MONEY retirement planning

22% of Workers Would Rather Die Early Than Run Out of Money

transparent piggy bank with one silver coin inside
Dimitri Vervitsiotis—Getty Images

Yet many of the same folks are hardly saving anything for retirement, study finds.

A large slice of middle-class Americans have all but given up on the retirement they may once have aspired to, new research shows—and their despair is both heartbreaking and frustrating. Most say saving for retirement is more difficult than they had expected and yet few are making the necessary adjustments.

Some 22% of workers say they would rather die early than run out of money, according to the Wells Fargo Middle Class Retirement survey. Yet 61% say they are not sacrificing a lot to save for their later years. Nearly three quarters acknowledge they should have started saving sooner.

The survey, released during National Retirement Savings Week, looks at the retirement planning of Americans with household incomes between $25,000 and $100,000, who held investable assets of less than $100,000. One third are contributing nothing—zero—to a 401(k) plan or an IRA, and half say they have no confidence that they will have enough to retire. Middle-class Americans have a median retirement balance of just $20,000 and say they expect to need $250,000 in retirement.

Still, Americans who have an employer-sponsored retirement plan, especially a 401(k), are doing much better than those without one. Those between the ages of 25 to 29 with access to a 401(k) have put away a median of $10,000, compared with no savings at all for those without access to a plan. Those ages 30 to 39 with a 401(k) plan have saved a median of $35,000, versus less than $1,000 for those without. And for those ages 40 to 49 with 401(k)s, the median is $50,000, while those with no plan have just $10,000.

Clearly, despite its many drawbacks, the venerable 401(k) remains our de facto national savings plan, and the best shot that the middle-class has at achieving retirement security. But only half of private-sector workers have access to a 401(k) or other employer-sponsored retirement plan, according to the Employee Benefit Research Institute. Those without access would benefit from a direct-deposit Roth or traditional IRA or some other tax-favored account, but data show that most Americans fail to make new contributions to IRAs, with most of those assets coming from 401(k) rollovers. One exception: a growing number of Millennials are making Roth IRA contributions.

Most people do understand the need to save for retirement, but they don’t view it as an urgent goal requiring spending cutbacks, the survey found. Still, many clearly have room in their budget to boost their savings rates. Asked where they would cut spending if they decided to get serious about saving, 56% said they would give up indulgences like the spa and jewelry; 55% said they’d cut restaurant meals; and 51% even said they would give up a major purchase like a car or a home renovation. But only 38% said they would forgo a vacation. We all need a little R&R, for sure. But a few weeks of fun now in exchange for years of retirement security is a good trade.

Of course, the larger problem is that a sizeable percentage of middle-class Americans are struggling financially and simply don’t enough money to stash away for long-term goals like retirement. As economic data show, many workers haven’t had a real salary increase for 15 years, while the cost of essentials, such as health care and college tuition, continues to soar.

Given these economic headwinds, it’s important to do as much as you can, when you can, to build your retirement nest egg. If you have a 401(k), be sure to contribute at least enough to get the full company match. And if you lack a company retirement plan, opt for an IRA—the maximum contribution is $5,500 a year ($6,500 if you are 50 or older). Yes, freeing up money to put away for retirement is tough, but it will be a bit easier if you can get tax break on your savings.

Related:

How much of my income should I save for retirement?

Why is a 401(k) such a good deal?

Which is better, a traditional or Roth IRA?

MONEY Ask the Expert

How To Find Out What You’re Paying For Your Retirement Account

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Robert A. Di Ieso, Jr.

Q: How can I find out how much I am paying in fees in my 401(k) retirement plan?

A: It’s an important question to ask, and finding an answer should be a lot easier than it is right now. Studies show that high costs lead to worse performance for investors. So minimizing your expenses is one of the best ways to improve returns and reach your retirement goals.

