MONEY retirement savings

Women Are Better Retirement Savers Than Men, but Still Have a Lot Less Money

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iStock; Getty Images

It's all about the difference in wages.

Income inequality doesn’t end when you quit working. A report out Tuesday finds that women lag far behind men in retirement savings, even though women save at higher rates and take fewer risks with their investments.

According to Vanguard’s How America Saves report, women are more likely than men to be in a 401(k) plan: 73% of women vs. 66% of men. The difference is even larger at higher income levels. Last year, 81% of women earning $50,000 to $75,000 a year participated in their 401(k) vs. 62% of men. Among people earning $75,000 to $100,000, 86% of women put away money in a 401(k) vs. 70% of men.

Women also save at higher rates than men: Women put away 7% to 16% more of their income than men. And women are less likely to engage in risky investment behavior, such as frequent trading.

Despite those good habits, women are significantly behind men in the amount they have put away. Men have average account balances that are 50% higher than women’s. The average account balance for a man last year: $123, 262, compared with $79,572 for women.

“Women are better savers, but the difference in account balances comes down to the difference in wages,” says Jean Young, senior research analyst at the Vanguard Center for Retirement Research and the lead author on the report. “It’s not surprising. Women typically earn less than men do.”

Still, Young says, the Vanguard report revealed a lot of positive trends among retirement savers.

Among the findings:

  • More people are enrolled in 401(k)s. One-third of companies have auto-enrollment programs that automatically put new employees into 401(k)s unless they choose to opt out. That’s up from 5% a decade ago. Among large companies, 60% have auto enrollment. More companies are doing this not just for new hires but about 50% of plans with auto enrollment are also “sweeping” existing employees into plans during open enrollment, with a choice to opt out. Auto-enrollment has been criticized for enrolling people at very conservative deferral rates, typically 3%. That’s changing slowly: 70% of companies that have auto enrollment also automatically increase contributions annually, typically 1% a year. And, while 49% of plans default people to a 3% deferral rate, 39% default to 4% or more vs. 28% in 2010.
  • More retirement savers are leaving it to professionals. Thanks to the rise in target date funds and automatic enrollment (which typically defaults people to target date funds), 45% of people in Vanguard plans have professionally managed accounts vs. 25% in 2009. The number of people in such accounts is expected to surpass 50% this year, and that’s a good thing, says Young. According to Vanguard, people in professional managed accounts have more diversified portfolios than those who make their own investment decisions.“A professional helps you find the appropriate asset allocation, rebalance, and adjust the portfolio to your life stage,” says Young.
  • The bull market continues to deliver. The median total one-year return for people in Vanguard 401(k) plans was 7.2% in 2014. Over the past five years, 401(k) participants returns averaged 9.9% a year.
  • Few people max out. Only 10% of 401(k) participants saved the maximum $17,500 allowed in 2014. But the number rises with higher earners: One-third of people who earn $100,000 or more a year max out.
  • Savers are doing better than you think. Most financial planners recommend putting away 12% to 15% of annual income to save enough for a comfortable retirement. While the average 401(k) deferral rate is just 6.9%, combined with employer contributions, it’s 10.4%, close to that mark.

That doesn’t mean that most people are all set for retirement. Vanguard reports little change in account balances: The average 401(k) balance is $102,682, while the median is $29,603. The typical working household nearing retirement with a 401(k) and an IRA has a median $111,000 combined, which would yield less than $400 a month in retirement, according to a recent report by the Boston College’s Center for Retirement Research. But those who have access to a 401(k) and contribute regularly are in much better shape, regardless of whether you are a man or a woman.

MONEY

6 Signs Your Finances Are in Great Health

stethoscope on $100 bill
Yuji Sakai—Getty Images

Rock your finances.

You have six months of take-home pay socked away in an emergency fund. You pride yourself on your 720 credit score. And you contribute enough to your company 401(k) to get a match.

If this sounds like you, then you deserve a big pat on the back—you’re well on the road to optimal financial health.

But what are the signs that you’re really rocking your finances—that you’re not just an “A” student, but picking up extra-credit points along the way?

To help you see if you’ve entered overachiever territory, we’ve rounded up six benchmarks that show you’re kicking your finances into high gear.

And even if you can’t tick off everything on this list, consider them aspirational new goals to work toward, so you can take your money game to the next level.

Telltale Sign #1: You’re a two-income household—but you can live off just one.

For couples who bring in two salaries, it can be tough to resist the temptation of lifestyle inflation—which makes it all the more impressive when you can comfortably live off one income and devote the other to long-term goals, like retirement or a college fund.

“It’s a good objective, although it’s fairly rare that people can do it,” says Kevin O’Reilly, a Certified Financial Planner and principal at Foothills Financial Planning. “It’s not unusual to see people with two incomes who can’t save anything.”

So if you’re part of a duo who’s resisted trading up your lives with every raise or bonus, consider yourself masters of living well within your means.

“[Living on one income] is a great discipline—and it provides a lot of financial help if one spouse loses a job down the road,” says Jean Keener, a CFP and principal of Keener Financial Planning.

If you’re not quite there, comb through your expenses to see which category of costs is eating into your budget the most, and use that as a starting point for paring back.

