This Week In Your Wallet – June 28, 2011
This morning I posted on my Facebook: “What do you do when the day ahead looks scary full?” It was one of those nights. You know the ones, when you can’t sleep because your mind is racing with all of the things you have to get through in the morning – and you’re just wondering what’s going to slip through the cracks.
I suppose that’s why the results of a survey out last week from Northwestern Mutual showed three out of four of us struggling so much with the pace of life that we’re finding it tougher to stay focused on long-term goals – including planning for retirement and achieving financial security. But that’s not the only area in which we’re losing ground. Sixty-two percent of respondents said they could use more self-discipline when it comes to their diet and exercise regimen, followed by financial (47%), work (20%) and family (18%).
So what do you do about it? Well, to start, shut down the Internet. I don’t mean forever, but I find it really difficult to concentrate with Tweets flying and emails popping in. Organizing guru Julie Morgenstern, who wrote a book called “Never Check Email In The Morning,” once told me that she advises setting aside at least an hour of time when you can focus on what you decide is important — not what others call your attention to. Second, slow down. My husband’s mother famously said: “The busier I am, the slower I force myself to go.” It works. Slow down and fewer things get left to the sidelines. Third, make lists. If you’re not a list maker by nature – and I am not – writing down everything you need to accomplish and then crossing it off can feel tedious. But it works like little else.
And as far as those retirement/financial goals are concerned? Don’t just go for the whole enchilada. The number one strategy that works, according to the Northwestern Mutual study, is “setting small interim goals” – 67% of the survey respondents said this is a key step to making sure a long-term goal is achieved. Thus saving $1,200 this year becomes saving $100 a month becomes saving $25 a week becomes saving just a few bucks a day. As Mike famously said in A Chorus Line, “That I can do. I can do that!”
When The Joneses Aren’t So Annoying
I’m a little late to the party on this one – but I found it inspiring and hope you will as well. SmartMoney.com ran a short item on a comparison tool ING has had on its website for about two years now. It asks you questions about your life, marital status, work, savings, salary, etc. Then it shows you how you stack up when it comes to how much you have saved inside and outside of retirement accounts, as well as a number of other financial factors. Generally, I’m not so high on The Joneses. I don’t like to feel that just because my neighbor lined his driveway with new pavers, I should feel inclined to do the same. But I like anonymous tools like this. If you find you’re behind the rest of your peer group (by age, earnings, etc.) it’s a little zing that perhaps you should be saving a bit more. If you find you’re ahead, you can feel good about your efforts. You’ll find it at ingcompareme.com.
A Little Bit of 401(k) News
Two stories about 401(k)s caught my eye over the past two days. The first, by Christine Dugas in USAToday, talked about the fact that many plans are now adding options to provide for lifetime income – i.e. to take your balance when you get to retirement and convert it into a pension-like paycheck that will last as long as you (and, if you choose, your spouse) do. As Dugas notes, these are relatively new (24% of employers have them) and getting in is a two-step process. First, your employer has to offer this option. Then you have to move your money into one.
The question: Is this something you should consider? Consider it, absolutely. Whether you pull the trigger will depend on how much you have saved and whether the option your particular employer puts in place is a good one. But keep in mind, these are not all or nothing options. I like the idea of figuring out a way to convert part of your retirement stash into a paycheck large enough to cover your fixed expenses while leaving part in the market to provide you with what will likely be necessary growth. This is just another heads up that these things are coming your way – so pay attention. You can read her full story here.
The other 401(k) story came from Jason Zweig in the Wall Street Journal. Over the weekend, he asked the question: Is borrowing from your 401(k) ever the right thing to do? If you’ve been watching Money 911 on Today, you know I don’t like this idea. I like money that can grow tax deferred to continue to grow tax deferred – and I fear the scenario where you have an outstanding loan and leave (or lose) your job and then have to pay the money back inside 60 days or face taxes and penalties. Yet, Jason – whom I worked with for years and personally know to be scary smart — writes,” “Crazy though it might seem there is a case to be made for borrowing from your 401(k) account, at least in certain circumstances.”
So what’s the scenario that might work? Believe it or not, to pay down high interest rate credit card debt. Here’s his example: “Say you borrow $10,000 from your 401(k) at 4.25% for a one-year loan to pay down a credit-card balance carrying an interest rate of 13.4%. If you had left the money intact in your 401(k), you might have earned a 5% return on a 50/50 mix of stock and bond funds, giving you $10,500 after a year. With the loan, your interest payments go back into your 401(k), so when it matures in a year you will have returned $10,425 to yourself. In exchange, you have not only eliminated $1,340 in credit-card interest charges, but prevented them from continuing to mushroom. Here, taxes don’t matter, since paying off either loan requires after-tax dollars.”
I get it. The math makes sense. But here are my caveats: Do not do this if you don’t have another way of paying off the loan in a pinch. Do not do it if you feel, for whatever reason, that your job isn’t particularly secure. And only borrow as much as you need – not a penny more. Here’s the full story if you want to read more.
Have a great week!
Jean