Yet most people don’t pay attention to fees in their retirement plans—in fact, many don’t even realize they’re paying them. Nearly half of full-time employed Baby Boomers believe they pay zero investment costs in their retirement accounts, while 19% think their fees are less than 0.5%, according to a new survey by investment firm Rebalance IRA.

Truth is, everyone who has a 401(k), or an IRA, pays fees. The average 401(k) investor has 1.5% each year deducted from his or her account for various fees. But those expenses vary widely. If you work for a large company, which can spread costs over thousands of employees, you’ll likely pay just 1% or less. Smaller 401(k) plans, those with only a few hundred employees, tend to cost more—2.5% on average and as much as 3.86%.

A percentage point or two in fees may appear trivial, but the impact is huge. “Over time, these seemingly small fees will compound and can easily consume one-third of investment returns,” says Mitch Tuchman, managing director of Rebalance IRA.

Translated into dollars, the numbers can be eye-opening. Consider this analysis by the Center for American Progress: a 401(k) investor earning a median $30,000 income, and who paid fund fees of just 0.25%, would accumulate $476,745 over a 40-year career. (That’s assuming a 10% savings rate and 6.8% average annual return.) But if that worker who paid 1.3% in fees, the nest egg would grow to only $380,649. To reach the same $476,745 nest egg, that worker would have to stay on the job four more years.

To help investors understand 401(k) costs, a U.S. Labor Department ruling in 2012 required 401(k) plan providers to disclose fees annually to participants—you should see that information in your statements. Still, even with these new rules, understanding the different categories of expenses can be difficult. You will typically be charged for fund management, record-keeping, as well as administrative and brokerage services. You can find more information on 401(k) fees here and here.

By contrast, if you’ve got an IRA invested directly with a no-load fund company, deciphering fees is fairly straightforward—you will pay a management expense and possibly an administrative charge. But if your IRA is invested with a broker or financial planner, you may be paying additional layers of costs for their services. “The disclosures can be made in fine print,” says Tuchman. “It’s not like you get an email clearly spelling it all out.”

To find out exactly what you’re paying, your first step is to check your fund or 401(k) plan’s website—the best-run companies will post clear fee information. But if you can’t find those disclosures, or if they don’t tell you what you want to know, you’ll have to ask. Those investing in a 401(k) can check with the human resources department. If you have an IRA, call the fund company or talk to your advisor. At Rebalance IRA, you can download templates that cover the specific questions to ask about your retirement account costs.

If your 401(k) charges more than you would like, you can minimize fees by opting for the lowest-cost funds available—typically index funds, which tend to be less expensive than actively managed funds. And if your IRA is too pricey, move it elsewhere. “You may not be able to control the markets but you do have some control over what you pay to invest,” says Tuchman. “That can make a big difference over time.”

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

More from Money’s Ultimate Retirement Guide:

How should I invest my 401(k)?

Are my IRA contributions tax-deductible?

Why is rolling over my 401(k) to an IRA such a big deal?

MONEY Millennials

The Conventional Money Wisdom That Millennials Should Ignore

millennials looking at map on road
John Burcham—Getty Images/National Geographic

Maybe a 401(k) loaded with stocks isn't the best savings tool for some young people.

If you are in your 20s or early 30s, and you ask around for retirement advice, you will hear two things:

1. Put as much as you possibly can, as soon as you can, into a 401(k) or Individual Retirement Account.

2. Put nearly all of it into equities.

There’s a lot of common sense to this. Saving early means you can take maximum advantage of the compounding of interest. And your youth makes it easier for you to bear the added risk of equities.

But life is more complicated than these simple intuitions suggest. Here’s a troubling data point: According to a Fidelity survey of 401(k) plan participants, 44% of job changers in their 20s cashed out all or part of their money, despite being hit with taxes and penalties. Switchers in their 30s were only a bit more conservative, with 38% cashing out.