“If a significant portion of [your budget] is discretionary, it may be easy to cut back travel, make fewer trips to a restaurant, or buy clothes less frequently,” Keener says. “However, if [your budget] is going mostly to fixed spending, looking at larger items will lead to longer-term success. Making one big decision, like downsizing your house, [will be] generally easier than making small decisions about cups of coffee and Girl Scout cookies.”

Telltale Sign #2: Your net worth exceeds your annual income—and keeps growing.

Net worth is one of the most important barometers of financial health because it looks at your whole money life: your total assets (like the cash in your checking account, the current value of your home and your investments) minus your liabilities (such as student loans, credit card debt and what’s left on your mortgage).

While having a positive net worth is great, having a net worth that exceeds what you earn is excellent because it shows you’ve been diligent about building wealth, living within your means and paying down debt simultaneously—goals you don’t have to be in the wealthiest 1% to achieve.

There’s no hard and fast rule for how much your net worth should be. But for something aspirational, O’Reilly likes this equation from Thomas J. Stanley, author of “The Millionaire Next Door”: 10% times your age times your income. So if, say, you’re 40 and make $100,000, your target net worth would be $400,000.

But don’t let that number intimidate you—what’s really important is that you show an upward trend.

“Is your net worth growing? That’s a good sign that debt is going down and savings are going up,” Keener says. “Maybe you don’t think you have enough yet, but you’re headed in the right direction.”

Just make sure that you’re not relying on just one asset to get into the black. Otherwise, you may not be addressing all of your long-term savings goals.

For example, “[Your] half-million-dollar house is not necessarily something you’re going to use to fund your retirement,” says Cheryl Krueger, a CFP and founder of Growing Fortunes Financial Partners LLC. A healthy retirement plan covers a comprehensive mix of assets.

Telltale Sign #3: You can name what’s in your investment portfolio.

If you’ve been steadily stowing away 10% of your income into your 401(k), congratulations! Now, quick: What’s your asset allocation?

If you can answer that without reaching for old brokerage statements, you’re ahead of the game. “I have people who come in and say they’re good savers, but they haven’t touched their 401(k) allocation in 10 years,” O’Reilly says. “That’s a bad sign.”

Unfortunately, investing with blinders on isn’t altogether uncommon: One 2014 MoneyRates.com survey found that one in five people don’t know what goals they’re investing for—and about 12% don’t know which primary asset class their money is in.

So how can you go from clueless to someone who can answer the asset allocation question in five seconds flat?

For starters, keep tabs on where your accounts are housed, and don’t look at them as separate entities. Your portfolio as a whole should be reviewed to see if it’s meeting your investment objectives, whether that’s growth (taking on more risk) or preservation (taking on less risk to protect your principal).

“In a couple, typically one spouse knows more about the finances than the other, so they defer to the other person [on knowing where the money is],” Krueger says. “Or with single people, you see a lot who’ve changed jobs and don’t [even] know where their 401(k) is. It helps to be able to look at things all together.”

Once you’ve nailed down your total investment picture, figure out the frequency with which you’ll check on those investments—keeping in mind that you may have to tune out market noise. “You don’t have to look at the Dow every day, but you should be checking your portfolio every quarter or so,” suggests Keener.

Telltale Sign #4: You neither owe nor get a refund at tax time.

If you got to the bottom of form 1040 this year and netted close to zero, then you (or your accountant) did an excellent job of managing your tax liability.

“Penalties are a waste of money, and an unexpected tax bill can cause someone to invade their emergency fund or [resort to] high-interest credit cards to help pay the bill,” Keener says. “It’s also beneficial not to get a huge refund because you could be earning interest on that money over the course of the year, rather than giving an interest-free loan to the I.R.S.”

If you consistently owe or get a refund of more than $1,000, consider adjusting your withholding, so more or fewer taxes are taken out of your paycheck during the year.

Using your most recent W2, fill out the I.R.S.’ withholding calculator to estimate what your number should be—and remember to take note of any life changes that could affect your tax situation, such as getting married, having a child or changing jobs midway through the year.

Telltale Sign #5: Less than a third of your income goes toward debt.

Your debt-to-income ratio (DTI)—minimum monthly debt and mortgage payments divided by your gross monthly income—helps tell lenders how well you’re managing debt.

Although every lender varies, the oft-quoted benchmark for an acceptable DTI is 36%. Krueger, however, believes that percentage is still fairly high.

“I would say 10% or less of your gross income going to debt is a good indicator [of strong financial health]—and, of course, you want it eventually to go down to zero,” she says.

Krueger believes that aiming for less than the lending benchmark is prudent, because “between taxes and saving for retirement, having debt [take up] 36% of your income doesn’t leave much money for [other] savings.”

If you need to chip away at debt to improve your DTI, consider the “avalanche method,” which involves prioritizing paying down your highest-interest debts first, while still meeting the minimum payments on others.

Then, once you’re done paying off that first debt, you can apply that payment to your next highest-interest loan or credit card.

Telltale Sign #6: You’re done with car payments.

Being free and clear of auto financing is a double-whammy positive indicator. Not only have you eliminated debt—and likely improved your DTI—but “it means you’re driving your cars longer, and getting more value out of them,” O’Reilly says.

