Perhaps inheritances don’t need to be taboo any longer though. Why, you may ask? Because they will be very rare.

Nobody is entitled to an inheritance. But I am anticipating that anyone who does receive one will be considered part of an increasingly rare few.

If you’re a gen x’er or gen y’er, there are a few huge trends going against your chances of ever getting an inheritance:

1. The Boomer Generation isn’t as Concerned with Sharing their Wealth

In a recent U.S. Trust study, only 49% of millionaire boomers said that it was important to leave an inheritance to their children when they die. That was the millionaires – aka the ones who actually have money. For those who don’t have money to give? We’ll get to them in a second.

Boomers think they’ve earned their wealth and have every right to spend every last penny of it. And they are probably right (until we end up financing their debt).

2. The Boomer Generation Doesn’t Really have Much Wealth to Begin with

A very small percentage of boomers will actually have money to give.

In a study done by the Employee Benefit Research Institute on the total average retirement savings per American,

• Only 15% of respondents aged 44-54 have over $250,000 saved
• Only 19% aged 55+ have over $250,000 saved.
• 62% of those aged 44-54 have under $100,000 saved.
• 60% over the age of 55 have under $100,000 saved.

These numbers jumped out at me the most though:

• 44% of those aged 44-54 have less than $10,000 in total savings.
• 29% of those aged 55+ have less than $10,000 in total savings.

And of those, there is a good chance many of them are in debt.

3. Boomers are Living Longer

Boomers will live longer than any previous generation, on average.

The average life expectancy for someone born between 1919 and 1921 was 56.4. The average life expectancy for someone born between 1949 and 1951 is 68.1. That’s a 12 year jump. 12 additional years of living funded by savings is not cheap.

I don’t expect the boomers will take well to the fact that they may never be able to enjoy a relaxing retirement as their parents did. They will retire. And any savings they have left will quickly vanish.

4. Don’t Forget the Rising Cost of Health Care

Health care inflation has outpaced overall inflation in almost every year for the last 60 years. As boomers live longer, it’s going to cost a lot more to keep them alive and to put them into nursing homes. The average cost of a nursing home is over $50,000 per year and climbing. What little savings they did have could be depleted or turned into debt.

5. The Boomers Love Debt & Don’t Know how to Invest

The generation that raised the boomers (our grandparents) believed in a thrifty lifestyle that was not financed by debt. Education was cheap,  housing was cheap, and pensions were aplenty. They could live off their pensions while holding on to any additional savings for emergencies and then to give as an inheritance.

All the boomers did were spend, spend, spend. They rebelled against their parent’s frugality. They are the generation that fell in love with mortgages, credit cards, and two fancy cars in every driveway.

Now that the retirement burden has been shifted to individuals, as 401K’s vs. pensions are now the norm, the boomers have shown little savvy in growing their savings through investments. There just won’t be any inheritance to bestow.

What Inheritance?

Instead of the “how much?” taboo subject around inheritance, perhaps the new taboo subject will be  “who is supposed to pay off all your debt for medical/nursing care?”. That WILL become the new inheritance standard.

As uncomfortable as it may be, it’s one that is best discussed sooner than later.

Inheritance? Forget it. 5 Reasons why Gen X & Y won’t Get Inheritances is copyrighted by 20somethingfinance.com without consent to republish.

Indeed, it is a metric that you should have a vague knowledge of. But probably not for the reasons you are thinking.

It can be a bit misguiding.

Before I get into why that is, let’s first go over how to calculate your net worth, in the traditional sense.

How to Calculate your Net Worth

Calculating your net worth is a bit like calculating your personal budget.

On one side of the equation, you have the good stuff. With budgets, it’s income. With your net worth, it’s your assets.

On the other side of the equation, you have the bad stuff. With budgets, it’s expenses. With your net worth, it’s your liabilities.

What goes into each column?

Assets

• Your assets typically consist of:
• Home Value: How much your home is worth on the market
• Cash: Checking account, savings account, cash
• Retirement Accounts: Total value of your 401K’s, IRA’s
• Non-Retirement Investment Accounts: personal investment accounts
• Depreciating Assets: Market value of your vehicles and other personal property (excluding home)

Liabilities

Your liabilities consist of:

• Mortgage/Home equity loan debt
• Student loan debt
• Auto loan debt
• Credit card debt
• Any other outstanding debt

What is Net Worth?

