Average 401(k) balance hits record $91,300

401(k) balances reached a record high last year, thanks to a soaring stock market and larger contributions from workers participating in the savings plans.

At Fidelity, the average 401(k) balance hit $91,300 by the end of 2014. While that’s up just 2% from 2013, it’s a jump of more than 30% from 2011’s average balance of $69,100, Fidelity reported.
Ultimate Guide to Retirement

 

The increase was due in part to the stock market, which saw the S&P 500 climb by more than 10%– its third year of double-digit gains. But a spike in worker contributions also played a significant role.

Workers and their employers contributed an average of $9,670 in 2014, up 4% from the year before.

“The 401(k) is the sole source [of retirement savings] for many,” said Fidelity vice president Jeanne Thompson. “I think there is heightened awareness of the importance of putting money into the 401(k).”

On average, employees socked away 8.1% of their salary, the highest savings rate recorded by Fidelity since 2011. Including an employer match, workers saved around 12% of their salary, which falls within the 10% to 15% recommended by financial planners.

Save a million before you retire

Thompson credited the increasing savings rate to a growing number of employers who are automatically enrolling workers into their 401(k) plans at a contribution rate of 5% or more.

Consistent savers are doing especially well. Savers in their 401(k) plan for 10 years or more had an average balance of $248,000 — an increase of 11% from what similar savers had a year ago.

Related: My biggest retirement mistake

The bad news: most people will need far more than that for a comfortable retirement. The common 4% rule for example, dictates that $250,000 would provide only $10,000 a year in retirement income.

Of course, 401(k) balances are just a snapshot of the retirement savings landscape since savers often have multiple investments and accounts like Individual Retirement Accounts (IRAs) and annuities. Fidelity, for example, found IRA holders had an average balance of $92,200 in 2014.

With the stock market starting out on rocky footing this year, Fidelity urged savers to ignore the market turmoil and instead to focus on long-term savings goals.

“The typical American worker will see markets go up and down many times during their career,” Jim MacDonald, president of workplace investing at Fidelity, said in a statement. “Commitment to a long-term savings and investing strategy will put individuals in the best. Read more…

What Is a Loan?

A loan is money that is provided to you now that you must repay later.

Typically, lenders will give you a single immediate payment. In return you will be expected to send them smaller payments each month.

Because prices usually rise over time, a dollar you pay back several years from now does not buy as much as a dollar today. That’s one main reason most lenders lenders typically charge interest. Interest also covers lenders’ other costs such as insurance, telephone help lines, etc.

Interest is a fee added (typically added yearly or monthly) to the debt. For example, a standard federal Stafford “unsubsidized” student loans charged an annual interest rate of 6.8 percent in 2010. So for every $1,000 you borrow, under the standard repayment plan, you’d have to repay about $11.50 a month, for a total of about $1,380, to pay it off in 10 years. (Federal student loans offer many different repayment options, however.)

Many students are afraid of borrowing for college because they’ve heard of friends who have had lives ruined by borrowing too much. Generally, it is wise to avoid or greatly restrict borrowing. But if borrowing is the only way you can obtain your degree, it is probably a worthwhile risk. While a college diploma is no guarantee of a good job, and you may be one of the unlucky graduates who ends up driving a cab, many employers require college degrees for the best jobs. On average, college graduates earn about $20,000 more a year than those whose education ended at high school.  Reed more……

New Student Loan Deal – Is it Good or Bad for Borrowers?

President Barack Obama is expected to sign new student loan legislation this week, making market-based interest rates the law of the land for federal student loans and immediately lowering rates for borrowers.

The bipartisan bill ties interest rates on Stafford loans, as well as graduate and Parent Direct PLUS loans, to that of the 10-year Treasury note, which reflects the federal government’s cost to borrow. The student loan rates are determined as of June 1 each year and locked in for the life of the loan. That means students borrowing this fall will pay 3.86 percent on all undergraduate Stafford loans, 5.41 percent on unsubsidized Stafford loans for graduate students and 6.41 percent on all PLUS loans.

[Find out what the new interest rates mean for grad students.]

While the compromise reversed the interest rate hike on subsidized loans, which jumped from 3.4 to 6.8 percent on July 1, experts say the deal is a mixed bag for students. Here is a rundown of the benefits and drawbacks of the new student loan legislation.

