Retirement planning should be an important consideration for everyone, whether they are years away from their retirement and especially if retirement is just around the corner.
If financial topics make you feel uneasy, you still should put them on top of your learning list. Here are some easy to understand tips, regarding retirement especially for the baby boomers.
Tip #1
You should start by taking note of your current expenses, and think whether after your retirement you will want to live like you always have. If you think of retirement as travel, an expensive car and lots of days outdoors, you have to consider the expense that comes with this lifestyle. A retirement calculator is the perfect tool to help you assess this.
Tip #2
Make sure you know what benefits you will get from Social Security. This would normally sum up to be around 40% of your income before retirement. You should be receiving three statements yearly, which include a summary of the benefits you should expect when you retire.
Tip #3
Gather as much information as you can about employee benefits. Remember that information is power, and this will determine your future.
Tip #4
You should make it a point to invest in a 401k plan. This is an account that will save you lots of tax money, and which will also attract a contribution for your retirement from your employer.
Tip #5
If you do contribute funds into a plan, then no matter how bad your financial situation gets, do not make any withdrawals. This will result in you falling short, and not having the estimated sum of money when you retire.
Reference: http://freeretirementplanningadvice.com/home-and-family/5-baby-boomer-retirement-tips/
Thursday, May 28, 2009
Wednesday, May 27, 2009
Fact or Fiction?
When it comes to retirement, even though there is nowadays plenty of information available everywhere you look, people somehow still come to believe in retirement myths, as the truth.
We are therefore going to cover in this article the most publicised myths that people believe in.
Myth #1
Retirement starts after your last day at work. This is a false statement since retirement should be seen as a new phase in one’s life. Like every change, this takes some accustoming to, and it will take you as long as twelve months to adjust and change your lifestyle.
Myth #2
If you think or rather hope that someone will be generous enough to take care of you when you retire, you might want to think again. Social Security will hardly pay your monthly bills, and if you are thinking that your children will take care of you, you should consider that life has changed, and this is increasingly difficult.
Myth #3
The next myth refers to monthly expenses, since most individuals believe that after retirement their costs will be low. You should consider the drying out of Social Security funding, and the fact that the cost of goods continues to rise. Considering that we can expect to live more than 20 years after we retire, this might be a recipe for disaster.
Myth #4
Some people believe that retirement is easy- not true. This period can even give rise to depression since after their retirement, people find out that all leisure and relaxation makes for quite a boring life.
Myth #5
Retirees think that retirement is great since they will get to be with their wife all day. This in reality needs some adjusting to, since couples usually don’t spend more than 20% of their time together. This is why in analysing divorce rates we find that the highest is for couples over 55 years of age.
Reference http://freeretirementplanningadvice.com/elderly-care/busting-the-top-retirement-myths/
We are therefore going to cover in this article the most publicised myths that people believe in.
Myth #1
Retirement starts after your last day at work. This is a false statement since retirement should be seen as a new phase in one’s life. Like every change, this takes some accustoming to, and it will take you as long as twelve months to adjust and change your lifestyle.
Myth #2
If you think or rather hope that someone will be generous enough to take care of you when you retire, you might want to think again. Social Security will hardly pay your monthly bills, and if you are thinking that your children will take care of you, you should consider that life has changed, and this is increasingly difficult.
Myth #3
The next myth refers to monthly expenses, since most individuals believe that after retirement their costs will be low. You should consider the drying out of Social Security funding, and the fact that the cost of goods continues to rise. Considering that we can expect to live more than 20 years after we retire, this might be a recipe for disaster.
Myth #4
Some people believe that retirement is easy- not true. This period can even give rise to depression since after their retirement, people find out that all leisure and relaxation makes for quite a boring life.
Myth #5
Retirees think that retirement is great since they will get to be with their wife all day. This in reality needs some adjusting to, since couples usually don’t spend more than 20% of their time together. This is why in analysing divorce rates we find that the highest is for couples over 55 years of age.
Reference http://freeretirementplanningadvice.com/elderly-care/busting-the-top-retirement-myths/
Monday, May 25, 2009
Retirement Plan Fees
The American government is currently working hard to solve the lots of issues related to retirement plans and their regulations.
