Your retirement plan - like your will - needs to be revisited and updated when necessary to stay current with the present economy and market conditions. Gone are the days where you could just set it and forget it. Wall Street averages rise and fall, business that have been with us for years are having difficulty competing in international markets, and the economy itself changes quickly and rapidly so your retirement nest egg may wind up with several cracks in it. Many of you have seen your 401(k) plans fall 30% or more in value proving that markets go up as well as come down.

RETHINKING

Even if you are several years away from your retirement – now is the time to access your savings and investments, delay retirement by a few years, and increase savings. You may not be as risk free as far as your investments strategy used to be a few years ago. But there is a silver lining in the storm clouds – even a very few changes such as increasing your savings in a tax deferred 401 (k) plan may get your right back on track.

The bad news is that many of us are making bad decisions.  which makes the situation worse. That is why it is always beneficial to seek the advice of several qualified professionals (especially those who do not work on a sales commission) to form several opinions for you in regards to your savings plan. You maybe be saying that you can’t afford a professional opinion and I would add you can’t afford not to - unless not having enough money to retire is no problem for you.

THE 401 (k) PROBLEM

The first rule of saving for retirement is maxing out your 401(k) contributions. This is the percent or dollar amount your employer is matching on your contributions. For example, if your employer matches up to 50% of your contributions up to 8% of employee contributions – then you should make sure you are saving at least 8%. The employers contributions is tax free money (until distribution normally at retirement) that you don’t want to leave on the table. The only exception is if you can find an investment that earns more after tax that the employer contribution and the plans earnings – that is very hard to do especially in a flat market. Self employed individuals should look at the possibility of a Sep IRA for tax differed savings or at least check with a professional advisor.

FOLLOWING THE CROWD

Many investors have moved their investments from stocks to a more conservative position such as bonds. But history and logic tells the professional investor that the time to buy stocks is when the stocks are low as they are now. You should never place all your eggs in one basket – so a mix of stocks, bonds and money market investments makes sense. Here a professional advisor can help you determine the mix. NOTE: Before investing (except in a qualified retirement plan) you should pay off all debt. The finance charges normally are always higher than what you can earn on an investment. After clearing all credit cards – look at the possibility of paying off your mortgage sooner.  With no debt to worry about – fewer funds are needed at retirement and increase your risk tolerance.

RISK TOLERANCE

Everyone’s risk tolerance is different depending on age, income and personal strategy. You should (as a general rule) have at least six to eight months of net earnings in a very liquid investment such as a money market or T-bills for emergencies – assuming you have paid off all debt. Depending on your disposable income (after these savings) you are free to invest in more risky vehicles such as stocks. NOTE: You should not ask a stock broker where to invest your funds unless you personally know the individual and they have an excellent history of making money for their clients – they work off a commission so it truly doesn’t matter to them if you win or lose.

But  the fact still remains that many investors have lost money – even in their 401(k) plans that they need to be more proactive than before if they want to see the values come back . This means reviewing your mix of funds and seeking professional advice on meeting your long term goals. As you grow older – you will have to face rising medical costs and you should always have a plan to handle emergencies whether it is insurance or savings.

Please keep in mind that most new retirees spend more after retirement for the first few years than before ( travel, new hobbies, health clubs). That is why it is so important to determine what you are spending now so you can see what you can and can’t afford. Do not use debt to finance any new activities or excursions.  The key here is you should always know what you are going to do after you retire.

RETIREMENT MISTAKES

The biggest retirement mistakes that most people make are:

 ·      Procrastination

Most younger people have no idea that in no time at all they will be at retirement age. Since retirement is the last thing on their mind, many 25 year olds often do not see where a $5000 annual 401(k) contribution not only saves current taxes but can be worth over a million dollars at retirement.  Someone starting at 45 would be lucky to achieve a third of that amount. The first rule in retirement planning is: It is not how much you save but how long that counts - pyramiding is the key. Not that more contributions don’t help - but it would take normally take a 45 year old - 3 times the amount in monthly contributions to equal what a 25 year old could do starting at the same time – all other things being equal.