You really don’t want to do this. But let’s get beyond the usual scolding. The reality that so many people are cashing out is also telling us something. Maybe a 401(k) loaded with stocks isn’t the best savings tool for some young people.

The conventional 401(k) advice—which is enshrined in the popular “target-date” mutual funds that put 90% of young savers’ portfolios in stocks—imagines twentysomethings as the ideal buy-and-hold investors, as close as individuals can get to something like the famous, swashbuckling Yale University endowment fund. Young people have very long time horizons and no need to sell holdings for current income, the thinking goes, so why not accept the possibility of some (violently) bad years in order to stretch for higher return? But on a moment’s reflection on what life is actually like in your 20s, you see that many young people are already navigating a fair amount of economic risk.

Take career risk. On the plus side, when you’re young you have more years of earnings ahead of you than behind you, and that’s a valuable asset to have. Then again, you also face a lot of uncertainty about how big those earnings will be. If you are just gaining a foothold in your career, getting laid off or fired from your current job might be a short-term paycheck interruption—or it could be the reversal that sets you on a permanently lower-earning track. You may also be financially vulnerable if you still have high-interest debts to settle, a new mortgage that hasn’t had time to build up equity, or low cash reserves to get your through a bad spell.

This is why Micheal Kitces, a financial planner at Pinnacle Advisory Group in Columbia, Md., tells me he doesn’t encourage people in their 20s to focus on building their investment portfolio. You almost never hear that kind of thing from a planner, so let me clarify that he’s not saying you should spend to your heart’s content. (Kitces is in fact a bit stern on one point: He thinks many young professionals spend too much on housing.) He’s talking about priorities. For one thing, you need to build up that boring cash cushion. Without it, you are more likely to be one of those people who has to cash out the 401(k) after a job change.

Even before that’s done, you’ll still want to aim to put enough in a 401(k) to max out the matching contributions from your employer, if that’s on the table. (Typically, that’s 6% of salary.) So maybe all or most of that goes in stocks? An attention-getting new brief from the investment strategists Research Affiliates argues “no”—that instead of putting new savers into a 90%-equities target date fund, 401(k) plans should get people going with lower-risk “starter portfolios.”

I’m not sold on all of RA’s argument, which drives toward a proposal that 401(k)s should include unusual funds like the ones RA happens to help manage. But CEO Rob Arnott and his coauthor Lilian Wu offer a lot to chew on. They make two big points about young people and risk. One’s just intuitive: If you have little experience as an investor and quickly get your hat handed to you in a bear market, you could be so scarred from the experience that you get out of stocks and never come back. At least until the next bull market makes it irresistible.

The other is that 401(k) plan designers should accept the fact—all the advice and penalties notwithstanding—that many young people do cash them out like rainy-day funds when they lose their jobs. And so the starter funds should have a bigger cushion of lower-risk assets. That’s especially important given that recessions and layoffs often come after big market drops, so the people cashing out may well be selling stocks at exactly the wrong moment, and from severely depleted portfolios.

RA thinks a portfolio for new savers should be made up of just one third “mainstream” stocks, with another third in traditional bonds and the last third in what it calls “diversifying inflation hedges.” That last bit could include inflation protected Treasuries (or TIPS), but also junk bonds, emerging markets investments, real estate, and low-volatility stocks. Whatever the virtues of those investments, it seems to me that a starter portfolio should be easy to explain to a starting investor. “Diversifying inflation hedges” doesn’t sound like that.

But the insight that new investors might not be immediately prepared for full-tilt equity-market risk is valuable. Many 401(k) plans automatically default young savers into stock-heavy target date funds, but they could just as easily start with a more-traditional balanced fund, which holds a steady 60% in stocks and 40% in bonds. Perhaps higher risk strategies should be left as a conscious choice, for people who not only have a lot of time, but also a bit more market knowledge and a stable financial picture outside of their 401(k).

