Saving for Retirement
When you come right down to it, the secret to investment success
isn't found in allocations, mutual funds, stocks, or bonds. It's
not found with your investment advisor. And it surely isn't found
at a "free" dinner advertised through direct mail.
The "secret," if it can be called that, is saving enough
money--putting enough money into your accounts, over time, for
that money to grow and work for you, behind the scenes.
So how do you start a savings routine? Is there a magical formula
that you have to apply to your monthly income? Are there special
accounts you have to start using? Do you have to spend hours of
research time trying to figure out what to do and how to do it?
No. Just start saving. Try saving 10% of each paycheck. If that
goes well for you, try saving more, and keep saving more until
it starts to hurt. If you can’t start with 10%, start with
5%...or less. The idea is to save a small portion of your earnings
each time, over a LONG period of time, so that you don’t
have to save a LARGE amount of your earnings (if that’s
even an option for you) over a SHORT period of time.
What's this mean in more specific terms?
If you're enrolled in a retirement plan at work, keep saving
money each pay period, and try upping the percentage of the automatic
deduction into your account
If you're not already enrolled in the retirement plan at work,
ENROLL! Talk to your HR rep as soon as possible and start the
sign-up process.
If you're already maxing-out your retirement plan contributions,
and if your income level qualifies you for a Roth IRA, contribute
to the Roth.
Remember--you can't do any investing if you're working with a
$0.00 balance.
You worked hard to save your money and build up the amounts in
your retirement accounts. Don’t blow it at the last minute
and sink your money into horrible investments.
You may have heard us answer callers’ questions about
load funds, annuities, options or FOREX trading, or commodities.
Click through to the different NASD Investor Alerts to learn the
particulars of these must-avoid investments.
Annuities
High fees. Long surrender periods. Poor investment choices. Earnings
taxed at ordinary income levels. If all of these sound great to
you, you’d be a perfect client candidate for an annuity
salesman.
Click here to learn more.
Load Funds
Paying a commission to purchase mutual fund shares can be like
choosing where to fill your car’s tank with gasoline. Two
stations, one across the street from another, each sell the same
gasoline—-one, though, charging you an extra $0.25 to pump
your gas for you.
Which one would you pick?
Click here to learn more.
Other Avoidable Investments
...are soon to follow!
If you remember one thing, remember this: if it sounds too good
to be true, it probably is.
Interested in learning more about your current and future financial
situation? Click here for different financial calculators including:
A retirement planner--is your savings plan working as it should?
An IRA selection tool--which one is more appropriate for your needs?
An investment returns tool--how do external factors affect your portfolio's return?
You’ll hear us occasionally refer to the concepts of
“Rich Man, Poor Man,” and we’ll often invite
listeners to email us for their own savings spreadsheet.
“Rich Man, Poor Man” was a piece originally written
by Richard Russell, publisher of the Dow Theory Letters. It details
different items that must be taken into account when developing
and maintaining a financial plan, including the benefits of compounding
as well as the attitudes of the wealthy and the not-so-wealthy
towards investing.
From Russell’s Dow Theory Letters Inc. Online:
Compounding is the royal road to riches. Compounding is the safe
road, the sure road, and fortunately, anybody can do it. To compound
successfully you need the following: perseverance in order to
keep you firmly on the savings path. You need intelligence in
order to understand what you are doing and why. And you need a
knowledge of the mathematics tables in order to comprehend the
amazing rewards that will come to you if you faithfully follow
the compounding road.
Click here to link to the original article, or click
here (PDF) to view Denny's example
of the early saver versus the late saver.
Sadly, what should be an incredible employee benefit often turns
out to be an employee nightmare. Too many choices? Not enough
choices? What about the allocation? How much to save?
Don’t let the stress of these decisions build up and prevent
you from participating in your employer’s retirement plan.
The money you elect to save is automatically deducted from your
paycheck each period and moved to your account. Better yet, your
taxable income is reduced by the same amount—you’re
paying less in taxes, and you’re saving for your future
at the same time!
If you’d like help optimizing your 401k, send an email
to denny@wibc.emmis.com. Be sure to include a COMPLETE list of
the choices available to you for investment within the plan.
The information you’ll receive will be just like the information
we give each week on the air—what to look for, what to
avoid, and how to allocate your available investment dollars.
...will be explained--as usual--on the air, and they'll be addressed
in more detail, here, soon!
One of the more frequent questions that we answer each week
on the show involves 401k-to-IRA rollovers.
When you’re a current participant in your company’s
retirement plan, you don’t have many options (if any) as
to what you can do with that money. Sometimes you’re able
to take loans out against the account, but those must be paid
back in full once you are no longer a plan participant. Sometimes
you’re able to rollover company stock that has vested (Eli
Lilly and Co.’s plan is a good example of this—into
an IRA on a separate platform).
Past that, you’re pretty well stuck within the plan. Once
you leave the company, though, you’ll have more options—namely, the ability to roll the balance of your 401k account (or
403b or 457 account) into an IRA on an outside platform.
Be sure to remember the following as you move through this rollover
process:
Open your IRA on an “open platform.” Don’t
limit yourself only to the choices available within one mutual
fund family or a few families. Chances are slim that all of the
best funds in all of the different asset classes come from the
same family…so be sure to give yourself the depth and breadth
of options that you were lacking at work.
Don’t take direct possession of the rollover dollars. If
you request a rollover check and cash that check in a personal
checking or savings account, you become responsible for paying
capital gains taxes on the earnings…that is, unless you
move those assets to a qualified account (i.e. an IRA) within
60 days. When you request the rollover check, you'll want to make
sure that the check is made payable to the CUSTODIAN of the account
FOR BENEFIT OF (FBO) you.
Keep checking back, here, for more hints and tips about rolling
your 401k to an IRA, and keep listening each week for
additional ideas.