But living car-debt-free is something few Americans seem to be able to accomplish: At the end of 2014, the country’s automotive loan balances reached a record $886 billion, according to Experian Automotive.

Of course, this doesn’t mean you should sink a hefty lump sum into your car loan just to be rid of it.

“[Not having a car payment] is a positive indicator [of financial health], but with interest rates so low right now, having a car loan isn’t necessarily a bad thing,” Keener says. You could, for instance, consider using that money instead to beef up an emergency fund, pay off higher-interest debt or invest in something with better returns.

In other words, what having no car payment really signals is that you’re getting as much bang for your auto buck by driving your car until it dies—which can yield a significant savings, considering the average auto loan now surpasses $28,000.

So before you trade up for the latest model, consider whether you really need that rich Corinthian leather, or whether the money could be better served for retirement—or a new-car savings account, so you can pay cash for your next ride.

“Financially, you’re much better off if you continue driving the car as long as possible and view it as a depreciating asset that’s just transportation from point A to point B,” Keener says. “As long as it’s reliable and safe, it doesn’t need to be replaced.”

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the individuals interviewed or quoted in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.

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TIME Retirement

The Retirement Risk We All Share

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Getty Images

Our retirement system is as hard to understand, opaque, and predatory as ever

As wealth begins to get transferred from baby boomers to the millennial generation—the largest single generation in history and within five years fully half of our nation’s workforce—many social contracts that were enjoyed by the parents and grandparents will not be relied upon, or available, for their children. Two financial bubbles have burst: American cities have gone bankrupt, and the notion of guaranteed pensions has come to seem like a relic from a more innocent time in the world where society paid back its firefighters, teachers, and hard-working middle class for keeping us safe, educating our children, and ensuring the engine of our economy keeps running. So pronounced is this breakdown between our country, our corporations, and our workers that entire political campaigns are won and lost over middle class workers and the pensions they receive in retirement.

Corporations don’t want any part of guaranteed pensions. It’s too expensive, their shareholders don’t like it, and it crimps profits. Neither do governments—politicians are laser focused on the next election cycle and would rather divert taxpayer dollars toward shiny new concepts that will get them re-elected over boring old public pension funds. Today, only 1 in 5 workers in corporate America still has access to a guaranteed pension. Half of American workers have no access to any workplace retirement plan whatsoever. That’s right: in the future, we are going to own all of this risk. We’d better learn to make good decisions for ourselves.

Unfortunately, the 401(k) system is as hard to understand, opaque, and predatory as ever. Two thirds of Americans do not know that they pay fees on their 401K plans, and 90% of people could not accurately tell you what these fees are. Why? Because they never actually write a check to anyone—the fees are automatically deducted from their accounts. I challenge you to go log in to your employer’s 401(k) plan now, and figure out within 5 minutes, or 5 hours, or 5 days the total amount of fees you pay per year. You won’t find it. And it is a huge amount of money. Lifetime fees for the average American household are greater than $150,000 and can erode a third of total savings. Broadly speaking, total mutual fund fees could be the least-known and least-understood $600 billion that come out of Americans pockets every year.

We need to make this far simpler for people. It should be law that you can only give people advice on their 401(k) or IRA, or futures for that matter, if you owe them a legal fiduciary duty to only act in their best interest. Fees should be disclosed in terms that people can understand. Nobody understands what “basis points” or “expense ratios” are. This is purposeful. How about: “this will cost you $5 per year?” That shouldn’t be too hard, right?

Finally, hundreds of investment choices are often used as an illusion to give unsuspecting people the sense that they, too, can beat the market if they just choose right. By now, we know that beating the market is impossible and we should steer people toward the things we can control—diversification, low costs, and good savings behavior over long periods of time, and through many market cycles. Watching CNBC is a waste of time. Index funds are the way to go (although some 401(k) plans still don’t offer them).

The Obama administration and Department of Labor have been trying for years to institute protections for investors against high fees and high-risk products. But the lobbying against these protections has been vicious—billions of dollars of profits do not just go quietly into the night.

So how about a simple and effective do-it-yourself solution in the meantime? The next time someone is offering you serious advice about your retirement or the stock market, print this out and ask them to sign this statement:

“I ________, as your advisor, will act as a fiduciary and only give you advice that is in your best interest.”

If your advisor will not sign this statement—for your own good—run as fast as you can in the other direction and find one of the many advisors that will. It could save you tens of thousands of dollars and years in retirement.

In a world where we are left to fend for ourselves in retirement, the stakes are too high not to at least make sure that someone is legally obligated to tell you the right thing to do. Your 65-year-old self will thank you for it some day.

Greg Smith is president of blooom, an online service that evaluates, simplifies, and manages 401(k) accounts for individuals, and the best-selling author of Why I Left Goldman Sachs: A Wall Street Story.

MONEY Ask the Expert

Why a High Income Can Make It Harder to Save for Retirement

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: My employer’s 401(k) plan considers me a “highly compensated” employee and caps my contribution at a measly 5%. I know I am not saving enough for retirement. What are the best options to maximize my retirement savings? I earn $135,000 a year and my wife makes $53,000. – E.O., Long Island, NY

A: It’s great to have a six-figure income. But, ironically, under IRS rules, being a highly compensated worker can make it harder to save in your 401(k).