The trouble is, most 401(k) plans don’t know much about an individual saver besides their age. The 401(k) is a blunt, flawed tool, and just putting different kinds of mutual funds inside of it isn’t going to solve all of the difficulties people run into when trying to save for the future. Arnott and Wu’s proposal doesn’t do anything about the fact that using a 401(k) for rainy days means paying steep penalties. And it doesn’t help people build up the cash reserves outside their retirement plans that they’d need to avoid that.

As boomers head into retirement, we’ve all become very aware of the importance of getting people to prepare for life after 65. But millennials also need better ideas to help get them safely (financially speaking) to 35.

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 401(k)s

Why Your Retirement Fund Is Riskier Than You Thought

Your 401(k) target-date fund may own a lot more stocks than it did before, as fund groups got a lot more aggressive. Too bad it happened just in time for the recent market downturn.

In changes that have raised the potential investment risks in many 401(k) retirement accounts, several major fund companies are increasing the stock allocation of their target-date funds, which are used by many of those with such plans.

BlackRock Inc, Fidelity Investments and Pacific Investment Management Co—all firms that have seen returns in their target-date funds lagging competitors—have made adjustments in the past year so that 401(k) plan participants, particularly those who are younger to middle age, are more invested in equities. In some cases employees who are in their 40s now find themselves in funds that are 94% allocated into stocks, up more than 10 percentage points.

The changes have prompted concerns from consultants and analysts who worry that the fund managers are raising the risks too high for 401(k) investors as they seek higher returns, perhaps as a way to boost their own profiles against rivals.

This anxiety could grow if the recent decline in the U.S. stock market—the S&P 500 is down 4.5% since reaching an all-time high in mid-September and dropped more than 2% on Thursday—gains momentum. On the other hand, the increased bets on equities can be seen as a vote of confidence in the bull market, and are also a reflection of expectations of low returns from bonds in the next few years if interest rates climb.

“The shared characteristic these funds have is they have not been doing so well since 2008,” said Janet Yang, a fund analyst at Morningstar. “The question is if the markets had gone down, would they have made these changes?”

For their part, executives at these firms say the changes are based on optimistic long-term forecasts for equities, lowered expectations for bond market returns and a better understanding of how much investors, particularly younger ones, rely on these funds as their primary retirement savings vehicle.

Target-date funds contain a mix of assets, such as stocks and bonds and real estate, and automatically adjust that mix to be less risky as the target maturity date of the fund approaches. The idea is that retirement savers can choose a target-date fund that lines up with their own expected retirement year and then not have to worry about managing their money.

These funds have increasing significance for retirement savers, because employers can and do automatically invest workers’ savings in target-date funds, though the workers can opt out. Some 41% of plan participants invest in these funds, up from 20% five years ago, according to the SPARK Institute, a Washington DC-based lobbyist for the retirement plan industry.

Nevertheless, the recent tilt towards heavier equity holdings raises questions about whether workers are entrusting professional money managers who might end up buying equities at or near market highs—the S&P is up 189% since March 2009.

“Our concern is that this is happening after a pretty good run in the equity market,” said Lori Lucas, defined contribution practice leader at Callan Associates, a San Francisco-based consultant to institutional investors. “If it’s a reaction to the fact that some target-date funds haven’t been competitive then it is a concern.”

A more aggressive approach has worked for some funds in recent years.

The target-date fund families of BlackRock, Fidelity and Pimco have performed among the bottom half of their peers over the last three- and five-year periods, according to Morningstar. Meanwhile, more aggressive target-date fund families, like those managed by The Vanguard Group, T. Rowe Price and Capital Research & Management, ranked among the top half of their peers.

As of June 30, BlackRock’s three-year return for its 2050 fund was 10.6%, according to Morningstar, compared with 10.16% for Fidelity’s similar fund and 7.14% for Pimco’s comparable fund. Meanwhile Capital Research’s 2050 fund returned 13.27% and Vanguard’s fund returned 12.26% for the same period.

