Amidst the more obvious lingering effects of a sluggish economy, such as slow job growth, decreasing incomes, low interest rates and shaky consumer confidence, there lurks a more insidious threat which, thus far, has largely been ignored. Inflation or the prospect of its resurgence has somehow remained under the radar; perhaps because the official measure, the Consumer Price Index (CPI), is still below historical averages, or perhaps because the government has done such a good job in convincing the public that inflation is not a real threat at the moment.
However, while declining paychecks, near-zero growth savings accounts are the tangible results of the current economic and fiscal environment, inflation is the ever-present hidden tax, which, in real terms creates a critical perception gap between what people see as their “nominal” income, that which they can see in their checking and savings accounts, and their “real” income they can actually use. And that perception gap can mean the difference between planning for a secure financial future and one that falls well short of your needs.
Getting the Most from Your 410(k) Plan
401(k) plans were established by Congress to encourage individual savings towards retirement. Offered through employers, the plans are generally available to eligible employees who are allowed to contribute a percent of their salary to the plan. In most plans, employees are given a menu of investment options that enable them to create a portfolio that is most suited for their investment preferences and risk tolerance.
Contributions are based on a percent of your salary up to a current maximum of $17,500 ($23,000 under the catch-up provision for people over age 50). If your income exceeds $110,000, there may be some additional limitations depending on how many lower paid employees participate in the plan.
Warren Buffet Retirement Planning Rules: What Would Warren Buffet Do?
Everyone can learn some valuable lessons from Warren Buffet, arguably the most successful investor of all time. Buffet has two strict rules about investing that anyone would find, well, frustratingly simplistic. The first – “don’t lose money,” and the second – “don’t forget rule number one.” But for Buffet, winning can only happen in the stock market. Obviously, when your money sits in low yielding savings accounts it is impossible to win. In fact, if your money is earning below two percent interest, you lose each day to inflation. Over a twenty year period, your dollars are worth just a fraction of what they were.