It's Not Much But It's All I Have

Probably the most common response I get when people talk about their long term savings or retirement money is this. "It's not much, but it's all I have. I can't afford to lose it."

Well, I certainly understand how you feel. I am investing and saving for my retirement as well. Author Robert Gignac writes that people are "afraid of money" in his book, Rich Is A State Of Mind. Mr. Gignac will be an upcoming guest on Improving Your Financial Health to discuss his book. He goes on to make a very interesting observation. If money was meant to make us happy, we should have better looking people - or at least smiling faces.

With all due respect to George Washington, would something like this encourage you to save a little more?





"It's not much, but it's all I have. I can't afford to lose it."

If that is true, then wouldn't it make sense to PROTECT it? To truly PROTECT your money, you also need to protect your purchasing power. Your money must be able to keep up with rising costs. Just how much interest is that Folger's coffee can or cookie jar paying these days? Perhaps you keep it under a mattress so you can 'sleep on it'. (Last time I checked, the First National Bank of "Sealy" was paying CD rates 0.25 % higher than the national average.) However, we all know that your money won't grow under the Sealy, or in the Folger's can.

"It's not much, but it's all I have. I can't afford to lose it."

This type of thinking practically guarantees that you WILL LOSE IT! Author Rhonda Byrne says that we transmit thoughts as if our brain was a powerful radio signal. In her book The Secret, she writes that we always get what we visualize. If you say you don't want to be late for a meeting, guess what almost always happens?

"It's not much, but it's all I have. I can't afford to lose it."

Perhaps you have heard this story before.

The kingdom of heaven is like a man traveling to a far country, who called his own servants and delivered his goods to them. And to one he gave five gold coins, to another two, and to another one, to each according to his own ability; and immediately he went on a journey. 

Then he who had received the five gold coins went and traded with them, and made another five coins. And likewise he who had received two gold coins gained two more also.


But he who had received one went and dug in the ground, and hid the money there.


After a long time the man came home and settled accounts with his servants. He who had received five coins came and brought five other coins, saying, 'Lord, you gave to me five gold coins. Look, I have gained five more.' The man said to him, 'Well done, good and faithful servant; you were faithful over a few things, I will make you ruler over many things.'


He also who had received two talents came and said, 'Lord, you gave to me two gold coins. Look, I have gained two more.' The man said to him, 'Well done, good and faithful servant; you have been faithful over a few things, I will make you ruler over many things.'


Then he who had received the one coin came and said, 'Lord, I was afraid, and went and hid your coin in the ground. Look, there you have what is yours.'


His lord answered and said to him, 'You wicked and lazy servant, you ought to have deposited my money with the bankers, and at my coming I would have received back my own with interest. Take the coin from him, and give it to him who has ten gold coins.


For to everyone who has, more will be given, and he will have abundance; but from him who does not have, even what he has will be taken away.

This is the story from Matthew 25: 14-29. The moral is of course to use what we are given. We strengthen and grow our financial muscles from using them. Not using them makes us weak.

"It's not much, but it's all I have. I can't afford to lose it."



One other thought I am having today on this theme, from 1 Kings.

Elijah the prophet told the woman. “Please bring me some bread to eat.”


The widow stopped, turned around, and looked at him in surprise. The widow answered Elijah, “As the Lord your God lives, I do not have bread, only a handful of flour in a bin, and a little oil in a jar; and see, I am gathering a couple of sticks that I may go in and prepare it for myself and my son, that we may eat it, and then we will die.”


Elijah then said to her, “Do not fear; go and do as you have said, but make me a small loaf from it first, and bring it to me; and afterward make some for yourself and your son. For thus says the Lord God of Israel: ‘The bin of flour shall not be used up, nor shall the jar of oil run dry, until the day the Lord sends rain on the earth.’”

She took the last of her flour and oil and made some bread for Elijah to eat.


Here is what happened; “She and her household ate for many days. The bin of flour was not used up, nor did the jar of oil run dry, according to the word of the Lord which He spoke by Elijah.”

USE it - or LOSE it!

Keep your money HAPPY!

Please Contact Me for more information on how to protect your long term savings and USE your money wisely. I can help you create lifetime income from an IRA or Roth IRA. If you live in the South Bend, IN area, I am also happy to help with 401(k) rollovers or IRA reviews. You can follow me on Twitter, Linked In, or Facebook.

My weekly radio show is Improving Your Financial Health on WHME-FM in South Bend, and archives are available for listening on my website. My book, Help My 401(k) Has Fallen - And Must Get Up is helping everyday people to get their 401(k) plan back on its feet and working harder. Contact me about how to get a copy.





















 

Tax Free Interest In Indiana - Shhh, Your Bank Doesn't Want You To Know

Do you live in "The Middle"? Besides unpredictable weather and being referred to as "Hoosiers", there are actually a few perks to living in Indiana.

Indiana offers some tax benefits to investors that are unique to our state. Municipal Bonds are very popular here. These bonds are a great (and Safe) way to earn more interest on your savings. The interest you earn on a bond from ANY STATE is FREE from Federal Tax, State Tax, and Local Taxes!

Municipal Bonds, or Munis have been used for over 200 years as a way to raise money to build or improve schools, hospitals, libraries, and roads. These days, stadiums have also been funded by having bonds issued. Once the bond is issued, you can loan money to the project and be repaid with interest which is free from Federal taxes. When the bond matures, you get the amount back which you loaned to the project.

If the bond is issued by your home state, your interest may also be free from State and Local taxes.

Again, the benefit for us "Hoosiers" living in Indiana is this. It doesn't matter which state the bond came from. We enjoy interest income on any muni bond which is free from Federal, State, and Local Taxes!  
That may be worth an additional 1.5% - 2% or more on your savings, depending on your tax bracket. 
(Check with your advisor when buying bonds to see if you may be subject to Alternative Minimum Tax, depending on your total income.)

Currently, http://www.bankrate.com/ (as of Feb. 4, 2010), shows us what the highest rates are for a 1 Year CD
(1.7%) and a 5 Year CD (3.55%).  Dave Ramsey refers to these as "Certificates of Depression". You can see why!

Did you also know that CDs are RISKY? Why is that, you ask?
Easy - You LOSE Future Buying Power!

Let's do the math, and see which option may be better for long term savings.

5 Year Municipal (Investment Quality) Bond at 5%

$10,000 x .05 = $500/year. 
$500 x 5 years = $2500 (TAX FREE) 
Most Bonds pay interest twice per year, directly to you the investor, so you will get 2 checks each year for
$250 for 5 years. When the bond is due, you get the $10,000 back. That may also happen if the bond is called early, but that's another lesson.

5 Year CD at 3.55%
Remember that was the BEST rate in the US today on http://www.bankrate.com/.

$10,000 x .0355 = $355/year.
$355 x 5 years = $1775, and you WILL PAY TAXES on this.

Hmmmm......let's see.....I can get $2500 in interest that is tax free OR $1775 in interest that is taxable. I wonder which one I should pick......

Did you ever wonder how banks make money? They use your money and either loan it or invest it.
Now you can see why your bank may not share the muni bond idea with you.

