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retirement savings plans

Just Starting With Retirement Savings? Get All the Credit You’re Due!

If you are saving in an employer plan or an IRA you need to check to make sure you’re getting the Saver’s Credit if you qualify.

Book Review – Choose Your Retirement

The latest book by Emily Guy Birken – Choose Your Retirement – is unlike any other book I’ve read on the subject. Birken takes the time to walk the reader through all of the decision-points that likely will confront you. She spends time acknowledging all of the factors that often face future retirees, including all of the emotional factors that plague us. Author Birken, who you may recognize from her many writing gigs with well-known personal finance outlets including Wisebread, PT Money, Money Crashers and Yahoo! Finance, has really done well with this book, in my opinion. The book provides practical step-by-step guidance and counsel for navigating the internal mental scripts that different personality types face when saving – Money Avoidance, Money Worship, Money Status, and Money Vigilance. Most everyone fits into one of these categories – and each category has it’s own pitfalls and benefits. This book takes you […]

Mandatory Retirement Plans

A few weeks ago I finished a paper arguing for mandatory retirement contributions from both employers and employees. Though arguably the paper will not come close to changing public policy on retirement plans, it did raise some arguments in favor of the United States adopting a mandatory savings plan. In the paper I explained that research has shown that individuals risk not having enough saved for retirement. This could be due to employees not having a retirement plan through work or because employees face an abundance of mutual fund options in the plan that they don’t know where to begin. Some of these employees choose the default option or simply go with what a colleague recommends. Another problem the paper addresses is the declination of defined benefit pensions. Such pensions are employer sponsored and funded, thus removing funding an investment risk from the employee. At retirement the employee receives a […]

Book Review – Pension Finance

M. Barton Waring does an excellent job in his book Pension Finance. The book essentially covers what’s wrong with the way conventional accountants and actuaries think using conventional math and accounting practices to justify the payments (or lack thereof) funding corporate and municipal pensions. A concept talked about at length in the book is the idea of long-term average returns and how many pension actuaries rely on them to determine funding. Mr. Waring would argue that there is too much reliance on the long term average returns thus allowing pension actuaries to fund their pensions with less money due to assuming higher rates of return. Instead, one of the areas that may help the crippling pension system in the US is to get realistic about long term returns and use a combination of a smaller returns, and bigger contributions (among others). The book is heavy on the analytic side (great […]

Are Target Date Funds Off Target?

  It seems that an easy fix for saving for retirement for many folks is to simply choose a target date fund. Generally how target date funds work is a fund company will have a set of different funds for an investor to pick from depending on a best guess estimate of when the investor wants to retire. For example, an investor who’s 30 years old and wants to retire at age 65 may choose a 2045 fund or a 2050 fund. In this example since the investor is age 30 in the year 2014, 30 more years gets him to 2044. Most target date funds are dated in 5 year increments. If the investor was age 60 and wanting to retire at age 65, then he may choose a 2020 fund to correspond to his timeline. Generally, the goal of target date funds is to follow a glide path […]

Mechanics of 401(k) Plans – Employer Contributions

This is the second post in a series of posts that explain the mechanics of a 401(k) plan.  As mentioned previously, there are many types of Qualified Retirement Plans (collectively called QRPs) that share common characteristics.  Some of these plans are called 401(k), 403(b), and 457.  In these articles we’ll simply refer to 401(k) plans to address common characteristics of all of these QRPs. Employer Contributions Many companies provide a matching contribution to the 401(k) plan – and sometimes there is a contribution made to a QRP on your behalf no matter if you have contributed your own deferred salary or not. Most of the time these matching contributions are stated as x% of the first y% of contributions to the account.  An example would be “50% of the first 6%”, meaning if you contribute 6% of your salary to the plan, the company will match that contribution with 3% […]

Avoid the Trap

Eating and dining out all the time can drain our money and potential retirement savings without us even being aware of it. We get asked from friends to go to lunch, coffee or we find ourselves skipping breakfast and getting in the line at the coffee shop for a scone and latte. Before we know it, we’re left asking, “Where did the money go?” Or worse, “I can’t afford to save for retirement.” What’s happened is we’ve fallen into the trap – a habit really, but it can be broken and we can relearn. Here’s how: The first thing you can do is to pass on that latte or scone all together. Instead, make yourself breakfast at home. Invest in a coffee maker if you don’t have one, and make your own coffee. Then make a nice meal of scrambled eggs and whole wheat toast, a cup of cottage cheese with […]

Opportunity Cost

Nearly every day in our lives we experience trade-offs and make choices affecting whether or not we’ll do something, buy something or do nothing and buy nothing. Some of us will choose to walk rather than drive, some will choose to pack a lunch rather than dine out, some of us will choose to save money while others will choose to spend it. These trade-offs are what can be referred to as opportunity costs; meaning what we’re giving up in order to take advantage of another availability opportunity. Financially, we make the choices all the time; the choice to dine out versus saving the extra money towards retirement; the choice to not save in our employer’s retirement plan so we can have more money to spend today. These opportunity costs can add up. Here’s why. When a person makes the choice to not save in order to spend for today, […]

Book Review: The 7Twelve Portfolio

The 7Twelve Portfolio is an excellent concept for financial planners and novice investors alike. The book is very well written and easy to comprehend as Dr. Israelsen keeps the concepts simple and analogies easy to follow. The crux of the book is regarding diversification and Dr. Israelsen uses the analogy for making salsa as a reference. For example, you don’t have salsa of you just have diced tomatoes and it really doesn’t improve if you simply add some onions and salt. It improves a little bit, but still isn’t salsa. The same is true for diversification. You’re not diversified if you own one stock or bond in your portfolio and have all of your holdings in that one asset. The benefits of diversification begin when you start adding additional ingredients to the mix. This starts to lower risk and help maximize return. This is a concept us nerdy planners call correlation. The […]

