When you are constantly scanning the internet for information and news about 401(k)s and retirement readiness, you come across a lot of interesting tidbits that might not have enough depth to warrant their own story on 401(k) Specialist, but are noteworthy nonetheless.
In an effort to share a few of these recent nuggets, here’s a quick look at five that caught my eye recently.
What an extra $50 per month adds to retirement savings
The Motley Fool ran an article recently about the difference saving an extra $50 per month can make to a person’s retirement savings over 20, 30 and 40 years.
To illustrate this, the author assumed a 7% annual rate of return on investments. From the piece:
“If you regularly save for retirement, an extra $50 per month can considerably speed up the growth of your savings …Over 40 years, that extra $50 monthly contribution only costs you $24,000, but your final balance is $120,000 higher because of it.”
And a little more goes an even longer way:
“Someone who sets aside $200 per month for retirement will have about $98,400 after 20 years, $226,700 after 30 years, and $479,100 after 40 years. Bumping that contribution to $250 per month will leave you with $123,000 after 20 years, $283,400 after 30 years, and $599,000 after 40 years.”
Millennial Cheapskat… er, FIRE devotees
Then you have the other end of the spectrum, Millennials who are extreme penny-pinchers, saving up to 70% of their paychecks in an effort to retire early. These devotees of the FIRE movement (short for Financial Independence, Retire Early) skimp on everything (EVERYTHING), often living “a monastic existence” according to an Oct. 8 article in the New York Post.
The article tells the tale of 36-year-old “Daniel,” a Manhattan corporate attorney earning $270,000 a year who lives in New Jersey to avoid city taxes, dines on rice and beans, owns five threadbare suits for work, and layers up instead of turning up the heat during the winter.
The Post notes the FIRE movement “is gaining traction among Millennials who have had a taste of office drudgery and want nothing to do with it.”
So they save early and save big with a goal of very early retirement. “Daniel” is on track, according to the article. “He’s maxed out his yearly IRA contribution every year since he was 19, and his nest egg recently surpassed $400,000. He’s on track to retire in three years.”
3 in 4 Americans live paycheck to paycheck?
More than 74% of employees in America would experience financial difficulty if their paychecks were delayed for even a week, according to the 2019 “Getting Paid In America” survey conducted by the American Payroll Association (APA).
The survey asked respondents how difficult it would be to meet their current financial obligations if their paychecks were delayed for a week. Three-quarters said they would find it either “somewhat” or “very” difficult to meet their financial obligations.
Additional scary results from the survey show 32% of respondents would be interested in having access to some or all their wages on-demand as they are earned rather than waiting for payday. “On-demand wage payment is a new, emerging tool for employees that can help them better manage their day-to-day finances,” a release announcing the survey results says.
Yikes.
Student loan debt hurts Millennial 401k contributions
Two-thirds of high-income Millennials (defined as those with $100,000 minimum annual income or $150,000 household income) reported they had student loans, regardless of age, income or wealth, according to a new survey from the Spectrem Group. While this education-related debt is a stressor, the survey found they nevertheless place a higher value on saving for retirement than paying off student loans.
But that loan debt impacts how much they can put away for retirement. Per the survey, more than half of high-income Millennials agree (or strongly agree) that their education-related debt prevents them from contributing as much as they would like to their 401k or other employer-sponsored retirement program.
Missouri, Utah, Virginia tops at K-12 financial literacy
The non-profit American Public Education Foundation recently released the first-ever national report card on K-12 state-mandated personal financial education in all 50 states and the District of Columbia, and your parents would not be happy if you brought a report card with marks like this home.
The analysis found that more than two-thirds of states (34 states, or 68%) earned grades of “C” or less for financial literacy instruction, with just 16 states (32%) earning grades of “A” or “B.”
Drawing upon state legislation, graduation requirements, standards, and curriculum, the APEF report card grades each state’s financial literacy instruction. The report card only gave three states—Missouri, Utah, and Virginia—an “A” grade for mandating personal financial education across grades K-12 and requiring a stand-alone personal finance course for high school graduation.
Thirteen states received a “B,” 20 states received a “C,” and 11 states received a “D.” Four—Alaska, Washington D.C., Rhode Island, and South Dakota—received an “F” for failing to guarantee any financial literacy instruction in K-12 schools.
Those final four are putting retirement savings behind the 8-ball early!
More offbeat content:
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
