New Book - Coming November 2010

New Book - Coming November 2010
Help! My 401(k) Has Fallen - And Must Get Up!

Friday, May 29, 2009

Fixing Your 401(k) - Part 4

Problem #3 - Loans

"Brother, Can You Spare A Dime?" (Bing Crosby 1932)

There has been a popular myth lately that it is OK to borrow against your 401(k) plan. The most common thing I hear from those I talk with is "I'm paying myself interest!"

If you believe that, I've got some GM stock for you that you should buy!

All kidding aside, this could be the worst idea ever with regards to retirement savings plans. Dave Ramsey, nationally syndicated financial expert, has some thoughts on this as well.
"Never, ever borrow on your retirement." Dave says in response to this question.

Yet, almost 1 in 5 401(k) plans (18%) have a loan against it. This is according to Transamaerica for Retirement Studies in their annual survey.

Reality is NOT "paying yourself interest", but rather paying credit card interest to borrow your own money. OUCH!

What are the Tax Consequences on a 401(k) Loan?

When you borrow, you have 2 options -
1. Pay it back.
2. Don't pay it back.

Of these, the best of course is to pay it back. However, did you know that when you do, you face DOUBLE TAXATION? You are paying interest with after-tax dollars that will be taxed AGAIN
at withdrawal.

What about not paying it back? Well, obviously your investment takes a hit & you could be taxed up to 35%, and face the early withdrawal penalty of 10% if you are younger than 59 1/2. If you leave the company, the loan is automatically listed as a withdrawal, so it is "repaid".
Again, you are paying interest, not to yourself, but to a lender on your own money.

What does this mean to your investment? It lowers the balance, certainly. How much depends on how many times the loan is taken, what amount, investments, payback and several other factors.

Please don't "Spare a Dime" from your 401(k). You will need this money later!!
For more information, please contact me, Dean Voelker, at

Wednesday, May 27, 2009

Fixing Your 401(k) - Part 3

Problem #2 - Portability

OK, after taking a few days off for the Memorial Day weekend, I am back. There are still a few more problems to tackle with 401(k) plans as a retirement tool. Today's topic is Portability.

Question: When you left your last job, what happened to your 401(k)?

Follow Up Questions: How many times does the average worker change jobs during their
working years? And what percentage of people cash out their 401(k)s?

In Gregory Crawford's memo to President Bush in 2005 "The Looming Retirement Disaster",
the average worker will change jobs 5-8 times during their working years. And says that 1 out of 5 will likely change in 2009.

The era of the "gold watch" after a long, loyal career is pretty much OVER. People may change for any numbe of reasons, but whatever the reason is, it may have a dramatic effect on retirement savings. There can be waiting periods to participate in a 401(k), the new employer
may or may not offer a plan, and there are interruptions in employer matching contributions.

And on average, this happens 5-8 times for the typical worker over their working life.

How many people simply cash out all or part of their 401(k)? According to Gregory Crawford,
an astonishing 55%. If you are younger than 59 1/2, you are subject to taxes plus a 10% penalty by the government. Without education, or belief that the market will come back, many people convinced that this is the right thing to do "before they lose any more."

How exactly does this affect our savings?

In the last post, I showed how a worker earning $75,000/year for 20 years, putting in $6075 per year (8.1%) and getting a 4% match and an 8% average return would have saved
$431,901 in 20 years.

Using the same scenario, lets have this worker change jobs 3 times, with the last 10 years at the same job. We have just cut our savings down to $136,724. (Source Jackson Life - Rollover Rx). And if we take 5% income from that, we now have an income of $6836/year.

For more information, please contact me at

Thursday, May 21, 2009

Fixing Your 401(k) - Part 2

Problem #1 - Participation

How much are you putting into your 401(k) or Retirement Plan at work? Do you even participate?

According to Gregory Crawford in a memo to President Bush in 2005 "The Looming Retirement Disaster", 50% of all workers participate.
Of the ones which do, only 10% put in the maximum allowable contribution. (Currently
$16,500. Employees who are 50 or older may contribute an additional $5000 for a max of $21,500.)

According to Financial Engines (, Daisy Maxey tells us in her 2008 article that we aren't saving enough. Jackson Life also did a survey asking people on the street what they put into their 401(k) plans and the results were shocking.

Salary Avg % of Salary Contributed $ Amount/Year
$25,000 5.0% $1250
$50,000 6.0% $3000
$75,000 8.1% $6075
$100,000 9.2% $9200

All of those amounts fall far short of the maximum allowable contribution, and probably won't be enough to retire and make it last for 25 years or more.

Let's say you make $75,000/year and put in the average of $6075. Lets also say you contribute for 20 years, get an average return of 8%/year and your employer matches your contribution dollar for dollar up to 4%. Sounds pretty good so far, right?

After 20 years, you would have saved $431,901. Still sounds good, doesn't it?