The definition of net worth is the total value of what you are worth on paper with the categories listed above as guidance. After you’ve done that:

Net worth = total assets – total liabilities

Mint.com will email you your net worth on a weekly basis, if you’d like to make it really easy.

But is it something you should even worry about?

Why it can be Misguiding

Many people think that net worth is synonymous with their ability to retire. To do that opens up potential for disaster.

Why?

You need somewhere to live. Unless you plan on drastically downgrading your home when you retire or move to a much cheaper part of the country or world, your home equity is completely irrelevant to your ability to retire.

Also irrelevant is the value of your vehicles, jewelry, and other personal property – unless you plan to sell them all.

And yet a third irrelevant category, if you plan to retire early, is your actual retirement accounts! If you plan on withdrawing before the age of 59 and 1/2, you’ll be heavily penalized and taxed in many cases. When you turn 59 and 1/2, absolutely, these should be considered assets. But until then? I wouldn’t do it.

Do not equate net worth with retirement unless you plan on making drastic changes when you retire.

What is Net Worth Good for then?

Not much, to be honest. It’s an over-rated financial word.

However, there is a TON of value in mapping out your assets and your liabilities in order to gain actionable financial insights.

For example, if after mapping out your assets and liabilities, you realize that you are up to $20,000 in a savings account and you have $10,000 in credit card debt that you are paying 12% interest on, that can be an incredibly valuable insight to take action on.

Does that insight have anything to do with “net worth”. No.

Calculating your net worth just for the sake of calculating it might have some value if your goal is to make your peers at the local yacht club feel insignificant. Otherwise, the value is in mapping out your assets and liabilities.

What is Net Worth? is copyrighted by 20somethingfinance.com without consent to republish.

But it often creates some tough decisions for people.

When you’re dealing with credit card debt with APR’s above 10%, it usually is an easy answer: pay off the debt. You’re rarely going to consistently be able to make over a 10% on your investments.

When you’re dealing with a very low APR, for example, student loan debt of 2-3%, the answer is also pretty simple. Invest. It’s fairly simple to earn more than 2-3% via conservative investments in the market.

But what about when you’re right around that 5-7% mark? That’s when it gets tricky.

Reader, Lisa B., write in:

“I have about $15,000 worth of student loan debt at 6.25% interest rate. I am 27 years old and getting married this year. My partner is 29 years old. We do not have any retirement savings, but we also do not have any other debt besides my student loans. We will have about $1500 a month in disposable cash starting in the fall. Is it better to put the money towards my student loans or towards a retirement plan?”

It’s a tough question that many of us have or will come across.

On one hand, being 27 and 29 and not having any retirement savings is a bit of troubling red flag. Sure, Lisa and her partner have time to catch up, but if they don’t start a retirement savings discipline now, when will they?

On the other hand, 6.25% is a rather enticing guaranteed investment return in today’s volatile market.

I thought I’d pass it along to the readers to comment to get a variety of opinion.

Should Lisa:

1. Focus on paying off the student debt first, before saving for retirement?
2. Focus on retirement and pay off the minimum monthly payments on the student debt?
3. Do both at the same time?

What’s your take?

Related Posts:

• Retirement is Dead
• At what Age do you Expect to Retire?
• Hidden 401K Fees

Pay Off Student Loan Debt or Save for Retirement? Help a Reader! is copyrighted by 20somethingfinance.com without consent to republish.

Not the pie-in-the-sky estimate. I’m talking about when you REALLY think you’ll be able to retire (for reference, the average retirement age in the U.S. is between 63 and 64).

You know how I feel about retirement. If you don’t, check out my retirement is dead post. In it, I highlight how I think that traditional 65 and done retirement is a thing of the past and we’d all benefit by expecting and preparing for the “new retirement”.

So, three questions for you, and I’ll throw in polls for good quantitative measure:

1. At what age do you expect to partially retire (the “new retirement”)? This is when you become financially independent and scale back from a full-time gig out of necessity to pursuing personal interests.
2. At what age do you expect to completely retire? (No work at all)
3. Where did you come up with those numbers?

I have a pretty ambitious goal of being able to hit “new retirement” by 35 – meaning, being financially able to pursue income in whatever way I’d like due to zero debt & significant savings built up. Where did I come up with that number? I’m close to being debt free right now, however, I have a lot of work to do in the savings department. Whether I do hit my goal of 35 remains to be seen and even if I hit that financial point, it doesn’t mean I’d quit my day job, only that that option would be made available to me if I decided to.