One of the issues being worked upon is fee disclosures to participants as well as plan sponsors. Many were expecting a regulation for the 408b plans that requires the plan provider to disclose all the fees for the sponsors. This however has not been established yet. The issue is still to be tackled well and something is still expected as regards this matter.
In fact, the two congress houses wish for a proper legislation governing fee disclosure. The Special Committee on Aging has presented the Defined Contribution Fee Disclosure Act 2009. This act would compel plan sponsors of defined contribution plans, to disclose the entire plan fees to the participants.
This legislation should make it easier for plan sponsors to negotiate fees with their participants. Participants on the other hand would be in a better position since they will know exactly what the cost of their plan is.
Of the entire proposed legislation package, the only part that did not come to the final stage was the changes to Section C of the Form 5500. If a plan has at least 100 participants, the plan needs to report implicit returns. The thing is that plan sponsors are having a hard time getting this information, in the case that his service provider did not provide it. This is still a bit of a gray area, where lot of time is used up in filling in this form, without any significant end result.
As for the advisors, it is believed that these new regulations that will stiffen the environment may encourage a trend in the industry. This trend assumes that with tightened regulations retirement plan advisors will shift to being fee-based.
Reference: http://www.planadviser.com/magazine/article.php/4242
One of the issues being worked upon is fee disclosures to participants as well as plan sponsors. Many were expecting a regulation for the 408b plans that requires the plan provider to disclose all the fees for the sponsors. This however has not been established yet. The issue is still to be tackled well and something is still expected as regards this matter.
In fact, the two congress houses wish for a proper legislation governing fee disclosure. The Special Committee on Aging has presented the Defined Contribution Fee Disclosure Act 2009. This act would compel plan sponsors of defined contribution plans, to disclose the entire plan fees to the participants.
This legislation should make it easier for plan sponsors to negotiate fees with their participants. Participants on the other hand would be in a better position since they will know exactly what the cost of their plan is.
Of the entire proposed legislation package, the only part that did not come to the final stage was the changes to Section C of the Form 5500. If a plan has at least 100 participants, the plan needs to report implicit returns. The thing is that plan sponsors are having a hard time getting this information, in the case that his service provider did not provide it. This is still a bit of a gray area, where lot of time is used up in filling in this form, without any significant end result.
As for the advisors, it is believed that these new regulations that will stiffen the environment may encourage a trend in the industry. This trend assumes that with tightened regulations retirement plan advisors will shift to being fee-based.
Reference: http://www.planadviser.com/magazine/article.php/4242
Why the 403b market is different from the 401k
The 403b plans are regulated by a set of rules, which were composed in such a way that they reinvent all the plans that attract defined contributions. These plans are given by entities which are tax-exempt as are higher education institutions, school systems and other non-profit organizations.
The growing 403b plan market represents a very good business opportunity for financial advisors. It would however be a mistake for an advisor to assume that he may simple redirect from a 401k advice practice to a 403b tax-exempt field.
The K-12 sector and the higher education market do share many similarities; however there are also many and noteworthy differences to take into account. One significant difference between the two is that some higher education institution plans which offer contributions by the employer are governed by another legislation which is the ERISA, or the Employee Retirement Income Security Act. In fact it seems that plan sponsors sometimes set up a 401k plan, in order to keep their 403b plan, from being regulated by the ERISA.
This means that at the end of the day, the advisors who would like to enter the 403b plan market, will probably be working with plan that are governed by the ERISA, as well as with plans that are not. Advisors may also choose between the two which option, best suits their expectations.
Another major difference between K-12 plans and higher education plans is the presence of a union. In the higher education segment, there is a high degree of bureaucracy, since there are deans and heads of department to deal with. These people however will not have enough authority to effect changes, as well unions in the K market.
Reference: http://www.planadviser.com/magazine/article.php/4248
The growing 403b plan market represents a very good business opportunity for financial advisors. It would however be a mistake for an advisor to assume that he may simple redirect from a 401k advice practice to a 403b tax-exempt field.
The K-12 sector and the higher education market do share many similarities; however there are also many and noteworthy differences to take into account. One significant difference between the two is that some higher education institution plans which offer contributions by the employer are governed by another legislation which is the ERISA, or the Employee Retirement Income Security Act. In fact it seems that plan sponsors sometimes set up a 401k plan, in order to keep their 403b plan, from being regulated by the ERISA.