First, some background on what it means to be highly compensated. The general rule is that workers can put away $18,000 a year in pre-tax income in a 401(k) plan. But if you earn more than $120,000 a year, or own more than a 5% stake in your employer’s company, or are in the top 20% of earners at your firm, you are considered a “highly compensated employee” (HCE) by the IRS.

As an HCE, you’re in a different category. Uncle Sam doesn’t want the tax breaks offered by 401(k)s only to be enjoyed by top executives. So your contributions can be limited if not enough lower-paid workers contribute to the plan. The IRS conducts annual “non-discrimination” tests to make sure high earners aren’t contributing disproportionately more. In your case, it means you can put away only about $6,000 into your plan.

Granted, $120,000, or $135,00, is far from a CEO-level salary these days. And if you live in a high-cost area like New York City, your income is probably stretched. Being limited by your 401(k) only makes it more difficult to build financial security.

There are ways around your company’s plan limits, though neither is easy or, frankly, realistic, says Craig Eissler, a certified financial planner with Halbert Hargrove in Houston. Your company could set up what it known as a safe harbor plan, which would allow them to sidestep the IRS rules, but that would mean getting your employer to kick in more money for contributions. Or you could lobby your lower-paid co-workers to contribute more to the plan, which would allow higher-paid employees to save more too. Not too likely.

Better to focus on other options for pumping up your retirement savings, says Eissler. For starters, the highly compensated limits don’t apply to catch-up contributions, so if you are over 50, you can put another $6,000 a year in your 401(k). Also, if your wife is eligible for a 401(k) or other retirement savings plan through her employer, she should max it out. If she doesn’t have a 401(k), she can contribute to a deductible IRA and get a tax break—for 2015, she can contribute as much as $5,500, or $6,500 if she is over 50.

You can also contribute to an IRA, though you don’t qualify for a full tax deduction. That’s because you have a 401(k) and a combined income of $188,000. Couples who have more than $118,000 a year in modified adjusted gross income and at least one spouse with an employer retirement plan aren’t eligible for the tax break.

Instead, consider opting for a Roth IRA, says Eissler. In a Roth, you contribute after-tax dollars, but your money will grow tax-free; withdrawals will also be tax-free if the money is kept invested for five years (withdrawals of contributions are always tax-free). Unfortunately, you bump up against the income limits for contributing to a Roth. If you earn more than $183,000 as a married couple, you can’t contribute the entire $5,500. Your eligibility for how much you can contribute phases out up to $193,000, so you can make a partial contribution. The IRS has guidelines on how to calculate the reduced amount.

You can also make a nondeductible contribution to a traditional IRA, put it in cash, and then convert it to a Roth—a strategy commonly referred to as a “backdoor Roth.” This move would cost you little or nothing in taxes, if you have no other IRAs. But if you do, better think twice, since those assets would be counted as part of your tax bill. (For more details see here and here.) There are pros and cons to the conversion decision, and so it may be worthwhile to consult an accountant or adviser before making this move.

Another strategy for boosting savings is to put money into a Health Savings Account, if your company offers one. Tied to high-deductible health insurance plans, HSAs let you stash away money tax free—you can contribute up to $3,350 if you have individual health coverage or up to $6,650 if you’re on a family plan. The money grows tax-free, and the funds can be withdrawn tax-free for medical expenses. Just as with a 401(k), if you leave your company, you can take the money with you. “So many people are worried about paying for health care costs when they retire,” says Ross Langley, a certified public accountant at Halbert Hargrove. “This is a smart move.”

Once you exhaust your tax-friendly retirement options, you can save in a taxable brokerage account, says Langley. Focus on tax-efficient investments such as buy-and-hold stock funds or index funds—you’ll probably be taxed at a 15% capital gains rate, which will be lower than your income tax rate. Fixed-income investments, such as bonds, which throw off interest income, should stay in your 401(k) or IRA.

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

Read next: Why Regular Retirement Saving Can Improve Your Health

MONEY 401(k)

How the Supreme Court Just Improved Your Retirement

The Supreme Court just ruled on an obscure aspect of ERISA. It could be great news for your retirement nest egg.

The Supreme Court just handed millions of retirement savers a helping hand.

You many not know much about ERISA, the body of rules that governs retirement accounts. But chances are you have a 401(k). That means Monday’s Supreme Court decision could indirectly lower investment fees you’re paying. And that’s great news.

On Monday the Supreme Court made it easier for 401(k) investors to sue employers over needlessly costly 401(k) investments. The actual point of contention in the case, known as Tibble vs. Edison, was pretty obscure. It involved how the statute of limitations should be applied to a breach of fiduciary duty.

But because ERISA law is so complicated, companies almost always choose to fight such suits on technical grounds. This time around, the typically business friendly U.S. Supreme Court decided in favor of investors, unanimously overruling the U.S. 9th Circuit Court of Appeals. As a result, employers will be forced to think a little harder about whether similar arguments are likely to prevail in the future.

But the fact is, employers have grown increasingly proactive about regulating plan fees. The reason: Tibble vs. Edison is just a high-profile example of a series of lawsuits launched in the past decade over employers’ failure to police exorbitant retirement plan fees. And many large employers have already reacted to the threat by urging investment firms to lower fees for their employees. As a result, 401(k) plan fees have come down, and investors have had greater access to low-cost options like index funds.

