Will your 401(k) be enough?

If you read my blog, you know I'm the biggest cheerleader for 401(k)s, since those lucky enough to get an employer match earn free money towards their futures. But right now, experts are worried that for many people, their 401(k) won't even come close to covering their expenses in retirement.

A new study shows that folks in their 60s with a 401(k) have less than a quarter of what they need to maintain their standard of living in retirement. And 25% of Baby Boomers have no retirement savings at all.Combined with fewer pensions and the shaky future of Social Security, this missing money leaves would-be retirees working more years, scaling back their standard of living, and postponing retirement 'til who knows when.

It's not a pretty situation. But remember: This is more telling of our economic times than it is of 401(k)s, and Boomers are suffering the most. For many of them, their 401(k)s plummeted in the recession and they haven't had enough time to rebound. Plus, as part of the 'sandwich generation', they're stuck between footing bills for kids' college and elderly parents' healthcare.

Point is, a 401(k) is a wonderful savings tool, if you know the right way to use it:

• Start ASAP. The younger you start, the more years your money will have to grow thanks to compound interest. Say you make $50,000 and contribute the expert-recommended 12% each year. After 40 years you'll have nearly $1.4 million, but if you start later and invest for 20 years, you'll have only $286,000. BIG difference.

• Go up a notch. Many folks contribute the minimum to their 401(k), often 6% of their annual salary to get their company's 3% match. Now, experts recommend you contribute 10-15%. It may mean cutting back in other ways, but it's easier to be thrifty now than poor in old age. And, if you're 50+, you can contribute an additional $5,500 beyond the $16,500 annual limit—do it.

• Save beyond a 401(k). Consider opening or contributing more to an IRA. Or try saving just $3 a day ; if you invest it in an IRA, it could be worth hundreds of thousands of dollars when you retire.

• Calculate correctly. It's easy to underestimate (or have no idea) how much money you'll need to in retirement. A common measure is that you'll need 85% of the salary you earn before retirement.  Or, to get an actual figure, try this formula from human resources consultant Aon Hewitt, who says Boomers 46-54 will need 14.6 times their final salary, folks 31-45 will need 16 times, and those 18-30 will need 18.7 times.

• Have faith. At the same time this study came out, Fidelity reported that the average 401(k) account balance hit a 10-year-high. Kudos!

How are you preparing for your retirement?

Recession & Marriage: Silver lining seems thin

A survey out this week from the always interesting National Marriage Project at the University of Virginia shows that although 29% of couples agree that the recession brought financial stress to their marriage, the silver lining is that 29% agreed that the recession deepened their commitment and 38% even put aside divorce plans.

It's sweet news to hear, especially one week before Valentine's Day. But I can't help but think there's more at play here than two hearts uniting in the face of hardship.

Many couples opt to stay together in or after a recession not for love, but for logistics. Financially, they can't afford to split up. The average divorce costs $20,000. Plus, the housing market is terrible for selling a current home, and if you move out, you may have trouble getting a mortgage if you have bad credit. Sadly, this means many unhappy couples are still living under one roof, for better or worse.

What do you think? Will the recession lead to lasting marriages, or is this only temporary?



Another Shameful Foreclosure Mess

For the last few years, the news about foreclosures has been pretty much all bad: Millions of Americans have lost their homes, pushing down property values across entire neighborhoods and forcing many banks out of business. In August alone, 338,836 more properties went into foreclosure—that's a 4% increase over July, according to RealtyTrac's monthly foreclosure report.

Now, more bad news—but with a slight upside.

Reports emerged last week that major mortgage lenders may have acted illegally in foreclosing too quickly on many homes. In a rush to process the unprecedented number of foreclosures that took place after the housing crash about three years ago, some mortgage service firms stooped to having a single employee "robo-sign" thousands of documents a week that were supposed to be carefully reviewed. 

Two lenders, GMAC and JPMorgan Chase, have admitted to possible legal mistakes and have temporarily suspended all foreclosures in the 23 states where foreclosures required the approval of a court. Bank of America has joined them in putting a halt to all foreclosures in those same states, and other lenders are expected to join, too. Attorneys general in several states are starting to investigate, and some lawmakers are calling for a temporary freeze on all foreclosures. It's possible that this is only a fraction of the mortgage-lender malfeasance to be uncovered.

