Recent data has shown that the average 401k balance is at an all time high of over $85,000. However, does this mean that we are financially prepared for retirement?

New research suggests that the answer may be ‘no’. A recent Deloitte survey found that just 12 per cent of plan sponsors reported that ‘most employees are or will be financially prepared for retirement.’ So, it’s perhaps no surprise that 401k plan sponsors are increasingly providing resources than ever to help us get the most out of our retirement savings. Keep reading to learn more.

Plan sponsors doing more to help 401k plan participants

The Deloitte survey found that employee retirement readiness continues to be a top priority among more than three-quarters (78 per cent) of 401(k) plan sponsors. As the chart below shows, there has  been a 7 per cent increase in the number of plan sponsors conducting retirement readiness assessments for employees. Almost a third (32 per cent) of sponsors now conduct these assessments compared to just a quarter in 2011. Deloitte say that ‘although retirement readiness may be the goal, plan sponsors recognize that education is the path to that end.’

In addition, there has been an increase in the number of 401k plan sponsors offering individual counseling. 61 per cent of plan sponsors now offer employees individual financial counseling and advice compared to just 50 per cent in 2012.

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“Plan sponsors clearly recognize the importance of saving for retirement and are working hard to provide their employees with the right tools to help them effectively plan for this next life stage,” said Stacy Sandler from Deloitte. “In fact, we found that nearly nine out of ten plan sponsors (88 percent) feel that enhancing their existing participant education strategies is somewhat or very likely to help their employees’ ability to be ready for retirement.”

The survey also found that plan sponsors who implemented automatic enrollment also saw an upturn in plan participation by employees. 86 per cent of plan sponsors who implemented automatic enrollment reported increased participation.

While 401k plan sponsors are doing more, many of us are simply not taking advantage of these services. Around two thirds of the plan sponsors surveyed believed that fewer than 10 per cent of their employees take advantage of the resources offered. Many experts believe that making information simpler and easier to understand will help us to ready ourselves for retirement in the future.

Do you take advantage of the educational resources offered by your 401k plan sponsor? Could they do more? Please share your thoughts in the comments below.

This is a guestpost from Mark at Online Trading Academy. If you have a website or blog in the finance niche and you would like to Guestpost on 401k Calculator, please contact us using the form above.

Are you saving enough for your retirement? If not, you’re not alone. A new survey has found that over a quarter of Americans are not confident that they are saving enough money for retirement with only one in eight people saying that they are confident they will have enough to live on once they finish work.

Here, we look at the results of this latest survey and why Americans are reluctant to save for their later years.

Americans increasingly unsure that they are saving enough

The survey by the Employee Benefit Research Institute (EBRI) has found that the proportion of Americans who are not confident about their retirement savings is at its highest level in 23 years.

The percentage of workers who are secure about their retirement future is the same as it was in 2011, with only 13 per cent saying that they are very confident, according to EBRI’s 2013 Retirement Confidence Survey.

The graph below shows the answers to the question: “Overall, how confident are you that you (and your spouse) will have enough money to live comfortably throughout your retirement years?”

Graph maker

The survey shows that almost half of all Americans (49 per cent) are either ‘not at all’ or ‘not too’ confident that they will have enough money to live on when they retire. This is compared to just 27 per cent in 1995 and 29 per cent in 2007.

The research also found that just 17 per cent of respondents are very confident that they are doing/did do a good job of saving for their retirement.

Jack VanDerhei, EBRI research director and co-author of the report, said: “The good news is that people really do understand how much they should be saving. But the bad news is that this has not yet translated into action.”

The survey also found that just one in fifty workers said that retirement is their most pressing issue, compared to three in ten workers who said that job uncertainty was their most pressing issue. And, more than half of workers (55 per cent) are dealing with debt problems and they don’t have much more left over for savings.

However, many Americans do understand that they should be saving something for their retirement. USA Today reports that more than 80 per cent of workers who are not participating in a 401(k) plan say they are willing to be automatically enrolled and would contribute 6 per cent of their income.

USA Today says that ‘most people underestimate what it costs to retire…and their funds may expire before they do.’

Are you confident you are saving enough for your retirement? Share your thoughts and advice below.

The Guardian newspaper reports that ‘experts routinely say the next generation of retirees will be the first to live more hardscrabble lives than their parents in old age in decades.’

Keep reading to find out more about the current gap between 401k savings and the amount that American workers need to retire.

Increasing the amount you save can help boost your retirement funds

Research has found that Americans have $9.5 trillion in retirement savings accounts. Writing in The Guardian, finance expert Helaine Olen says that while ‘it sounds like an enormous sum of money…in fact, it is nowhere near enough.’

The Center for Retirement Research has found that most people have saved less than $100,000 for their retirement. This figure rises slightly for those aged 55 to 64 who have saved a median $120,000.

