Everyone knows the benefits of a 401(k) plan, but not everyone knows how to manage one for maximum returns--particularly in light of frightening market volatility. And with the many recent changes to 401(k) policies, it's a daunting process to handle without an expert--until now. 401(k) Take Charge of Your Future confidently offers readers detailed investment strategies, including: - computing how much money will be needed for retirement -determining how much money to invest from each paycheck - choosing the right stock and bond funds - taking money out--without being socked with taxes - avoiding the most common investment mistakes - getting the highest returns for the least risk - and much more.
401(k) Take Charge of Your Future (Warner, 1996) has sold over 46,000 trade paperback copies since it was first published.
Money, America's top personal finance magazine, has an expanding paid circulation of 2.1 million and a readership of over 10 million, and the concise format of the Money series of personal finance books has extended its popularity.
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One of the best investments ever devised, readers can now discover exactly how to take charge and make the most of their company sponsored retirement plans, and much more.
401(k) Take Charge of Your Future
A Unique and Comprehensive Guide to Getting the Most Out of Your Retirement Plans
By Eric Schurenberg
Warner Books
Copyright © 2003
Eric Schurenberg
All right reserved.
ISBN: 0446690325
Introduction
Most of us aren't accustomed to thinking of the U. S. Internal
Revenue Code as a force for good. That's partly because our
political process assures that the tax code at any particular moment
has less to do with sound policy than with which lobbies currently
have Congress's ear. It's also because of the tax code itself-all
4,000 pages and 5.6 million words of it. It is so horrifically
complex that not even experts can foresee all the ripple effects of
any new tax provision. Even so, out of this sea of code sections and
letter rulings, corollaries and subparagraphs, occasionally
something washes up that is of genuine benefit to America and her
citizens.
One of those pearls is the 401(k) savings plan. For millions of
Americans, including me, it is arguably the sturdiest lifeline to a
future of financial security. To employees who approach their 401(k)
with the proper blend of discipline, patience, and basic investing
know-how, it offers a reliable way to build a nest egg worth
hundreds of thousands of dollars-or considerably more. No other
investment even comes close. And for our savings-starved economy,
the 401(k) is a godsend. As of 1997 the plans had already invested
675 billion dollars of employee savings that might otherwise have
been consumed. Without that kind of savings push, the nation will
inevitably see its standard of living decline.
Considering how indispensable 401(k) plans have become, it is
amazing how accidentally they came into being. Unlike Individual
Retirement Accounts, say, which have vocal supporters in Washington,
no congressman ever campaigned for the creation of 401(k) plans. No
think tank ever dreamed them up. Instead, Internal Revenue Code
Section 401(k)-the brief passage that spawned the plans-was quietly
slipped into the code by the Revenue Act of 1978, mainly to clear up
a dispute over the taxation of profit sharing plans. The section
says, basically, that an employee savings plan can include a cash or
deferred arrangement as long as the plan is designed to benefit
low-paid as well as high-paid employees, among a few other
requirements. Cash or deferred arrangements (CODAs, in employee
benefits jargon) were deals in which employees had the choice of
taking their profit-sharing bonuses in cash (and owing taxes on them
that year) or putting them into their savings plans and postponing
their tax bill.
It took a quiet, religious, 38-year-old pension consultant named R.
Theodore Benna to see the promise buried in Section 401(k)'s
technical details. Benna had two key insights: first, he recognized
that nothing in the law forbade an employer from applying CODAs to
regular salary rather than just bonuses. He also saw that companies
could chip in extra money to the plan to encourage employees to
save, thus helping to ensure that the plan would serve all
employees. While Benna's inspiration complied with the letter of the
law, it was so novel that no one could be sure it would win the
approval of the Internal Revenue Service. As a test case, his
company, Johnson Companies, set up a savings plan modeled on his
idea. In November 1981 the IRS finally gave the design the green
light.
Benna could not possibly have anticipated how his brainchild would
flourish. According to estimates by Access Research, Inc., more than
26 million employees at some 210,000 companies are now eligible to
participate in 401(k) plans. Three-quarters of those workers
actually do take advantage of the opportunity, and many of them have
already racked up impressive savings. The average active employee in
a plan has more than $32,000 in his or her account. Nearly 20% of
them have more than $50,000.
The projected growth of the plans is equally astonishing. By the end
of the century, the amount of money invested in 401(k)s is expected
to exceed a trillion dollars. Within 10 years the money stored in
401(k)s will be corporate employees' single largest source of
wealth-exceeding not only the value of their other retirement plans,
but also the equity in their homes.
Obviously, 401(k) plans could not have achieved such widespread
acceptance had they not fitted conveniently into several themes
sweeping corporate America. Most important, perhaps, is the
reengineering of the U.S. corporation. To a cost-conscious corporate
treasurer, 401(k)s are the perfect retirement benefit. Compared to
traditional pensions, they are less expensive to administer (about
$89 per employee in a small company, compared with as much as $500
for a pension) and easier for employees to understand and appreciate
(which means the employer generates more goodwill for the buck with
a 401(k)). Perhaps most important, 401 (k)s absolve the employer of
any responsibility to make sure that you take any specific amount of
money with you when you retire. In a 401(k) plan, it's up to you-and
you alone-to make sure you have enough money when you leave.
For employees, this aspect of 401(k)s requires a radical change in
thinking. With a 401(k), the payoff you get from your company
retirement plan depends first of all on you. If you don't take the
initiative to contribute to the plan, it will do nothing for you at
al1. Unless you learn to invest it wisely, it will never live up to
its potential. These are not small matters. As you can see from the
chart on page xvi, postponing your first investment from age 25 to
age 40 will shrink your returns by more than half. And if you think
you can ignore the realities of investing your plan, look at the
chart on page xvii. Choosing investments that under perform by as
little as one percentage point a year can shrivel your nest egg by
more than $150,000 over the course of your career. Make no mistake:
Decisions you make (or avoid) today regarding your 401(k) have real
consequences.
That's where this book comes in. It's included to help you make the
right decisions regarding your 401(k) at every point in the
process-from enrollment and your first investment choices through
finally withdrawing your money. While many employers make an effort
to help their employees understand their plans, the educational
materials they provide are often hopelessly superficial and vague.
That's partly because companies have agendas they don't disclose to
employees. For example, all companies worry tremendously about being
sued if employees see them as giving advice that doesn't work out.
Some companies want you to invest your 401(k) in the company's own
stock, even if that's a bad idea (as it usually is). Whatever this
book's shortcomings, pulled punches and hidden agendas won't be
among them. As an objective guide unaffiliated with any 401(k)
sponsor, this book's only agenda is to help you make the most of
your 401(k).
The good news is, making the most of your 401(k) is not as difficult
a task as you may think. Even if you're a complete novice at
investing, you can master your 401(k) and take charge of your
future. While some of the investing concepts you will encounter in
the chapters ahead may be unfan1iliar, they are not mysterious. The
principles behind them obey all the laws of common sense. The fact
is, you don't have to be a Wall Street wizard to earn a respectable
return from your 401(k). All you need is a firm grasp of the basic
investing principles outlined in this book and the combination of
gumption and patience to abide by them.
Continues...
Excerpted from 401(k) Take Charge of Your Future
by Eric Schurenberg
Copyright © 2003 by Eric Schurenberg.
Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
