How well the bonds perform depends on employment and recidivism rates and other measures taken over five and a half years. The firm is now looking into a similar bond issue to fund programs for returning war veterans.

For now, green bonds are aimed at institutional investors, especially those charitable foundations willing to risk losses in their effort to change the world. The J.P.Morgan 2014 Impact Investor Survey found that about half of institutions investing this way are okay with below-average returns.

Young people saving for retirement and faced with a crumbling pension system can’t really afford the tradeoff, at least not on a large scale. That’s partly why they want their job or company to have a higher purpose. But ultimately some version of green bonds, perhaps with a more certain return, will be open to individuals for the simple reason that four out of five young adults want it that way.

MONEY Investing

Why We Feel So Good About the Markets—and So Bad—at the Same Time

Investor and retirement optimism is at a seven-year high. Yet most people believe their personal income has topped out. What gives?

Investors are feeling better about the markets than at any time since the financial crisis, a new poll shows. But most also believe they have topped out in terms of earning power, and that the Great Recession continues to weigh on their finances.

Buoyed by stronger GDP growth, record high stock prices, and a falling unemployment rate, investors in the third quarter pushed the Wells Fargo/Gallup Investor and Retirement Optimism index to its highest mark since December 2007. Yet 56% of workers expect only inflation-rate pay raises the rest of their career, and half believe they are destined to end up living on Social Security benefits.

“At the macro level, people are feeling pretty good,” says Karen Wimbish, director of Retail Retirement at Wells Fargo. “But at the personal level, the Great Recession left a deeper wound than a lot of us realize.” The average worker believes that wage growth, which has been stagnant for decades, won’t rebound before they retire. This feeling is especially acute among the upper middle class, those making more than $100,000 a year.

The gloom is partly attributable to the national discussion about wage inequality and some evidence that only the top 1% is getting ahead. It may also reflect a sense that the U.S. is losing ground to the faster growing developing world and experiencing an inevitable relative decline in standard of living.

The Federal Reserve has been battling anemic growth for seven years through an aggressive stimulus program that includes rock-bottom short-term interest rates. This week, the two Fed governors most outspoken and critical of this policy confirmed that they would retire next year, essentially putting the Fed all-in on a growth and jobs agenda with diminishing concern over inflation and underscoring the sense of stagnation so many feel.

Most investors polled (58%) said they are doing about as well or worse than five years ago. Similarly, 63% said they are saving about the same or less than five years ago. These figures are essentially unchanged from two years ago, suggesting that investors have not made much financial headway in the recovery. Roughly half said they are still feeling the effects of the recession.

“Is it real?” Wimbish says. “Or is it emotional?” If our prospects are really so dire, how do you explain record high stock prices, strong quarterly growth, a pickup in consumer borrowing, and an improving jobs picture?

Whatever is causing the gloom, one result is that nearly a third of investors continue to shun the stock market. Those with less than $100,000 in assets avoid stocks at twice the rate as those with more than that level of savings. Arguably, those with fewer assets are precisely the ones who need to be in stocks to take advantage of their superior long-run gains and build a nest egg.

They may be worried that they have missed the rally and that it is too late to get in. But the overriding concern—expressed by 60%—is that stocks are just too risky. So as the average stock has more than doubled from the bottom and recovered all its losses, and as those who remained true to their 401(k) contribution plan through thick and thin have become flush with gains, the truly risk averse have lost valuable time. Seeing this now may be part of what makes them so glum.

MONEY mobile banking

How Millennials Will Change the Way You Bank

woman with iphone image of her mouth in front of her mouth
The mobile generation wants to do everything with pictures instead of words, including paying bills and depositing checks. Maciej Toporowicz—Getty Images/Flickr Select

Nearly all young adults carry a smartphone and prize the camera as its key feature — not just for selfies, but as a means to conduct their life without words.

If a picture is worth 1,000 words, soon we may not need words anymore. Nearly nine in 10 young adults are never without their smartphone, and a similar percentage say the camera function is among the most important features, new research shows. This love of the visual has broad implications for all businesses, perhaps most notably banking.

The youngest millennials have almost no memory of cell phones without cameras. They post pictures to avoid writing about events in their lives and snap photos as reminders to perform ordinary tasks. A third of all pictures taken are selfies, according to a report from Mitek Systems and polling firm Zogby Analytics.