Furthermore, with average expenses of 0.85% per year, these funds charge more than the 0.7% in fees levied by the typical actively managed balanced fund, according to Morningstar. The firms’ pitch is that investors are paying more for peace of mind and a set-it-and-forget it approach to managing their retirement money. Workers willing to make their own mix of indexed stock and bond funds could pay considerably less. The average expense ratio for an equity index fund is 0.13% and 0.12% for a bond index fund.

“There is some kind of expectation that we are making these changes because of the equity markets or because of what competitors are doing and that is incorrect,” said Chip Castille, head of BlackRock’s U.S. retirement group.

BlackRock decided to make its changes after a four-year research project cast new light on how younger workers look at their plans. Previously, BlackRock’s funds were focused on making sure that investors had enough at retirement. But given that employees’ wages tend to be flat or go up in value slowly, like a bond, BlackRock wanted to make sure that the target-date funds were designed to provide greater returns during the course of employees’ lifetimes, Castille said.

That, along with the firm’s positive 10-year forecast for equities, resulted in the changes, he said.

With the BlackRock changes, which take effect next month, 401(k) participants with 25 years left until retirement will see their equity allocation jump to 94% from 78%. Investors at retirement age saw their equities allocation jump to 40% from 38%.

Executives at the firms note that the increases in equities all fit within the age appropriate risk for the investors, and that those investors close to or at retirement are seeing a very small bump in their equities weightings.

Also they note that they believe the changes will combat risks of not having enough money at retirement due to inflation and also address concerns that as people live longer they will need more in retirement.

Fidelity made its changes in January after it revamped its capital markets forecasts, which it revisits annually, said Mathew Jensen, the firm’s director of target-date strategies.

Specifically, Fidelity has lowered its forecasts for bond returns from 4% a year to 1% to 2 %, not including inflation. That along, with internal research that showed that younger workers were not saving enough, led to the decision.

“None of our work was saying ‘hey the equity markets did well, we should be in equities,” Jensen said. “It was about if we have a dollar today, how do we want to put it to work based on what our capital markets assumptions are telling us.”

Now an investor in Fidelity’s 2020 fund has 62% invested in equities, compared with 55% previously, while an investor near or at retirement is 24% in equities, up from 20%.

Pimco raised the equity allocation in its target date funds late last year by 5 percentage points for some funds and 7.5 percentage points for others. The equity allocation for those at retirement is now 20%, up from 15%, while those investors planning to retire in 2050 saw their equity allocation jump to 62.5% up from 55%.

“The decision was supported by our view that the global macro environment had become more stable post the financial crisis,” said John Miller, head of U.S. retirement at Pimco, in an e-mailed statement.

MONEY retirement age

How to Know When It’s Time to Retire

Birthday candles
Fuse—Getty Images

I’ve long argued that one’s quality of life should be a principal factor in deciding when to retire. At the same time, however, financial considerations can’t be ignored. With this in mind, here are three rules of thumb to help you decide whether you’ve reached the perfect age to retire.

1. Have you saved enough money?

The “multiply by-25″ rule is a popular tool that retirement experts encourage people to use to estimate whether they’ve saved enough money to stop working and, at least hopefully, begin a life of leisure.

Here’s how it works: Multiply your desired annual income in retirement, less projected annual Social Security benefits, by 25. If your savings are greater than that, then you’re in good shape. If not, then you may not be financially ready to retire.

For example, let’s say that Bob and Mary Jane estimate they’ll spend $40,000 a year in retirement. Using the rule of 25, they’ll need savings of $1 million.

A slightly different iteration of this is the “multiply by-300″ rule. This is the same thing, but it focuses on months instead of years — that is, take your average monthly expenditures, minus your monthly Social Security check, and multiply that by 300.

If your savings are greater than that, then you’re all set. If not, then you might want to continue working for a few more years.