OK, now lets shift into retirement mode and start to withdraw 5% for income. 5% on $431,901 is
only $21,595 per year! Remember you had been earning $75,000 per year. Also we haven't even accounted for inflation, market volatility, or any events - college for kids, vacation trips, home repairs, buying cars, etc. (Did someone say "Walmart"?)

Dave Ramsey says we work too hard to retire in poverty. He also believes, as many advisors do that people need to be putting in 10%-15% of your income. The beauty of the 401(k) is that your contributions are pre-tax.

If we use the same example at $75,000/year and put in 15%, our contribution now is $11,250/year. That is a difference of $5175/year from $6075. That sounds like a lot ($432/mo),
but remember this is pre-tax.

Using the paycheck calculator, the difference in monthly take home pay is $311, which is a tax advantage to you of $121/month.

Does it make a difference later? Let's see.
Over 20 years, we put in an extra $103,500, and our saved total is now $683,672. Now if we draw out 5%, our annual income is $34,183, or an extra $12,589/year!

For more information, please contact me at

Wednesday, May 20, 2009

Fixing Your 401(k) - Part 1

Did you know that over 50% of Americans have a 401(k) plan? For many of us it is our primary funding source of retirement savings. For some, it may be the only source of savings.

401(k) Plans can be great for helping to fund your retirement - - IF you are saving enough and don't fall into some common traps. I love 401(k)s and have a passion for helping companies and indviduals get more from their plans. With that in mind, I am going to address 5 major issues with 401(k) plans in my next several posts.

Around 1985, 401(k) plans passed pensions as the Primary Retirement Vehicle, as the New York Times states in a recent article.

Pensions had been dying for a long time, mostly due to cost. 401(k)s require employees to contribute to their own retirement savings. Many companies provide a matching contribution of some sort, although in recent times, those have also been cut back.

How did 401(k)s come into being?

In 1978, the Tax Reform Act passed (Provision Internal Revenue Code Section 401(k)), which allowed employees to receive a portion of their income as tax deferred compensation. Ted Benna then created the first 401(k) in 1979. Also in that year, Johnson & Johnson, Honeywell, and Pepsico established 401(k) plans for their employees.

In my next post, we will look at the first serious issue which needs to be addressed in 401(k)s -

For more information, please contact me at

Tuesday, May 19, 2009

Time Heals All Wounds

It has been said many times by many people that "Time Heals All Wounds". Marty Kooman recently illustrated this point as it applies to the markets and our economy. Marty & I are on the same page. He believes, as I do that the markets will eventually rise again. In fact, he goes on to quote
John F. Kennedy, by stating, "We must use time as a tool, not as a crutch."

In fact, they have already been doing so. In case we had not noticed, the S & P has risen from a low of 677 on 3/9/09 to a current mark of 911. (That is over 34%!!) The average gain of the
S & P 500 for the 1 year following a bear market closing low for the 8 bear markets of the last 50 years is 36.5%.

As an advisor, this is why I always recommend for people to Stay Invested. Yet all too often, I hear of others who "buy high & sell LOW." As a matter of fact, according to a recent Gallup poll, 34% of Americans surveyed in April 2009 believe that a savings account is the best long term investment today. That is more than double those who prefer stocks (15%)

Historically that has been good news for stock holders. Warren Buffett loves to say that the way to be successful in investing is to be greedy when others are fearful, and fearful when others are greedy. Mr. Buffett is quick to note that “our country has faced far worse travails in the past” with a dozen panics and recessions in the 20th century, “virulent inflation” in 1980 and, of course, the Great Depression in the 1930s.

“Without fail, however, we’ve overcome them,” he writes. “In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”

Mr. Buffett has been a successful investor, not because of timing the market, but becuase of time itself. "Time Heals All Wounds" - Are you letting time work for you?

Ask yourself this also - How can you make your savings last for at least 25 years or more in retirment, and have income to keep up with rising costs?

For more information, please contact me at

Dean A. Voelker

Wednesday, May 13, 2009

Where You Put Your Money Does Matter

According to Dave Ramsey (, "A Simple one-time investment of $1000 could make a huge difference at retirement...if you know how and where to invest it.

Did you know that 84% of teens have some money saved, with the average being $1044. (I remember being in this position once as a high school student, working & saving. Boy, do I wish someone had shared this with me at that time! $1000 was worth more in 1982 than today!)

Dave Ramsey has a simple chart with some interesting facts. (Page 9)

He points out on his chart that he learned from a Charles Schwab survey that 81% of teens say that it is important to have a lot of money in their lives. However only 22% say they know how to invest money to make it grow. And only 24% believe that since they are you, saving money now is not that important.

The chart shows what can happen to $1000 over a 40 year period (Age 25 -65) at different rates of return 6%, 12%, and 18% (with no new money added). Because of the compounding effect of interest, a snowball effect is created.

