Natch, there’s still room for improvement … The USA Today article says most people are saving about three percent when they should be saving about 10.  But a bump in savings is always nice to see.

Does 10 percent seem high to you? Well, here’s one way to get there. If you’re saving three percent now, increase your savings next month to four percent. See if you notice a difference. If you can live with the change, wait another month and then raise it to five percent. Repeat this as long as you can. This slow and steady approach was the technique I used to increase my contribution from three percent to 10 percent, and you know what? I didn’t even notice the difference.

As for my savings, my 401K is doing better than it was in 2008, when it lost 40 percent of its value in one year. It’s nice to see it growing month after month now that I’ve FINALLY rolled everything over and set up my contributions correctly following January’s system error mess.

How is your 401K doing? I’d love to hear from you about it. Let me know!

The post 401K Savings Up – Nice Work! appeared first on The Budgeting Babe.

Before I share the details of this week’s disaster, you should know that my employer has an AMAZING retirement plan. It’s one of the reasons I took this job. The organization automatically contributes five percent to an employee’s retirement fund, whether the employee is contributing or not (I’ll call this the “automatic option”). Then, on top of that automatic five percent, my employer also matches contributions up to five percent (the “employer match option”). Which means that if I contribute five percent of my salary (“my contribution”), my employer contributes ten percent  via the automatic option and the employer match option. However, employees are not eligible for any employer contributions until after completing one year of service.

I started contributing ten percent to my retirement (my contribution) on day one at this job, knowing that any employer contributions would not kick in until after my first year. Since then, I’ve only looked at it sporadically and always only through the web site of the company that manages the account vs. through my human resources (HR) intranet.

Apparently, according to HR, I received an e-mail in September notifying me that I needed to manually change my contribution election within our intranet site in order to receive the employer match option. (I needed to do nothing to get the automatic option.) I do not recall ever seeing that e-mail. It’s possible that it went into the trash. I did not manually change my election  within our HR system – and so, as of September 1, I was still saving ten percent of my income to my retirement, but all ten percent was coded as a “voluntary unmatch” contribution. (Is this all still making sense?)

Basically, since I missed the September email, I did not manually click a button to “turn on” the employer match contribution of five percent. I thought it would automatically kick in, just as the “automatic” five percent did. In our new employee orientation, the powerpoint and documentation we received said “contributions start” on your one year anniversary. Nothing in orientation, nor on the web site, nor in our open enrollment literature said anything about manually updating our benefits database.

Which brings me to a point about open enrollment. I missed it. And since I had posted a big to-do about remembering to make open enrollment deadlines on this blog, I was kind of embarrassed to admit here that I had missed the deadline. (I wrote down the wrong frickin’ day in my calendar.) I was OK, though, because I read somewhere that all my elections from 2010 would remain the same if I missed the cutoff date. That ended up not being true, as I found out last week when I tried to use my flex spending account – my health care flex spending account rolled over to $0.00. I was totally bummed about that so I went into the system to see what other elections I waived by not participating in open enrollment. That’s where I discovered that my retirement contribution had gone to $0.00 as well.

I mention this because had I gone through the system to make changes to my contribution in October, I would have updated my profile and started qualifying for my employer match option months ago.  Instead, I missed an opportunity to inspect my contributions, and so, my entire contribution stayed in the  ”voluntary unmatch” category for 2011.

As it turns out, because of some complicated IT issue, since I did not manually update my contribution to reflect the right codes online in September, nor during open enrollment in October, the HR system made an error and reset my retirement contribution to zero dollars. And here I was in February, looking at my January paycheck and learning about it for the first time. I was confused and angry.

I called HR and through many emails over several days, they figured out the system error. I went into our intranet, clicked on the correct options, and worked with HR on a fix for February so that my contribution from last month is made as soon as possible. (Well, everything but the shares I would have purchased in January – I’m just purchasing them in February. We figured out that the loss will be a matter of ~$10 or less.) Since it was technically my fault for not updating the system, I’m fine with the solution HR came up with to ensure my January savings are put into my retirement account.

What I am not fine with, though, is that I missed out on the employer match option for five months because I didn’t check a box in a database, especially since I didn’t know I needed to manually update the database/system. I’m thinking of writing a letter to HR requesting that my employer make the payments for September through January. It doesn’t sit right with me that the purpose of offering the option is to reward employees who are saving, yet because I didn’t check a box I can’t get the money. I was saving. I was eligible. And I wasn’t aware I needed to click a box. Yes, it is my fault for not reading the e-mail. But I never saw the email. And no one from HR ever followed up with me to tell me what I needed to do. Therefore, I think the employer should consider reimbursing me. I’ll let you know what I hear back after I write the letter.

It’s just amazing to me what I have missed out on and how many headaches have been caused because I didn’t keep up with my paperwork. Get one date wrong on your calendar, miss one e-mail, and you can miss out on thousands of dollars, tax benefits, and unrealized income. In one day I went from feeling really good about my retirement to feeling like a total dunce. It’s a blow to my financial confidence, and a reality check for the future. No matter how thorough I am about making investments, if I don’t keep up with maintenance, things can go wrong.