However, Fidelity Investments predicts that a couple who retired in 2012 at the age of 65 will need $240,000 for medical expenses alone. And, recent research from the Deloitte Center for Financial Services discovered that 60 per cent of future retirees believe that all their savings will go to health care expenses.Olen says that ‘the 401k was not, as it turned out, “a pretty easy way to make a million bucks by the time you retire,” as Kiplinger’s magazine promised in the fall of 2007.’

So, what can you do to increase your retirement savings? One way is to increase the amount that you save into your 401k plan. CNN says that ‘how much you save matters far more than what your funds return.’

Many people save around 3 per cent of their salary. While this is better than not saving anything at all, many experts believe that you should be contributing between 10 and 15 per cent of your earnings into your retirement fund – depending on your age.

Christian Echavarria, founder and senior vice president of a leading 401(k) advisory firm, suggests that if you are in your twenties you should put away at least 6 per cent of your salary, or 10 per cent if your employer doesn’t match your savings.

You should then increase your contribution by as much as one percentage point a year. In your thirties, you should be saving 12 per cent and in your forties, 14 per cent. By the time you reach your fifties, you may need to save 15 per cent or more, and remember that you can contribute an extra $5,500 a year on top of the regular 401(k) max.

CNN reports that Fidelity Investment’s average 401(k) balance hit $77,300 at the end of 2012. This represents an almost 12 per cent increase from $69,100 in 2011, said the report from the company which looks after 12 million U.S. workers.

Keep reading to learn more about why your 401k balance is increasing

Rising stock markets and contributions led to higher retirement savings

“It is very encouraging to see that the retirement balances have completely bounced back from where they were during the height of the downturn and that participants have continued to have faith in the 401(k),” said Jeanne Thompson, Fidelity’s vice president for retirement insights.

Fidelity said that about two thirds of the gains could be attributed to rising stock markets. CNN reports that in 2012, all three major U.S. stock market indexes gained between 7 per cent and 16 per cent.

The remaining third came from plan holders increasing their 401k contributions. Thompson added that with traditional pensions becoming obsolete, especially for younger workers, the 401(k) continues to grow in importance. “For many people, the 401(k) is their primary retirement savings vehicle,” she said.

401(k)s in numbers

$77,300 – average 401(k) balance

2000 – the year that the average 401k balance was as high as it is now

12% – the increase in the average value of a 401(k) plan between 2011 and 2012

$5,890 – the average amount saved to a 401k plan in 2012

94% – the proportion of 401(k) participants that have a higher account balance then they had prior to the 2007 stock market plunge

82% – the number of employees receiving some sort of employer matched contributions

$3,430 – the average employer contribution to a 401k plan

401k balances increasing ‘across the board’

One of the main reasons why 401k balances are rising is that millions of savers are contributing more to their plan, says Jack VanDerhei, research director at the non profit Employee Benefit Research Institute. According to analysis of his 24 million 401k participants, 94 per cent of savers had a higher 401k balance than they did in 2007.

Employee contribution rates have risen in recent years, partly thanks to automatic enrollment and escalation programs made popular by the Pension Protection Act of 2006, VanDerhei said. This programme means that many workers are automatically enrolled into a 401k plan and a set amount is deducted from every paycheck. The contribution amount automatically increases each year, unless the plan holder chooses to opt out.

“Thus far, very few people who have been put in it have opted out,” VanDerhei said.

Has your 401k balance increased in the last year? What are you doing to maximise your contributions? Please share your thoughts and advice below.

Of course, the cost of living in the US has also risen significantly in the last ten years. Based on the Consumer Prices Index, a burger that would have cost you $3 back in 2003 will cost you $3.75 today. So, while the 401k contribution limits have risen over the last decade, have they actually risen in real terms? Our guide explains.

Have the 401k limits become more generous in the last decade?

In order for 401k contribution limits to remain fair, they would have to have risen by at least the rate of inflation. Anything less and you’d actually be able to save less for your retirement in real terms than you could before.

The red line in the chart below shows the annual 401k contribution limit in each year since 2003. The green line shows what the 4501k contribution limit would have been had the limit been increased by the annual inflation rate each year.

401k Limits Since 2003

[Inflation figures from US Inflation Calculator]

What you will notice from this graph is that the 401k contribution limit has consistently been increased above the rate of inflation. Even between 2009 and 2011 when the limit remained the same, you were allowed to save more for your retirement than you would have been had the limit simply changed by the rate of inflation.

What does this mean?

As the 401k contribution limit has risen faster than increases in the cost of living, the result is that the limit is more generous in 2012 than it was in 2003.