If you would like to learn more about Municipal Bonds, please contact me. 
You may also contact me for more information on 401(k) plans or IRAs at http://www.helpmy401k.us/.
You may also contact me on Linked In at http://www.linkedin.com/in/dvoelker or Twitter at http://www.twitter.com/deanvoelker. I also host a weekly financial advice program, Improving Your Financial Health at http://www.blogtalkradio.com/401kcoach.

Taking Stock

I'm not a big individual stock fan. For most people, mutual funds are a much better way to invest. Its easier to be diverisfied and its also easier to add money systematically.

However, I did see something recently which I thought my readers may enjoy. If you were going to invest in stocks, which companies would be good ones to own long-term? At least one sign of a great company is one which is able to consistently increase their dividend payment.

If you aren't sure what a dividend is, think of it this way. When you own stock, you own a tiny piece of that company. Your investment rises and falls with the performance of the company. Over time, you would like to think the company will grow, and your money will grow with it. Companies which have established themselves and become profitable will share part of their profits with you as a part owner. Those profit sharing payments are known as dividends and are usually paid once every 3 months.

Again, the sign of a great company is one which has raised its dividend payment consistently, even in tough times. Raising the dividend for shareholders is like giving them a pay raise. (CDs don't do THAT!!) Those companies would be great to own long term.

What if a company were able to raise its dividend 25 years in a row or more?

Here are the ones which have:
Abbott Labs                     (ABT)
Bemis                               (BMS)
Century Tel                     (CTL)
Chubb                               (CB)
Coca-Cola                        (KO)
Exxon-Mobil                    (XOM)
Johnson & Johnson         (JNJ)
Mc Donalds                     (MCD)
3M                                   (MMM)
Pitney Bowes                  (PBI)
PPG                                 (PPG)
Proctor & Gamble          (PG)
Walmart                          (WMT)    

S&P reports that since 1926, dividends have contributed to about 1/3 of the total return on your investment.

Another thing I like about dividends is that when the stock price goes down, the dividend yield goes up. Its a great time to buy more of great companies. That is what Warren Buffett does!

For example, lets look at Proctor & Gamble. Shares of PG are currently (2/3/10) at $62.90. Dividends are paid at $1.76/share, which is divided into 4 quarterly payments. You will get a dividend return of 2.8% on any shares purchased at that price.

What if you had been fortunate enough to buy in March of 2009, when it was selling for around $44/share? Well, you still would have gotten $1.76 per share, but that works out to about a 4% dividend return. (Better than a CD, and with potential to grow!)

Warren Buffett has become extremely wealthy because he buys great companies and holds them, collecting dividends which increase year after year after year.

Again, I am not encouraging people to buy individual stocks. There are plenty of financial stocks such as Citigroup and Bank of America which also had wonderful histories of increased dividends, until 2008.
Dividends are certainly something to consider though for any investment - including mutual funds and annuities.

You can contact me through my website, http://www.helpmy401k.us/. You can also contact me on LinkedIn at http://www.linkedin.com/in/dvoelker, or Twitter at http://www.twitter.com/deanvoelker. I am currently hosting a weekly financial advice program, "Improving Your Financial Health" on Blog Talk Radio at http://www.blogtalkradio.com/401kcoach.  Let me know how I may help you!

  

Tired of Taxes?

Are you tired of taxes? Tired of hearing about them? Tired of giving your hard-earned dollars to Uncle Sam? Tired of politicians who say they will lower your taxes - then do the opposite?

How would you like a stream of income later in life that you WON'T pay taxes on at all?

That's what the Roth IRA is all about!

The Roth IRA was created as a future Tax Reduction Account in 1997. It's a great way to save for your future retirement. The name "Roth" is in honor of the bill's main creator - late Sen. William Roth of Delaware.

The beauty of the Roth is that there are NO TAXES on either the growth, or withdrawals you take after age 59 1/2. So your income will be TAX FREE!

You can contribute to a Roth IRA for either 2009 or 2010 right now - up to $5000/year. If you are 50 or older, you can put in an extra $1000.

Here are 2 new things in 2010 about the Roth IRA you should know.

* There are no income restrictions for making Roth IRA contributions this year. This allows

more people than ever before to use a Roth.

* You can convert your traditional pre-tax IRA to a Roth by simply paying taxes on the amount

you convert. That isn't new, but what IS new is that you can SPLIT the tax burden over

2 Years - 2011 & 2012.

If you really want less taxes later, set up your Roth IRA (Tax Reduction Account) today. You have until April 15 to contribute for 2009.

You can contact me in South Bend, IN through my website at www.helpmy401k.us. You can also follow my on Twitter at www.twitter.com/deanvoelker. I also host a weekly internet radio program, "Improving Your Financial Health" on Blog Talk Radio www.blogtalkradio.com/401kcoach.

Retirement Calculators

There are some great tools and calculators you can use for free to help plan for retirement. Some of the best ones are those which you may not even know about.

First, not to toot my own horn, but my website, www.helpmy401k.us has a great tab called Investment Tools .

There are calculators there for almost everything. The most commonly used one is the 401(k) Calculator. You could also use the 457(b) calculator if you are a government employee, but the concept is the same.

Simply go to the 401(k) calculator and plug in your own numbers. For example, lets say you are 29 years old with $1000 in a retirement savings account. Lets also say that you earn $50,000 per year and that you follow Dave Ramsey's advice and put in 10% of your pay into your 401(k) or $5000. If you earn an average return on this 401(k) account of 8% and keep doing this until age 66, you will have saved $1,076,087 for retirement. And that does not include an employer match or a raise in pay - EVER. Personal Finance expert Eric Tyson has an idea which may help provide an incentive to save more in 401(k) or IRAs - instead of calling them those names, we should try calling these "tax-reduction accounts".

What if we did figure those in? Easy - just enter those numbers.

Well, lets say your employer matches your contribution by 50% of whatever you put in up to 4%. If you put in at least 4% or more (and we are doing 10%, remember?), that means you are getting another 2% ($1000) from the employer. Also, lets assume they will raise your pay by

2% per year as a cost of living increase. Keeping the other earlier numbers the same, you will now have saved $1,598,680 for retirement.

Here is another one which my be helpful if you are planning to pay off credit card debt. And you should absolutely do that! It will have you save more in your "tax-reduction accounts."

Let's say you have a balance of $2000 in a credit card account. Your current monthly payment is $125/month and your interest rate on the card is 17.5%. (Ugh!) If you do as Dave Ramsey says and do some "plastic surgery" on your card (cut it up and dont use it anymore!), did you know that you can pay the card off in 12 months by just raising your payment to $183/month? It's true and very easy to figure out using the "Credit Card Payoff" calculator on the site. This can be very helpful to see yourself making progress towards your goal, if you can't pay the entire amount, but know you should pay less than the minimum.

In upcoming blog articles, we will look at a few more of the calculators.

You can see these calculators and many other helpful ideas on my website, www.helpmy401k.us. You can also follow me on Twitter at www.twitter.com/deanvoelker . I also host a weekly internet radio program "Improving Your Financial Health" at http://www.blogtalkradio.com/401kcoach .