 The Good

• Stability: Prior tweaks to student loan interest rates were temporary and agreements to extend or reauthorize the adjustments often led to political showdowns.

“The past couple of years we’ve been in these situations where students haven’t known up until the last minute what their interest rate was going to be, because we were waiting for Congress to act,” says Megan McClean, director of policy and federal relations at the National Association of Student Financial Aid Administrators.

[Learn what to ask during student loan counseling.]

This bill has no expiration date, so students can breathe a sigh of relief, Peter McPherson, president of the Association of Public Land-grant Universities, said in a statement last week.

“Interest rates on subsidized federal loans for college won’t double from last year and a long-term fix will be in place to avoid these annual political chess matches over the loan program,” he said.

• Universal: Last year Congress extended an interest rate reduction, but only for subsidized Stafford loans, which are issued to students with financial need. The new market-based plan lowers rates for all federal loans, which stood at 6.8 percent for unsubsidized Stafford loans and 7.9 percent for PLUS loans. Any student enrolled at least half-time in a degree-granting program is eligible for unsubsidized loans, and PLUS loans are available to parents, graduate students and those pursuing a professional degree.

“This is a deal that benefits all borrowers,” says McClean, who points out that 80 percent of students who take out subsidized loans also borrow unsubsidized funds.

The Bad

• Fluctuation: Market-based interest rates are not static. As the economy improves, they will rise, and experts predict that will happen quickly.

The deal passed last week does cap how high those rates can go – 8.25 percent and 9.5 percent for subsidized and unsubsidized Stafford loans, respectively, and 10.5 percent for all PLUS loans. Those caps are all higher than where the rates stood just a month ago, and could be a reality for students in just a few years’ time.

“I’m glad that students today won’t be borrowing at 6.8 percent, but I think in two or three years we’re going to be wondering ‘Why are we giving kids these expensive loans?'” says Robert Weinerman, senior director of college finance at College Coach, an educational advising firm. Reed more …..

Senate Higher Education Bill Focuses on Affordability

The bill comes after months of bipartisan hearings – 12 in total – to discuss the role the federal government, state education agencies and accreditation institutions should have in overseeing the nation’s system of higher education. The bill focuses on making college more affordable, increasing schools’ accountability, promoting transparency about college costs and helping struggling borrowers.

Some of its main proposals include reinstituting a year-round Pell Grant (students currently cannot receive grant money during the summer), creating a streamlined income-based repayment system for student loans and creating a record system that would track student-level details, such as loan repayment outcomes and future earnings.

“A college education has long been an essential pathway to the middle class, with states, the federal government, students and families all doing their part when it comes to costs,” Harkin said in a statement. “Unfortunately this history of shared responsibility has eroded, forcing students and families to pay more than ever before. At the same time, a lack of accountability and transparency makes deciding where to go to school and how to pay for it a far more confusing and potentially risky process.”

The House education committee, led by Rep. John Kline, R-Minn., released its reauthorization proposal over the summer in four smaller bills that respectively focus on simplifying the financial aid application process; increasing transparency by creating a centralized “College Dashboard” containing information on student outcomes; increasing financial awareness by providing counseling options for students and families; and promoting innovation through competency-based education pilot programs.

All but the first bill have been passed in the chamber, but Democrats have criticized the House package for not doing enough to curb the high cost of college.

To tackle college affordability, Senate Democrats are aiming to eliminate federal student loan origination fees and expand access to dual enrollment and early college programs to help students earn college credit sooner. They also want to create a “Pell Bonus” project that would give colleges an incentive to enroll and serve low-income students. Severely delinquent student loan borrowers additionally would be automatically enrolled in an income-based repayment plan to help them avoid default. Reed more….

Iran nuclear deal could spur rapid growth

Companies and global investors are sizing up Iran’s economic potential in anticipation of a deal that could end years of isolation.

Iran and world powers are meeting in Vienna this week in an attempt to reach agreement on reconfiguring its nuclear program before a November 24 deadline.

It’s far from certain that a deal will be done, but businesses are eager to move quickly to tap the potential of Iran’s energy resources and highly-educated population of 80 million.

more here – http://money.cnn.com/2014/11/21/investing/iran-economy-opportunity/index.html?iid=Lead

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