With the Supreme Court weighing in on investors’ side, you can expect that trend to continue.

 

MONEY stocks

14 Simple Ways to Be a Smarter (and Richer) Investor

brain made out of gold bars
Hiroshi Watanabe—Getty Images

Picking stocks is hard—and you still might not beat throwing darts at the stock pages. Here some easier ways to get yourself an edge.

1. Don’t pay 33% of your money in fees. Mutual fund charges look small, but the cost of paying an extra 1% a year in fees is that you give up 33% of your potential wealth over the course of 40 years. An index fund like Schwab Total Stock Market SCHWAB TOTAL STOCK MARKET SWTSX -0.13% can keep your expenses below 0.1%, compared with over 1% for many stock funds.

2. Mix your own simple plan. Four very low-cost index funds, recommended in the Money 50, deliver all the world’s major markets. (See graphic below.) The more aggressive you are, the more you can tilt toward stocks.

Source: MONEY research

3. Or pick just one fund. You don’t have to be fancy to be an effective investor. A classic balanced mix (about 60% stocks/40% bonds) provides plenty of equities’ upside, with less pain during crashes. The Vanguard Wellington VANGUARD WELLINGTON INV VWELX -0.03% balanced fund has earned an annualized 8% over a decade.

4. Or hire a robo-adviser. Outside of a 401(k), if you want a plan that’s more tailored to you, web-based automated investment services can put you in a mix of low-cost index funds and then rebalance as you go. Betterment and Wealthfront stand out as low-cost options, charging 0.35% of assets or less.

5. Patch the holes in a 401(k). Many workplace plans offer at least an S&P 500 or total stock market index fund as a low cost option for buying U.S. stocks. But if your plan doesn’t offer good choices in other asset classes, such as bonds and foreign stocks, diversify elsewhere. Save enough to get the company match. Then fund an IRA, where you can choose which bond funds or foreign funds to go with.

6. While you’re at it, dump company stock. About $1 out of every $7 in 401(k)s is invested in employer shares. But your income is already tied to that company. Your retirement shouldn’t be too.

7. Pick an asset, any asset. You can get into trouble by being too clever by half. The average investor has barely beaten inflation in the past 20 years as a result of buying trendy assets high and selling low. Forget all that. As the chart below shows, you’re better off buying and holding almost any major asset class.

Sources: Bloomberg, Morningstar, DalbarNotes: Returns are through Dec. 31, 2013.

8. Be patient with funds. Some well-known bargain-minded funds, such as Dodge & Cox Stock DODGE & COX STOCK FUND DODGX -0.31% , have struggled this past year. That doesn’t mean you should flee. True value funds refuse to buy popular—read expensive—stocks, so they often lag in frothy times. But over the past 15 years, Dodge & Cox has outperformed its peers by 2.5 percentage points a year and the S&P by more than four points.

9. Be stingy with funds. Cheapskates know index funds aren’t their only options. Actively managed blue-chip stock funds with an expense ratio of 0.35% or less have returned 8.5% over the past decade. That’s 0.5 percentage point better annually than the S&P 500. A great option: Vanguard Equity-Income VANGUARD EQUITY INCOME INV VEIPX -0.16% , charging 0.29%, has outpaced the market’s gains by 3.5 points annually over the past 15 years.

10. Rebalance? Maybe not. Routinely resetting your stocks and bonds to their original levels “is a nice idea in theory,” says planner Phil Cook. But “if you rebalance too often, you can give up a lot of potential returns.” In your twenties and thirties, when you’re almost all in stocks, you can skip it. As you age, though, gradually increase the frequency of rebalancing to every few years.

11. Break up with your high-cost adviser. Stock and bond returns are expected to be muted in the coming decade, so cutting advisory fees—often 1% of assets—matters. Vanguard Personal Advisor Services charges just 0.3% of assets. Some tech-based services, such as Betterment and Wealthfront, charge even less.

12. Put your portfolios together… If you hold a third of your 401(k) in bonds, your mix may be riskier than you think if your spouse is 100% in stocks. Coordinating also improves your options. If your spouse’s plan has a better foreign fund, focus your international allocation there.

13. …and your assets in the right place. Once you’ve maxed out your IRAs and 401(k)s, use taxable accounts for the most tax-efficient investments in your mix. They include index and buy-and-hold equity funds that trade infrequently and generate few capital gains distributions.

14. Take a fresh look at a classic. You’ve now built up enough assets that advisers will be eager to sell you clever ideas to beat the market. Before you bite, read the 2015 edition of A Random Walk Down Wall Street. Burton Malkiel has updated his skeptical investment guide to take on the latest new flavor, “smart” ETFs. If a fund has a greater return, says Malkiel, it’s probably because it’s taking on more risk.

Adapted from “101 Ways to Build Wealth,” by Daniel Bortz, Kara Brandeisky, Paul J. Lim, and Taylor Tepper, which originally appeared in the May 2015 issue of MONEY magazine.

MONEY

Hate Your Company’s 401(k)? Here’s How to Squeeze the Most From Any Plan

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Tooga Productions—Getty Images

Four steps to getting your savings plan right—even if your employer didn't.