This generation wants to do everything with a snapshot—from clicking a picture for online purchases to depositing money or paying a bill by snapping an image of a check or invoice. Four in five millennials say it is important for retailers to have a high quality mobile app; nearly nine in 10 either have or would deposit money in their bank with mobile technology, the report found.

“There is a substantial disconnect between what young people have come to expect and the often horrendous consumer experience they get with mobile,” says Scott Carter, chief marketing officer at Mitek. Banks have been among the slowest to respond, he says. About half of consumers who try to open a bank account online give up because it is so tedious, Carter says.

A bank that adopts more sweeping image technology such as facial recognition or fingerprint identification and uses it to replace passwords and the need to fill in account numbers would be a big winner—and not necessarily just with the younger set. Mobile banking is taking off with all generations. Only 12 million people used mobile banking services in 2009, according to Frost & Sullivan, a research firm. That number was expected to hit 45 million this year.

More than one in eight Americans have deposited a check within the past year using a mobile app, the American Bankers Association found. Of those, 80% use the app at least once a month. Other findings from the Mitek survey of millennials:

  • 34% have deposited a check by taking a picture
  • 54% would pay for goods using their smartphone as a mobile wallet instead of credit cards
  • 45% would pay a bill by taking a picture if the technology were available to them, vs. the 21% who do so now
  • 36% have switched where they do business based on a company’s mobile app
  • 60% believe that in the next five years everything will be done on mobile devices, much of it through images

We will never be a wordless society. But just think about those awful assembly instructions that come with a box of parts at IKEA or Target. If a YouTube video or other image makes it easier, why fight? A lot of people think of banking and personal finance the same way—and for them, a picture really is worth 1,000 words.

MONEY Ask the Expert

How Smart Savers Choose Between a 401(k) or Roth IRA

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Robert A. Di Ieso, Jr.

Q: My husband and I are in our middle 30s and both have good jobs in a professional field. We each make $60,000 a year. Should we be saving in our 401(k) plans, or contributing to a Roth IRA?

A: The answer, of course, is that you should be doing both—but not necessarily in equal amounts, and much depends on your expenses and how much you are able to sock away. Let’s look at some of the variables.

The first consideration is making certain both of you get the full amount of your employer’s matching 401(k) plan contributions. “Fill up the 401(k) bucket first,” says IRA expert Ed Slott, founder of IRAhelp.com. “That is free money and you shouldn’t leave any of it on the table.” In many 401(k) plans, companies kick in 50 cents for every $1 you save up to 6% of pay. If both of you are in such plans, you should each contribute $7,200 per year to your 401(k) plans to collect the $3,600 your employers will match. But don’t contribute more than that, and if you get no match, skip it entirely—for now. It’s time to move on to a Roth IRA.

A Roth IRA is a far different savings vehicle than a 401(k) plan. Having one will give you more flexibility in retirement. Your 401(k) plan is funded with pre-tax dollars that grow tax-deferred. You pay tax when you start taking distributions no later than your 71st year. A Roth IRA is funded with after-tax dollars that grow tax-free for the rest of your life and that of your spouse, and they have tax advantages for your heirs as well. You can also take early distributions of the principal that you contribute, without penalty or tax, should you run into a cash crunch. So after you have each maxed out your 401(k) match, shift to a Roth IRA. Each of you can save up to the $5,500 annual limit.

The downside of a Roth IRA is that you lose the immediate tax deduction that you get with a 401(k) contribution. Still, “you eliminate the uncertainty of what future tax rates may do to your retirement income plan,” says Slott. If tax rates go up, as many believe they must in the years ahead, your 401(k) savings will become a little less valuable. But your Roth IRA savings will be unaffected.

Once you have each saved $7,200 to get the company match of $3,600, and have also fully funded a Roth IRA to the tune of $5,500—congratulate one another. That comes to $16,300 each of annual savings, or a Herculean savings rate of 27%. Most experts advise saving at a 15% rate, and even higher when possible. If you still have more free cash to sock away, you can begin to put more in your 401(k) to get the additional tax deferral. But you should first consider opening a taxable brokerage account where you invest in stocks and stock mutual funds. After a one-year holding period these get taxed as a capital gain, currently a lower rate (15% to 20%) than the ordinary income rate that applies to your 401(k) distributions.

Do you have a personal finance question for our experts? Write toAskTheExpert@moneymail.com.

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