Raising Arizona - More SOLUTIONS for College Costs

Last time we looked at some solutions for college savings such as a regular savings plan and also working part time during High School.

What if you do those things, but it still isn´t enough to cover college costs? Or perhaps you are getting started late in the game?

Here are some ways to help pay for college even if you haven't saved much. (Besides winning the lottery or robbing a bank.) The first way is actually pretty obvious - although families don´t utilize it as much as they should. Contact the Financial Aid department from your college and make sure you have applied for any and all scholarship money that you have a chance to qualify for. Don´t leave any "free" money on the table.

Going along with this scholarship idea, does Johnny (or Jill) play any sports? Recently, on my Blog Talk Radio program, http://www.blogtalkradio.com/401kCoach/2009/09/02/Improving-Your-Financial-Health
I visited with Charlie Adams, the Senior National Speaker for the National Collegiate Scouting Assocaiation of Chicago. Charlie helps many high school athletes get scholarships to play various sports in college. Normally when I think of athletic scholarships, I would think of football and basketball at large universities.

However, Charlie points out that there are plenty of scholarships given to students who are decent athletes and good students. Colleges offer a wide range of athletic opportunities such as golf, lacrosse, cross country, and rowing. In fact, Charlie´s son Jack earned a scholarship to Millsaps College in Mississippi for cross country.

Charlie also talks about a book, "Athletes Wanted" by Chris Krause. http://www.ncsasports.org/about-ncsa/about-chris-krause The book points out that employers have a growing need to ¨hire quality people for their companies. Recruiters love interviewing candidates who have played collegiate sports. They have learned the value of goal setting, teamwork, time management, and motivation. So if Johnny or Jill have some athletic skills, look into this as an option.

One thing to keep in mind - Johnny and Jill need to keep their grades up. To qualify for scholarships at smaller schools in sports, there is more of an emphasis on the "Student" part of student-athlete. You may contact Charlie Adams at www.stokethefirewithin.com.

What if your child doesn't play sports? Could they be entreprenuers? There are several examples of students who saw a need and figured out a way to fill the need and profit from it. They learn (on their own) valuable skills in sales, marketing, and business management. This would also set them apart from other candidates when its time to leave college and interview for work. Here is an article on "Teen Money Making Ideas". http://teenmoneymakingideas.com/how-college-students-can-make-money-in-the-summer-in-12-of-the-top-home-based-businesses/

If Johnny starts a business and it really takes off, he may find his career in the process. There was once a college student named Bill Gates who actually dropped out of Harvard to focus on his Microsoft business full time. (Of course the reason was that he felt he wasn´t learning anything new about computers.)

If you like this option, you may want to look at books about young men and women who have started successful businesses. A great website for information is http://www.quintcareers.com/college_entrepreneur_resources.html

"OK" you think. "But I´m not Bill Gates or Shaquille O´ Neal.What else can I do?"
There are other ways to learn entrprenuerial skills in organizations which are already established. Looking back on my college years, I had an opportunity to work with the Southwestern Company. www.southwestern.com. Southwestern has been around since 1855. They have a long history of helping college students to earn money for college. Students also learn some valuable lessons in the process - motivation, goal setting, business management, how to sell, and how to deal with all types of people.

Southwestern works with over 3000 students per year in the US and the UK, and the average First Year student earns $2733/mo during the summer months. Like many other opportunities, as a student gains experience, they may become more proficient.
http://www.southwesterninfo.com/FAQ.aspx Please contact Southwestern for more information.

If none of these really work for you, there is one more idea on paying for college, and its also a great one. Talk to a local recruiter about military service. For the student who hasn't yet figured out what they want from college or what they want to do in life (and at 18, who really has it figured out?), the military gives you time to figure things out. Military service also teaches skills such as teamwork, goal setting, perseverance, and time management. And they can help you to pay for school. http://www.military.com/money-for-school/tuition-assistance/army-tuition-assistance

I've met a number of people who have served for 4 years, then went to college with money from the government. As I mentioned in my last article, a 20 year old freshman has a good chance of being more mature than an 18 year old. Wouldn't you agree then that a 22 year old freshman with skills learned in the military would be even more mature and ready to learn? It certainly adds to a resume, and can lead to all types of career choices later.

I hope these have been helpful ideas. None of them involve taking out a loan, and if we can avoid that, we'd all be better off. You can contact me at my website, www.helpmy401k.us or follow me on Twitter at www.twitter.com/deanvoelker. My Blog Talk Radio program airs weekly and the archives may be heard at www.blogtalkradio.com/401kcoach.

Raising Arizona (and Arizona State and Others) - SOLUTIONS

In my first part on this, we looked at the problem of rising college costs. I believe we are at a point where students must “do their homework” before taking out a college loan. You want to be sure that you will get a good return on your investment and be able to pay it back easily. Ideally, you’d like to NOT take a loan at all. College is now a “business” decision, not a right.

I wouldn’t be a good advisor to bring up a problem without mentioning some viable solutions. There are enough good ideas, that I will talk about a few now and a few more in my next piece. None of these are magic – but if you apply these common sense ideas you’ll be better off than doing nothing. So here are some ways to Make College More Affordable.

* Saving in a 529 or UTMA plan (regularly)

The key word here is “regularly”. You can set up either of these plans as soon as your baby is born. (And I highly recommend that!) Did you know that if you were to save $100/month for 18 years (216 months) at an average return of 8%, you’d have saved $46,865? And $200/month over the same period = $93,730.

The 2 plans are different, but the idea is the same. The 529 http://en.wikipedia.org/wiki/529_planallows for tax-free withdrawals for college related expenses. Here in Indiana, since 2007, you can also get a 20% tax credit on any contributions to a 529 plan. Put in $5000 and you get $1000 back in the spring. Also, money can be transferred between family members. If it isn’t used for college, you are simply taxed on the growth at withdrawal.

UTMA (U -T – M – A ….you ain’t got no alibi, its UTMA!) OK, so I should give up on ‘cheerleading’ – but I couldn’t resist. This is the Uniform Transfer to Minors Act. A parent or guardian acts as a “custodian” for an account in the child’s name. http://www.fairmark.com/custacct/regret1.htm until the child reaches age 21. At that time, the money is turned over to the child. This is also counted in the child’s assets when you go to apply for financial aid later.

One advantage that someone may see in the UTMA is that it doesn’t matter if the money is used for college or not – although there are no tax benefits. They have full control over the money.
Personally, I prefer the 529 plan (for the tax benefits) and have set one up for both of my daughters. Whichever plan you choose, (talk to your advisor) the most important thing is to save something regularly.

Another note here – a common question I get is whether families should contribute to retirement or college.If you must choose – retirement savings trump college. ‘Nuff said.

* Part Time Work

Wow, real genius stuff here, Dean! I told you this wouldn’t be ‘magic’. But think about this. I believe students should learn the value of a dollar – and appreciate the value of education. When I was in High School, I cleaned tables and washed dishes for a local family restaurant. Part of my pay went into my ‘college’ account.