If it does, you’ll be the first to know…. well… maybe the second or third.

As far as fully retiring, I don’t think I would do this until my 70′s, if ever. I really think that in order to fully retire the U.S. would have to move to universal health care, or at least offer it to people above a certain age.

I’d love to hear everyone’s thoughts, and here are the two polls:

Related Posts:

• Pensions vs. 401K’s
• The First Steps to Stop Dreaming & Start Retiring
• The Average Retirement Savings Per American

At What Age do you Plan on Being Partially & Fully Retired? is copyrighted by 20somethingfinance.com without consent to republish.

Definition of Retirement: sit around the home, read the paper, play some golf, drive around town in a Cadillac, catch the early bird special at the local diner, watch some TV, go to bed, and do it all over the next day. Mix in an occasional RV or European vacation to take some photos and all was right in the world.

Retirees had a simple financial formula for achieving that dream:

1. Hit age 65.
2. Stop Working.
3. Collect your pension check, replacing the majority of your annual income before retirement.
4. Collect your Social Security benefits to fill in the rest.
5. Rely on your retiree health benefits from your employer.
6. Collect your medicare benefits to fill in the rest.

Those days are all but over. Why?

1. Pensions are dead – our generation won’t get them, and if you are lucky enough to get one, good luck keeping most of it.
2. Most individual investors fail miserably at investing. With 401K’s, any hopes we have of retiring are dependent on a.) you becoming a good, patient investor, b.) the market performing well (just look at the last decade’s miniscule returns if you aren’t scared yet).
3. Social security benefits will not deliver what they have in the past (Social Security has historically replaced 40% of income). That is, if one of our political parties does not successfully push through the privatization of Social Security first, which would result in an impact similar to shifting pensions to 401K’s – that is, placing more burden on individual investors to get it right.
4. Retiree health benefits are about as rare as pensions will be for our generation – almost non-existent.
5. For better or worse, medicare as it stands is under attack by Republicans. According to the non-partisan Congressional Budget Office, Ryan’s medicare altering proposal would shift more and more burden to individual retirees as it encourages a move to individuals buying health insurance through the private sector and is tied to general inflation vs. medical inflation. Whether Ryan’s plan passes or not, the U.S. has a budget problem that is going to encourage shifting more and more burden to retirees over the years. We can’t escape that.

Traditional Retirement is Dead

Scary stuff. If you don’t start hoarding a significant amount of your income (50%+), average double digit returns, and stay in impeccable health… retirement, in the traditional sense, is all but dead to you.

The system itself was designed when we were primarily a blue collar society and our bodies could not take working much beyond age 65. As we have shifted more and more towards and information based economy, perhaps we simply don’t need the 65 and quit formula. We may not have a choice.

You simply won’t have have the same entitlement programs to fall back on and private sector employers won’t foot your bill either. For better or worse, IT’S ALL ON YOU.

I’m not taking a political stance here. I’m trying to warn you that you will really have to look out for yourself starting yesterday and get a little bit lucky if you want to have a traditional retirement in today’s political and economic climate.

Is that such a bad thing?

The New Retirement

Perhaps my views will change as I age. I just can’t imagine a life centered around doing nothing.

It sounds like preparing for death.

When I’m 65, 70, and beyond, I want to live it up!

I can’t imagine NOT working in some capacity. Sure, at the age of 70, I don’t want to be slaving away in a factory line somewhere or on a computer (I almost said ‘pushing paper’) for 40 hours a week, but I do want to pursue creative interests, do meaningful work, and engage with others.

And if I have to take a part-time job to grab partial health insurance, so be it.

I think this will be the norm for our generation. And it might not be all that bad.

Shifting Our Mindset About Retirement

Retirement is all about situation and mindset.

I view it as a gradual or potentially even sudden move from following monetary pursuits to following personal objectives.

In other words, achieving enough financial freedom to do what you want in life.

There may be some peaks and valleys along the way that force you to seek a meaningless job part-time that offers health insurance or force you to take a full-time job in order to replace lost retirement savings.

Maybe retirement for you is becoming debt free and quitting your corporate 9-to-5 at age 40, working part-time at a Starbucks for health insurance, and gaining the bulk of your income from passion-related multiple income streams.