The Airplane Analogy

Many parents face the decision during their working years to try to fund both retirement and college education. Some can adequately do both while others are forced to do the best they can with what money they can save. Sometimes parents can get caught up in wanting to save as much as they can for their children’s college education and forgo the need to save for or save more for retirement. When this situation presents itself, I have given my clients my airplane analogy. It goes something like this: Have you ever flown on an airplane before? If you have you know that once you’re scrunched in and belted and the plane makes its way from the gate the flight attendants break radio silence and start with their routine flight instructions. After you’re taught where the exit rows are and how to use your seat as a floatation device they […]

Book Review: Control Your Retirement Destiny

This new book is the first book from my colleague Dana Anspach.  Dana has been writing and blogging for quite some time now, primarily as the voice behind Money Over 55 for About.com (www.moneyover55.about.com).  Dana also is a practicing financial advisor and respected speaker. If you’re looking for a nuts-and-bolts, do-it-yourself primer on all things related to retirement, this is your book.  Ms. Anspach has put together a very complete overview of all of the areas that you need to consider in order to “Control Your Retirement Destiny”.  By following the advice in this book, you can figure out how much money you need to have to retire, where to put it (meaning, what types of accounts to use), how to invest it, and all of the other important topics that you need to know about. Along the way, you’ll learn what’s important to know about Social Security, taxes, investment […]

Your Employer’s Retirement Plan

Whether you work as a doctor, teacher, office administrator, attorney, or government employee chances are you have access to your employer’s retirement plan such as a 401(k), 403(b), 457, SEP, or SIMPLE. These plans are a great resource to save money into, and some employers will even pay you to participate! Let’s start with the 401(k). A 401(k) is a savings plan that is started by your employer to encourage both owners of the business and employees to save for retirement. Depending on how much you want to save, you can choose to have a specific dollar amount or percentage of your gross pay directed to your 401(k) account. Your money in your account can be invested tax-deferred in stock or bond mutual funds, company stock (if you work for a publicly traded company), or even a money market account. Your choice of funds will depend on the company that […]

Following Up on the 1% More Initiative

As a followup to the 1% More initiative that we had going on in November, I was recently interviewed by one of the participants, Steve Stewart, who blogs over at Money Plan SOS.  Steve recorded the whole thing on a Money Plan SOS podcast, which you can listen to by clicking the link.  He also has a written summary of our conversation for your reading pleasure. Thanks go out to Steve, and all of the other folks who took time to write and record posts in support of the “1% More” initiative!  We reached something on the order of 170,000 blog readers, over 10,000 Twitter followers, and many, many other readers.  Hopefully we have made a dent in the problem!

C’mon America! Add 1% More to Your Retirement Savings This Year!

My fellow financial bloggers and I have come together to encourage an increase in retirement savings this year.  Since many employees are going through annual benefit elections right about now, it’s also a very good time to consider increasing your annual contributions to your retirement savings plans.  Small steps are the easiest to take, and the least painful – so why not set aside an additional 1% in your retirement plan in the coming year? The list below includes a boatload of ideas that you can use to help you with this increase to savings.  I’ve heard from several more bloggers who are going to put their posts up soon. If you’re a blogger, see the original post for details on how to join the action: Calling All Bloggers! Listed below are the articles in our movement so far (newest are at the top): From Dana Anspach: Can You Spare […]

Maximizing Your Pension Using Term Life Insurance

There are many, many ways that life insurance can be used.  Sometimes it is to replace lost income, when a wage earner dies during his or her working years.  Other times it may be to help pay taxes on a large estate upon the passing of the second spouse in a couple, so that your heirs can receive the full fruits of your labors and won’t have to worry about a tax haircut. Another use for life insurance is to help you to maximize a pension.  I know, everyone believes that pensions have gone the way of the buggy-whip.  That may be the case for many folks, but I still find a lot of people retiring these days who have a traditional pension. For those of you who are familiar with pensions, you’ve probably seen the payout options that are typically available: lump sum, single life annuity, joint and 100% […]

The 403(b) and 457(b): A One-Two Punch for Retirement

Many non-profits, public schools, universities, state governments have access to either a 403(b) or a 457(b) retirement plan. Both the 403(b) and the 457(b) are retirement plans that these institutions can offer employees in addition to or in lieu of a defined-benefit pension. For ease of simplicity, think of these plans as a 401(k), but for non-profits. We won’t get into the minutia of exactly how they’re different here. Like their 401(k) counterpart, the 403(b) and the 457(b) allow their owners to defer from their salaries up to $17,000 annually, on a pre-tax, tax-deferred basis. For those aged 50 and over, the IRS allows an additional $5,500 age-based catch-up contribution. These numbers are for 2012, they are indexed annually for inflation. There is a select group of people that may have access to both the 403(b) and the 457(b). For these chosen few, there is an opportunity to save even […]

Calculating RMDs for Various IRA Beneficiaries

There are a few different ways that Required Minimum Distributions are calculated for beneficiaries of IRAs.  The two primary determining factors are: Is the beneficiary the spouse of the original owner? and Did the original owner attain age 70½ prior to death? There are two more factors that also have an impact on the nature of the calculations, although the impact is different: Is there more than one beneficiary? and Is the beneficiary a person or an entity, such as a trust, a charity or the estate of the original owner? Image via Wikipedia Spouse If the beneficiary is the spouse of the original owner of the account, and the original owner died before age 70½, then the rule is that no RMDs are required until the owner would have reached age 70½.  At that time the beneficiary will use the Single Life table to calculate the distribution amount based […]