Had the 401k limit increased by the rate of inflation since 2003, in 2012 you would have been able to contribute $14,992 to your 401k plan. However, the actual limit was $17,000. So, over the last decade the government have consistently allowed you to save more and more into your 401k plan.

Are you making the most of this generous limit? Do you think the 401k limit should be linked to inflation? Tell us in the comments below.

There’s some great news if you’re looking to get the most out of your retirement fund, as we see next.

You’ll benefit from a higher 401k contribution limit in 2013

If you want to maximize the amount that you save into your 401k plan, the good news is that the contribution limit for your plan will rise in 2013. The contribution limit for 401(k) plans, 403(b) plans, and the federal government’s Thrift Savings Plan will increase from $17,000 in 2012 to $17,500 in 2013.

In the past seven years, the contribution limit to a 401k plan has increased significantly, from $15,500 in 2007 to $17,500 in 2013.

Garth Scrivner, a certified financial planner and senior investment counselor for StanCorp Investment Advisers in Albuquerque, N.M, says: “One of the best ways to take advantage of the increased limits is to perform a year-end checkup of your 401(k) and make sure that you are contributing the maximum allowable by law.

“One strategy to avoid the pain of increased savings is to consider giving your 401(k) contribution a raise at the same time your annual pay raise occurs.”

While a $500 rise in the contribution limit may seem like a negligible amount, it could make a significant difference to the size of your pension fund when you retire. As the Daily Finance says: “An extra $500 may not sound like much, but having the flexibility to boost your retirement savings could result in your having a lot more than $500 extra by the time you retire.”

No change to ‘catch-up’ limits

While the amount that you can contribute to your 401k plan will rise in 2013, you won’t be able to pay any more to ‘catch-up’ contributions.

If you are aged 50 or over, the catch-up contribution limit for your 401k plan will remain unchanged in 2013, at $5,500.

You’ll get more information on your 401k fees

If you pay into a 401(k) plan, 2013 is the first full year that you will receive quarterly and annual statements listing the fees charged to your accounts. You will also receive a document showing your 401k plan’s returns compared to a benchmark. This is all due to new Labor Department regulations that went into effect in 2012.

“Next year, the biggest changes will be a continuation of the new disclosure rules regarding fees that are just hitting participant statements now,” says Rick Meigs, retirement savings expert. “You are going to get an annual notice and you are going to start seeing more disclosure of fees and costs on your quarterly statements.”

You will be able to use these statements to evaluate whether the funds you are investing in are worth the fees you are paying. They will also help you make decisions on changing your investment funds if appropriate.

Will these changes affect your retirement savings in 2013? Let us know in the comments below.

If you’re thinking of taking the benefits of your 401k plan, you should consider the income tax rules in the state where you live.

For example, Your pension income is not taxable in New York state if it is paid by New York State or local government, the federal government, including Social Security benefits or certain public authorities. If you are over the age of 59 ½ or turn 59 ½ during the tax year, you may also qualify for a private pension and annuity exclusion of up to $20,000. This exclusion from New York taxable income applies to pension and annuity income included in your federal adjusted gross income.

So, which states are the most beneficial to people looking to take their 401k benefits? The map below shows those states that tax no pension income, those that tax all your pension income and those that tax a partial amount.

via chartsbin.com

As of 2009, there are only three states that do not tax pension income. These are Illinois, Mississippi and Pennsylvania. These three states exempt virtually any kind of income received from tax-deferred accounts, including pensions, 401ks, IRAs and qualified plans.

New York has stipulations for some government employees to receive tax-free pension income, but not all retirees.

If your pension is from the government or the military, then seven more states open up for consideration: Alabama, Hawaii, Kansas, Louisiana, Massachusetts, Michigan and New York.

States that tax all retirement income at relatively high rates include California, Connecticut, Nebraska, Rhode Island and Vermont.

The rules in the remainder of states are different. Most states collect taxes on some of your income – for example in some states you might just pay taxes on the first $20,000 of your pension and nothing on the rest. It is always worth checking out the rules on a state website or by contacting the local taxation department.

While it’s unlikely that you will set up a 401k plan yourself – you will probably use an outsourcing firm – it’s important that you understand how a 401k plan works before you set one up for your staff. So, here are three things to consider when you start a 401k plan at your company.

Decide what sort of plan you want

Jewell Lim Esposito, partner in the benefits practice group at the national labor and employment law firm Constangy, Brooks & Smith, LLP, says that one of the most common mistakes that companies make when setting up a 401k plan is not knowing why.

He said: “If it’s a tool to be competitive in the marketplace, then design the plan in such a way that employees are rewarded. If it’s a tool for retention, then build in safeguards and incentives for employees to stay at the company and in the plan. If it’s a tool to compensate management, then do the company contributions so that they flow through to management – in a legal way.”