Currently minimum wage for “flipping burgers” is $7.25/hour. What if Johnny flipped burgers for 3 years at Mc Donald’s and put $400/month into his college savings? In 3 years, Johnny would have saved $14,400. Between this idea and the last one, we’ve put a good dent into Johnny’s college costs, and haven’t even gotten to financial aid yet.

Not able to save as much as we’ve talked about? Getting started ‘late’ with savings? What about putting off college for a year or 2, to build up savings. There is no law that says YOU MUST enter college immediately after high school. (I checked). In fact, chances are very good that Johnny (or Jill) may be more mature at 20 and get more from their college experience, having spent some time in the ”real world”.

I’d much rather see Johnny (or Jill) wait a bit and not be burdened with debt after they graduate. If they do this, they must focus on the idea that college is still in the plan - flipping burgers is only temporary.

* Go to School, Live at Home

Being in the Chamber, I often attend networking events. Recently I had a chance to visit IUSB (Indiana University at South Bend). I was very impressed with the quality of the facilities and was very surprised to learn that their enrollment exceeds 7500 students. http://www.iusb.edu/about/ (You may have heard there is another school here in South Bend).

People are saving quite a bit by having Johnny and Jill live at home while going to college.Because IUSB is affiliated with Indiana University, many programs are similar. For those not living in this area, I would be willing to wager that you have a similar local university nearby.

In the next article I will continue to explore some other ideas which can help make college more affordable.

You can contact me at www.helpmy401k.us and follow me on Twitter at www.twitter.com/deanvoelker.My weekly Blog Talk Radio program, “Improving Your Financial Health” is at http://www.blogtalkradio.com/401kcoach.

Raising Arizona (and Arizona State and Others)

OK, I know - cheap marketing gimmick to get you to read it. Sorry I don't have anything Nicholas Cage here. However this may be more valuable information than the movie.

Inflation affects everything - the price of bread, milk, gasoline etc. But one thing that seems to have gone up even more drastically is the cost of college. When I graduated from the University of Illinois in 1986, I left with about $3000 in student loans, which was easily repaid in a few years.

Today, student loans can reach $19,000 or more for a graduating senior from a public college.
http://encarta.msn.com/encnet/departments/financialaid/?article=averagestudentloans For
private schools that figure may be even higher.

Want to study law or medicine? For as long as I can remember (back to my finger painting days), those were the "good money" jobs. Both professions require years of post graduate education and loans can easily climb into the $100,000 range. Recently, I saw a young female med student on the news questioning President Obama about his healthcare proposal. Her concern was that at graduation, her total student debt would exceed $300,000 - yes that was not a typo. She wasn't sure if her future income would be sufficient to pay it back.

Really?? I think some thought should have gone into this before taking the loans. Its hard to blame either the President or his healthcare bill for that. Out of curiousity, I checked to see what a monthly payment on this would be. To pay off $300,000 in 12 years at 5% interest would require a monthly payment of $2775.00. Now you could take longer or the interest rate may be different, but this gives you an idea. Certainly its out of my ballpark.

Dave Ramsey always encourages his listeners to look at the opportunity cost of buying something - whether its a car, a flat screen TV, or even college. http://www.daveramsey.com/etc/cms/go_to_college_5788.htmlc

What that means is - even if you have the money, what other opportunities might you be missing? What else could the money be used for? When it comes to college, can you really afford it if it means loading yourself down with debt? What is your re-payment plan going to be?
How likely is it to get a career in your chosen field of study that will allow you to re-pay the loan?

I'm not anti-college. I just want us to think and ask questions first before jumping in.

In the early days of the United States, colleges such as Harvard and Yale were primarily for the wealthy. As the country grew and times changed, state schools offered a wider range of programs and more people were able to attend college.

"No qualified student who wants to go to college should be barred by lack of money. That has long been a great American goal. I propose that we achieve it now." Former President Richard M. Nixon said this in a special message to Congress in 1970. A lot has happened in the past 40 years. Are we back to a point where college is only for the wealthiest among us?

As a Financial Advisor, I will say that college does require financial planning and disciplined saving. Flipping burgers for the summer will only scratch the surface.

In my next part on this, we will look at some solutions which can help with college costs.

You can contact me at www.helpmy401k.us and follow me on Twitter at www.twitter.com/deanvoelker. You can also listen to me on Blog Talk Radio at www.blogtalkradio.com/401kcoach.

If You Knew You'd Get a "B"

Soon, all the kids will be back in school. My daughter can’t wait to see her friends and show off her new outfits. Back-To-School time usually also means plenty of sales which should get the cash registers ringing in your local retail shops.

Since we are just getting started, it’s too early to think about report cards and grades yet….or is it?

What if you knew at the beginning of the year, that your grade at the end of the year would be at least a “B” and no worse – no matter what? Better still, what if you got an “A” in one quarter, and a “C” in the other quarters – and at the end of the year, you got to keep the “A” as your grade for the year?

If that were true, how would you feel about going to school? Would you be more relaxed? Would you want to learn more? Would school be more fun?

Well, GUESS WHAT!! I can’t do much about Johnny’s math grade, or Susie’s US History Course, but I can provide solutions which may improve your confidence in investing.
How can you do that, you ask? Variable Annuities can provide Safe Growth and Safe Income.

Recently, Leslie Scism of the Wall Street Journal wrote “Because of such guarantees, many holders of variable annuities actually saw their accounts increase 6% or more in value last year, when the Standard & Poor’s 500-stock index dropped nearly 39%.” in her article “Long Derided, This Investment Now Looks Wise”. http://online.wsj.com/article/SB10001424052970204900904574302270919454880.html

Currently, you can earn as much as 7% or more on your principal base when you aren’t using it for income. That means if you start with $100,000, by the end of the year, you would have $107,000 to draw income from later – no matter what happens in the market. (As long as you leave it there.) And it can grow tax-deferred until you begin to take it out.

What if your account does better than 7%? Also, what if it only does better than 7% for one quarter? Wouldn’t it be great to keep the best quarter and lock it in for the year? Well….you CAN!

What if you could do this every year while you are building your Nest Egg? What if you went into the school year knowing you would at least get a “B”….and might get an “A”?

Then when you begin to take income from your savings, you can take 5% from the nest egg you’ve built for the rest of your life. The check would go up or stay the same, but never go down. (As long as you aren’t taking more than 5%.) Would that be OK?

There are some drawbacks to a Variable Annuity, which Ms. Scism also points out in her article http://online.wsj.com/article/SB10001424052970204900904574302270919454880.html the most obvious being the cost of the extra protection. George Lambert also points this out in his article, “The Cost of Variable Annuities” http://www.investopedia.com/articles/pf/06/variableannuity.asp in which he looks at the different types of protection – Growth Protection, Income Protection, and Death Benefit.

Another drawback is that when you consider investing into a Variable Annuity, you need to take a Long Term approach – like any other investment. Speak with a reliable advisor about whether or not it may be appropriate for you based on your time horizon and income needs at retirement. Early withdrawals may result in steep surrender charges, although many plans allow you to withdraw as much as 10% with no surrender charge.

The main advantage of course is taking the uncertainty over today’s economy out of the picture. And if you knew you’d get at least a “B”, wouldn’t you sleep better at night?

