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How to Fix Your Retirement Plan after a Break in Savings

Posted on September 15, 2011 by Erin

A few years ago, having large gaps in your employment history may have been frowned upon.  These days, it’s not unusual for many people to have large gaps of time in between jobs.  Though most people are concerned about the appearance of gaps, the most serious implication long term unemployment can have  is the daunting task of  having to play catch up to your retirement savings.

Young savers in their 20s and 30s who have a gap in their retirement savings take a hit on their final retirement account because they miss out on the compounded returns.  Luckily for them, there is time to make up for lost money.  Adding a higher percentage to monthly 401K contributions or contributing any on hand money into a separate retirement plan like a Traditional or Roth IRA can help.

As people get older, the gaps in time become less damaging to their final retirement savings, but the contributions that are made need to be larger in amount and in a smaller amount of time.  The key to all of this is to plan ahead for the unexpected.  Create a rainy day fund that is specifically for emergencies.  Avoid pulling money out of any account that is meant for retirement.  You never know what tomorrow will bring, so plan today to help yourself out in the future.

Read more about what you can do to catch in retirement savings.

Need help figuring out where you are in your retirement planning?  Use our Retirement Calculator to find out!

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Big 401k Gains For Those Who Stuck With It

Posted on August 19, 2011 by Erin

Do you find it difficult to simply “ride the storm” when it comes to the stock market and your investments?  Most people do!  It’s easy to want to see what impact the huge dips in the market do to your accounts even though we know the rule – If you don’t need the money anytime soon, leave it alone.  Well, here’s some motivation to follow that rule of thumb if you still don’t think you can.  It was reported that those who stuck with it in the madness that was 2008 and 2009, saw their 401k account balances increase more than those who took their money and ran

What did you do during that time period with your money?  Did you leave it in your accounts or pull out?   Are you happy with the decision you made?

See how prepared you are for retirement by using our Retirement Calculator.

Need help with your investments?  A financial planner may be a good option for you.  See why, here.

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Would a U.S. Default Mean Less Retirement Savings?

Posted on July 26, 2011 by Erin

The world is waiting to see what the U.S. government will do in the upcoming days regarding a possible default.  Today, the Assistant Secretary of Labor, Phyllis Borzi announced that for retirement plans such as IRA’s and 401ks, a U.S. default would be “very, very disruptive.”  Why is this?  According to Borzi, the likelihood of investors wanting to invest would greatly decline due to fears that they would not be able to easily access their money due to withdrawal restrictions.  Pension funds would also be greatly affected because most of them are required to hold AAA bonds and U.S. treasuries.

Are you worried about your retirement funds if the government defaults?  What are your thoughts on the situation?

See how strong your retirement plan is by using our Retirement Calculator.

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Banking on Fear?

Posted on June 30, 2011 by Erin

Investing in funds that hope for financial Armageddon?  They’re a real thing and some investors believe they are a new necessity.  Black swan funds, as they are often referred to, are in the simplest of terms, an insurance policy against a financial crisis.  You pay money into a health plan hoping you don’t need to use the hospitalization coverage, but if you do, you know that you are covered.  A Black Swan fund operates in a similiar way – you will lose the money that you’re putting into it at the time, but if anything ever happens, you stand to gain a pretty penny.

After all that has been happening with world markets in the past years, Black Swan funds sound like a must for any investor.  As Zvi Bodie, a professor of finance at Boston University said, “In the last decade, we saw two stock market crashes, which wiped out any gains for investors over the decade and meant disaster for those who had to take their money out to meet big expenses at market lows.”  Bodie believes that has in turn made current market investors more aware of risk.  This heightened awareness could cause Black Swan funds to grow in popularity but as some point out, these funds are designed to protect against the last catastrophe – not the next one that lies ahead.

Would you put your money into these types of funds?  Or do you think this is just another Wall Street fad?

Read more on Black Swan funds, here.

Is your retirement plan diversified enough?  Find out here by using our retirement calculator!

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Sick of Stocks?

Posted on June 9, 2011 by Erin

Have you lost faith in the stock market?  If so, you’re not alone.  In a study put out by Prudential Financial, it was found that almost 6 out of 10 investors have lost faith in stocks.  Not really a surprise when you consider what we’ve all been through with the market these past few years.

But what’s the alternative?  We know that low risk investments such as CDs are safer, but they also don’t yield the big payments that aggressive, well performing stocks can produce.  If you plan on dumping your stocks and sticking with low risk and low earning alternatives, you need to be realistic about your financial future.  Will you be able to save enough for retirement by cutting out risk?  Or are you one of those 6 out of 10 investors that simply don’t care and are done with stocks?

Read the full article, “Survey: Nearly Half of Americans Plan to Never Invest More in Stocks,” here.

Do you know where you stand regarding your retirement planning?  Use our free Retirement Calculator.