Your 401(k) plan is potentially one the best tools you have to save for retirement. You get a tax advantage and often a partial match from your employer. But let’s face it: Not all company plans have the most compelling investment options. These strategies will help you use your plan to maximum advantage.

Money

1. Plug the biggest hole in your account: Costs.

Mutual fund charges look small, but the cost of paying an extra 1% a year in fees is that you give up 33% of your potential wealth over the course of 40 years. If there’s at least a basic S&P 500 or total stock market index fund in your plan, that’s often your best option for your equity allocation. Some charge as little as 0.1%, vs. 1% or more for actively managed funds.

2. Look beyond the company plan.

If your 401(k) doesn’t offer other low-cost investment options, diversify elsewhere. First, save enough in the 401(k) to get the company match. Then fund an IRA, which offers similar tax advantage. You can then choose your own funds, including bond funds and foreign stock funds, to complement what’s in your workplace plan.

3. While you’re at it, dump company stock.

About $1 out of every $7 in 401(k)s is invested in employer shares. But your income is already tied to that company. Your retirement shouldn’t be too.

4. Share strategy with your spouse.

It’s a good idea no matter how much you like your plan: If you hold a third of your 401(k) in bonds, for example, your combined mix may be riskier than you think if your spouse is 100% in stocks. But coordinating also improves your options. If your spouse’s plan has a better foreign fund, you can focus your joint international allocation there.

Adapted from “101 Ways to Build Wealth,” by Daniel Bortz, Kara Brandeisky, Paul J. Lim, and Taylor Tepper, which originally appeared in the May 2015 issue of MONEY magazine.

Read next: What You Can Learn From 401(k) Millionaires in the Making

MONEY

6 Things Millennials Should Do Now That Will Pay Off Big Later On

Try these tips for getting started when you have limited funds and lots to pay for

young hipster couple in apartment
Getty Images

Getting started as a saver and investor can be a tricky balancing act. You have bills to pay, student loans to settle, and a career to jump start. You have to create a cash cushion for emergencies at the same time that you are being urged to salt away money for a far-off retirement date. Here’s some smart advice on how set your priorities.

Adapted from “101 Ways to Build Wealth,” by Daniel Bortz, Kara Brandeisky, Paul J. Lim, and Taylor Tepper, which originally appeared in the May 2015 issue of MONEY magazine.

  • 1. Tuck away a month of expenses.

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    Steven Puetzer—Getty Images

    Even if this means paying off debt more slowly. The money can cover surprises like car repairs. Once you’ve hit that point, says financial planner Matt Becker, focus on the next goal: six months of expenses, to cover you should you lose a job.

  • 2. Juggle emergency saving and a 401(k) by playing it safe.

    Szefei Wong—Alamy

    Until you have six months’ liquid savings (see No. 1), investing isn’t a top priority. But you should put enough into a 401(k) to get an employer match. To partly reconcile the two goals, hold some less risky fare like bonds, says Lillian Wu of Research Affiliates. With taxes and penalties, cashing out a 401(k) is a last resort. But if you’re forced to do it, it’s better to have some safe money.

  • 3. Start first, be an expert later.

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    Martin Poole—Getty Images

    Getting going on a 401(k) can feel like jumping into the deep end. How much in stock funds? What about bonds? But early on, saving at all matters more than picking the best mix. Say you put away 6% of your pay, with a 3% match, starting at 25. For 10 years you earn a lousy 2%, and then adjust your portfolio so that you earn 6% for the next 30 years. That wobbly first decade will still have added 47% to your total wealth by age 65.

  • 4. Begin your career in a wealth-building city.

    Indianapolis
    Katina—age fotostock Carmel, Indiana

    Zillow.com says these metros offer job growth above the median 1.3% and homes for less than the typical 2.9 times income:

    Dallas: Its many affordable ‘burbs include MONEY’s No. 1 Best Place to Live in 2014, McKinney.
    Job Growth: 3.3% Housing Cost: 2.5 x income

    Atlanta: Home to HQs of Fortune 500 companies including Coca-Cola and the United Parcel Service
    Job Growth: 2.4% Housing Cost: 2.7 x income

    Indianapolis: Metro boasts another Best Place: walkable, arts-rich Carmel.
    Job Growth: 2% Housing Cost: 2.4 x income

  • 5. Go ahead, have a latte.

    roommates in kitchen
    Bill Cheyrou—Alamy

    Reducing small expenses can’t hurt, but housing is where you can save real money when you’re young. Rent on a two-bedroom, with a roommate, can be 44% less than for a one-bedroom alone, according to Apartment List data.

  • 6. Spend money to invest in yourself too.

    student in computer lab
    Hill Street Studios—Getty Images

    Economists at the Federal Reserve Bank of New York have found that most Americans get their biggest raises during their first decade in the workforce. So lay the groundwork for wage growth early. Don’t be afraid to shell out some money for a business communication class, technology training, or an additional job certification, says Michael Kitces, co-founder of XY Planning Network, a group of planners with Gen X and Y clients. A $500 class that leads to a promotion and raise could pay off in compounding returns throughout your career, as future raises build on top of your higher base wage. “It may literally be the single greatest investment you can make,” says Kitces.