For more information on annuities, or other investment ideas, you may contact me at http://www.helpmy401k.us/. You may also follow me on Twitter at www.twitter.com/deanvoelker. I am also hosting a weekly internet radio podcast at http://www.blogtalkradio.com/401kcoach.

Caught In The Web

One of the truly wonderful things about being an Independent Financial Advisor is that it has really allowed me to open myself up and explore new and different ways of connecting with prospective clients.

I'm sure you'd agree that the past couple of years have been difficult for investors, haven't they? Difficult because of disappointing returns on your savings. Even if you don't consider yourself a stock market investor, you are discouraged with interest rates on your CDs and savings accounts.

However a dangerous side effect to all of this has been that many people have scrapped solid investing principles. They have become like ships without a rudder, not knowing where to turn, and fearful of trusting anyone or anything. Times like these are when we really NEED professional advice more than ever, wouldn't you agree? So where do you find good sound professional advice? Whom do you trust?

For someone like myself, I'm learning that traditional marketing methods - cold calling, mailers, and print ads have been less effective than usual in reaching out to others and making connections. Have you noticed that over the years, TV and Radio Programs include MORE ads and LESS programs? http://www.nydailynews.com/archives/entertainment/2005/07/28/2005-07-28_kelley__too_many_ads_on_netw.html

Its like that old Wendy's ad (oops there is another one!) "Where's the Beef?"

We've become jaded and resistant to traditional marketing. Again, my belief is that people need professional advice NOW more than ever. For me, its also very important to connect with clients whom I can truly serve. A great client is one that we have established a bond of trust. They have shared their goals and dreams with me, and they are open-minded to my advice. When they hear my advice, they can easily see that I want to help them reach their goals, and my advice is truly in their best interests.

So how does one find "great clients" without traditional marketing methods that aren't effective?Using social media websites has been one solution. Writing this blog has been fun, and its allowed me to provide professional advice which anyone can use and benefit from.

Linked In (www.linkedin.com/in/dvoelker) is a great site to reinforce my professional side. It is my online resume and helps me to establish my credentials. I'm also very active in my local Chamber of Commerce (www.sjchamber.org). This provides some great networking opportunities.

Twitter (www.twitter.com/DeanVoelker) allows us to say anything to the whole world (in 140 characters or less). This is a good way to post notices for my blog or other articles of interest.

Facebook (www.facebook.com/dean.voelker) is an absolute blast, which has allowed me to show a more personal side, as well as professsional. And of course, all of these sites allow you to access my own website (www.helpmy401k.us), which serves as another excellent resource for retirement savings.

Most recently, at the suggestion of my friend, Brian, whom I've know since high school, I've also begun a weekly internet radio broadcast (www.blogtalkradio.com/401kcoach). Brian has extensive radio experience and has been very helpful in helping me get started. This show has been a lot of work, but also fun to do, and certainly helps to set me apart from other advisors.

I've always been a believer in giving. What goes around comes around. My faith in God tells me that we will get throught this challenging time, and be stronger for it. Someone recently told me that God is never in a recession. Have Faith!

Please contact me at www.helpmy401k.us if I may be of service to you in any way.

Climbing The Mountain

Thanks to my 7 years old daughter, I’ve been exposed (repeatedly) to the music of Miley Cyrus (aka Hannah Montana). Although my musical tastes are more in line with 1970’s & 1980’s Classic Rock, I have to admit that Miley’s music is pretty good.

One of her best songs, “The Climb” is popular right now, and it’s a very inspiring song. Hearing “The Climb” makes me think about how saving for retirement can be much like climbing a mountain. There may be obstacles along the way, but we keep climbing, and the climb is actually the best part of the process.

There are really 2 parts to climbing a mountain, going up and then coming back down. This makes a great analogy when thinking of your retirement savings. “Going up” is building your nest egg. “Coming down” is when you are beginning to take income from the nest egg you’ve built. Both parts are just as important, aren’t they?

If you are in the “Going Up” stage, and trying to build your nest egg, having a year like 2008 can be discouraging. What if you could get at least 7% or more every year on your savings? What if you were able to get even more in years when the market does better then 7%?
How about if I also told you that if you stayed invested for 10 years, you would DOUBLE your original investment? (By the way, according to the Rule of 72, that would be an average compound return of 7.2%.) http://en.wikipedia.org/wiki/Rule_of_72

Lets say you have an account which grows by 10% at the beginning of the year, hits its peak in June, then tails off for the rest of the year. What if I told you that the highest Quarterly Gain (in this case the end of June) would be locked in for you, in helping to build your nest egg?

The next year, the same thing would happen. The benefit base would increase by either 7% OR whatever the highest quarterly gain was.

What about “Coming Down” the mountain and taking income? How about if I told you that beginning at age 63, you would be able to take 5% from the benefit base you built and you could take 5% for life? Wouldn’t it be great to know that your pay can go up, if the account continues to grow - and your pay won’t go down?

And for those who can wait until age 75 to begin taking income, would you like to be able to take 6% FOR LIFE? Sounds pretty good so far? Wouldn’t you feel more comfortable climbing your mountain if you had a “safety net“? For more information, please contact me at http://helpmy401k.us/. You may also follow me on Twitter at www.twitter.com/deanvoelker.
　
　

This Time Its Different - II

Recently I posted an article, titled “This Time It’s Different”. Most people when asked about the idea of investing in the market, have responded that “They are waiting to see what happens” and yes, “This Time It’s Different because…..”

If you read my previous article, “This Time It’s Different”, http://5reasonsyoushouldownaroth.blogspot.com/2009/07/this-time-its-different.html I referred to a study done by Hartford on the Recession of the mid 1970’s (1973 & 1974), arguably the closest parallel to our present economic situation. The low point in the market was Sept. 30, 1974. The Dow closed at 607.87 (not a misprint) This was down more than 40% from its high in 1972, when it crossed the 1000 mark for the first time. http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×4124348

The stock market had gone through back-to-back negative years for the first time since the Great Depression.

We should set the stage a bit at this point. In 1972, we were still heavily involved in the Vietnam War, which was highly unpopular, and dragged on for several years. Also, in 1972, the Watergate scandal began. This resulted in the indictment and conviction of several of Nixon’s closest advisors, and ultimately in the resignation of the President himself, on August 9, 1974. http://en.wikipedia.org/wiki/Watergate_scandal

To make matters worse, the Oil Embargo http://en.wikipedia.org/wiki/1973_oil_crisis was put into effect by OPEC, which refused to ship oil to the US due to their support of Israel at that time. Unemployment had reached a high of 6.7% in 1974. http://www.nytimes.com/2008/12/06/business/economy/06jobs.html

So things in 1974 looked pretty bleak. I recently read a letter written by Jim Fullerton of the Capital Group to shareholders at that time(November 1974). Here are some highlights from Mr. Fullerton’s letter.

“Each economic, market, and financial crisis is different from previous ones. But in their very difference, there is commonality….. Today there are thoughtful, experienced, respected, economists, bankers, investors, and businessmen who can (tell) you why this time the economic problems are different; why this time things are going to get even worse – and hence, why this is NOT a good time to invest in common stocks, even though they may appear low…..This time is a whole new ball game.”

