May 11, 2006 2:04 pm US/Central
401(k) For Dummies: America's Best Savings Account
by Bennett Cunningham
DALLAS (CBS 11 News) ―
It's the best savings account you can get your hands on. Yet 66% percent of Americans don't use it. The 401(k).
Endless rounds of golf… sail around the world… oh, and maybe a ride in a hot air balloon… life is good in retirement, because you saved all that money in your 401(k), right? Maybe not.
A report in Smart Money® Magazine shows a person in their 40s earning a modest living needs $100,000 in their 401(k) today to be on target for retirement. Margie McClanahan, an accountant in Dallas, thinks a 401(k) is the "number #1 savings" vehicle for consumers.
Yet, according to an industry report, only one third of Americans participate in their 401(k) retirement plans. Even though a 401(k) is tax free until you retire, some employers match part of what you save, and a 401(k) can reduce your taxable income. But an estimated 25% of workers don't save because they can't afford to contribute and don't want to tie up their money.
But 401ks don't have to be confusing. Brenda Watson Newmann co-wrote the book "401(k)s for Dummies. She thinks people don't save because "it looks scary." In order to save, Newmann says, "don't think of it as depriving yourself. Think of it as a gift for your future."
And saving money won't break your bank. For example: if you make $2,000 a month, after taxes you are left with $1,400 dollars. Now if you contribute 6% to a 401k, you take home about 1,300 dollars but end up with $120 in your 401k.
Remember, it's never too late to start! Newmann says, "You shouldn't panic, you can only do what you can do."
Here's what to do:
- Sign up for your 401(k) or demand your employer start one.
- Then contribute the most you can--up to $15,000 a year.
- Cut back on expenses: cancel a magazine subscription, pack your lunch, and rent a movie instead of going to the theater.
Remember, everyone gets old. Don't run the risk today of not having money tomorrow. And if you think, "I have my Social Security--why worry?" You might, but do you really want to count on that?
(© MMVI, CBS Broadcasting Inc. All Rights Reserved.)
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