TIME

5 Money Habits of the Filthy Rich You Can Learn Now

How to save and invest your way to seven figures

Think it’s impossible to save a million bucks? It’s not. Fidelity Investments took a look at the 401(k) portfolios of its clients to see if those in the million-dollar-plus club have characteristics that make them stand out from the crowd.

Surprisingly, being super-rich wasn’t one of them. Although the average annual earnings of people with more than $1 million in their 401(k) was a substantial $359,000, Fidelity found that a number of these people had reported earnings of under $150,000.

As of the end of last year, more than 72,000 Fidelity clients had 401(k)s with more than $1 million in them — that’s more than double the number who had reached that monetary milestone just two years ago. Sure, investors across the board have benefitted from the stock market’s recovery, but the most retirement-ready people also displayed some specific saving and investing habits that helped them reach their goals.

They go slow and steady. “They really took a long term approach… took most of their careers to get there,” says Fidelity retirement expert Jeanne Thompson. The average age of Fidelity’s 401(k) millionaires is just under 60, and have been in the workforce for 30 years. It’s also worth noting that many of the people with the healthiest nest eggs also started saving for retirement early. “It’s not like it happened overnight,” Thompson says.

They max out their contributions. Fidelity found that million-dollar investors contribute roughly 14% of their income towards their 401(k)s — $21,4000 a year, on average. Now, this is above the annual amount workers under 50 are allowed to contribute — those workers are capped at contributing $18,000 a year in 2015 — but the average age of Fidelity’s million-plus 401(k) clients skews about 10 years higher than that. In other words, the most aggressive retirement savers seem to ramp up their contributions once they get the legal go-ahead to sock away more. By contrast, those with portfolios under $1 million contribute only $6,050 a year.

They don’t rely on target date funds. Target date funds have been pitched as a kind of “set it and forget it” option for investors, but a peek into the portfolios of the people who accrued $1 million or more shows that they don’t rely on them entirely or even primarily. As of the end of 2014, about 40% of these investors’ portfolios is in domestic equities, another 12% is in company stock and 6% is in foreign equities, on average. Only 10% of the average portfolio is allotted to target date funds.

They stay in equities. “To some extent, if you’re invested in cash you’re only going to have what you put in,” Thompson says. “Many people may be in retirement for 30 years or more,” she points out, so people might want to reevaluate if or when switching to a more conservative allocation is right for them. “As people are working longer and living longer, many will hold higher equity allocations,” she says. “You still have 30 years your money has to last…If you go too conservative too early you might not keep up with inflation.” On average, about three-quarters of the holdings of millionaire 401(k) clients are in equities — and remember, these are investors with an average age of around 60.

They don’t panic. “The key is when the markets go down not to panic,” Thompson says. Although it can be scary watching those numbers go down, selling at a loss only makes it harder to recover when the market eventually recovers. “They did bounce back, and so they’re were able, as equities rose, to ride the upswing,” Thompson says.

MONEY 401(k)s

How to Build a $1 Million Retirement Plan

$100 bricks and mortar
Money (photo illustration)—Getty Images(2)

The number of savers with seven-figure workplace retirement plans has doubled over the past two years. Here's how you can become one of them.

The 401(k) was born in 1981 as an obscure IRS regulation that let workers set aside pretax money to supplement their pensions. More than three decades later, this workplace plan has become America’s No. 1 way to save. According to a 2013 Gallup survey, 65% of those earning $75,000 or more expect their 401(k)s, IRAs, and other savings to be a major source of income in retirement. Only 34% say the same for a pension.

Thirty-plus years is also roughly how long you’ll prep for retirement (assuming you don’t get serious until you’ve been on the job a few years). So we’re finally seeing how the first generation of savers with access to a 401(k) throughout their careers is making out. For an elite few, the answer is “very well.” The stock market’s recent winning streak has not only pushed the average 401(k) plan balance to a record high, but also boosted the ranks of a new breed of retirement investor: the 401(k) millionaire.

Seven-figure 401(k)s are still rare—less than 1% of today’s 52 million 401(k) savers have one, reports the Employee Benefit Research Institute (EBRI)—but growing fast. At Fidelity Investments, one of the largest 401(k) plan providers, the number of million-dollar-plus 401(k)s has more than doubled since 2012, topping 72,000 at the end of 2014. Schwab reports a similar trend. And those tallies don’t count the two-career couples whose combined 401(k)s are worth $1 million.

Workers with high salaries have a leg up, for sure. But not all members of the seven-figure club are in because they make big bucks. At Fidelity thousands earning less than $150,000 a year have passed the million-dollar mark. “You don’t have to make a million to save a million in your 401(k),” says Meghan Murphy, a director at Fidelity.

You do have to do all the little things right, from setting and sticking to a high savings rate to picking a suitable stock and bond allocation as you go along. To join this exclusive club, you need to study the masters: folks who have made it, as well as savers who are poised to do the same. What you’ll learn are these secrets for building a $1 million 401(k).

1) Play the Long Game

Fidelity’s crop of 401(k) millionaires have contributed an above-average 14% of their pay to a 401(k) over their careers, and they’ve been at it for a long time. Most are over 50, with the average age 60.

Those habits are crucial with a 401(k), and here’s why: Compounding—earning money on your reinvested earnings as well as on your original savings—is the “secret sauce” to make it to a million. “Compounding gives you a big boost toward the end that can carry you to the finish line,” says Catherine Golladay, head of Schwab’s 401(k) participant services. And with a 401(k), you pay no taxes on your investment income until you make withdrawals, putting even more money to work.

