Financial Planning

There are many ways that you will hear about what you should do for your retirement. You will get retirement planning advice from many places and some can be good and others can be the wrong information for you. There are different ways that you can go about your retirement planning. You will want to do what you think is going to be best for you so that you have the maximum amount of income for the day that you decide to retire.

Taking advantage of the retirement planning process when you are young is the best thing to do. This is a good piece of advice for anyone to take. It is going to be the best way that you can be sure that you are taken care of when the time comes for you to retire. You want to make sure that you have everything that you need and want for that matter when you decide to stop working. It is a scary time and you will want to feel better knowing that you made the right choices all along.

Many times you will find retirement planning advice from your employer. They will have some type of retirement fund program and this may be the one option that you have. You will want to check into all the background information to make sure that you are informed about everything that there is to know. You do not want to miss anything because it may be important for you later on down the road.

Sometimes you will get advice from your family and friends about what you should do for your retirement. It is a good thing to listen to them and what they have to offer you, however you should still check out your options and figure out what is going to be best for you and your situation. Make sure that you are thinking about what you may want to do when your retirement comes. Do you have certain hobbies that you want to take part in? Are there things that you want to explore in life? If so, you need to be sure that you have taken the right retirement planning advice and are set up financially for everything that you have in mind.

Read up on all the information that you can as well. There are plenty of articles and topics on this subject. You will want to find out all that you can so that you are prepared to make all the final choices for your retirement planning. There is advice that you should take so that you are able to make the right choices and you will want to be sure that you do what you feel is going to be the best plan of action for your needs.

Many of you are in the red zone right before retirement, or you’ve already retired. No doubt your number one fear is running out of money in retirement. You’re part of a very large and growing demographic force: 35 million over age 65, 50 million drawing Social Security and 78 million baby boomers now turning 62. This means the future demand for everything used by the “retirement set” will increase, and “retirement prices” will rise dramatically. Many of you may have accumulated a retirement nest egg in a pension account, will draw a company pension and/or have other savings and investments earmarked for retirement. Where should you keep your retirement money?

If you’re keeping up with economic and financial developments, here’s what you’re seeing: sub-prime credit meltdown that has destroyed housing and is now spilling over into automobile debt and credit cards; highly volatile stock and bond markets; a weak dollar fueling higher prices for oil and other goods; more unemployment and rising inflation; retail sales, consumer confidence and new jobs creation in sharp decline; drastic interest rate cuts by the Federal Reserve to avoid a recession; a money giveaway stimulus package from Washington to prop up the lagging economy; widespread talk of recession and stagflation. These all add up to troubled economic times which should prompt you to review where you have your retirement money.

You’re told the stock market is the best long term, but “long term” has a different meaning in retirement. Didn’t the dot.com stock market meltdown in 2000-2002 send many retirees back to work and prevent others from retiring? Aren’t the current inflation-adjusted stock market indexes below their previous peaks? Regardless, the loud voices of Wall Street and investment companies are advising you to buy now at bargain prices. Are the markets headed higher or is their advice self-serving? Who can forecast the economy or the stock market?

If the stock market craters as it did in 2000-02 and 1973-74, and you lose some of your retirement money, how will you replace it? Since there will be no second chance, I encourage you to think carefully before you commit your money. If you’ve been told that you’ll do just fine over the longer run (generally meaning ten years), make sure you can wait this long for a market rebound. Also remember that a rebound is not certain!

What about fixed rate places like government bonds, bank CDs and money market accounts? These are rock-solid safe unless your greatest fear is outliving your money. Since current fixed rates are lower than inflation, you’ll be losing purchasing power with these choices. The potential loss of purchasing power will only add to the risk of outliving your money. What about real estate, collectibles and non-market investments? These are not only risky but generally illiquid. Before committing your retirement money, ask yourself this question: “How will I handle the worse case outcome?”

