New Grad Career Cheat Sheet

One of the great things about the internet (and Google), is that it makes it exceedingly easy to quickly find information on just about anything. The downside of this technology is that there is a lot of crummy information to sort through before you find the good stuff.

Well, if you are a new grad or know a new grad who is getting ready attack the real world the NY Times recently ran an article that you should pass along. The article entitled "A Primer for Young People Starting Their First Job" is really applicable to everyone. Let's face it - most Americans don't pay enough attention to personal finance and that's why the average savings rate is negative.

While I strongly encourage you to take a look at the article, I'll provide a quick summary below. The article does a quick and dirty summary of health benefit, tax, and retirement plan considerations for new grads. There's not a great deal of deep analysis on any of the topics, but the article serves it's purpose. It gives new grads a very bare bones outline of each and points them in the right direction and gives them the types of questions they should be asking. I think that's a noble goal in itself. You can only lead people so far after all.

If you have any good resources for new grads heading out into the world please leave them in the comments.

Should You Offer a 401(k) in Your Small Business

Aside from fostering goodwill among your employees, should your small business consider starting a 401(k) plan for employees? Entrepreneur.com has a list of 5 good reasons every small business should offer a 401(k) plan:

1) It's more affordable than you think.

2) It strengthens your business by attracting and retaining high quality employees.

3) Minimal administrative burden.

4) Most small business plans are web-based and have eliminated much of the paperwork.

5) It can help secure your own retirement.

So readers, what do you think? Business owners, are the extra costs justified for small businesses? Employees, is it a deal killer if a small business doesn't have a 401(k) plan?

2007-2008 IRA Contribution Limits

Although you have until April to get your retirement contributions figured out, below are the limits for this tax year (2007) and 2008 for those of you thinking ahead. For 2007, individuals under 50 can contribute up to $4,000. This number rises to $5,000 for 2008. If you are over the age of 50 you can make "catch-up" contributions and contribute $5,000 in 2007 and $6,000 in 2008.

It should be noted that these limits apply to individual contributions to Roth IRA's, traditional IRA's and to SEP plans.

Study: U.S. 401(k) Savings Rates Up

Fidelity just released a study that says the median 401(k) balance rose 30% this year. While some of gain is likely attributable to the rather robust (if not chaotic stock market this year, the other 20% or so is a result of people socking more money away. I'm not trying to knock the results here, because any time people take a second look at their investments and put a little more money away for later rather than spending it on a Jamaican vacation I approve. BUT, when you look at the figures cited in the study they are pretty abysmal. Below are the average 401(k) balances for different groups.

• Baby Boomers rose 7 percent to $38,000
• Gen Xers rose 10 percent to $15,000
• Gen Yers rose 21 percent to $2,100

Now here are the average contribution rates.

• Baby Boomers 7.7 percent
• Gen Xers 6.2 percent
  
• Gen Yers 4.6 percent

Hopefully what the statistics don't show is that there is quite a bit of other money that is being invested elsewhere outside the 401(k) plans in vehicles like Roth, or traditional IRA accounts... unfortunately I would guess there is not.

Related Article:
401(k) Flubs 5 to avoid @ CNN

Roth v. Traditional IRA

Now it is unlikely that social security as we know it will be around for a long period of time and of course it is a smart idea to get started early saving in a retirement account. As a rule of thumb Roth accounts favor young investors who haven't yet maxed out their earning potential since the investment is taxed at the front end. (ie if you are currently in the 15% tax bracket that is what your money will be taxed at before being invested and can appreciate tax free). Traditional IRA's get taxed on the back end, but if you are already in a high tax bracket or will not be when you retire this might be irrelevant.

The area between the two is more grey -- can you figure out when it's worthwhile to plow money into a traditional IRA in place of a Roth? Van Kampen has a nice calculator complete with graphs (a must for visual people or those with short attention spans).

At the bottom of the charts you can see how much you will need to draw each year at retirement based on how much you would need to live off if you were retired today - a nice bonus for those of us who wince at the thought of dusting off the financial calculator and running some future value equations or haven't ever thought through how much that inflation adds up.

MoneyChimp also has a general background and comparison of each type of account (yeah I know, the name makes it hard to take seriously).