Does that sound so bad?

The New Retirement Formula

Your mileage may vary, but I think the new retirement will look something like this:

1. Become debt free.
2. Pursue interests that result in income.
3. Supplement health insurance through income or part-time work with health benefits.
4. Enjoy the nice added benefit of Social Security, Medicare, or other entitlements, but certainly don’t count on them.

Notice the lack of retirement age or ‘stop working’ from the equation.

What Steps Can you Take to Prepare for the New Retirement?

Maybe I’m wrong, but I just don’t see our society moving to a heavier benefit entitlement system and our current system isn’t even sufficient for our generation to realize a traditional retirement. As a result, the traditional retirement is dead. In order to be prepared for and embrace that:

1. Stop worrying, it only causes inaction and a victim mentality. Start acting.
2. Attack debt with a vengeance. The sooner you can become debt free, the sooner you will be able to achieve the new retirement.
3. We’ve lived like many of our parents who have a cushy pension and who will get full Social Security payouts. We need to stop that. Keep your living expenses low. Consider downgrading or selling your vehicles and buying a tiny home instead of a larger one.
4. Save like you never have before, particularly outside of your retirement accounts. Still put significant funds into your retirement accounts, but realize that those accounts are designed for the traditional retirement model. If you withdraw early, you will be penalized. The new retirement will require you to have a larger savings base outside of retirement accounts that you can withdraw from when needed.
5. Start figuring out what your marketable hobbies and creative interests are and start pursuing them. Whether you achieve the new retirement or not, you should consider this.
6. Become multi-skilled so that you can be flexible and recession proof.

Whether you believe that traditional retirement is dead or not, these actions will only improve your financial standing and freedom to pursue your interests in life.

Traditional & New Retirement Discussion:

• Which retirement – old or new – sounds more appealing to you?
• Do you believe that the traditional retirement system is dead?
• What is your new retirement vision?
• How are you planning on preparing for the new retirement?

Traditional Retirement is DEAD! Now What? is copyrighted by 20somethingfinance.com without consent to republish.

It comes from reader, Sandi, who writes in,

“I just started a new job and in 3 months I’ll have to decide between a regular 401K or a Roth 401K. The employer contributes 5% salary to either. I’d never even heard of a Roth 401K before. What are the major differences? Are there more benefits to one over the other?”

Great question, Sandi!

I believe that the choice between an IRA and 401K is pretty clear cut. However, the choice between a Roth retirement account and a traditional retirement account is always much more subjective.

I’ll discuss what considerations should go into the decision right after covering the basics.

What is a Roth 401K?

Roth 401K’s are relatively new in the world of retirement accounts. They were first introduced in the United States in 2006, but their adoption has been a little slower. According to U.S. News, only 29% of companies in the U.S. have the Roth 401K option. If you do, consider yourself lucky.

A Roth 401K combines many of the benefits of the Roth IRA and the Traditional 401K.

You have the same 401K maximum contribution as a Traditional 401K while still having the tax now/no tax in retirement benefits of a Roth IRA.

Still, there are some important distinctions to be made and a Roth 401K might not be the best for everyone.

Are Roth 401K Matching Contribution Tax Free?

This thought crossed my mind a few years ago when I found out my employer was adding a Roth 401K option: “Wow, I can get post-tax matching contributions to a Roth 401K! More free 401K match dollars!

It’s probably the most common Roth 401K misconception there is.

Unfortunately, Roth 401K matching funds are not post-tax dollars.

When you open a Roth 401K, your employer will open a separate traditional 401K. All matching funds that go into that traditional 401K are pre-taxed, meaning that you are not taxed now, but you are taxed on withdrawals in retirement.

What is the Maximum Employee and Employer Roth 401K Contribution?

Same as the Traditional 401K, the maximum Roth 401K contribution for employees is $17,000 in 2012, or $22,500 for those 50 and over.

The maximum employer contribution for a Roth 401K is also the same as the traditional – $50,000 (combined with employee contribution) or 100% of the employee’s salary.

Roth 401K or Traditional 401K?

Getting back to the original question, there is no right answer on the Roth vs. Traditional 401K question.

Many financial pundits recommend young professionals go with the Roth because they claim you’ll be in a lower tax bracket now than when you are in retirement due to lower earning power now. As such, they argue that it’s to your benefit to get taxed now (Roth) vs. being taxed in retirement (Traditional).

