Hacking thefts from 401K accounts are on the rise, according to Bob Sullivan at msnbc (In An Instant, Retirement Savings Vanish). Yikes! Here’s how to make sure nobody gets a five-finger discount on your hard-earned savings by hacking into your online 401K account.
Make your password stronger
For tips on safer passwords, check out these good password creation tips from Microsoft. Then, test the strength of your new password on Microsoft’s Password Checker tool.
Sign up for email account alerts
See if your broker offers automatic email alerts for account activity. You may be able to request specific alerts, such as when money has been withdrawn or transferred from your account. This can give you immediate notice when a hacker strikes. With fast action, you may be able to halt the transfer before it is completed,
Check your account balance often
Many people take a set-it-and-forget it approach to managing their 401K. This was good advice in the past, because it prevented people from becoming day traders with their retirement accounts. Today though, it is important to monitor your account balances regularly. Once a week is probably frequent enough to spot fraudulent activity. Although so far brokers have been refunding losses, they do require timely notice of the loss. This requirement is likely to get stricter in the future.
Review your broker’s site security features
Does your broker’s website have separate user name and password pages? Does it show you a secret security image when you login? Does it require you to provide additional verification informations when you use a different computer than usual? If not, consider switching to a broker that offers these standard protections.
I am expected to multi-task my entire day, and I bet you are too. But how often do we demand the same multi-tasking performance from our money? Whether your money is coming in or going it, it can be doing two things at once.
Coming In (Income):
The easiest way to make your income multi-task is to take advantage of the entire benefit package offered to you at work. Putting part of your income into a 401(k) or similar program helps reduce your taxes, save for retirement, and can even earn you a substantial bonus in the form of a company match. Other payroll deduction programs for parking, child daycare, health, etc. will reduce your taxes and can help create a safety net for unexpected expenses.
Going Out (Expenses)
They say you can only spend a dollar once. That might have been true for your parents but it doesn’t have to be true today. Every time you make a purchase, look for ways to multi-task your money. Can you earn a rebate from the manufacturer or store? Can you earn rewards through a loyalty or credit card program? Can you save for college with Upromise or its newer competitor, LittleGrad? Can you negotiate a better deal and pocket the difference?
For the last year we’ve been seriously demanding that our money multi-task. Sometimes we are able to get six different rewards on the same purchase. We also fully utilize the benefits packages offered at work.
According to economist Jack VanDerhei, the typical “best scenario” American family is saving around 9% of their salary in their 401(k). But by his estimation, the average American family needs to be saving up to 18% of their salary consistently for thirty years in their 401(k) to be able to maintain their pre-retirement standard of living. The 18% includes both employee contributions and the employer’s matching contributions.
I save 6% of my salary and my employer adds a 40% match, so my total savings rate is 8.4% of my salary. Him saves 3% of his salary and his employer adds a 100% match up to 3% of his salary, for a total of 6%. We’re a long way away from the 18% we need to be saving. Fortunately, we’re starting young. Our first priority is to eliminate our debt. After that we can ratchet up the savings.
If you will rely solely on your 401(k), are you saving 18%?
If everyone is offered the same 401(k) plan and is free to make all the decisions themselves, then everyone has an equal shot at success, right? Not according to Brooks Hamilton, a Benefits Consultant with fifty years of experience and tons of historic 401(k) participant data at his fingertips. He sees a pattern in the data: people with higher incomes tend to make better financial decisions regarding their 401(k) plans, and earn a higher ate of return. People with lower incomes tend to make poorer decisions regarding their 401(k) plans and earn much lower rates of return. The group with the lowest 20% of income earned about 4% per year in gains. The group with the highest 20% of income earned about 25% returns per year. This means that the rich are getting richer while the poor are barely keeping up with inflation. Hamilton calls his theory “Yield Disparity“.
I think there are two reasons for this: education and access to professional financial management. The poorer employees are probably less financially savvy and less able to afford quality financial advice (read The Number by Lee Eisenberg for more on this topic). Wealthier clients may have more experience with financial planning and have better access to a qualified financial planner.
Hamilton dreams of the day when employees are required to contribute an adequate amount to their 401(k) and have the money professionally managed, courtesy of their employer. But he acknowledges that probably isn’t going to happen anytime soon. In the meantime, if you aren’t getting the returns you want on your 401(k) investments, see if your company’s plan includes access to a certified financial planner.