Is there a problem with Social Security in the USA? Here’s a little bit of advice :

By now you’ve probably already heard that Social Security is in a little bit of trouble. There’s probably no need to panic, but you should understand that the younger you are, the more different it will probably be. Who knows exactly what will happen?

Hopefully, you’ve also taken the time to figure out what you’ll do to pay for things in retirement. Because Social Security may not be there, here are a few alternatives:

1. Win the lottery
2. Inherit from your rich aunt who only loves you
3. Marry rich
4. Save a little money for yourself

Of all these options, marrying rich is probably the best choice. However, if you want to play the odds (and stay on your current spouse’s good side), you should probably start saving money.

Nobody is going to do it for you. All it takes is for you to make the decision to start saving and investing. This is not rocket science, so keep it simple. Here’s the secret formula:

1. Figure out how much you’ll need to save
2. Save that much
3. Invest it adequately — you don’t have to knock the cover off the ball
4. Enjoy the present — don’t stress to much about the future

Now, you have to do it yourself, but you don’t have to do it by yourself. What’s the difference? You have to actually decide to take action, and take the money out of your budget each month. However, you can get help on steps 1, 3, and 4 (you might even get help on step 2 from your employer!). The Web is full of financial calculators and financial advice — some of it is even good advice. You can also get help from financial advisors and folks who’ve been down the road before you.

You should be careful about who you listen to, because there is some bad advice out there. I heard a great way to help weed out bad economists (but I can’t remember who said it), and I think it’s relevant to financial advice as well. She said something along the lines of: The more famous a person is, and the more certain they seem to be, the more likely it is that they’re wrong. Avoid anybody who makes broad general statements on what you always or never need, and watch out for financial hype.

What should you do about matching your employer’s contributions to your 401k?

If your employer offers a match on the dollars you contribute to your 401k, you really need to take advantage of that. There are very few blanket statements that you can make when it comes to personal finance, but this one comes as close as possible: always contribute at least as much as they’ll match. You’d better have a really good reason if you’re not going to contribute that much.

Matching dollars are free money. They’re a way to double your investment in the 401k — that’s not easy to do. To put some numbers into the mix, consider that the S&P 500 has shown long-term (periods greater than 20 or 30 years) average annual returns in the 10% ballpark for most of its history. However, you had to be a risk-taker to get those returns — leaving all of your money in the stock market, going up and down with investor emotions.

Matching dollars do even better: you earn 100% on the amount they match. What’s more, you aren’t taking market risks to do so. It’s a pretty good deal. If you don’t know whether your employer matches, find out – and contribute enough to get the match.

This is a question many people ask. Here’s our answer :

A lot of people ask what happens to their 401k savings when they quit working. The reality is, not many people work in the same job for an entire lifetime. When you quit working, you have some options.

First, you can cash out. This is probably not your best option, but it’s your money. You can have the plan send you a check, and you can spend it as you please. Note that you’ll only get a check for 80% of your money in the plan — the other 20% goes directly to the IRS as a down payment on your taxes. They figure you’ll owe them at least that much. If it turns out you owe less, you may get it back as a refund.

Next, you could leave the money in the 401k plan. Your account balance often has to be above $5,000 to do this, but some smaller employers will let you hang around even if you have a smaller balance. Depending on how much you like the plan, this might be a good option. However, you’re leaving your retirement savings in somebody else’s hands — your former employer’s. They decide which investment company handles the money, and they have to sign off on any distributions from the plan. This can make it tough to get anybody to do anything if you ever want to do something with your money – you have to wait for several people to sign off.

Finally, you can roll your savings over to another similar account. If your new job has a 401k or 403b, these might work. Likewise, you could just roll the money into an IRA, where there will be no employer involved at all. By taking the money with you, you keep control over it. The only drawback to this option is that you actually have to take action and make some decisions on what to do with the money.

Of course, you’ll find that tax laws around these accounts change every day. Therefore, you ought to speak with a tax advisor and get some individualized input on what to do before you make any expensive mistakes.