Dear Liz: Lately I have been reading a lot about how people aren't saving enough for retirement. Every article I read talks about the need to put enough into employers' 401(k) programs to get the maximum possible company match. What do you do when your employer doesn't match your contribution?
Answer: You contribute anyway, and start looking for a better job.
The advice that people should contribute at least enough to get the maximum match is designed to ensure that workers don't leave free money on the table. That's essentially what a match is — a free, instant return on your contributions.
Maximizing the match doesn't mean you're contributing enough for a comfortable retirement, however. The match may be 50 cents for every dollar you contribute, but most companies won't match more than 6% of your salary. Most people need to save more than that — sometimes much more, especially if they got a late start.
If your company's 401(k) doesn't offer a match, then you will need to save more to make up for the free money you aren't getting. Because most plans offer a match, though, it may be worthwhile to look for an employer that offers this benefit as it can make retirement saving easier.
To figure out how much you need to save, use a retirement calculator such as the one at the AARP.org website.
Paying off an 11.5% student loan
Dear Liz: I currently owe $27,000 in student loans at an 11.5% interest rate. I have excellent credit and about $8,000 in savings and contribute 17% of my income to a workplace retirement plan. Should I invest less in my 401(k) and pay off debt instead? I just got a balance transfer offer for 0% for 15 months with a 3% transaction fee. I'm considering taking $3,000 and putting it toward my high-interest student loan.
Answer: If you had federal student loans, transferring any part of your debt to a credit card would be a bad idea. That's because federal student loans come with consumer protections that allow you to reduce or even eliminate your payments if you fall on hard economic times. You certainly wouldn't want to reduce your retirement savings to pay off these flexible, fixed-rate loans.
The higher rate you are paying indicates that you have private student loans, which typically don't have the same protections and which usually have variable rates that will climb higher when inflation returns.
Credit card debt has similar flaws — plus you would lose the interest rate deduction on any student loans you paid off this way. Instead, you may want to investigate the option of refinancing and consolidating your private student loans with a credit union. Credit unions are member-owned financial institutions that often offer better rates than traditional lenders. One site representing credit unions, CUStudentLoans.org, currently advertises variable rates on consolidation loans that range from just under 5% to just over 7%.
If you continued to make your current payments on a consolidated loan with a lower interest rate, you would be able to pay off your loans years faster — saving on interest without jeopardizing your future retirement.
Hit by Target hacking
Dear Liz: My debit card was part of the recent Target data breach (my credit union called me). I've read articles telling me to pull my credit reports. Here's the thing: I already requested two of my three free credit reports in early December. When I read about the Target incident, I requested the third one. So now, if I pull a credit report, I'd have to pay for it. I'm very concerned about this, as my finances are tight.
Answer: The information that was stolen in the Target breach — and immediately put up for sale on black-market sites — is not the kind of personal information that's typically needed to open new accounts, said John Ulzheimer, credit expert for CreditSesame.com. So buying your credit reports or investing in credit monitoring, which is how you would spot new account fraud, isn't strictly necessary, he said.
The information that was stolen can be used in what's known as "account takeover," which means the bad guys can take over existing accounts and make fraudulent charges. In the case of a debit card, that means they can drain your bank account. With a credit card, you wouldn't have to pay the fraudulent transactions, but dealing with them could still be a hassle.
Either way, you would be smart to close any debit or credit card used at Target between Nov. 27 and Dec. 15, the time of the breach, and ask for a replacement, Ulzheimer said.