Sounds great in theory, however, I think it’s a flawed argument.

There is an assumption that you will have so much saved for retirement that you’ll actually be earning more income on your retirement account withdrawals than the income you are making right now. That’s not always going to be the case. In fact, for many, the opposite will be true. Painting broad brush statements like that are dangerous.

Others argue that tax rates will only go up in the future, so you might as well pay lower taxes now. This is another dangerous assumption to make. Short-term budget shortfalls may fuel this thought. However, when you look at the historical income tax rate, taxes are lower now than at any point since 1931! The long-term trend has been downward. And with one political party making it their entire platform, that may never change.

Roth 401K vs. Traditional 401K Chart

To understand the differences between the two, it’s often most easily observed through a chart.

As you can see, Roth and Traditional 401K’s are very similar, with the exception of the pre/post tax difference. Unfortunately, only you can answer the question of whether or not you want to be taxed now or in retirement.

It’s a lifestyle choice based on your long-term vision for your finances.

Can’t figure it out? You could always split your contributions between the two!

Roth 401K Discussion:

• Does your employer offer a Roth 401K?
• Do you invest in a Roth 401K over a Traditional 401K or vice versa? Why?

Roth 401K Basics is copyrighted by 20somethingfinance.com without consent to republish.

You have the account all set up for you, hopefully you get a 401K match, you click a few buttons to select from your options, and you can wash your hands of it.

But what do you do with all that money outside of your 401K?

0% of My Peers Invested Outside of their 401K?

I have an interesting story that led to me putting together this post.

I decided to teach a ‘personal finance for beginners’ course at work. Attendance was maxed out at 30 people – most of whom were in their twenties and eager to learn more about personal finance (awesome, by the way). An interest in investing bubbled up from the questions from people attending the course, while discussing 401K’s.

I then asked the question, “how many of you in this room invest outside of your 401K?”.

<dead silence>

Zero people raise their hands. ZERO!

Before I asked the question, I thought I might get a minority response, but not this. For color, we’re talking about a group of 30 very highly educated, high income, white-collar professionals (almost all without children or home expenses), and ZERO of them had even taken the first step to investing on their own. Shocking! (continued below)…

How I Got Started Investing

Ever since I graduated, I’ve thought to myself that investing was a necessity. What else would I do with my additional income so that I could make it work for me and so that it could evade the corrosive effect of inflation over time?

About a year after graduation, I decided to make the leap. I first read some books, including Personal Finance for Dummies (highly recommended), read up on investing in Kiplinger and Smart Money magazines (both are great), watched a lot of Jim Cramer (not recommended at all), started up an account with Scottrade, and I was off to the races.

It was mostly a disaster. I was burned on a number of investments, and my overall strategy has changed quite a bit since then. I’ve lived and learned from my mistakes (of which there’s been plenty).

And then EVERYONE got burned by the recession and subsequent market nosedive.

Despite all that, sitting on cash for the rest of your life is not really a viable option. With inflation, you will get beat. Your cash will lose its value, and you’ll be left behind. Everyone seems to know that. But, as evidenced by my discovery, something is preventing people from even getting started in the first place.

I didn’t dive too deeply into the “why not?” in that meeting, but I have been incredibly curious ever since. I generally understand the barriers to getting started, but I wonder if one stands out amongst the others as being the main limiting factor.

Once I find out what the biggest barriers are, I’d like to explore each and how to overcome them.

Investing Discussion:

• What are (were) the main barriers preventing you from investing outside of your 401K?
• What fears do you have of investing?
• What are you doing with the money you have saved?

Take the Poll!

Related Posts:

• How to Make a Stock Trade
• What is a Mutual Fund?
• Zecco Review
• TradeKing Review

Zero of My Peers Invest Outside of their 401K?! Why Aren’t You? is copyrighted by 20somethingfinance.com without consent to republish.

I have worked at employers who have matched anywhere from 2% to 7% of salary, and even one that matched in an entirely different way – by percentage of my personal contribution. At the same time, my wife’s employer matches based on an ambiguous end-of-year profit sharing model (which has resulted in a 0% match the past two years). They get an F – in consistency and generosity.

Whatever your employer matches, you should know what the typical 401K match out there is for the following reasons:

1. It can help you compare total compensation, or real wage, when comparing employer offers. Those employers who skimp on your 401K match are likely to skimp in other areas as well.
2. It can signal whether or not your current employer is offering a good match that you should not be overlooking while employed by them.

