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Five habits of 401(k) millionaires

Five habits of 401(k) millionaires

Although a million dollars may seem like a daunting figure, especially if you haven’t been diligent about saving, there’s good news: you don’t have to make $1 million to save $1 million.

Many individuals who are saving for retirement aim to have at least $1 million in their retirement accounts when they exit the workforce. But retirement savings aren’t a one-size-fits-all matter. Instead, the amount you’ll need depends on a variety of factors, including your lifestyle, specific financial obligations, future plans and health needs.

According to a recent study, the number of 401(k) plans with a balance of $1 million or more hit 180,000 in the first quarter of 2019, marking a 35% increase from the end of 2018. While the circumstances of these 401(k) participants may have varied on the margins, all were average workers who followed a handful of basic principles that enabled them to help successfully prepare for retirement. Below, we explore five of these principles, including how you can apply them to your financial plan.

Start Early

A powerful tool when it comes to saving for retirement, compound interest refers to the interest you gain on a loan or deposit. And the best way to take advantage of compounding is by saving and investing early on. In fact, a recent study showed that the average 401(k) millionaire started saving early and remained invested for at least 30 years.

As you may have read in some of our other pieces, compounding in positive markets – even at a modest rate of return – can allow you to increase an initial investment over a period of time.

Maximize your contributions

In 2022, employees can contribute a maximum of $20,500 to their 401(k) accounts, not counting any potential employer match. Depending on your income, maxing out your contributions may be more challenging earlier in your career. However, studies have found that the average 401(k) millionaire contributed a minimum of 10% to 15% of their income year after year.

Make the most of your employer’s match

Many employers offer to match their employees’ 401(k) contributions up to a certain percent, and failing to meet this match is like leaving “free money” on the table. Even if you’re not in a position to max out your 401(k) contributions, you should consider contributing the minimum amount necessary to earn your employer’s match.

Not convinced? According to one study, 28% of contributions in the average account of 401(k) millionaires came from their employers. Each year, employer contributions increased the average 401(k) millionaire’s savings by almost $4,600.

Choose the right asset allocation

A 2000 study by economists Roger Ibbotson and Paul Kaplan found that asset allocation accounted for more than 90% of the variation in a portfolio’s return over time. If you’re a long-term investor, you know that asset allocation has been one of the most important determinants of your investment earnings over time.

Investing in growth-oriented investments can help significantly boost your retirement savings through the years. While this strategy may not be appropriate for everyone, research has shown that the average 401(k) millionaire invested roughly 75% of their portfolio in growth-oriented investments such as equity mutual funds.

Avoid cashing out early

As most 401(k) millionaires know, staying the course and maximizing your earnings are crucial in helping meet your long-term retirement goals. You should resist the urge to cash out early even if you change jobs. Instead, consider rolling your current 401(k) balance into your new employer’s 401(k) plan or another option. Early withdrawals come with tax consequences and other penalties. It’s also best to avoid abandoning your investment strategy in turbulent market conditions. Many investors who cashed out in a market downturn missed part or all of the subsequent recovery.

NEXT STEPS:

  • Assess your progress. If you haven’t checked your 401(k) balance in a while, now is a good time to do so. Understanding where you are can help you determine a sound strategy to attempt to reach $1 million in savings by retirement.
  • Revisit your investment strategy. Is your asset allocation consistent with your retirement savings goals? Your invest­ment mix should reflect your growth expectations and risk tolerance, as well as your time horizon until retirement.
  • Make necessary adjustments. Depending on how far you are from your retirement goals, you may need to increase your monthly contribution rate or adjust your investment mix. Working together, you and your financial advisor can navigate these decisions and help you work toward the retirement you envision.

Sources: cnbc.com; fidelity.com; Ibbotson, Roger G. and Kaplan, Paul D., Does Asset Allocation Policy Explain 40, 90, 100 Percent Of Performance? Financial Analysts Journal, Jan/Feb 2000, Vol. 56, No. 1. Available at SSRN: https://ssrn.com/abstract=279096

Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 ½ a 10% federal penalty tax may apply. Diversification and asset allocation do not ensure a profit or protect against a loss. Holding investments for the long term does not ensure a profitable outcome. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

 

How different types of insurance help manage risk

How different types of insurance help manage risk

Find the right mix of coverage to live with confidence.