You can save $18,000 in a 401(k) in 2015; $24,000 if you’re 50 or older. While generous, those caps make playing catch-up tough to do in a plan alone. You need years of steady saving to build up the kind of balance that will get a big boost from compounding in the home stretch.

Here’s how to do it:

Make time your ally. Someone who earns $50,000 a year at age 30, gets 2% raises, and puts away 14% of pay on average will have $547,000 by age 55—a hefty sum that with continued contributions will double to $1.1 million by 65, assuming 6% annualized returns. Do the same starting at age 35, and you’ll reach $812,000 at 65.

Yet saving aggressively from the get-go is a tall order. You may need several years to get your savings rate up to the max. Stick with it. Increase your contribution rate with every raise. And picking up part-time or freelance work and earmarking the money for retirement can push you over the top.

Milk your employer. For Fidelity 401(k) millionaires, employer matches accounted for a third of total plan contributions. You should squirrel away as much of the boss’s cash as you can.

According to HR association WorldatWork, at a third of companies 50% of workers don’t contribute enough to the company 401(k) plans to get the full match. That’s a missed opportunity to collect free money. A full 80% of 401(k) plans offer a match, most commonly 50¢ for each $1 you contribute, up to 6% of your salary, but dollar-for-dollar matches are a close second.

Broaden your horizons. As the graphic below shows, power-saving in your forties or fifties may bump you up against your 401(k)’s annual limits. “If you get a late start, in order to hit the $1 million mark, you will need to contribute extra savings into a brokerage account,” says Dirk Quayle, president of NextCapital, which provides portfolio-management software to 401(k) plans.

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Money

2) Act Like a Company Lifer

The Fidelity 401(k) millionaires have spent an average of 34 years with the same employer. That kind of staying power is nearly unheard-of these days. The average job tenure with the same employer is five years, according to the Bureau of Labor Statistics. Only half of workers over age 55 have logged 10 or more years with the same company. But even if you can’t spend your career at one place—and job switching is often the best way to boost your pay—you can mimic the ways steady employment builds up your retirement plan.

Here’s how to do it:

Consider your 401(k) untouchable. A fifth of 401(k) savers borrowed against their plan in 2013, according to EBRI. It’s tempting to tap your 401(k) for a big-ticket expense, such as buying a home. Trouble is, you may shortchange your future. According to a Fidelity survey, five years after taking a loan, 40% of 401(k) borrowers were saving less; 15% had stopped altogether. “There are no do-overs in retirement,” says Donna Nadler, a certified financial planner at Capital Management Group in New York.

Even worse is cashing out your 401(k) when you leave your job; that triggers income taxes as well as a 10% penalty if you’re under age 59½. A survey by benefits consultant Aon Hewitt found that 42% of workers who left their jobs in 2011 took their 401(k) in cash. Young workers were even more likely to do so. As you can see in the graphic below, siphoning off a chunk of your savings shaves off years of growth. “If you pocket the money, it means starting your retirement saving all over again,” says Nadler.

150320_MIL_PlugLeaks
Money

Resist the urge to borrow and roll your old plan into your new 401(k) or an IRA when you switch jobs. Or let inertia work in your favor. As long as your 401(k) is worth $5,000 or more, you can leave it behind at your old plan.

Fill in the gaps. Another problem with switching jobs is that you may have to wait to get into the 401(k). Waiting periods have shrunk: Today two-thirds of plans allow you to enroll in a 401(k) on day one, up from 57% five years ago, according to the Plan Sponsor Council of America. Still, the rest make you cool your heels for three months to a year. Meanwhile, 40% of plans require you to be on the job six months or more before you get matching contributions.

When you face a gap, keep saving, either in a taxable account or in a traditional or Roth IRA (if you qualify). Also, keep in mind that more than 60% of plans don’t allow you to keep the company match until you’ve been on the job for a specific number of years, typically three to five. If you’re close to vesting, sticking around can add thousands to your retirement savings.

Put a price on your benefits. A generous 401(k) match and friendly vesting can be a lucrative part of your compensation. The match added about $4,600 a year to Fidelity’s 401(k) millionaire accounts. All else being equal, seek out a generous retirement plan when you’re looking for a new job. In the absence of one, negotiate higher pay to make up for the missing match. If you face a long waiting period, ask for a signing bonus.

3) Keep Faith in Stocks

Research into millionaires by the Spectrem Group finds a greater willingness to take reasonable risks in stocks. True to form, Fidelity’s supersavers have 75% of their assets in stocks on average, vs. 66% for the typical 401(k) saver. That hefty equity stake has helped 401(k) millionaires hit seven figures, especially during the bull market that began in 2009.

What’s right for you will depend in part on your risk tolerance and what else you own outside your 401(k) plan. What’s more, you may not get the recent bull market turbo-boost that today’s 401(k) millionaires enjoyed. With rising interest rates expected to weigh on financial markets, analysts are projecting single-digit stock gains over the next decade. Still, those returns should beat what you’ll get from bonds and cash. And that commitment to stocks is crucial for making it to the million-dollar mark.

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