“In 1942 everybody knew it was a whole new ball game…..The Germans had overrun France. The British had been thrown out of Dunkirk. The Pacific Fleet had been disastrously crippled at Pearl Harbor. We had surrendered Bataan, and the British had surrendered Singapore. The U.S. was so ill-prepared for a war that……75% of our field artillery was equipped with horse-drawn, French 75mm guns.” (Mr. Fullerton served in WWII.)

“In April 1942, inflation was rampant…..On April 8, 1942, the lead article in the (Wall Street) Journal was: ‘Home Construction, Total far behind last year’s. Private Builders hardest hit.’…..Washington D.C. also considered more drastic rationing with price fixing, or still higher taxes as a means of filling the ‘inflationary gap’ between increased public buying power and the diminishing supply of consumer goods.”

“A leading stock market commentator wrote: ‘The market remains in the dark as to just what it has to discount. And as yet, the signs are still lacking that the market has reached permanently solid ground for a sustained reversal.”

“Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with excess-profits taxes and wage and price controls, shortages of gasoline and rubber…..and with the virtual certainty…..that once the war was over, we’d face a post-war depression, the market turned around.”

“Now I’d like to close with this: ‘Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?’ That comment was made by Dean Witter in May of 1932 – only a few weeks before the end of the worst bear market in history.”

“Have Courage! We have been here before – and we’ve survived and prospered.”

Jim Fullerton

As of today, July 23, 2009, the Dow is up nearly 200 points, crossing the 9000 mark for the first time this year. This is a gain of over 38% from its low point of 6547 on March 9, 2009. Yes, This Time It’s Different.

For more information, you may contact me at http://www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/deanvoelker.

Credit Myths

There is an old saying that if you tell a lie loud enough and long enough, then over time, the lie will become accepted as truth.

Like many of you, I had bought into the credit card myth. I believed that having a credit card was aprt of life and that you "needed" one to rent a hotel room or make other purchases.

Recently, I've discovered that one of the best ways to Improve Your Financial Health is to perform some "Plastic Surgery". There is an overwhelming feeling of freedom and relief when you take a pair of scissors to that piece of plastic in your purse or wallet.

Dave Ramsey discusses this in further detail in his Financial Peace University course.
www.daveramsey.com

Imagine how much simpler your life would be without credit card payments or other loan payments. Imagine being totally debt free, or at lest debt free except for your home.
How much money could you save if that were your situation?

If you had $10,000 or more in a savings account, to be used only for emergencies, would you be able to worry less about the possibility of something happening?

One of the best definitions I have heard of "Financial Security" is this:
Financial Security means being able to afford almost anything you want - AND wanting very little.

When you tell a lie or spread a myth long enough, it will eventually be accepted as truth.

Here are a few "myths" about credit which have been told to us over & over again through marketing and the media.

Myth: You need a credit card to build credit.
Truth: A credit card does not "build" credit. In mnay cases, it can even destroy credit.

There is NO positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! Most families don't pay on time. The average family today carries $8,000 in credit card debt according to the American Bankers' Association.

When you pay cash for a purchase, you can "feel pain" of the money leaving your hand. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. If you use credit cards instead of cash you will spend 12-18% more. This is money you could have saved.

Myth: What about my credit score or FICO score? Don't I need a good score for getting a job,
getting loans.
Truth: The FICO score (Fair Issac Corporation) was created in 1958 as a way of determining the likelyhood that a person will pay their debts. http://en.wikipedia.org/wiki/Credit_score_(United_States)

In other words, it is a debt score. It measures what debts you have and how likely you are to pay them. People with no debt over a period of several years actually have a ZERO score. Wouldn't it be better to have ZERO debt as a measurement of managing your money, than a 'score'?

Myth: Wouldn't it help to get a debt consolidation loan? That is a good way to get out of debt.
Truth: When you do a debt consolidation, you just move the debt from one place to another. 88 percent of the time people do debt consolidation, they don’t change their behavior and go right back into debt. You can't borrow your way out.

The best way to eliminate debt is by putting together a budget, and putting your debts on a sheet and knocking them out one by one, starting with the smallest balance.

Myth: 90 Days Same as Cash or 0% Financing is a good deal.
Truth: This is an advertising gimmick. Businesses are in business to make a profit.

When companies use this method, they simply build the extra right into the price. Then when you don't pay it off in 90 days, they can charge you interest on top of it at rates from 24-35%. Worse, they will backcharge the rate all the way back to the date of purchase. And they know that most of the time, people won't pay it off on time. Again, the reason for doing this is to make a profit - once when they sell the item, and again when they can charge you interest.

Please contact me for more information. You may reach me through my web site. www.helpmy401k.us. You may also follow me on Twitter. www.twitter.com/deanvoelker

Lets Say I Live To 100

People are living much longer these days. With modern medicine, technology, and taking better care of ourselves, reaching 100 is much more common than it used to be. According to a Wall Street Journal article from April 14, 2008, Hallmark sold over 85,000 “Happy 100th Birthday”
cards in 2007. And that is just Hallmark. Currently the average life expectancy for a Female is 87 years, and 85 years for a Male.

Living that long is great, but it can also raise concerns about your savings. What are you doing to make sure your money lasts that long also? Can your savings generate income for the rest of your life, even if you live to 100 or beyond?

Also, how prepared are you to keep up with rising costs? Did you know that 20 years ago (1989), the cost of a postage stamp was 0.25 and a gallon of gas was about 0.97? Compare those prices with today. A stamp is 0.44 and a gallon of gas…..well it fluctuates more than the stock market. As of today, it is about 2.45, and last summer had peaked well over 4.00.

If you are retired for 20 years or more, costs will go up. How can your savings handle that? Can you give yourself “Pay Raises” and still make it last?

One last question for consideration - this past year was one of the most challenging ever for investors. How can you grow your income, make your money last, and do it “Safely”?

Here are some tips that may help answer these burning questions.

* Talk with your advisor. And if you don’t have a strong relationship with your advisor, or
you don’t feel they have your best interests in mind, find a new one. Your advisor needs to be a
great listener, and your partner - NOT just a stockbroker. Tell them what your needs are.
What is most important to you about your money?

* Be Open Minded. If your money is going to last for your lifetime, CDs aren’t going to get it
done. Especially at the current bank rates today. There are other ways you can invest, and
let your money grow over time safely. A good advisor should learn as much about you as
they are able - just like a doctor who will learn your history before prescribing anything.

“Whatever you fear most has no power - it is your fear that has the power.”
Oprah Winfrey

* Be Diversified. I’ve always thought of “diversification” like clothes in your closet.
You need to have clothing for summer, winter, fall, casual wear, dressing up,
working in the yard…..ALL occasions and ALL types of weather. Investing needs to be
the same. Would you like less risk? The best way to do that is by diversifying.

“Money, you should pardon the expression, is a little bit like manure. It doesn’t
do any good unless it’s spread around, encouraging young things to grow.”
Barbra Streisand

For more information on how to make your money last to 100 or beyond, please contact me at
www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/deanvoelker.