There is one savings place that offers an “opportunity” to make an above-market rate of return without the risk of loss if held to term. It is guaranteed by some of the world’s oldest, strongest and largest financial companies. The rate of return is determined by stock/bond market indexes with owners sharing in the upside potential but avoiding downside losses. The worse case outcome is a guaranteed positive rate of return. The earned interest is income tax deferred until actually withdrawn and there is no mandatory age when the money must be used. Additionally, it can be turned into a guaranteed lifetime income that can be started, stopped and stored. What’s more, it offers penalty-free partial liquidity for emergencies and bypasses probate if the owner names a beneficiary. It can be opened for a small or a large amount, and sometimes more money can be added later. There is no law which limits the amount of money that can be placed in it. It is truly a safe place to keep retirement money.

It is maligned by Wall Street and bankers because it competes with their products. The financial press doesn’t like it either – primarily because they are uninformed, misinformed or just plain biased. I’m talking about fixed index-linked annuities that are offered by insurance companies: the same companies that insure your home, live, health, business and other valuable assets. The worse case outcome is a positive, albeit small, rate of return if held to maturity, but there is an opportunity to do much better. Fixed index-linked annuities are not for everyone, but you need to consider them as one of your safe options for retirement money. Where are you keeping your retirement money in today’s uncertain and troubled economic climate? If in risky places, now is a great time to review your options.

Shelby J. Smith, Ph.D.

February 2008

Allow me, if you will, to offer the following definition of retirement. Retirement is the state of having separated from one’s paycheck-to-paycheck job. The “paycheck-to-paycheck” description is important. The majority of people who retire to incomes lower than their pre-retirement levels are paycheck-to-paycheck employees. Chances are, since you’re reading this article, you’re one of the paycheck-to-paycheck people.

Let’s say this is you: You’ve got a decent job, maybe a good one. Most of your paycheck is being eaten up by life’s necessities, but you manage to put away as much as you can into your 401(k) retirement plan. Retirement is looming in the not-too-distant future, and the prospect for accumulating enough savings or investments that will equal your present income by retirement age seems very bleak indeed. Still, you get serious about saving for retirement. You might even engage the services of a Certified Financial Planner. Part of your plan is based on maximizing Social Security benefits. Now what?

Financial planners rarely, if ever, plan for you, the client- retiree to retire financially independent (with the exception of the few high income clients). What most financial planners don’t tell you is they target a 20-35% decrease of income to you in retirement. The decrease may be as high as 50%! That’s not a knock on financial planning or financial planners. Most of them are doing the best they can with what they have to work with. There generally is simply too much month at the end of each paycheck for most people.
Herein is the age-old problem: Most people in the United States of America, I repeat, do not earn enough money to live comfortably during their pre-retirement years and retire comfortably as well. That means any financial planning you do is being done to target a decrease in your living standards by 20 to 50 % in retirement!

Remember, you do not have to live on less in retirement. No matter where you are right now financially, you can build and enjoy a retirement lifestyle you desire. Peace.

If you’re young and just beginning your career, retirement planning may seem so far off that it’s the last thing on your mind. If you’re on the opposite side of the fence, with retirement approaching, you may be trying to figure out how to handle it. Regardless of your unique situation, it’s an absolute must that start preparing now. With the gas prices at new highs, recession fears, and Social Security instability, retirement planning is not what it used to be. As a result you must invest for your retirement, not necessarily save for it.

First of all, your place of employment may or may not offer some sort of retirement plan. Back in the day these were called pension plans and the were a solid part of the retirement planning process. As the economy turns into a more competitive global economy these older more reliable plans are becoming a thing of the past. As a replacement, you should be offered something by the name of a 401k plan.

401k plans are a powerful way to invest for retirement over time. They usually allow you to invest in a number of mutual funds and company stock. When making your investment selection it’s important to practice diversification. You should spread out your investments in different asset classes. And most importantly, let’s let the Enron debacle provide us with a good example of what not to do. You should never have all your retirement funds in your company stock. Never. No matter how solid you think your company is, things can go bad. And when they do go bad, you’ve not only lost your job, but your retirement too.

