A growing number of people are willing to raid their retirement accounts. Photo Credit: MJ/TR/Flickr.com/CC-BY

An increasing number of people are having to turn to their retirement accounts to scare up cash. Withdrawing from an IRA, whether its a Roth or 401(k) plan, incurs stiff penalties, but people will do it when they are desperate enough. Being able to retire securely is becoming far more difficult.

Nearly one-fifth of workers make early withdrawal

Some people, when in dire straights, turn to their retirement accounts as a source of emergency cash. Though withdrawing money from one’s IRA can be a lifesaver — or seem like one — at the time, it may not be. It carries a stiff penalty, but more people are resorting to withdrawing from retirement accounts, according to Bankrate. The Financial Security Index, an annual survey by Bankrate.com, found that about 19 percent of respondents dipped into their IRA accounts at some point in the last year. About 17 percent of the people in the survey who are employed full time reported dipping into their retirement account at some point in 2010. Early withdrawals indicate that the people who withdrew the money did not have much money put away in case of emergency.

Fewer people believe they will retire

Retirement is becoming a dream that not many people believe they will be able to realize, according to CNN. A survey by the American Institute of Certified Public Accountants revealed that nearly 40 percent of working people surveyed believed they would not be able to afford to retire. Almost 56 percent said that they couldn’t afford retirement savings because food and gas costs were too high, and 55 percent had no idea how much would be necessary to save to retire. As a result of less confidence in the ability to retire, the younger set in the workforce are more apt to stay with an employer who offers a top shelf pension plan, according to Daily Finance. A Towers Watson survey revealed that 43 percent of respondents believed it was a great reason to stay at a job, up from 28 percent in 2009.

Retirement security at all time low

A secure retirement is something many people place a premium on, now more than than ever. People are less confident that they will be able to retire, and the state of the Social Security Administration is part of that. Roth IRA and 401(k) plans depend on stock values, so every economic downturn ruins many people’s nest eggs. More people are becoming interested in defined benefit plans, which have become rarer in the past few decades. Defined benefits, what many people refer to as a “pension,” is a flat rate payment given to a retiree each month. A traditional retirement account, like a 401(k) account, is called “defined contributions,” meaning an employer makes contributions while an employee works for them.

Sources

Bankrate

CNN

Daily Finance

Having a Roth IRA can give your retirement fund teeth. (Photo Credit: ThinkStock)

Retirement planning is a frustrating yet necessary process, especially with the precarious position of Social Security. Here are the top five reasons a Roth IRA retirement account is for you, courtesy of Smart Money.

Make tax-free withdrawals upon retirement with a Roth IRA

A Roth IRA enables you to put your contributions in after taxes. Thus, it is unnecessary for you to pay taxes on that money once it is withdrawn upon your retirement. More money is always helpful. Payday loans are fine in a pinch, but they don’t constitute a retirement plan.

Social Security won’t enable you to maintain your standard of living

You’ve heard the debates over whether Social Security will actually continue to exist forever. But let’s assume that it sticks around, and you believe it will cover you post-retirement. The government hasn’t let you down before, right?

Wrong. It’s all too common to read something like this on a Social Security statement: “You can retire on the princely sum of $2,000 per month. You may already be a $24,000 winner!”

Roth IRA beats 401k mutual funds

A 401k retirement account gives a retiree the option of choosing from one of two different types of mutual funds. That is very limiting. With a Roth IRA, you have a greater ability to manage your retirement funds.

Flexibility is always nice

Smart Money points out that Roth IRAs give the retiree a great amount of flexibility when it comes to managing their funds. Contributions can be withdrawn without establishing a compelling cause. Furthermore, a Roth IRA can be used to save for a child’s education. There are other benefits to being flexible, too. Check with your financial adviser.

Diversity in numbers

Putting all your eggs in one basket is never a good idea, and this old saying holds true with your next egg. Some people look to both a Roth IRA and a traditional IRA or 401k in order to more readily absorb the bumps and bruises of fluctuating tax rates. It’s a sound strategy that anyone concerned about retirement should discuss with a financial adviser. Be prepared and minimize your need for short term loans.

Sources:

Smart Money

Roth IRA basics

Wikipedia entry on mutual funds

When former news anchors hawk IRAs

Image from Flickr.

These days, it seems as if you can hardly turn on the TV or radio without hearing news of the current economic recession and its impact on our nation’s retirement savings accounts. And it’s true – many people’s 401K, 403(b) and IRA accounts have lost significant value as a result of declining stock values and the current credit crunch. However, don’t let these numbers scare you away from contributing to these important investment tools. Stock prices are currently at all-time lows – making it a great time to bulk up your retirement portfolio.

Getting Started

For most regular, full-time employees, getting started with a 401K or 403(b) account (the 401K equivalent for public sector workers) is as simple as filling out a few forms. Check with your company’s HR officer to learn more about 401K enrollment requirements, which may include specific enrollment periods or a certain length of employment before you can begin investing. In addition, see if your company matches any portion of your contributions and at what level. If they do, try to contribute as much as necessary to earn the full match – otherwise, you’re throwing away free money!

Basic Allocation Decisions

Most retirement accounts allow you to make your own investment choices from their selected list of stocks, bonds and funds. If you do choose to allocate your 401K funds on your own from this list, you’ll need to make a few basic decisions:

Stocks versus Bonds. One of the biggest decisions you’ll need to make when it comes to allocating your retirement funds is the percentage you invest in stocks versus bonds. Stocks are riskier investment vehicles than bonds, which tend to offer steadier – if smaller – rates of return. Of course, the proper investment ratio for you will change throughout your lifetime. For example, as you get older – and closer to relying on your retirement funds as a source of income – you’ll want to minimize your exposure to risk by investing more heavily in bonds.

Domestic versus International. Another important decision you’ll need to take into account is whether to invest in domestic (US-based) stocks only or to diversify with international funds as well. In general, international stocks and funds are riskier options, although growing economies around the world may offer a higher potential for financial gain. Most investment experts recommend at least a little exposure to growing markets through international stocks; however, you’ll need to take your personal tolerance for risk into consideration.

Take the Easy Way Out with Target Date Funds

Don’t worry if choosing your 401K fund allocations sounds like too much. More and more retirement savings account providers are offering “Target Date” funds, which automatically adjust the proportion of your money in stocks versus bonds as you near your target retirement date. These funds are typically named for their target retirement year – for example, “The Target 2030 Fund” – and are managed by account executives at the 401K provider. If you’re feeling overwhelmed, they’re a great “hands-free” way to ensure your retirement investment plans stay on track.