So I’m going to set up reminders in my Outlook calendar to check my incoming pay stubs (which are all electronic, probably the reason I wasn’t checking them in the first place), check for changes to my contributions annually, and read every email and letter from HR thoroughly. I should have been doing this in the first place, but my previous employer did everything automatically so I never had to do anything but update my contributions at my own discretion. I will take this as a lesson learned – maintain a robust relationship with all your accounts to keep them from turning into a financial drama or a comedy of errors.  Hopefully I can get back on good terms with my retirement accounts as soon as possible.

The post My Retirement Account Becomes A Financial Drama appeared first on The Budgeting Babe.

In reality, there was no fortune teller, no whipping wind, no crystal ball.  Instead it was just me and a little woman named Michelle in a hot empty office overlooking Lake Michigan, working over a laptop, some forms and two Blackberry phones. This was my retirement planning check-in, and my glimpse into my future.

When I changed jobs last year, I brought my investments with me. Then my new job offered me the option to open a new retirement account. I never rolled over my old accounts during the past year because I wanted to wait and see whether the two accounts were growing (or shrinking) at similar rates. After a full year of nearly identical growth, I thought it was best to combine the accounts to avoid paying double fees. Also, I learned that the University automatically created another retirement account for me on my first year anniversary, creating a confusing sea of paperwork and adding to my growing list of retirement accounts.  Through my employer, I set up a  free meeting with Michelle, a retirement counselor, so she could walk me through the process of rolling over my old accounts. I’m glad I did.

Michelle told me there wasn’t really much difference between my old retirement account and the new one; mostly just a tax code difference on the employer side – non-profits offer 403B and for-profits offer 401ks. Other minor differences are explained here. The kicker is that both accounts were invested in the same fund (for the most part) with the same company. The only difference is that the accounts had two different target retirement dates.  Michelle was happy to combine all my accounts into one, but she asked me if I preferred one or the other.

I chose one of the funds (even thought it was hard! I sure don’t want to be working until I’m 66 but I wanted to select the more aggressive option). Turns out that somehow I wasn’t paying double fees on the accounts so that shouldn’t have been a concern, but it will be nice to have everything in one account vs. two for the next time I have to roll over a retirement account.

The bigger concern, however, is a pension/cash balance plan sitting vulnerably tied to my previous employer. The company stopped making contributions about 18 months ago, and though the money is fully vested and in my name, I’m worried it won’t be there much longer. Michelle said I was right to worry.  I spoke with a friend this weekend who said I’m better off taking the penalty, getting the money out sooner rather than later, and using it for a downpayment or other investment. I need to research those options but at this point it seems like a good idea.

After we discussed my options, Michelle called the customer service line and helped me through the process to roll over my old retirement account. She spoke to customer service reps, provided account numbers, and explained everything to me while we waited on hold for the next rep on the line (we talked to multiple people). She emailed me forms to fill out, answered my questions, and provided me with information to reach the manager of that pesky pension plan.

I walked out of the meeting with a little more of a roadmap to organize my retirement funds, and a lot more knowledge. She may not have worn a turban, but in the end Michelle was probably more helpful than some fake crystal ball.

The post Gazing into the Retirement Crystal Ball appeared first on The Budgeting Babe.

That said, I wanted to take a second to respond to a comment from a reader that I think is worthwhile to share because it can help you all to learn a little more about me, my level of financial knowledge and my approach to writing the blog. Mely5862 said:

After thinking about your post, I became mildly irritated. You have a blog read by tons of people and that has, I believe, been featured in articles and magazines. A finanical babe right?

Yet, computer savy as you are, you have not been following your 401K declines on the that company’s website? I check mine at least weekly and once it began to drop I decreased my contribution. Sure I lost alot and you may end up ahead of me when the market recovers but I knew what to expect on my W-2.

The first point she makes is about my level of financial knowledge. I hope everyone reading The Budgeting Babe does understand that I am a public relations professional with a degree in communications and fine arts (and minors in marketing and Spanish). I slept through Econ 101 in college and never took a finance class. I’m not sure I ever took any math classes beyond “math for the communications major.” So, I’m actually not a financial babe in that I work with the industry, nor am I someone with any sort of financial aptitude. I’m a finance newbie fumbling my way through the ups and downs of balancing a checkbook like a lot of other folks. I have a hard time not paying bills late and until recently kept track of my accounts in a homemade excel spreadsheet (just started using Mint.com but I’m still scared of it). I don’t own real estate, and I’m still paying off my student loans. Most days I’m still proud of myself that I have a growing savings account. I still use Google to look up finance definitions when I read the NY Times. But I’m well on my way to being in a good financial place as I continue my journey to learn about finance here.