At the same time, vesting schedules can vary widely and should be considered as well.

So let’s dive into the averages so that you can see where you stand.

Average 401K Match

According to the Bureau of Labor Statistics, the typical or average 401K match, can vary widely. Their 2010 National Compensation Survey, found that of the 61% of employers who offer a 401K plan (a sad statistic in itself):

• 49% of employers with 401K plans match 0%
• 41% match a percentage of employee contributions between 0-6% of salary.
• 10% match a percentage of employee contributions at 6% or more of salary.
• The median is a 3% match.

Well, that’s pretty depressing.

401K Matching Vesting

What paints an even grimmer picture on this data are the vesting schedules. Only 22% of 401K matching vests immediately. Also at 22% are ‘cliff’ vesting schedules. These plans require you to stay with an employer for a minimum number of years, or you don’t get any of the match. And 47% have a ‘graded’ vesting schedule – plans that slowly vest the match with every year of service until you hit 100% (usually at 5 years).

On top of that, 32% of employers don’t even allow you to contribute to the plan unless you’ve been with an employer for a minimum of a year. You heard that right, you don’t have the ‘privilege’ of contributing YOUR money to YOUR retirement until after a year at many employers.

401K Matching Takeaways

Considering that most 401K plans are horrible after looking at this data, pensions are going extinct (if not entirely dead already), and Social Security is in question, it’s really every man/woman for his/herself when it comes to a stable retirement. Here is what I take away from this data.

1. If you get a match, take advantage of it.
2. If you are in the minority who get a match on over 6% of your salary, GET THAT FULL MATCH EVERY YEAR.
3. If you don’t get a match at all, open up and contribute to a Roth IRA or Traditional IRA (I house both with TradeKing). Of course, always get free 401K matching dollars before contributing to an IRA. And you might even want to consider a new employer if you’re not getting a pension.
4. Regardless of match, if you can make the maximum 401K contribution in a given year, do it. The 2012 401K maximum contribution is $16,500.
5. If your 401K fees are high or you don’t have many investment choices, voice your concern to your HR/benefits department in a constructive manner.

401K Match Discussion:

• How does your 401K match ‘match up’? How does the plan work and what is the match?
• How does your employer’s vesting schedule work?

Does your 401K Match Up Against the Averages? is copyrighted by 20somethingfinance.com without consent to republish.

Did you know that your employer-sponsored 401K plan is able to charge you fees beyond the management fees of the funds that you invest in? It’s the dirty little secret of 401K plans. Up until a few years ago, I had no idea that these 401K fees existed. I was under the impression that my employer covered all fees as a benefit to me. I was wrong.

You need to do your homework on this one, because avoiding unknown fees, when compounded over decades, can have a profound impact on your retirement plans. According to the U.S. Department of Labor 401k fee website:

“Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.”

That’s worth repeating (and bolding): 1 percent in 401K fees can reduce your retirement balance by 28%.

Where do these fees come from?

401K Fees Fall into 3 Categories

1. Plan Administration Fees
2. Investment Fees
3. Individual Service Fees

Where can you See your 401K’s fees?

1. Your plan administrator should be able to provide you with a list of fees.
2. Your annual account statement should list all associated fees.
3. Your 401K should have a summary plan description (SPD) that separates what you pay and what your employer pays. This is given to you when you begin your plan and every 5 years.

Where Am I Going with this?

Not knowing what your 401K is costing you prevents you from taking frugal action. If you know your fees, you can:

1. Determine if it makes sense to switch to roll old 401K’s into your present 401K if it’s cheaper.
2. Determine if it makes sense to roll old 401K’s into an IRA that may be cheaper.
3. Determine if it makes sense to just get your employer’s match in your 401K and then work on contributing to a Roth IRA or Traditional IRA instead.

Final Thoughts on 401K Fees

This is definitely a case where a little bit of homework (half an hour or so) can literally shave or add years to your working life. So get motivated to look into this and seek professional advice if you need to!

401K Fee Discussion:

• Did you know that your 401K charged you fees beyond trading fees and mutual fund management fees?
• What kind of fees have you been paying to use your 401K?
• Does this make you want to switch to an IRA?