2. Will you have enough income?

This question is related to the first one, but it attacks the issue from a slightly different angle. As such, it also has its own rule of thumb: the 4% rule.

This rule holds that you can safely withdraw 4% from your portfolio every year and still be confident it will last through retirement. Thus, to determine if you’ll have enough income in retirement, multiply your portfolio by 4% and then add in your projected annual Social Security benefits — to learn one potential problem with this rule, click here.

If the sum of these two numbers is enough to cover your expenses, then you’re ready to retire. If not, then it may behoove you to put off retirement for a while longer, as doing so should allow your portfolio to continue growing. It will also give your Social Security benefits time to accrue delayed retirement credits.

3. Is your portfolio properly allocated?

Finally, determining if you’re ready to retire isn’t just about how much you’ve saved, it’s also about how your savings are allocated into various asset classes — namely, stocks and bonds.

To be ready for retirement, you want to make sure that your assets are invested in as safe of a way as possible. To do so, it’s smart to steer your portfolio increasingly toward fixed-income investments like bonds as you approach your desired retirement age.

Experts use the following rule to determine the proper allocation: “The percentage of your portfolio invested in bonds should equal your age.” Thus, if you’re 60 years old, then 60% of your portfolio should be in bonds and 40% in stocks. If you’re 55, then the split is 55% to 45%, respectively.

While this may seem like it has less to do with the timing of retirement than the former two rules, the reality is that it’s of equal importance. As my colleague Morgan Housel has discussed in the past, one of investors’ biggest mistakes is to underestimate the volatility in the stock market. According to Morgan’s research, stocks fall by an average of 10% once every 11 months.

Suffice it to say, a drop of this magnitude would have a material impact on both of the preceding rules, as a 10% decline in your stock holdings would equate to a much smaller income under the 4% rule and, as a corollary, it would call for a delayed retirement date under the multiply by-25 rule.

And the impact of this would be even more exaggerated if the lions’ share of your assets were still in stocks as opposed to bonds. Consequently, the culmination of your strategy to bring your portfolio into accord with this final rule is a key step in determining the perfect age at which you’re ready to pull the trigger and actually retire.

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 retirement planning

8 Things You Must Do Before You Retire

s├ębastien thibault

Getting ready to retire? The moves you make in the months before you call it quits can smooth the way to a secure future.

After working diligently for more than 30 years—so you could set yourself up financially for your golden years—the glow of retirement is finally on the horizon. Alas, it’s not time to relax just yet.

Each day more than 10,000 baby boomers enter retirement. Yet only around one-quarter of workers 55 and older say they’re doing a good job preparing for the next phase, according to the Employee Benefit Research Institute. The last 12 months before you call it a career is especially critical to putting your retirement on a prosperous path. It’s time to get your portfolio, health care, and other finances in order so you can enjoy your new life.

THE TURNING-POINT CHECKLIST

12 Months Out:

Dial back on stocks now. You still need the growth that equities provide, but even a 15% market slide in the year before you retire can erase four years’ worth of income. Cap stock exposure to around 50% in your sixties, advises Rande Spiegelman, vice president of financial planning at Schwab Center for Financial Research.

Raise cash. Your paychecks are about to stop. So as you downshift from stocks, move that money into a savings or money market account to fund at least one year of expenses, says Judith Ward, T. Rowe Price senior financial planner.

Set a realistic retirement budget. Use the worksheet on Fidelity’s free retirement-income planner to list all of your fixed and discretionary expenses. Then use T. Rowe Price’s free retirement-income calculator to see how safe that level of spending is likely to be, based on the size of your nest egg and age.

6 Months Out:

Play out Social Security scenarios. You can claim Social Security at 62, but if you can hold off until 70 your checks will be 76% bigger. Tool around FinancialEngines.com’s free Social Security Income Planner to find the best strategy for you.