Let’s face it: Life involves risk. That’s why risk management is a crucial part of a long-term financial plan. When it comes to investments, we’re talking diversification and asset allocation. When it comes to your family, health, property and income, we’re talking insurance.

But what kind of coverage do you really need? Take a deeper look at four useful types of policies.

Life insurance

Perception: It’s just for people with dependents.

Reality: It can be used as a flexible planning tool that provides liquidity, and the survivor benefit is generally not considered taxable income.

Though term life insurance is designed to replace the income of a breadwinner if the unthinkable happens, what’s called a “permanent” policy has an investment component that can potentially be helpful for things such as keeping the family business functioning or paying estate taxes after death.

Disability insurance

Perception: The risk of long-term disability is too minimal to worry about.

Reality: Sadly, more than 25% of 20-year-old workers will become disabled before reaching retirement age, the Social Security Administration estimates.

If you’re out of work for an extended period, the lost income can easily reach six figures or more. Even if your profession isn’t strenuous, you may not be in the clear – cancer is the second-leading cause of claims, according to insurer Sun Life Financial.

What about that government safety net, you say? Workers who pay into the system are eligible to apply for Social Security disability insurance, but the average benefit in December 2019 was just $1,258 per month.

Considering all of this, it’s best to get a professional opinion about whether you can afford the consequences of going without this type of coverage.

Long-term care insurance

Perception: Coverage isn’t needed – doesn’t Medicare pay for that?

Reality: Help with the tasks of daily living, similar to care provided in a nursing home, isn’t covered by Medicare.

Such aid is a common necessity. Seven out of 10 people turning 65 in this day and age can expect to use some form of long-term care, according to the U.S. Department of Health and Human Services, though only one out of 10 has planned ahead to pay for it.

Securing this type of policy allows you control over the situation, making sure your future needs will be met without creating an undue burden for your loved ones. Though coverage can be expensive, there are federal and state tax breaks available for qualified plans.

Umbrella insurance

Perception: Only people who are very wealthy need it.

Reality: If you often entertain at your home, own a dog, have a teenage driver in your household or ride Jet Skis in your spare time, you might want to prepare for a rainy day.

This basically is an extra layer of liability coverage above the limits on your home, auto and other policies – protection just in case you or a family member causes harm to someone else. For example, if your dog attacks a visitor and your home insurance covers up to $300,000 of liability, then you’re on the hook for anything above that amount if the injured party sues. If you don’t have the money, your wages could be garnished.

Time for a fresh perspective

Facing risk isn’t easy, but the protection you can gain for yourself, and your loved ones, can make it all worth it. That’s why you should review your insurance needs once a year and after each big milestone in life. You can always call on your advisor to coordinate with other professionals in determining the proper policies and coverage for you.

All expressions of opinion reflect the judgment of Raymond James, and are subject to change. These policies have exclusions and/or limitations. The cost and availability of life insurance and long-term care insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Insurance offered through the Raymond James Insurance Group, an affiliate of Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. Asset allocation and diversification do not guarantee a profit nor protect against loss.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Make data privacy a priority in 2022

Make data privacy a priority in 2022

As our lives become more digitally integrated, our data becomes more valuable.

Often, data collectors say that the vast amount of information they take in is tightly secured or anonymized before it is packaged and resold. However, MIT researchers discovered in 2018 that individuals could be identified by combining two anonymized data sets covering the same population. A 2019 series from The New York Times went further, exposing the risk to privacy on a massive scale if a major tech firm’s anonymized location data was stolen and cross-referenced to publicly available property records.

As long as consumers’ concerns about privacy remain limited, there is little incentive for companies to cull their data collecting habits. When buying a new smart device such as a phone, tablet or computer or using a new service, look into its commitment to privacy. The market for such devices is growing, but at the moment they tend to be on the premium side of the product spectrum. Expect that to change as this topic gains traction.

In the meantime, here are some best practices to help minimize the amount of your information that data collectors can access.

Turn off personalized ads

Many of the largest ad space sellers, particularly those providing tech services like email and social media, now give the option to depersonalize your advertising experience. They’ll still collect the information, but there are some limits to how specifically targeted the ads can be. This is becoming a battleground topic in the tech industry, as companies that don’t rely on ad sales are finding privacy to be a strong selling point.

Skip the quiz

That silly online quiz to help you determine which fast food mascot you are may be mining serious information about you. Though it’s a bad practice, many online accounts rely on security questions to establish your identity, questions that are easily snuck into online quizzes.

