U.S. Poverty Rate Unchanged in 2011, While Household Income Takes a Dip

by Lisa Scherzer

The poverty rate in the U.S. saw a slight dip last year from 2010, according to a report released by the Census Bureau Wednesday. There were 46.2 million people in poverty in 2011, down from 46.3 million in 2010. After three consecutive years of increases, neither the poverty rate (15%) nor the number of people in poverty were statistically different from the 2010 estimates, the report said.

Household income fared worse, however. For the second year in a row real median household income declined; between 2010 and 2011 it dropped 1.5% to $50,054.

Here are some other highlights from the report:

• The West experienced the sharpest decline in real median household income - down 4.1% - between 2010 and 2011 compared with the other regions.

• In 2011, the percentage of people without health insurance decreased to 15.7% from 16.3% in 2010. (In 2010 48.6 million people were uninsured, down from 50 million in 2010.)

• The percentage and number of people covered by employment-based health insurance in 2011 was essentially the same as 2010, at 55.1% and 170.1 million.

• The uninsured rate was statistically unchanged for those age 26 to 34 and 45 to 64. But it declined for people age 19 to 25 (likely because under the Affordable Care Act of 2010 19- to 25-year-olds are eligible for coverage under a parent's health plan), and those age 35 to 44 and 65 and older.

• In 2011, the median earnings of women who worked full time, year-round ($37,118) was 77% of that for men working full time, year-round ($48,202) - not statistically different from the 2010 ratio.

• Real median earnings of both men and women who worked full time, year-round declined by 2.5% between 2010 and 2011.

Source: Census.gov

Ten Strategies to Maximize Your 401(k) Balance

by Emily Brandon

At a time when most people don't have a traditional pension, growing and then protecting your 401(k) balance is essential to a secure retirement. Pay close attention to 401(k) rules to make sure fees, taxes, and other mistakes don't unnecessarily reduce your 401(k) balance. Here are 10 ways to make the most of your 401(k) plan:

Don't accept the default savings rate. New employees are increasingly likely to be automatically signed up for a retirement account at work, most often by having 3 percent of their pay deposited in their company's 401(k) plan. But saving 3 percent of your salary, while certainly better than no savings, may not be adequate to maintain your current lifestyle in retirement. "For a lot of people, that is not going to be enough," says Michele Clark, a certified financial planner for Clark Hourly Financial Planning in Chesterfield, Mo. "When you get a raise, save 1 percent more every year until you can get up to hopefully 20 percent of your pay."

Get a match. The most common 401(k) match is 50 cents for each dollar saved up to 6 percent of pay. If your employer offers a 401(k) match, make sure you save enough to take advantage of it. Capturing a 401(k) match is one of the fastest and most painless ways to boost your 401(k) balance.

Stay until you are vested. You won't get to keep the 401(k) match from your employer until you are fully vested in the 401(k) plan, which can sometimes take as long as five or six years of service at the company. Some employers allow people who leave before they are fully vested to keep a portion of the match based on their years of service, while other companies require workers to forfeit the entire match. It can sometimes be worth thousands of dollars to continue to work for a company until you are fully vested in the 401(k) plan. "If you are in a miserable employment situation or have a life-changing opportunity to go somewhere else, maybe you have to sacrifice the unvested portion," says Joel Kelley, a certified financial planner for Woodstone Financial in Asheville, N.C. "If you are considering a lateral move career-wise, you should definitely take that into account."

Will Your Income Needs Trend Down as You Age?

by Christine Benz

The 4% rule for safe portfolio withdrawals during retirement is a widely cited rule of thumb, probably because it's easy to use and remember. But it also has its share of detractors, who have reasonably pointed out that it is an overly simplified take on an exceptionally complex problem.

Under the 4% rule, retirees withdraw a fixed dollar amount of their portfolios per year, adjusting that amount upward each year with inflation. The trouble is, that static spending rate ignores the fact that the portfolio's value is fluctuating underneath the surface. By turning a blind eye to market conditions and portfolio performance and sticking with a fixed dollar amount withdrawal, the retiree may be taking out an outsized share of the portfolio in bad years and too little in good ones.

The other big problem with static spending rates is that they don't jibe with real life. Emergency expenses and planned splurges cause all of us - whether retired or still working - to spend more in some years and less in others.