Figure out how you’ll pay for health care. Check if your company offers retirees medical, long-term care, and other insurance coverage. If you won’t get health insurance and aren’t yet 65 (when you qualify for Medicare), then compare plans offered via the Affordable Care Act at eHealthInsurance.com. Or use COBRA, where you can stay on your employer plan up to 18 months after leaving.

3 MONTHS OUT:

Begin the rollover process. In a small 401(k) plan, average fund expenses can run north of 0.6% of assets. You can cut those fees at least in half by shifting into index funds at a low-cost IRA provider. See if your plan provides free access to investment advisers to help you decide.

Sign up for Medicare. Nearing 65? You can enroll for Medicare up to three months before turning that age. Also, figure in supplemental plans to cover expenses that Medicare does not, such as dental care and prescription drugs.

Get a running start. Put your post-career itinerary into action. Research volunteer groups that you want to join, reach out to contacts if you plan to keep a hand in work, start a new exercise routine, or begin planning that big trip.

MONEY 401(k)s

5 Ways to Get Help With Your 401(k)

Most 401(k) plans now offer financial advice, often for free. Workers who take advantage of these programs tend to earn higher returns.

UPDATED: OCT. 7

When Chris Costello wanted to test his new online 401(k) advice service called blooom, he asked his sister if she would let him peek under the hood of her account.

What Costello found was typical of workers who do not pay much attention to their accounts—it was allocated badly, leaving her behind on her retirement goals.

In his sister’s case, she had put her funds in a money market account when the recession hit in 2008 and never moved them back into the market.

“It’s been like four or five years of recovery, and she had made like $10,” says Costello, who is co-founder and chief executive of blooom.

Overall, workers have more than $4.3 trillion invested in 401(k) plans, according to the Investment Company Institute. Yet many of the 52 million workers who participate in 401(k) are not good at making their own investment choices, experts say.

Studies show that workers who get investment advice from any source do better than those who receive no advice.

The difference can be more than 3% a year on returns or up to 80% over 25 years, according to a recent study by benefits consultant Aon Hewitt and 401(k) advice service Financial Engines.

“Left to their own devices, people either do nothing at all or pick poorly,” says Christopher Jones, chief investment officer at Financial Engines, the largest provider in the advice sector as ranked by assets under management.

So where can employees turn for guidance?

1. Start with your human resources department

You might already have access to advice, says Grant Easterbrook, an analyst who tracks online financial services for New York-based consulting firm Corporate Insight. He says even his own colleagues do not know they have access to free financial advice as an add-on benefit.

If you work at a big company, you might be one of the 600 clients of Financial Engines. Their free services include allocation advice and performance data. Other companies may employ consultants to give advice during open-enrollment periods or give access to calculators and other advice through the website of the 401(k) provider.

Employees at smaller companies might have to venture further to get help. “Three out of four participants don’t have access to an employer-based advisory tool,” says John Eaton, general manager of 401K GPS. “But there are a lot of DIY solutions out there.”

2. Get free advice on the Web

The Web offers a lot more these days than standard retirement calculators. You can obtain detailed advice on allocating funds in your specific retirement plan from several providers.

At FutureAdvisor and Kivalia, to name two, all you have to do is type in the name of your company and the system will generate a sample portfolio. You will then have to take that allocation advice and implement it on your own.

3. Pick managed funds or target-date funds

If you do not want to get too involved in the process—even to just pick a simple selection of index funds—your company will typically offer some kind of managed fund or target-date fund, a diversified fund linked to a future retirement date that gradually gets more conservative as you age, in their mix of choices.

When you allocate your money into these types of funds, you are buying the management expertise that comes with them, timed for a retirement date in the future. Sometimes that comes with stiff fees, so be sure to check the fine print, says Easterbrook.

“Absent engagement, it’s a reasonable approach to take,” adds Shane Bartling, a senior retirement consultant for benefit provider Towers Watson & Co.