Now, if your employer does not offer a 401k plan, it’s more important then ever to take a proactive approach. You’ll want to set up an Individual Retirement Account, or IRA. An IRA is an excellent way to start your retirement planning process, especially when a 401k plan is not available to you. Traditional IRA’s allow you to deduct contributions, so you get the taxed deferred growth until retirement. Roth IRA’s work adversely, in that they are not deductible upon contribution, but are completely free of tax in retirement.

The most important step in retirement planning is the simplest one–getting started. The earlier you take action and start investing for your retirement the much larger your retirement. Time is a funny thing, starting early is more important than getting great returns or investing large amounts. Take the first step and just get started, no matter how small the investment.

If you’re company offers a 401k retirement plan it’s even more prudent to start early. Most companies offer a company match for your 401k plan contributions. This means that for every dollar you contribute, they’ll often match that dollar for dollar, up to a certain limit. So, at the very least you should utilize a 401k plan up to the company retirement plan match. This is easy money, as you’ll be receiving a 100 percent return on your money, right off the bat. Where are you going to get those returns? The answer, is not anywhere without a lot of risk. You can then add that 100 percent to any market returns you capture over time. And the beauty of it all is a $100 deduction out of your payroll will feel like less because it’s pre-tax. All these benefits really make starting a 401k plan a no-brainer.

When getting started with the 401(k) process, just get started. If you have access to a 401k retirement plan, take advantage of it. If you don’t it’s probably even more important to take advantage of an IRA. Secure your financial future today.

There has always been a need for retirement planning and today is certainly no different. There are 401(k)s and many other types of retirement plans that are available to you. You will need to take the time needed to evaluate what your current financial needs are and what you expect the future to hold.

Recent events, such as the rise in energy costs and the ever-skyrocketing health care costs need to be factored in. Although gas prices have been fluctuating lately, I think they are going to go back up, possibly even surpassing the extremes we saw all too recently. These types of events can take a toll on your retirement plan very quickly. Prudent planning begins early and you need a good source of information. Websites like [http://jag-info-resources.com/retirement/] are an excellent resource to go to find answers to the questions you may have.

Did you know that most retirement plans have a ceiling of 10% of your pre-tax wages that you can contribute? While that may sound good when you view it against a 2% inflation rate, you must keep in mind that your planning today is not just for the ideal future, but the future that will be reality for you if things turn out to not be ideal or according to your plans today.

By starting early and contributing the maximum that you can afford, you will have a better chance of being prepared for the unforeseen. This is made much easier today because your 401k plan is now transferable from one employer to another. This allows you to continue to grow your retirement account even when you choose to change jobs or even careers.

Unsure of what you will need for retirement? There are calculators like the one at my site as shown in my author box below that will help you figure it out for yourself. This is a helpful tool that lets you see if you are on track or not. Don’t forget that life expectancy is getting longer. When Social Security was passed in the 1930s people lived about 2 years after retirement. Today you can expect to live 20-30 years past retirement and, suddenly, the amount you need to retire comfortably with a major change in lifestyle gets very large.

Lets say that today you need $40,000 to live on and you retire in 20 years, you will need a minimum of $850,000 to carry you through retirement. That is assuming that you will live an additional 20 years after you retire and are in good health. There is something to be said for debt reduction as being part of your retirement planning, as well, since the last thing you want to do is go into retirement with a ton of debt still hanging over your head.

Having $40,000 a year to live on with little to no debt will obviously go farther than if you still have the same debt load as you do now. If you reduce your debt load by the same amount that you save for retirement, you double your retirement savings.

One cannot have a conversation about retirement without the subject of taxes coming into it. The money you put into your 401(k) is pre-tax so you will pay taxes on it when you get disbursements. The 401(k) is intended for retirement, so there are also very heavy tax penalties if you withdraw any funds before you turn 59.5 years of age. If at all possible, do not make any early withdrawals from your retirement account, since most people have found that in addition to the heavy tax penalties for doing so, the prospect of paying it back, even with good intentions, is tougher than it seems.