While there are lots of different types of 401(k) plan, the two most common plans are:

• Traditional 401k plan – you contribute a percentage of each employee’s income or you match the amount your employee chooses to save
• Safe harbor 401k plan – similar to the above but under most safe harbor plans, mandatory employer contributions must be fully vested when they’re made. That means that any contributions you make to the employee’s 401k are theirs immediately

If you’re starting a new 401k plan, it pays to make it a good one. If you create a good quality 401k(k) plan it can help you to attract and retain good employees.

Budget for fees

You are likely to pay some fees for setting up a 401k plan. The fees will vary depending on the complexity of the plan, the size of your company and the number of employees you have.

Dennis R. Marvin, CFP and principal of Marvin Wealth Management in Cleveland, Ohio says that if you are a small business owner with a couple dozen employees you should budget for $1,500 to $3,000 to get a 401(k) up and running.

However, it may be less. Mr Marvin said: “Some 401(k) providers might waive or reduce the startup costs.” However, you can expect to pay administration fees, investment fees (which are deducted from the return from the investment) and maybe even individual service fees that each participant in the plan has to pay.

Make sure your 401k is compliant

Once your 401k plan is up and running it is important that it remains compliant with the law.

For traditional 401(k)s, there is annual testing in place designed to ensure that every employee can benefit from a 401(k). At least once a year you are required to test that the benefits of your 401k plan aren’t skewed in favor of Highly Compensated Employees (those earning over $110,000) over your non-highly compensated employees.

If the test fails, your 401(k) could lose its tax-qualified status, and all contributions and earnings would have to be distributed to all the plan participants.

Are you thinking of setting up a 401k plan or have you recently done so? Share your thoughts in the comments below.

Forbes recently published some suggestions for how to make yourself a safer driver as you get older. Here, we look at how you can enjoy a long retirement through safer driving and examine the rules for getting your driving license reviewed as a senior.

How often does a 65 year old have to get their drivers license renewed?

In many states, the rules for renewing your driving license change as you get older. Generally, you have to get your license renewed more regularly and, in many cases, you cannot renew your license by mail. You often have to apply in person and, in some states, you must take a vision test or even a road test before your license is renewed.

The map below shows the renewal term for US drivers aged 65 years old. For example, in California you have to renew your license every 5 years whereas in Florida it is every 8 years.

via chartsbin.com

In some states, the renewal requirements become more regular after the age of 65. In Hawaii you have to renew every 2 years if you are 72 or over, it’s 3 years for drivers aged 70 and over in Missouri and 2 years for drivers aged 85 and over in Texas.

If you want to keep driving in your retirement – and enjoying the benefits of your 401k plan! – it’s important that you take additional care. Next, we look at some tips for safer driving.

Safer driving can help your 401k plan

Forbes says that ‘a serious car accident can devastate an otherwise perfect retirement plan.’ It is a fact that your skills are likely to erode as you get older. Skills in reaction time and attentiveness can weaken when you drive less often, and with age.

So, to enjoy the fruits of your 401k savings, here are some tips to help you drive more safely.

1. Check your eyesight regularly

It is natural that your eyes won’t work as well as they did 20 years ago. If you have noticed things starting to go out of focus, don’t wait for an accident to get to the eye doctor. If you need glasses, get them, if just for occasions when you need to drive.

2. Don’t be in denial

Forbes recommends that if you have a near miss or other scare while driving you should go to the doctor for a checkup. They say: ‘Many age related driving problems could be addressed by medical intervention. You could also consider a driving safety course recommended by senior organizations like AARP.’

3. Don’t drive in difficult conditions

If you’re less confident than you were when you were younger, don’t drive in difficult conditions. Try not to drive at night or in bad weather such as a rain storm or snow.

Forbes concludes: “Simply being a bit more humble about your driving and accepting the fact that accidents become more likely as you age can go a long way. At this stage in life, you don’t need to rush and you’re not competing with anyone. Just take your time and enjoy the ride!”

For example, in the US, full retirement age (also called ‘normal retirement age’) had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.

The Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Deciding when you plan to retire will also affect your pension contributions. If you have a 401k plan, you will need to adjust your contributions depending at what age you plan to stop work. You may have to make ‘catch-up’ contributions (from the age of 50) if you plan to retire early. Or, you may be able to pay less if you plan to defer taking your retirement benefits until the latest point (age 70.5).

For most Americans, the normal retirement age is around 66 years old. So, how does this compare to other OECD countries? Our map below shows the normal retirement date in dozens of other OECD countries. Hover over a country to see the retirement age in that nation.

You’ll see from the map that some countries – Japan and France, for example – have a normal retirement age of just 60 years old. Others, such as Norway, ask people to work until the age of 67. How does your retirement age compare? Let us know in the comments below.