Mutual Funds


We are now halfway through 2009. If you do not max-out your 401(k), 403(b) or other employer-sponsored retirement plans with the maximum contribution this halfway point in the year is good time to increase your contribution percentage to get you further towards that goal. Slowly increasing this by 1 or-3% of your pay one or two times a year will ease the decrease in take home pay so that you can easily adjust. This prevents abandoning increased contributions in the future.

Remember those that reach their retirement savings goals have a plan or a process to get there. If you are hesitant, then I suggest looking at the facts. Here is a great 401(k) online contribution calculator.  This should be utilized so you understand what the actual amount that will be taken out of your take home pay. Since 401(k) contributions are taken out of your pay before income tax is calculated, then you lower the amount of income on which you will be taxed. Fewer taxes will be taken out. The end result is that the extra 1% contribution, will decrease your take home pay by less than 1%. Look at it as your contribution is “on sale” just like your favorite brand of jeans.

Other times to increase your contribution until you are reaching the maximum include:

  • January 1
  • Your birthday
  • Date your raise becomes effective

Be sure to check with your employer-sponsored plan to see if you can enroll in an automatic increase program that will increase your contribution percentage for you. Life is busy and many of us will not remember to increase that percentage. These options automate the process of increasing your retirement savings for you! Send me a quick email at barbarakingnh@gmail.com if you have any questions.

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July 4th, our nation’s Independence Day, provide a good opportunity for reflection. Check-in with your self and answer the following questions.  Then ask them to your spouse or significant other. You may find that between the two of you, your definition and goals for when you reach financial independence  (aka retirement) are very similar or the economic crisis has your goals miles apart. The time to refocus is now.

When do you want your Independence Day (Retirement to begin)?

When do you think it will actually happen?

What changes and sacrifices are you willing to make to meet your ideal Independence Day goal?

What is the first step you are going to take to figure out the new plan? (Hint: Who are you going to talk to?)

If you are already retired – Can you afford to stay retired?

These questions will guide the process of figuring out your next steps. Just remember to write them down, so they become tangible items you can deal with vs. thoughts rambling around your head.

Yes, it is ok to look. As the end of the second financial quarter hits Wall Street it is time to see where things are at in your portfolio.  I am frequently asked “Should I even look at my investments, 401k, IRA, 529 savings plan or brokerage account?” In general, my advice has been if you don’t need it tomorrow, don’t obsess and look all the time. Instead take action where you can. This may be cutting back spending, changing investments to adjust for your new risk tolerance or saving more to makeup the gap in your account balances.  Here are my Top 10 Reasons to Sneak a Peak.

10. Admit it, you look everyday so why would today be any different?

9. Your mom told you not to look.

8. Finally you’ve made the appointment with a financial advisor and need to know where your 401(k) and IRAs are to prepare.

7. You can’t move forward with your financial plan unless you know where you are today.

6. How else will you know what to complain or brag about at the next BBQ? (Up or down, everyone is talking about the stock market.)

5. It may be time to rebalance your investment portfolio.

4. Good excuse to open that bottle of tequila or wine that you’ve been eyeing to get through the pain.

3. If your risk tolerance has changed because of the market turmoil your retirement investments need to be adjusted accordingly.

2. Relieve stress by printing out your 401(k) or IRA statements and tying them to a bottlerocket on the 4th.

1. You want to retire, it’s time for a new gameplan. Sneak a peak and start today!

Always wanted a Roth IRA, but your income exceeds the limits? New way available soon. Income limits for converting IRAs to Roth IRAs are being removed in 2010. You have to pay the taxes now, but then it grows tax free. Why convert  in 2010?

  • Portfolio is down, means taxes you owe will be down when the rules are lifted Jan. 1.
  • Those that convert in the first year can spread the taxes out over two years. This is a one-time only offer for the first year of this rule change.
  • If you believe taxes will go up, this is how you hedge your nest egg. Growth and withdrawals are tax-free in Roth IRAs (for both you and your heirs).
  • No Required Minimum Distribution (RMD) once you hit 70 1/2, makes this an excellent weatlh transfer tool.

I look at this as a rare gift from the government. You have to pay the taxes now, but you would pay taxes upon withdrawal. This provides you with more tax strategy options in retirement.

Great article in Wall Street Journal’s weekend edition about these changes. Will definitely be topic of future posts as we approach 2010. Start talking to your accountant now!

http://online.wsj.com/article/SB10001424052970204612504574193480955034164.html

Maybe it will and maybe it won’t. Let’s consider why organizations eliminated or reduced 401(k) matching contributions.

A poor economic climate reduced revenues, which led to a reduction in expenses. To your company the 401(k) match is an expense. As companies learn to run leaner it will be difficult to bring back an expense. Until employers are competing for employees again, I do not believe this will be an area of focus for most organizations.

I truly believe that companies will have all intended to bring back the 401(k) match. In reality, my prediction is many will bring it back when the economy has full recovered, but it will be smaller than before. While the match may seem small, how your company deals with employee retirement plans has a huge impact on your overall financial plan.