                                                                   SO START TODAY  !

·       Mismanagement of Your 401(k) and investments

Remember with your 401(k) – you are the one who controls where your funds are invested.

Many plans offer rollover options to new providers if you leave your current employer. Certain Roth plans have contributions made with after tax dollars but earnings are usually tax free.

Never borrow from your 401(k) unless interest rates for loans are extremely high.

Re-evaluate your retirement plan investment strategy (with a professional if necessary) to see if your present strategy is still good for the next few years.

To properly manage Your 401(k) you are going to have to run the numbers (before and after tax) to see if your strategies make sense. This is where a professional advisor and tax expert can help.

You need to know exactly the minimum amount you need to save to meet your goals.

·       Retiring Too Early

We need to face the truth. Many of us are going to have to work longer to make up for what happened to the values of their 401(k) and other investments for the last several years.

If you are going to take out 4% or more from your retirement plan in the first year  - then hold off early retirement.

You will have to consider health care cost especially between your employers’ plan and what Medicare pays. Securing private insurance can be very expensive.

Social security benefits increase the longer you defer retirement. If you retire early you lock in contributions at that age and they do not increase just because you are older. It is always a good idea to check with the social security office several months (if not longer) to see what your retirement benefits would be. NOTE: Unless you have other insurance and/or are wealthy – most people select and take Medicare part (B) which reduces their benefits but also pays more for medical treatment.

See Social Security Chart Below.

·         Stop Investing After Retirement

`      People are living longer and there is a good chance you might out live your nest egg.  This means you should continue making investments and be careful that they are not overly conservative. Your investment returns should at minimum exceed the rate of inflation in earnings.  Also you should consider a Roth IRA because the earnings are tax free. A good rule of thumb is people over 65 should have at least 40% of the portfolio invested in securities.  Also look at mutual funds – many have a history (greater than five years) of earnings before tax of 20% or more who are not putting your money all in one basket.

·        Failure to Diversify

Even though the economy is in a slump, that in itself does not warrant anyone to be extremely conservative. Depending on how many years until retirement, your risk tolerance , and your ability to manage your investment – you may want to consider – high growth stocks who have outperformed the market  over the last 10 years. This is the time to buy when prices are low. Always consult with a professional advisor unless you have funds to gamble.

There are also target date funds that will pay the mentioned amount at the date agreed upon in the contact. You may not get a maximum return but at least you can lock in a return.

Annuities – there ae several annuities handle by several major financial institutions that will pay you a return and never touch the principal. Many offer options after a certain time where you can move your money to other investments.

·       What You Earn – Sometimes The Tax Man Takes Away

Social security benefits normally are not taxable unless your adjusted gross income exceeds a certain amount then the benefits can be partially or fully taxable depending on your income.

When you consider the cost of gasoline, meals and travel – taking a part time job means that you could wind up after tax with very little to show for it.   The same could be true from your investments. If they cause your earnings to exceed a certain amount – you may be taxed on all your social security benefits.  However, there is normally little cost or effort involved with investments and the tax rates could even  be cheaper.   Again -  seek professional tax help.

·       When it comes to saving - the best approach is to pay yourself first (make the payments for your investment) then you can use the balance of your disposable income to pay bills. This helps you to get use to keeping a budget on your spending.

Social Security Chart

 Use this chart to find your full social security retirement age.

                                Year of Birth                       Retirement Age

                            37  & Prior                                           65

                            38                                                           65 & 2 months

                            39                                                           65 & 4 months

                40                                                           65 & 6 months

                41                                                           65 & 8 months

                42                                                           65 & 10 months

                43 – 54                                                  66

                55                                                           66 & 2 months

                56                                                           66 & 4 months

                57                                                           66 & 6 months

                58                                                           66 & 8 months

                59                                                           66 & 10 months

                                60 or later                                           67

   

MEMORIES:

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OPPORTUNITIES:

The following links maybe of interest to Seniors, since the investment is small and the rewards are equal to the amount of effort you put into it.



Link to Project Payday

Link to Rich Jerk

Link to ACA Utility Software

Link to Gaming. Free Factor





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