Go digital and shred the rest

Your home or driveway may be advertising your wealth, making your mailbox and your trash a target. Despite the well-publicized thefts of user data in recent years, an online account is in many ways more secure than an unlocked mailbox, and generally less personal. Privacy experts recommend making the switch, and when you do get mail that contains information about your health, finances or family, make sure to shred it before you toss it.

Know what health data is being collected

The Health Insurance Portability and Accountability Act, or HIPAA, protects the information shared with your care provider. There is no similar regulation for health data you share with your fitness device manufacturer. It’s worth your while to make sure you understand what information is being collected and for what purposes. Go into the device settings to see what options you have. The EULA, or end-user license agreement, will have more information if you can read legalese.

Sources: The New York Times; Vox; The Washington Post; Fast Company; Massachusetts Institute of Technology; Consumer Reports; NPR; Goldman Sachs; ZDNet.com

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Document shredding and food drive

Document shredding and food drive event

Clean out your cabinets and drawers of those old documents and bring them to be safely shredded, on site, by the professionals of Shred it™ and enjoy some good food and live music!

When: May 21st
Where: Outside of the Merritt Island office 2395 N. Courtenay Parkway
Time: 11:00am-2:00pm

Question please contact karin@crossleyshear.com or call 321-452-0061

Please consider bringing a non-perishable food item for our Food Drive to benefit Harvest Time International

Please Donate

  • Low sodium canned vegetables
  • Canned meats
  • Canned soups
  • Boxed oatmeal or grits
  • Canola or olive oil
  • Peanut butter
  • Nuts
  • No sugar added fruit cups
  • Canned beans
  • Granola/Protein bars
  • Pasta
  • Beans
  • Rice
  • Dry powdered milk

Raymond James is not affiliated with Harvest Time International or 4th Street Fillin Station

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

From the Desk of Dale Crossley and Evan Shear

From the Desk of Dale Crossley and Evan Shear

“The stock market is a device to transfer money from the impatient to the patient.”
Warren Buffett

We’re approaching two years since the COVID-19 pandemic began, which as we can all vividly remember, caused very deep wounds on the financial markets. With pandemic stimulus support and liberal monetary policy from the Federal Reserve, the economy largely rebounded and stocks flourished in 2021. Now, we’re ringing in 2022 with the worst market start to a new year since 2016. We’re hearing from many clients who are increasingly concerned that a pullback is in full swing and a market correction (or worse) is on the horizon. Federal Reserve changes are causing concern as they appear necessary to increase interest rates and curb rising inflation. While we all dread market corrections, we inherently know they are inevitable and, as an investor, being both patient and keeping history in perspective helps navigate through these times.

Gaining Reassurance from History

After surviving February and March of 2020 (and others this century), market fluctuations, corrections and, unfortunately, crashes are inescapable. However, in most years since 1928, we only experienced losses of 5% or slightly worse. As a matter of fact, we only experienced losses of 10% or worse in more than half of the years. Despite those fluctuations, long-term investors, who remained patient and invested, and are still very much ahead.

(These averages are skewed a little higher because of all of the crashes throughout the 1930s, but even in more modern times, stock market losses are a regular occurrence. Source: https://awealthofcommonsense.com/2022/01/how-often-should-you-expect-a-stock-market-correction/)

Is it a Pullback, Correction or Bear Market?

  • We experience pullbacks in most years, which are market declines of between 5% and less than 10% from a peak.
  • A correction is a loss of 10% to less than 20% from a peak. Far from uncommon, we’ve had seven since 2000.
  • A bear market is relatively rare and represents a decline of 20% or more from a peak. We’ve only had three since 2000.

Keeping Perspective

As always, we remind our clients that emotional financial decisions are rarely helpful and can actually be devastating. That’s precisely why we developed Voyage, our investment and wealth building process that uses mathematical algorithms, coupled with a methodical, proprietary scoring process. Our models provide disciplined and unemotional “buy” and “sell” signals as fluctuations in the market occur. Based on these signals, client assets are then moved between stock, bond, sector, money market mutual funds and exchange-traded funds. We stress patience and riding out pullbacks, corrections and bear markets. As you can see, history tells us they always rebound.

To learn more, click here to read our article “How Do Rising Interest Rates Affect Stocks.” We’ve also provided a short video recapping article.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.

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