4. Pay to have somebody manage it for you

Financial Engines has 800,000 subscribers who pay a percentage of their assets under management to monitor their 401(k) accounts and make changes accordingly. Others are GuidedChoice, which offers its services through providers such as ADP, Schwab, and Morningstar, which reaches 99,000 different plans.

Start-ups are emerging as well, either charging a flat fee such as $10 a month or a fee based on how much money you have.

401K GPS, which launched in 2011, operates primarily through investment advisers and small employers. There is also blooom, MyPlanIQ, Co-Piloted and Smart401k.

5. Do not opt out of auto-enrollment

The majority of people will still do nothing, but that may be a savvy option. Financial Engine’s Jones says some companies are making workers re-enroll in 401(k) plans and defaulting them into managed accounts to get them to diversify.

“When we do that, about 60% of population will stay in these programs,” says Jones. About 15% of active investors will opt out because they are already getting advice.

UPDATE: In the auto-enrollment section, the default allocation was corrected.

MONEY Financial Planning

How to Be Charitable…and Hold Onto Your Money

Bench in Yosemite Valley.
Bench in Yosemite Valley. Geri Lavrov—Getty Images

You can inexpensively plan for a donation from your 401(k) while retaining access to the account if you need it.

After they got married, I met with Luke and Jane, both 33, to think through how much they are going to spend and how much they are going to save. Luke is a gentle soul. It took him many years to find work that he could feel good about, and he currently has a good-paying job. He wants to keep working forever.

Part of him seemed shocked, although happily so, by his fortunate financial situation. He feels that he and his wife together make a lot more money than they need.

If he knew their finances were always going to be the way they are now, he’d give more money away. He gets a lot of satisfaction from financially supporting changes he feels are positive in the world.

One of the things that Jane loves about her husband is his philanthropic bent. But she’s also concerned they might give a lot of money away and then regret it. They plan to start a family within the next five years. How can they decide to give money away when they might need it later?

I left our meeting somewhat frustrated, because I didn’t have a great answer to their conundrum.

Meanwhile, I was working on a book about connecting all areas of finances with meaning. Previous authors have explored how to consciously spend or invest. But I wanted to write about not only spending and investing, but also taxes, estate planning, and insurance — all areas of personal finance.

The book idea sounded good. Then I had to write the thing. I know a lot about the subject, but when I got to the chapter about estate planning, I drew a blank.

After what I deemed an appropriate length of procrastination, I started writing the dreaded estate chapter. I found myself thinking about Luke. At the same time, I was reviewing everything I do when I talk to clients about estates, focusing on the angle of more meaning. More meaning.

Then some ideas started sparking.

Reviewing 401(k) beneficiaries, for instance, is something I talk about during estate planning meetings. Seems mundane, but wait, there could be something there. This is cool, I thought as I wrote.

What if Luke designated someof his 401(k) — or all, if he really wanted — to charity? Say, the National Parks?

It wouldn’t cost Luke a dime now. Plus, it’s totally revocable before he dies. If and when Jane and he have kids, he’ll revoke the designation. So during his critical period of family financial responsibility, he can leave his 401(k) to Jane and the family. But if it’s just Jane and him, setting aside some money in case of his untimely death is one answer to the conundrum — how to give more without regretting it.

Other details I uncovered when I wrote and researched this strategy: Larger, well-established charities are more likely able than smaller ones to handle a 401(k) donation. The theater company down the street generally won’t.

Setting up this designation doesn’t cost anything; Luke doesn’t have to talk to an attorney. Jane will have to sign off on it, but she’s fine with it.

Other perks? He might be able to designate what his 401(k) donation is used for, in the case of his death, and the charity might recognize him on a plaque at his favorite park. Charities vary on how they recognize these gifts. The recognition isn’t just for ego gratification; it encourages other people to give, too.

Luke doesn’t have to risk their retirement, and I’ve got a good idea for my estate chapter.

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Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

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