Related Posts:

• Roth 401K vs. Traditional 401K
• 401K Maximum Contribution
• Traditional & Roth IRA Maximum Contribution

The Hidden 401K Fees that Can Crack your Nest Egg is copyrighted by 20somethingfinance.com without consent to republish.

You work more hours, you make more money. Sometimes more money than you’ll ever need. Without purpose. That is the rat race.

Whether you garner an hourly wage and see a direct monetary impact from working more hours, or you’re on salary, receive bonuses for hitting certain landmarks, or improve your promotion prospects and generally ascend in your career quicker – you work more hours to make more money.

There may be a handful of workers who just can’t get enough because they genuinely love the work more than anything else in their lives. But when push comes to shove, it takes a very rare breed of worker to actively choose sitting in an office for another 10-20 hours a week versus taking that time to do something they love outside of work (when money, job security, and promotional opportunities are 100% identical either way).

It’s all about the money. And that, in itself, is the rub. Work more, earn more. When enticed like this, humans are kind of like rats at the feeder bar, except we never get full and the pellets keep coming.

We know that there is more to life than making money, lets all agree on that point. But at what point do you stop and say “enough is enough!”?

The Traditional American Career Equation

The traditional American career life-cycle equation has always looked something like this:

More work hours now (with less life balance) for more reward in the future

IS GREATER THAN

Less work hours now (with more life balance) for less reward in the future

Reward, in this equation, is whatever you want it to be: more stuff, more security, less work. In other words, you are sacrificing the present for the future. Isn’t that what the entire stereotypical American retirement is based on? Slave away for 45 years so that some day you can entirely leave the workplace behind, drive a Cadillac, golf every morning, watch your bank account swell to a level I you’ll never be able to spend, and dominate your Bingo circuit?

….. well, that sounds…..kind of, sort of….. awful.

Subscribing to this model is also a hell of a dangerous bet. The only time we are truly guaranteed our health and livelihood in this world is RIGHT NOW. There is no guarantee that we’ll be around when we reach the ‘golden’ payoff years of this model. At the same time, there is almost 100% certainty that if we do reach this end, we’ll have poorer mental and physical health than we do in the present. That free time that we worked so hard for will be less enjoyable than the free time that we could have had earlier in life. And many become so conditioned to overworking that they simply can never slow down, even when it’s painfully obvious that they could and should.

Fear – And Overcoming It

What keeps us stuck in this model? The only conclusion I can come to is FEAR. Fear that we’ll end up homeless and begging on the street. Fear that we don’t have someone to guide us along the path and hold our hand as we explore a different way. Fear that we won’t be able to support a family. Fear that others will get ahead of us financially. Fear that Social Security won’t be there to save us. Fear that the stock market will deplete our retirement savings. Fear that inflation will eat away at our savings. Etc., etc. etc.

Some of these fears might have some merit. But should they have enough power over you that they force you to submit and completely give up your present life for more money?

How can you overcome these fears? It’s not easy and I struggle with this myself, but I think the answer looks something like this:

1. Realize and accept that the traditional career life-cycle is only a construct, and it might not be the best one for you.
2. Figure out how much money you actually need to maintain a base quality of life. Countless studies have shown that once you achieve the basics of food, water, shelter, clothing, health, a little security, and experiences, money can do little advance your happiness levels. You might find that what you need to maintain the basics is FAR less than what you’ve been earning at 20 or 30 hours, let alone 60 or 70. It’s OK to save towards the future, but saving money for needs and hoarding money without purpose are two completely separate things.
3. Earn what you need. If you choose to work more hours when you’ve already earned beyond what you need to maintain that base quality of life, understand that you are actively choosing to trade your guaranteed present for an uncertain future. If you’re OK with that trade and absolutely love your work more than anything, then keep working. If you’re not OK with that trade, it’s time to draw the line and simply stop working the additional hours. If you find that there is no way you can continue in your present job at the reduced hours, you may have to make some tough decisions.

Execution is always the hardest part.

Knowing when to Step Away from Work Discussion:

• How have you drawn the line in the sand to know when to stop working?
• Are you OK with sacrificing the present for the future (the traditional American retirement)?

Related Posts:

• The U.S. is the Most Overworked Nation in the World
• Can Money Buy Happiness?
• I Hate my Job!
• Stop Dreaming & Start Retiring – Now!

3 Steps to Pull Away from the Rat Race & Work Fewer Hours is copyrighted by 20somethingfinance.com without consent to republish.