Income For Life

One of my clients once told me that the biggest lesson he learned in retirement was this. You don't retire on a Lump Sum of Money. Rather, you retire on the INCOME which the Lump Sum of Money can create. Think about that statement for a bit. Let it sink in. In fact, let me repeat it, because this is what retirement means. You don't retire on a Lump Sum of Money. Rather, you retire on the INCOME which the Lump Sum of Money can create. You spend your working career saving, accumulating, investing, and building a "lump sum". At some point, you will want to use it for income.

Soooo.....what exactly is a "Lump Sum of Money"? Is it $100,000? $300,000? How about $1,000,000? More than that?

The best way to answer that is that the amouth may be different for everyone. However, we can help you to narrow down what you amount should be at retirement. Here are 4 steps.

1. Determine your monthly budget. You don't want any debt at retirement. Leave plenty of
room for "Miscellaneous" expenses - travel, kids, hobbies. If you aren't working, you are
spending.

2. Determine your Social Security Income amount. There are 3 categories for Social
Security income - Reduced Benefit (usually age 62), Full Benefit (usually age 66), and
Enhanced Benefit (age 70). As the terms suggest, if you take Social Security at an earlier age,
you are "stuck" with a smaller amount of income - and "Grounded For Life." There has also
been a growing movement for proposed changes in Social Security in order to make the
money last longer. At least one of those changes includes pushing back the age for Full
Retirement Benefits, which would force most of us to work longer. Whatever benefit amount
you select, you need to know the amount so it can be applied to your budget.

3. Do you have other sources of income? These may include rental property, part time
work, or anything else which generates income.

4. Look at your budget again, and deduct your budgeted expenses from your total
income.
This sounds simple - and it is- however you would be surprised at how many people don't do
it. Do you have enough income to cover your expenses? Is there money to do "special" things
you want to do in retirement? Travel? Golf when you want?

If there is a "gap", how much is the gap? Let's assume there is a gap of $800/month. $800 x
12 months = $9600/year. Now let's take $9600 and divide it by .04. (4% is a reasonably
"safe" amount to withdraw from a lump sum.) $9600/.04 = $240,000. Now we have a "lump
sum" goal of saving for retirement. This can be saved in your 401(k), IRA, Roth IRA, or
ordinary savings. Do not retire until you have this amount saved to cover your additional
budgeted expenses.

In a future article we will look further at annuities and how they can provide income for life. We also need to consider the impact of inflation on your savings.

For more income on annuities or on budgeting, please contact me at http://www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/deanvoelker

Using Protection?

That should have gotten your attention!

In my last post, I discussed some basics of annuities. Annuities can offer some protection for your savings which other investments, such as stocks or mutual funds do not. Keep in mind that the value of your account may still go down.

Lets talk about a few protections which you may get from an annuity.

GUARANTEED DEATH BENEFIT - The first one, common to most annuities, is the Guranteed Death Benefit. What is means is that if you invested a sum of money into an annuity, your beneficiaries will receive at least that amount (minus any income or withdrawals taken).

For example, lets say that John puts $100,000 into a variable annuity. The market goes south, and the value of the annuity dips to $80,000, when John dies. If he has not taken income, his heirs will get the full $100,000. Now lets say that the market goes up, and the account grows to $120,000. When John dies, his heirs get $120,000. In this case, it would not matter if he has taken income - if the account value has grown from his original investment, his heirs get the account value.

GUARANTEED GROWTH - There are a lot of different insurance brokers who provide annuities, and not all of them offer this. Whichever provider you use, I would certainly recommend using a large, stable, reputable (Name Brand) company. The protection is only as good as the insurance company backing it.

I have become familiar with Jackson National Life, one of the largest annuity providers in the US. They have an AA rating in Financial Strength from Fitch & Standard & Poors, which is Very Strong. What that means to a client is that they should feel secure with the protections they are getting on their money. (Source: Jackson Life http://www.jackson.com/)

Jackson offers a Fixed Account Option on its annuities. The Fixed Option offers a 1 Year Interest Rate, which is reset each year, but is never less than 3% (Special Benefit Value). 3% actually looks pretty good right now, doesn't it?

Lets say that John starts out at age 55 by investing his $100,000 in a Fixed Index Annuity. Assuming that the annuity value has grown by 3% per year, by age 65 (10 years) it will be worth $134,392 minimum. (Source: Jackson Ascender Plus Select Brochure, http://www.jackson.com/).

A Variable Annuity should provide more growth over time, however its performance is related to the stock market. The Standard & Poors Index, also referred to as the S & P 500 represents the largest 500 companies in the USA. It has been the measuring stick for comparing investment performance.

If John had been investing his $100,000 in a Variable Annuity using the S & P Index, Jackson lets you have a "win-win". If the market goes up, the account will also go up. If the market goes down, the account value stays the same. This would have been particularly valuable in 2008 when the S & P declined by 42.9%. The value in John's account would have been the same. Had John kept his money invested over the last 10 years, he would have $145,825 today. (Source: Jackson Ascender Plus Select Brochure, http://www.jackson.com/)

I will look at Guaranteed Income Options in another segment. I will also look at additional charges for these features (where they apply). Please keep in mind that an annuity is not for everyone. You should consult with your advisor to determine if an annuity is right for you.

For more information, you may contact me at http://www.helpmy401k.us/. You may also follow me on Twitter at http://twitter.com/DeanVoelker .

"OK, Now What?"

The market has performed much better over the past 3 months. From a low on 3/09/09 to now, the S & P has risen over 34%. This is an encouraging sign for investors.....BUT.....(as a friend of mine might say, "That's a mighty big but you have!")

All kidding aside, the question we all face is - "OK, Now WHAT?" As I talk with clients, attitudes range from "Gloom & Doom" expecting yet another downturn in our roller-coaster ride, to "Cautiously Optimistic". A common quote is "I don't want to lose anymore." (Sound familiar?)

We still have the same issues - we are living longer than we used to. Hallmark sold over 85,000 birthday cards last year for individuals who had reached at least their 100th birthday. The 100+ group is our fastest growing demographic and current life expectancies are 85 for males, 87 for females.

Over that time, being retired for 25 or more years, you WILL see inflation. As certain as death & taxes.

* Do you have enough money to live 25 years or more in retirement?
* Are you prepared to keep up with rapidly rising costs?
* Is your money protected well enough to weather another economic storm?

How can you get growth, income, and protection at the same time? One idea is with a variable annuity. Please meet with your advisor to determine if a variable annuity is right for you. There are several benefits (protections) which annuities offer which are appealing. I'll address these in a future article, but for now lets look at the basics.

According to wikipedia http://en.wikipedia.org/wiki/Annuity_(US_financial_products), an annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways.

A variable annuity works much like a mutual fund (or funds). The funds, known as subaccounts, are held and backed by an insurance company. The insurance company can provide protections on your investment for income, death benefit, and in some cases they can even provide a minimum rate of growth. The 'catch' is that you pay for the protection thru annual fees and charges.

Annuities (and insurance) has changed much over the past 10 years. New government regulations has made insurers to become more client friendly, easier to understand, with more benefits to clients.