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Retiring Boomers Find 401(k) Plans Fall Short

Posted on February 25, 2011 by Jason

The Wall Street Journal, February 19th, 2011

The 401(k) generation is beginning to retire, and it isn’t a pretty sight.

The retirement savings plans that many baby boomers thought would see them through old age are falling short in many cases.

The median household headed by a person aged 60 to 62 with a 401(k)
account has less than one-quarter of what is needed in that account to
maintain its standard of living in retirement, according to data
compiled by the Federal Reserve and analyzed by the Center for
Retirement Research at Boston College for The Wall Street Journal. Even
counting Social Security and any pensions or other savings, most 401(k)
participants appear to have insufficient savings. Data from other
sources also show big gaps between savings and what people need, and the
financial crisis has made things worse.

This analysis uses estimates of 401(k) balances from the end of 2010
and of salaries from 2009. It assumes people need 85% of their working
income after they retire in order to maintain their standard of living,
a common yardstick.

Facing shortfalls, many people are postponing retirement, moving to
cheaper housing, buying less-expensive food, cutting back on travel,
taking bigger risks with their investments and making other sacrifices
they never imagined.

“Inevitably, we find that, for the average person, there is not
enough there,” says financial adviser Paul Merritt of NTrust Wealth
Management in Virginia Beach, Va., who has found himself advising many
retirement-age people with too little savings. “The discussion turns out
to be: What kind of part-time work do you want to do after you retire?”

He has clients contemplating part-time work into their 70s, he says.

Tax-deferred 401(k) retirement accounts came into wide use in the
1980s, making baby boomers trying to retire now among the first to rely
heavily on them.

The problems are widespread, especially among middle-income earners.
About 60% of households nearing retirement age have 401(k)-type
accounts, according to government data, and those represent the majority
of most people’s savings. The situation is less dire for those in a
higher income bracket, who tend to save more outside their 401(k)
accounts and who have more margin for error if their retirement returns
fall below the recommended 85% figure.

Read more of this article.

With Retirement Savings, It’s a Sprint to the Finish

Posted on January 24, 2011 by Jason

The New York Times, January 21st, 2011

What would you do if your financial planner prescribed the following advice? Save and invest diligently for 30 years, then cross your fingers and pray your investments will double over the last decade before you retire.

You might as well go to Las Vegas.

Yet that’s exactly what many professionals and fancy financial calculators have been telling consumers for years, argues Michael Kitces, director of research at the Pinnacle Advisory Group in Columbia, Md., who recently illustrated this notion in his blog, Nerd’s Eye View.

The advice is never delivered in those exact words, of course. Instead,
this is the more familiar refrain: save a healthy slice of your salary
from the start of your career, invest it in a diversified portfolio and
then you should be able to retire with relative ease.

The problem is that even if you do everything right and save at a
respectable rate, you’re still relying on the market to push you to the
finish line in the last decade before retirement.
Why? Reaching your goal is highly dependent on the power of compounding
— or the snowball effect, where your pile of money grows at a faster
clip as more interest (or investment growth) grows on top of more
interest. In fact, you’re actually counting on your savings, in real
dollars and cents, to double during that home stretch.

But if you’re dealt a bad set of returns during an extended period of
time just before you retire or shortly thereafter, your plan could be
thrown wildly off track. Many baby boomers know the feeling all too
well, given the stock market’s weak showing during the last decade.

“The way the math really works out is unbelievably dependent on the
final few years,” Mr. Kitces said. “I just don’t think we’ve really
acknowledged just what a leap the very last part really is.”

Consider the numbers for a 26-year-old who earns $40,000 annually, with a
long-term savings target of $1 million. To get there, she’s told to
save 8 percent of her salary each year over her 40-year career. (We
assumed an annual investment return of 7 percent, and 3 percent annual
salary growth, to keep pace with inflation). Yet after 31 years of
diligent savings, her portfolio is worth just slightly more than
$483,000.

To clear the $1 million mark, her portfolio essentially must double in
the nine years before she retires, and the market must cooperate (unless
she finds a way to travel back in time and significantly increase her
savings).

Read more of this article.

Avoid taxes: Put your riskiest investments in your Roth IRA

Posted on December 23, 2010 by Jason

USA Today, December 23rd, 2010

Q: What kind of investments make sense for a Roth IRA?

A: You might think your individual retirement
accounts are a place to be financially conservative. But just the
opposite is true, at least when it comes to your Roth IRA. A Roth can be
a great place for your riskiest investments. I’ll explain why in a bit.

First, let me say if you don’t have a Roth IRA,
you should open one. Thanks to changes in the tax laws, if you couldn’t
have a Roth before, you may be able to now.

The rules regarding who can contribute to a Roth
are strict. And in the past, single and married taxpayers with modified
adjusted gross income of more than $100,000 couldn’t convert traditional
IRAs to a Roth. But that rule disappeared this year.