At 6%, $1000 will grow to $10,285 in 40 years.
At 12%, $1000 will grow to $93,050 in 40 years.
At 18%, $1000 will grow to $750,378 in 40 years.

There are some well-established mutual funds which have averaged 12%per year over a 40 year or longer time period. That does NOT mean that the fund will perform at 12% every year. 12% is merely an average.

As Dave often reminds us, saving & building wealth requires discipline and it is a marathon, not a sprint. Plant the seed and let it grow.

Are there any funds which average 18%? None that I can think of which have consistently perform at that level long term - However, think of your credit card lenders, and other forms of revolving credit. Can you see how they make money?

Remember the compound snowball is either working FOR you or AGAINST you. With all of the recent news about credit card lenders gouging,
isn't this a great time to cut up the cards and begin to take control of your finances again?

Do you know a teen who has saved some money?

For more information, please contact me at

Friday, May 8, 2009

Retire As A Millionaire!

Want to retire as a Millionaire? As Warren Buffett might say, "It's Simple, but never easy."

Dave Ramsey, the leading expert in helping others to build wealth has an illustration he shows in his classes, to show how Compound Interest works. Dave uses the example of Ben & Arthur. (Why not Ben & Jerry? Just kidding!)

In the example, Ben starts at age 19 and invests $2000 per year at 12% (Well, an AVERAGE of 12%). Ben does this from Age 19 to Age 26 (8 years or a total of $16000 invested) and then stops. He lets the money compound and continues to earn 12%. At Age 65, assuming he never withdraws anything, Ben has $2,288,996.

Arthur, on the other hand, waits until he is 27 to get started, and also invest $2000 per year at 12%. Amazingly, even though Arthur invests a total of $78,000 over 39 years, and is getting the same return, he NEVER catches up with Ben, because Ben started earllier. Arthur's total at Age 65 is $1,532,166. I think many people would be happy with that number though.
Compound interest teaches us a few things.

1. Start early. The eariler you grasp this concept, and apply it for yourself the better.
2. Start now. Don't worry about the past. Make a plan to start today. And STICK TO IT.
3. Down Markets will happen. With disciplined investing (By the way, $2000/year works out to
less than $40/week.) you are buy at a bargain when values are down. The catch is to do it
every week.
4. Compound interest is either working for you or against you. Is it time to do "plastic surgery"
on your credit cards?

For more information, contact me at

Tuesday, May 5, 2009

College Savings Plans

With school winding down here in May, it may be a good time to bring up College Savings Plans.

College costs have increased wildly over the past 30 years due to improvements in technology,
modernizing campus facilities, and demand for those who want to attend college.

There isn't much you can do to bring college costs down, however, you can certainly help defray the expense with a good savings plan. The most popular Savings Plan for college right now is the 529 plan, which allows money saved in the plan to be invested in mutual funds. The money can grow tax free, and it can be withdrawn tax free also if the account is being used for educational
expenses. Think of it as a Roth IRA for college.

In Indiana, the 529 plan by U Promise is even sweeter. You can get 20% of your contribution refunded to you in the form of a tax credit. (up to $5000 per IN resident). In other words, if you contribute $5000, you get $1000 back the following spring on your Indiana state tax return.

I am also proud to see that U Promise made the list of best 529 plans according to Business Week and Morningstar.

If you are an Indiana resident, and you would like more information on saving for your child's college education, please contact me at

Saturday, May 2, 2009

Am I Getting The Most From My 401(k)?

Today's economic conditions seem to create more questions than answers.

Yet the fact remains - we need to continue to save (and invest) in order to retire with dignity.
Dave Kansas makes a good point in a recent article "What Do I Do Now?" (Wall Street Journal - April 10, 2009) when he quotes the author, Rudyard Kipling. "Keep your head about you as everyone is losing theirs."

That is what many good advisors tell you, although it is easy to say....and hard to do.

Another problem is that company retirement plans have become increasingly complex. Features such as online investing and elections, and mulitiple fund choices were designed for convenience, but actually may cause people to become "accidental " investors, which leads to confusion and inconsistent results.

This can present a problem for businesses who have a Fiduciary Responsibility to their employees to provide the highest quality investments and proper education on how to invest, why to invest, and how much to invest - at a reasonable cost.

Alliance Bernstein did a study recently
They found that both plan sponsors and participants want to "keep it simple".
(Hmmm....imagine that!)

Plan sponsors must review their plans on a regular basis. They need to make sure they are working with a professional who can meet with employees regularly and "keep it simple."
A strategy must be put in place to make sure you are saving enough. Please use the 401(k) calculator to see if you are on track for your goals.

Employees should also ask their plan sponsor about how funds are selected. There needs to be enough selection to be diversified, but not so much that it is overwhelming.

"Keep your head about you while everyone else is losing theirs." (Kipling)
"Be fearful when others are greedy, and greedy when others are fearful." (Buffett)

Please contact me at for more information.