One way to look at the positive changes in annuities is to think of improvements made in other products. Think of cell phones for example. When they first arrived on the scene in the 1980's, phones were heavy (remember the backpacks!), expensive, with poor reception, and few features. Now think of them today - you can do all kinds of activities on a cell phone, even take pictures, videos, and use the internet - and the phone easily fits into your pocket.

I will be covering more on annuities to come. You may contact me at www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/DeanVoelker.

Fixing Your 401(k) - Part 7

Problem #6 - Education

Of all the issues we have been discussing that are plaguing 401(k) plans right now, the biggest is EDUCATION on how it works. Why? Very simple. If proper education was taking place, it would help to solve the other issues, and reduce the liability each employer and plan sponsor currently faces.

Jackson Life did a survey of several passers-by and asked them questions about 401(k)s. (Source Rollover Rx, Jackson National Life Insurance) If you have ever watched Jay Leno do his "Jaywalking" bit on the Tonight Show, you have a pretty good idea of how it went.

Here are a few actual responses when people were asked about education offered by their employers for their 401(k) plans.

"I wasn't aware of any education."
"Don't participate in this. Its on a webinar."
"Information meetings are inconvenient to attend. I'm too busy."
"I think there is on line stuff, but I don't think anyone uses it."
"What can you tell me about it?"

I have personally talked to several clients who tell me that when there are "meetings", the advisor simply hands out his card and runs thru a quick power point presentation, then asks if there are any questions. This is usually met with blank "deer in the headlights" looks.

Education must be done on an INDIVIDUAL BASIS. Everyone's situation is different.
John, the 49 year old manager is in a different spot from Brandon, the 24 year old sales rep, who is new to 401(k) investing - although Brandon needs to know he is in a great place to get started now. Kim, the 35 year old customer service rep, may be thinking about borrowing against her plan, and Sue, the 42 year old customer service manager, is new to the company and wants to know how much she should invest, and what funds to pick.

How can you address individual situations in a "webinar" or "power point"?

A survey done by The Spectrum Group (www.spectrem.com - Source Jackson Life, Rollover Rx) tells us that 85% of employees want professional advice, however only 37% of employers offer any real contact with an advisor. That is not good for the employees, or the employer/sponsors, who are exposing their companies to liability and potential lawsuits. http://accounting.smartpros.com/x40690.xml

So what should you be doing?

Let's review the Problems I've covered so far.

Problem Current Situation Solution
Participation We don't participate & Start participating in your plan don't contribute enough. and max it out.

Portability Too many cash out when Roll the old 401(k) to the plan with
changing jobs. your new job, or to an IRA.

Loans Heavy tax consequences Set up an savings fund of 3-6 mos
and penalties. expenses. Don't borrow on 401(k)

Investments We try to 'advise' ourselves. Diversify. Get professional advice.
Its your money, your future.

Education Not enough advice by Find an advisor you can work with.
employers.

Here are 3 key questions you & your advisor should be asking.

1. Do I have enough money to live through at least 25 years or more in retirement?
How can I make my money last for the rest of my life?

2. Will my savings & income keep up with rapidly rising costs?

3. How can my savings be protected against declines in the stock market?

Let me end with this quote from one of my favorite songs.
"Working so hard to make it easy......got to turn....turn this thing around - Right Now!
Its your tomorrow. Right Now! Its everything." (Van Halen - Right Now)

Bet you never thought you'd see a Van Halen reference in an article on retirement!

Get started on your plan - Right Now! Meet with your advisor today and get started on Improving Your Financial Health. For more information, please contact me at http://www.helpmy401k.us. You can also follow me on Twitter - http://www.twitter.com/DeanVoelker

Fixing Your 401(k) - Part 5

Problem #5 - Investments

If you have been following me on this blog lately, you might think that I'm against the idea of 401(k) plans. Not so! Let me state this clearly. I LOVE 401(k) plans as a source of saving for retirement. EVERYONE should be participating in a 401(k).

However, there are many potential hazards that you must be aware of in your 401(k) plans.
So my purpose here has been acting as a 'caddy' and letting you know where the bunkers & water hazards are at so we can avoid them. And I certainly want you all to finish the 'course'.

Today, we will look at the problem which most investors find it easiest to point fingers at -
Investments.

How many investment choices are offered in your plan? And how do you choose which ones are right for you? How long do you stay with invesments in your plan before you look for
"greener grass"?

A survey done by Watson Wyatt in January 2008, (Watson Wyatt is the trusted business partner to the world’s leading organizations on people and financial issues)
http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=18489
gives us this information.

* 30% of all participants have NO equity (stock mutual funds) in their plans.
* 20% of investors at least 45 and older have stopped contributing.
* Too many people are invested heavily in their company stock, some who have at least
50% or more of their plans in company stock.
(Company stock is an issue I will look at in further detail in my next article.)

Dave Ramsey likes to ask this question - If you were CFO of your own finances, would you fire you? Well, the reality is that YES YOU ARE the CFO of your finances & retirement savings!

"Investors Behaving Badly: An Analysis of Investor Trading Patterns in Mutual Funds" is a 2001 article that shows people are holding their funds for shorter and shorter time periods, as short as 2.9 years, and probably even less time these days after all of the challenges recently.
http://spwfe.fpanet.org:10005/public/Unclassified%20Records/FPA%20Journal%20November%202001%20-%20Investors%20Behaving%20Badly_%20An%20Analysis%20of%20Investor%20Trading%20Patt.pdf

This is like moving your boat all around the pond in search of the 'perfect' fishing spot. It usually just scares the fish! This also explains why people finally give up and put everything into "safe" money market funds, because as one gentleman puts it. "At least I'm not losing nothing."

Wayne Gretzky said (during his playing days), "I skate to where the puck is going, not where it has been." How do we know where the 'puck' is going? We don't. That would mean market timing, and as Warren Buffett would say, "I'm not smart enough for that."

How many funds should an employer's plan offer? Anywhere from about 12 - 20 is a good range. Your personal plan should meet these objectives.
* Look for funds which have 10 year (or longer) histories. Established funds give a much
clearer long term picture of what to expect.
* Pay attention to fund expenses. The higher the expenses, the more it can hurt your return.
* Treat the plan as if you are at a "buffet". The plan offers a menu of choices, and it is best to
have somthing from all of the food groups. Just as you wouldn't eat only the fried chicken,
you also need fixed income, dividend paying funds (large companies), medium sized
companies, small companies, and international.
* Meet with an advisor to help you find the mix you should have and how much to put in.
Many good advisors (including myself) offer to do this at no charge to you. Let him or her
help you put a roadmap together which will help you get to (and through) retirement
safely.

Next we will examine the issue of company stock in 401(k) plans. For more information or to contact me, please visit http://www.helpmy401k.us/. You can also follow me on Twitter at
http://twitter.com/DeanVoelker

Fixing Your 401(k) - Part 4

Problem #3 - Loans

"Brother, Can You Spare A Dime?" (Bing Crosby 1932)
http://www.youtube.com/watch?v=eih67rlGNhU

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. http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=7802

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. www.transamerica.org
http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3838

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 www.helpmy401k.us