You can read more about who can fund a Roth or convert a traditional IRA to a Roth here: www.usatoday.com/money/perfi/retirement/2010-02-19-iraconversion19_CV_N.htm

OUTLOOK: Forecasters predict market gains in 2011
MORE: Ask Matt column index

But your question gets at something else. What kind of investments make the most sense in this unique retirement account?

To understand the answer, it’s critical to
understand the key advantage Roths have. With these retirement accounts,
you contribute money that’s already been taxed. You can then take out
your contribution and the earnings without paying additional taxes, if
you meet certain requirements.

Roth IRAs have a second big advantage: You’re not
required to take distributions when you reach 70 1/2, as is the case
with other retirement accounts.

Due to these two characteristics, Roth IRAs are
perfect candidates for your riskiest and most aggressive investments.
This might seem counterintuitive because you probably think you should
be safe with money that’s earmarked for retirement. And if your Roth is
your only retirement savings account, then that’s true, you’ll want it
to be a traditional diversified portfolio.

Read more of this article.

401k and IRA programs:  There are many different strategies and options concerning retirement accounts such as Roth IRAs that one should consider before making a decision as to how and where to invest.  Learn what the options and rules are at NewRetirement.com

Giving a Gift and Getting a Return

Posted on November 11, 2010 by Jason

The New York Times, November 10th, 2010

FOR retirees increasingly worried as interest rates on their savings
accounts and money market funds have plunged below 1 percent, an appeal
from their alma mater or a respected charity, offering a return of 5
percent or more on a charitable gift annuity, can seem like a rare
opportunity.

Is it? Or is there a catch? The answer to both questions is no. But the questions are simplistic.

Better to ask yourself: “Do I want to support the charity?” and “Is a
gift annuity a wise choice for me?” If you answer the first one with a
yes, then you need to assess your finances and understand what
charitable gift annuities are and how they work.

“Some people assume it’s like a bank account,” said Avery E. Neumark, a
retirement specialist and partner in the New York accounting firm Rosen
Seymour Shapss Martin & Company. “But it’s not. It is just what the
name says — a gift. You give away the principal, and you get a
guaranteed lifetime income. You can’t compare that with today’s money
market rates. The downside is you are locked in.”

The rates, which far exceed today’s annual 1.1 percent inflation rate,
might seem low years from now if inflation heats up.

For the choice to be a wise one, Mr. Neumark said, people should
generally be nearing retirement and charitably inclined, have liquid
assets and other income and have taken care of other needs. “I had one
client who did very well,” he said. “He was 90 years old, so the rate
was very high, and he lived until he was 103.”

The American Council on Gift Annuities
defines the product as a contract under which a charity, in return for a
gift of cash or property, agrees to pay a fixed amount over the term of
either one or two lives, usually the donors’. Most reputable charities
use rates recommended by the council, which vary with the annuitants’
ages and whether there are one or two. Because of the charity, there are
tax benefits.

For a single life, the latest rate table called for a 55-year-old to
receive 5 percent a year, a 60-year-old 5.2 percent, a 65-year-old 5.5
percent, a 70-year-old 5.8 percent, an 80-year-old 7.2 percent and
someone 90 or older 9.5 percent.

Read more of this article.

Annuity Advice for Retirement:  Even if a charitable gift annuity isn’t right for you, a standard annuity can provide many of the same benefits without some of the downsides.  Consider whether an annuity is the right move for you at NewRetirement.com

Money Woes Can Be Early Clue to Alzheimer’s

Posted on November 3, 2010 by Jason

The New York Times, October 30th, 2010

Renee Packel used to have a typical suburban life. Her husband, Arthur, was a lawyer and also sold insurance. They lived in a town house just outside Philadelphia, and Mrs. Packel took care of their home and family.

One day, it all came crashing down. The homeowners’ association called
asking for their fees. To Mrs. Packel’s surprise, her husband had simply
stopped paying them. Then she learned he had stopped writing checks to
his creditors, too.

It turned out that Mr. Packel was developing Alzheimer’s disease
and had forgotten how to handle money. When she tried to pay their
bills, Mrs. Packel, who enlisted the help of a forensic accountant,
could not find most of the couple’s money.

“It just disappeared,” she said.

What happened to the Packels is all too common, Alzheimer’s experts say.
New research shows that one of the first signs of impending dementia is an inability to understand money and credit, contracts and agreements.

It is not just families who are affected — financial advisers and lawyers say they are finding themselves in a bind when their clients’ minds seem to be slipping.

The Financial Industry Regulatory Authority, the largest nongovernmental
regulator for securities firms doing business in the United States,
recently met with individual financial services companies and the Alzheimer’s Association
to formulate guidelines on how to deal with clients who have trouble
remembering and reasoning, a problem that is not new but is increasing
as the population ages.

Read more of this article.

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