Here is how one Fortune 50 company has evolved it’s employee retirement options over the last decade. Imagine that 10 years ago your employer had a defined benefit pension plan when you joined. You knew then it was a great retirement benefit. Then they switched to a cash balance plan with a full 6% match on the 401(k). You are disappointed, but the full 6% match is one of the best out there, so you are still feeling pretty good. Tough times this year and the company has gone to a variable match up to 4%, dependent on company performance. Bad year, you get 0%. The challenge a number of people within 15 years of retirement face is that the pension they thought they would have is gone and if you knew that 10 years ago you might have saved differently.

You could be in a place where retirement savings need to be ramped up to hit your goals. Action Item: Sit and figure out how the changes in your employer sponsored retirement plans impact your financial plan and retirement goals. Make savings adjustments now so you get there faster.

New rule moving forward – Save more and expect less from your company.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated

Your 401k match is gone. Now What?
 
Did you receive a company wide email lately that went something like this:
 
In these tough economic we are looking to remain as efficient and lean an organization as possible, without elimination of additional positions. The company’s 401(k) matching contribution will be suspended until business improves…
 
As an employee what are you going to say? Of course you’ll be thankful to have your job vs. 401(k)match.
 
It is no secret companies are cutting expenses drastically to stay open and keep employees. The 401(k) match is a big target. The wave of reductions and eliminations in matching contributions started as a domino effect. Small companies it has happened more quickly. Once one large company took a swipe at the matching contribution, it was easier for other’s to follow. Shareholders like the message that everyone in the company is making a sacrifice in order to save talented employees and reduce expenses.
 
While this may seem like a minor change, it should be addressed as part of your financial plan. Questions to ask yourself:
  • Do you need your 401(k) to be your automatic savings mechanism? (Are you a disciplined saver or would you spend it?)
  • If your putting less than $6,000 into your 401(k) is it your best option?
  • What is your tax benefit? Do you need the income tax savings?
  • How close are you to reaching retirement/financial independence?
 First, if you are not a disciplined saver keep the 401(k) so you keep up the automatic saving. To slowly increasing your savings put a reminder on your calendar to increase your contribution 1% on your birthday. (Stop reading now if you are not a good saver.)
 
If you are putting away less than $6,000 and don’t see this amount increasing much, then a regular IRA may be a better option for several reasons.
  • More investment options. Most 401(k) programs have a set number of funds to which you are limited. An IRA significantly expands your pool of available investments and mutual funds. This provides better access to great money managers, potentially giving you a significant advantage over your 401(k).
  • IRA contributors have 15 1/2 months to make a contribution for the calendar year. For example in 2009, you can make contributions to an IRA from January 1, 2009 – April 15, 2010.
  • You will have the same income tax benefit in your IRA as your 401(k) if you contribute less than $6,000, as your contribution is not taxable income. (Your withdrawals will be taxable.)
Let’s not forget about the Roth IRA. If you are not a fan of taxes and believe that when you retire either your tax bracket will be higher and/or in general taxes will be higher this may be another option. The Roth IRA is paid with after-tax dollars today and all withdrawals are tax free, as you will not be taxed on the growth of the account upon withdrawal.
 
First check if you qualify for a Roth IRA account in 2009.
 
Married combined modified adjusted gross income (MAGI) must be below $166,000. This phases out between $166,000 and $176,000. $176,000 or more and you are ineligible.
 
Individual MAGI must be below $105,000. This phases out between $105,000 and $120,000. More than $120,000 is ineligible.
 
If your eligible for the Roth IRA you have a few options.
  • Save in your 401(k) or IRA to receive a tax benefit today and fully fund a Roth IRA account for $5,000 (50+ $6,000) for tax free withdrawals later. Win today and in the future with taxes.
  • If you only save $5,000 or less you can decide to save taxes today via your 401(k) or IRA, or pay the taxes today and have not tax worries when it comes time for withdrawing in retirement.
 
This is a lot to think about. You must take the time to understanding how your 401(k) match being gone can impact your savings mechanisms for retirement and your overall financial plan. One small email from the big boss can change a lot.
 
Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated
 

If only our financial lives had glaring guiding stars in our daily journey. My grocery store is advertising that they are helping us eat better with the guiding stars. Between one and three stars appear below items to tell shoppers the nutritional value of a product (www.hannaford.com). Why shouldn’t my financial life have guiding stars? For the record, Hostess cupcakes and Ben and Jerry’s receive no stars. I thought dairy was good for me!

So here are my guiding stars on scale of 1-3 for your financial evolution, with 3 stars being things that will be the best for your financial evolution. It’s just a taste of stars, I’m sure I’ll add more at some point.

Aim for the stars.

3 stars

  • Understand your sustainable lifestyle expense. What do you need to live each month?
  • Laid off – rollover your 401k into an IRA with more investment options.
  • Determine how much you will need to retire and how the market turmoil impacts your retirement date.
  • Hold a state of your finances meeting with your spouse and write down your goals for the remainder of 2009.

2 stars

  • Determine if you need long-term care insurance.
  • Max out your 401k or retirement plan.
  • Go to work for a college so your kids tuition is free.

1 star

  • Refinance your mortgage to a lower rate.
  • Make an extra mortgage payment.
  • Consolidate credit card debt and work towards paying it off (read Dave Ramsey’s Total Money Makeover for another star.)
  • Work together as a family to reduce two ongoing monthly expenses .
  • Make one better financial choice each week. (Keep morning coffee and bring lunch!)

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.

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