Bottom line: I’m not worried. We’re still in for the long haul.

By raising the contribution percentage to 11%, you’ll accomplish:

1. Raising your contributions by $1,163 per year instead of just $375.

2. Your Federal income tax* will only go up $388 instead of $506.

3. You’ll still have a net income increase (after taxes AND 401(k) contributions of $2,200 over your previous income.

It’s amazing what a difference 1% makes. Sure, you could keep your contributions at the 10% level and still increase the dollar value of your contributions by $375 per year. But, by increasing the percentage amount by 1%, you’re taking advantage of the raise and bringing down your income tax liability and STILL bringing home close to $200 more per month. It’s a win-win situation.

That said, it’s VERY IMPORTANT that you make the changes to your 401(k) as soon as you find our about your raise. Otherwise, you run the risk of getting too comfortable (or dependent) with your new income and then it will be that much harder to increase your contribution percentage. That additional contribution amount could mean an additional $57,000 to your retirement plan in 25 years (assuming an 8% rate of return and not assuming future contribution increases).

This is how we build wealth.

* Based on 2010′s income tax brackets, standard deduction, exemptions, and the child tax credit (assuming a family of four).

The article also mentions adding a variable annuity to the retirement income mix, adding a rider (for an additional .5% to 1% a year) that gives the annuity holder a set percentage of the original investment, and investing the subaccounts as aggressively as possible since the retiree has the rider. No where does the article is mention surrender periods. I’m skeptical of this idea.

Anyway, the article ends with this paragraph:

Variable annuities are beginning to make an appearance in some 401(k) plans, and Great-West says it has gotten a lot of interest in its 401(k) annuity offering, launched last year.

Great-West is an insurance company. I remember reading not too long ago that people were confused by their 401(k) plans because they offered too many choices. I can’t imagine that offering them a variable annuity is going to make the choices any easier. I also don’t like the fact that Great-West is most likely making a lot more money off the variable annuity than they are the other investment choices. Looks like it could be a conflict of interest.

Thoughts? Do you like variable annuities inside a 401(k)?

NOTE: As is typical whenever I post anything that is skeptical of variable annuities, I’m sure this post will draw the ire of insurance salesmen. I don’t have a problem with you leaving comments that are beneficial. That said, let’s keep it on the mature level.

That’s the number I get when I divide $16,500 (the 2011 maximum allowable employee 401(K) contribution) by 2000 hours (40-hour work week, 50 weeks per year).

It seems like a lot. Granted, it does not include the tax savings on contribution. The actual dollar amount would be lower after taxes. Still, the amount is pretty high. That’s why this information should be provided to high school and college students. They need to see this information when deciding what career path to take.

These numbers also do not include the company match, which I think you should look at as icing on the cake and shouldn’t be considered in figuring your contributions.

Next, I’ll look at how much the maximum contribution could grow to over a career. Interesting stuff.

What about you? Did you increase your contribution percentage this year or are you already maxed out?

It wasn’t too long ago that I read that most 401(k) plans were too complex and offered too many choices for employees, which made the decision-making process too difficult. So now they want to add annuities to the mix. Folks, you cannot find a more complex and difficult-to-understand product than annuities.

“One of the benefits of offering affordable, easy-to-understand annuities within a retirement plan is that it ensures plan participants receive a constant reminder that they are saving not just to accumulate wealth, but also to help workers approach retirement with peace of mind, knowing they will have income to last a lifetime,” Paul Van Heest, senior vice president, retirement plans of TIAA-CREF, said in his testimony.

What else would we expect to hear from Mr. Van Heest? His company stands to make a bundle if the rules are changed. What’s worse, is that Mr. Van Heest wants to make annuties the DEFAULT CHOICE for employees. I would also like to know Mr. Van Heest’s definitions of “affordable” and “easy-to-understand.” What kinds of annuities are we talking about? Fixed income annuities? Variable annuities?

I’m skeptical of this idea. But, then again, I’m ALWAYS skeptical of any change.

Do you feel like your retirement plan is on the right path to get you to your retirement goal? How often do you track your progress? Would you like to see more posts from AFM about retirement planning?

This is an issue I’m going to be addressing this week in my own personal finances. I haven’t performed a retirement checkup in several months. Our balance isn’t growing like I want it to grow. This is to be expected in a sideways (and down) market. It seems to stay within a $20,000 range—even including contributions. We’re still 100% in equities with a sizeable percentage in international funds (our 401(k) is with Fidelity). I’ll do some follow-ups on this at a later time. Right now I have to go to the dentist.

Does Larry just have too much common sense for the average American? I mean, did you see the body language of the guy sitting next to Larry? He looked like he was guilty.

This video ties into my post on hardship withdrawals.

Source: 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008, page 55

It’s important to note that these are 401(k) plan balances and not savings and investments, which were used in the last post. Although these numbers are somewhat more optimistic than my last post, they still seem too low to me.

Regardless of which numbers you use or which report you look at, the bottom line is: we need to save more!

I want to focus on the proposed changes for 401(k) plans (from the article).

The proposed 401(k) Fair Disclosure and Pension Security Act, for example, would:

• Require 401k plans to disclose fees on workers’ quarterly statements as a dollar figure taken from participants’ accounts.

• Require service providers and plan administrators to disclose administrative, investment management and transaction, along with other fees.

• Help workers understand their investment options by providing information on risk, return and investment objectives.

• Require plan administrators to offer at least one low-cost index fund in order to receive protection against liability for participants’ investment losses.

• Require service providers to disclose financial relationships so companies that sponsor 401k plans can make sure there are no conflicts of interest.

• Ensure that investment advice is based on workers’ needs, not the financial interest of those providing advice.

• Provide adjustments to pension funding rules to ensure plans can weather economic crises without providers being forced to cut jobs or freeze plans.

A paragraph or two above the information I posted, there is mention of wanting to add annuities to 401(k) plans. I think this is a BIG mistake—especially if these annuities mean more income to the provider of the plan. Why do I say this? Well, if you look at one of the bullet points, it mentions helping workers understand risk, return, and investment objectives. It’s not hard to sway an uneducated person from one product to another just by talking about risk. For instance, the “advisor” could simply ask the question, “How much of this money can you afford to lose?” Of course the natural response is an emphatic, “NONE!” The next thing you know, the advisor is talking about “guarantees.”

I think the public would be better served if we focused on costs and education (provided by a third party with no ties to any fund families).

What are your thoughts on these proposals?