With regards to my knowledge of my own 401K, did I know the value was declining? Yes. I used to check my 401k once per month, but given that the market was declining rapidly I stopped on the advice of some folks who know finance better than me. They were right. I typically freak out when I see the ups and downs. Had I been checking, I would have had a greater desire to reduce the contribution. Which runs counter to the goals I set for myself. And despite being very upset about the negative change, I’m glad I kept my contributions in. It’s better for the long run.

That said, I know a lot of people who have contemplated decreasing their 401K contributions – like I have (I even posted about it last year) – during this time despite their better judgment. In creating the post, part of the writing was just a reaction to seeing a number on paper. But I wanted to share that frustration with other financial newbies and offer a place to dialogue about it. I want people to know that it’s OK to be frustrated and scared right now. There’s an emotional reaction that I don’t always feel is addressed when financial gurus say “just don’t look at it,” and I believe there’s some release in talking about those emotions. I’m not the only one feeling it, nor is the girl in the cube next to me or the 30-year veteran who’s losing her retirement. It’s important to talk about it. Or cry about it. Or freak out about it… whether you’re paying attention to your monthly statements or not.

But despite all the emotions, my actions are in the past and I have faith that the market will come back and pay off my patience sometime in the next 30 years. It’s a risk I’m willing to take.

The post Response about my W-2, and a note for Mely5862… appeared first on The Budgeting Babe.

I have been doing my best to keep contributing to my 401k while avoiding looking at it, as is the advice most personal finance gurus share. But when my W-2 informed me, like a gossipy schoolgirl, that I had plunked $7,500 of my salary into my retirement fund last year, my stomach dropped. I knew that my fund had not grown much in the past year. And so, I went online to check out what happened to my $7,500 in savings from the year.

And here’s the answer: it’s gone. For now.

On January 1, 2008, my 401k was $19,101.60. During the following 12 months, I contributed $7,359.99. My employer contributed $3,359.99. Yet on December 31, 2008, my 401K’s official balance was $19,978.78. My personal rate of return on the account was -38.8 percent for the year.

I felt like someone punched me in the gut.

Do you know what else I could have done with $7,359.99? I do. In fact, it makes my heart ache to think about all the things I could have done with that money — hard-earned compensation that caused me to work late nights and weekends and sacrafice personal relationships. Here are a few ways I could have spent the money:

- Put it into my downpayment fund and been that much closer to buying a home
- Taken a month-long vacation to several foreign countries
- Upgraded my apartment
- Given my mom and dad their long-awaited vacation to Italy or Alaska
- Gone back to school
- Sent my younger brothers to study abroad
- Used it to buy a car
- Created a scholarship fund
- Held a wedding for me and Brian (or at least half of one)

The list goes on, and on, and on. While I know it’s important to stay positive, is it OK if I tear up for a while at how right now it feels like I threw $7,000 out the window, and how far away I feel from my financial goals?

The post Why my W-2 Makes me Cry appeared first on The Budgeting Babe.

OK, I already know the answer is an emphatic “LEAVE IT IN!” but seriously, if I can put another 5% of my salary into a savings account while my 401k is tanking, why wouldn’t I? I’d bump it back up to 10% when things start looking up…

Enlighten me and give me some confidence, smarty pants-ies!

The post Should I reduce my 401k contribution while the economy tanks? appeared first on The Budgeting Babe.

Don’t be dumb — don’t cash out your 401(k)
By Laura Bruce • Bankrate.com

We all do dumb things now and then. Sometimes it doesn’t really matter, but other times we find ourselves days, weeks or years later wishing we’d made a different decision. Cashing out a 401(k) before retirement will likely have you kicking yourself some time in the future.

A survey by Hewitt Associates, a human resources consulting firm, shows that 45 percent of employees take a cash distribution of their 401(k) plans when they leave a company. That’s long been a problem with twentysomethings as they job hop and cash out of small-balance 401(k)s. But the Hewitt survey uncovered a more-disturbing fact — 42 percent of workers age 40-49 take the money and run. How stupid is that?

They’re not cashing out paltry, insignificant amounts, either. Nearly one-third of employees with balances between $10,000 and $20,000 say, “So long, 401(k); show me the money!”

“These people are serial consumers of their 401(k),” says Lori Lucas, director of participant research at Hewitt. “It was somewhat surprising to see people age 40-49 cashing out. It’s surprising to see people closing in on retirement who aren’t preserving their wealth.

“People in their 40s may think they have balances that aren’t worth preserving. That’s not a good way to think. Even in your 40s there’s still plenty of time for small balances to grow much bigger by retirement. They may have felt the need to use the money for other reasons. Maybe they left one job and didn’t have another to go to right away. But some people look at it as a bit of a windfall and use it to buy those things they’ve wanted — like a big screen TV.”

Serial consumers of 401(k)s have plenty of opportunities to break the piggy bank. The federal Bureau of Labor Statistics says the median number of years that all workers have been with their current employer is four. That number is referred to as “tenure” by the bureau. The median tenure of workers age 25-34 is 2.9 years and 9.6 years for workers age 55-64.

Read the rest here.

The post Keeping your 401K appeared first on The Budgeting Babe.