Top 10 reasons to sneak a peek at your investments

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!

 

Will my 401(k) match come back?

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 401(k) match is gone. Now What?

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

 

 

Move Forward Financially by Following the Stars

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.

 

Capturing the Financial Windfall After College

Yes, I said windfall. First it was daycare expenses, then traveling sports teams, tutors, computers and clothes. Finally it was time for the big expense. College. Wondering if you will ever retire? You are not alone.

The Baby Boomers are in a different place than previous generations. Families are attempting to save for retirement while dealing with exorbitant college costs, as well as the challenges (sometimes financial) of aging parents. This is coupled with trying to save for their own retirement, which unlike previous generations does not include a pension.

While this is a big dilemma for most couples, I focus on the absolutes.

Where you cannot impact change:

• Cost of college and that you did or didn’t save enough for the expenses.
• Developing issues with aging parents.
• The downturn in the financial markets.
• How much you have saved previously for retirement.

What you can impact:

• How much debt you will personally take on to pay for college.
• Children’s college choice.
• What you can afford to do for take care of parents.
• How you can load up your retirement savings once college is over.

These items, taken one by one are manageable. I am going to focus on the last one. How you can capture the true windfall available when the kids are out of college.

In order to put junior through college you’ve paired down on your own expenses, creating a lower sustainable living expense or developing a reduced budget. Once college is over if you continue to live at this lower sustainable living expense you can put all the savings you were putting towards college into your retirement savings.

•  Junior’s college cost – $40,000
• Junior’s financial aide – $20,000
• Your contribution – $20,000

 Post college add this extra $20,000 to your existing retirement savings and suddenly you have a windfall. In five years you will have put away an extra $100,000. If you were contributing $30,000 a year that number jumps to $150,000. 

This opportunity for extra savings works because you are taking the discipline utilized to pay for college expenses to pay yourself for retirement. If you are not maximizing your 401(k), 403(b) or other employer-sponsored tax-deferred retirement accounts you have another bonus awaiting you. Now you can afford to maximize your 401(k) at a$16,500 maximum this year for those under age 50 and $22,000 for those over 50. This will reduce your overall taxable income and lower your taxes. 

If your 401(k) contribution is now $10,000 larger for your family in the 28% tax bracket, this represents a $2,800 reduction in taxes.  

Saving more and reducing your taxes. It’s a win-win windfall. 

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. 

 

Long Term Care Insurance – Why it matters to you and your parents

• Who would you like to have the wealth built over your lifetime – Your spouse, family or nursing home?
• Do you want to preserve significant assets for your family legacy or charitable giving?
• Do you want to ensure your spouse is well taken care of should you die first?

Long Term Care Insurance may be an important part of your overall financial and estate plans.

 If you are between the ages of 40 and 80, you need to think about long term care insurance. Especially if you have a family history of Alzheimer’s disease.

Medicaid will cover me is a common thought process of those approaching retirement. Medicaid requires full financial disclosure of assets and has many rules about transferring assets. While the eligibility requirements vary from state-to-state most allow individuals to retain $2,000 in assets and married couples $3,000. A spouse is allowed generally to keep half the combined assets, with a maximum of just over $99,000 in 2006. You are enabled to pay for burial expenses, debt insurances, etc.

Read between the lines on this one, if you or your parents have sizeable assets Medicaid will most likely not be an option. Medicaid was designed to help people with no money. Estate and insurance planning is where your focus needs to be.

If you have trouble falling asleep tonight read up on Medicaid.

U.S. Department of Health and Human Services states that approximately 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. Over 40 percent will need care in a nursing home for some period of time.

The U.S. Department of Health and Human Services calculated the average long-term care costs in 2008 were the following.  

• $187/day for a semi-private room in a nursing home
• $209/day for a private room in a nursing home
• $3,008/month for care in an Assisted Living Facility (for a one-bedroom unit)
• $29/hour for a Home Health Aide
• $18/hour for a Homemaker services
• $59/day for care in an Adult Day Health Care Center

Check out this page to see what the costs are in your area.

Using these numbers for a guideline it costs over $76,000 a year for a private room in a nursing home. If you live in a more expensive area of the country it could cost you upwards of $129,000 a year in New York City, $90,000 in Miami or $82,000 in San Diego. Running the math you can see that a $500,000 or $1 million portfolio can be eaten up very quickly.

Using $76,000 as the cost a $500,000 portfolio can be exhausted in just 6.5 years, while $1 million will be gone in 13 years. When you consider that both spouses may need care that isn’t very long. One of the first things individuals say is that Long Term Care Insurance is expensive. It is expensive if you look at the premium amount. Considering the cost of care carving out a small percentage of the portfolio to protect the remainder is a good idea.

Long Term Care Insurance comes in many flavors and options. I can take you through these; contact me today for brief phone meeting on Long Term Care Insurance.

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. 

 

Stock Market Quandry – Buy and Hold vs. Market Timing

Here is a great article comparing two investment strategies. Often this is viewed as two camps your either a buy and hold or a market timer. Just remember an investment strategy for you needs to be specific to your investing timeframe, risk tolerance and need.

My view is that you need to have assets with great money managers and track records. Being open to both strategies will provide you with more opportunity. Some market cycles favor the buy and hold strategy and others the market timers. Not being open to both could have you missing out when one of the strategies falls out of favor.

http://www.investopedia.com/articles/stocks/08/passive-active-investing.asp

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.