That's the bad part, and it's truly appalling: Serious misbehavior by lenders may have illegally forced families out of their homes.

The good news—and it's minor, I admit—is that this misconduct is finally coming to light now, and experts expect evictions to slow down drastically going forward. That's not a solution for people who have fallen drastically behind on their payments; their evictions may take longer, but they won't be prevented completely. But this does buy them some extra time to get their finances in order.

In the meantime, it's yet another reminder that our financial system could benefit from more oversight, which is coming to mortgage lenders under the new financial reform bill. If you think you've been unfairly foreclosed on, contact a housing counselor through the office listed for your state on HUD.gov. Oh, and one more lesson: Always keep your paperwork.



Stunning Stats from the Census

I bet when you filled out your census form, you didn't think it'd make national news. But given the Great Recession, it's no surprise that the data from 2009 is so compelling. Many of the articles I read last week were based on fascinating statistics about how the recession has affected our everyday. Here are a few reports that stuck with me:

Recession affecting every aspect of American life (USA Today)

The headline alone broke my heart. And then, lending visual proof to the headline is an interactive map of the U.S., which lets readers see instant snapshots of where we are as a society: What percent of the population is below the poverty level? Which states have the most people without health insurance? How many households have taken in extended family members?  I urge you to click around on the map to see what's happening in your area and across the U.S.

For many adults, marriage can wait, Census shows (Wall Street Journal)

Ever since I wrote my book, Get a Financial Life: Personal Finance in Your Twenties and Thirties, I've been tracking this age group. Sadly, 20-somethings today face an unemployment rate that's nearly 50% higher than the rest of the population. And unemployment can destroy one's finances, not to mention one's confidence, so no wonder this group wants to delay marriage. However, marrying later in life could bring a whole new slew of money issues to the relationship: Are you more likely to meet someone who has racked up a ton of debt over the years, which can put a strain on marriage? How do you compromise on finances when you've spent years developing your own stubborn money habits (for better or worse)?

Welcome to the Stay-Put Economy (The Atlantic)

Picture a society frozen in time. That's the effect the recession has had on us on so many levels, and especially in the workplace, where the average employee now spends 4.4 years with his/her company (one year more than in 2000). Workers are staying glued to their swivel chairs, terrified that leaving means risking job security. With employers valuing job mobility over loyalty these days, staying in a position for more than 5-7 years with no chance of upward growth may mean you've professionally flatlined.

What articles about the census or the recession have stunned you this week?



Who is the middle class today?

I loved being on public radio's The Takeaway this morning (listen here)! For a full hour, we discussed the middle class. What does it mean to be a middle class American? Has the middle class fundamentally changed since the recession hit? Is President Obama doing enough to help the middle class, and is his message getting across to them?

One topic we discussed: Where did the middle class come from? According to Pulitzer-Prize-winning Brown University history professor Gordon Wood, who joined us on the show, in the 18^th century the middle class was called "the middling sorts," a group stuck between the aristocracy and the lower orders. Fascinating! (I *wish* I'd taken a class with Professor Wood when I was at Brown.)

On the show, we jokingly asked listeners if they have middle class membership cards. The truth is, there are no clear qualifications for who belongs to the middle class. One way we can define it is by hard numbers: The typical American household lives on $50,000 a year, which is amazing when you consider how expensive it is to buy a home, pay for college, and try to sock away savings.

Today's middle class, as compared to previous generations, finds it hard to afford the lifestyle they want – as the "American dream" expands, it also moves further out of reach. Families typically used to live on one income, but now they often need two, which means the added need for two cars and childcare. On top of those added expenses, prices for health care and college have gone up dramatically. Trying to attain, and maintain, this lifestyle, no matter what the cost, has left the typical American household $7,000 in debt. So really, the middle class has become the indebted class.

Listen to the show and tell me: Are you part of the middle class? What do you think defines the middle class? What more should be done to help this group?