This means that at the end of the day, the advisors who would like to enter the 403b plan market, will probably be working with plan that are governed by the ERISA, as well as with plans that are not. Advisors may also choose between the two which option, best suits their expectations.
Another major difference between K-12 plans and higher education plans is the presence of a union. In the higher education segment, there is a high degree of bureaucracy, since there are deans and heads of department to deal with. These people however will not have enough authority to effect changes, as well unions in the K market.
Reference: http://www.planadviser.com/magazine/article.php/4248
Sunday, May 24, 2009
Plan rollovers and what plan sponsors look for
With the present financial situation, plan rollovers have become a very important factor for advisors who realize that the rollover sector is a way of boosting their firm’s asset base. Potentially there are good sums of money in the pipeline, with lots of financially fit clients seeking help and advice, since they are planning on leaving the plan that is offered by their employer.
The truth is that big money is being moved to IRAs from various qualified plans, and even bigger monies are expected in the future. Plan sponsors are however apprehensive about the fact that not everyone is getting a qualified advisor. Advisors are cherry picking the high net worth clients, and leaving the rest of the participants floating on their own.
In reality according to industry experts, plan sponsors who are thinking of going for a rollover solution, are looking for advisors that can give them three important things: first that the advisors will offer the same service to all the participants, notwithstanding their financial worth; that they offer a service model that quickly and efficiently deals with the assets not on the market; an open market place for the IRA providers, in such a way that no particular IRA providers are recommended.
With some careful decision making, and good cooperation between the plan sponsor and the advisor, the rollover can act as the missing link between individual wealth management, and advisory services.
Advisors are also provided with electronic systems and programs to help them with the record keeping process, to help them handle rollovers more efficiently and effectively.
Reference: http://www.planadviser.com/magazine/article.php/4249
The truth is that big money is being moved to IRAs from various qualified plans, and even bigger monies are expected in the future. Plan sponsors are however apprehensive about the fact that not everyone is getting a qualified advisor. Advisors are cherry picking the high net worth clients, and leaving the rest of the participants floating on their own.
In reality according to industry experts, plan sponsors who are thinking of going for a rollover solution, are looking for advisors that can give them three important things: first that the advisors will offer the same service to all the participants, notwithstanding their financial worth; that they offer a service model that quickly and efficiently deals with the assets not on the market; an open market place for the IRA providers, in such a way that no particular IRA providers are recommended.
With some careful decision making, and good cooperation between the plan sponsor and the advisor, the rollover can act as the missing link between individual wealth management, and advisory services.
Advisors are also provided with electronic systems and programs to help them with the record keeping process, to help them handle rollovers more efficiently and effectively.
Reference: http://www.planadviser.com/magazine/article.php/4249
Satisfied with your advisor?
When an advisor meets up with potential clients, the first thing they normally say is that they are doing well with their present advisor and they don’t wish to change. This is until however, the new advisor discusses with these individuals, what service they should expect from their advisor.
The point is that lots of people do not know what services their advisor should provide for them. Trying to compare the service of one advisor to another is not an easy task, and currently there is no benchmark in this sector against which to compare.
There are however five indications that can be used, to gauge the level of satisfaction you are getting from the relationship with your advisor.
1. First you should determine whether the advisor you are dealing with, has set any service goals, against which, his client may assess his service. Some advisors meet up regularly with their sponsors, and discuss with them the goals to be set for the coming financial year. The advisor will then set up a calendar which contains deadlines related to compliance as well as things that he will deliver.
2. Assess whether the sponsor is satisfied, with the fiduciary protection, which the advisor is providing him. The advisor should be able to identify a cautious process for decision making, for his plan sponsors, and he should be able to collect information needed and then assis his clients in making an informed decision.
3. You should assess whether the advisor has had any positive impact on the rate of employee participation and average deferrals.
4. A plan sponsor should be given all the fee-related information from the advisor. The advisor should therefore discuss all the fees with the sponsor, in an open line of communication.
5. Some sponsors are so happy with their advisors that they are willing to serve as a reference, to new and potential clients. References coming from previous clients who are satisfied with the service serve as a good gauge for the advisor.
Reference: http://www.planadviser.com/magazine/article.php/4250
The point is that lots of people do not know what services their advisor should provide for them. Trying to compare the service of one advisor to another is not an easy task, and currently there is no benchmark in this sector against which to compare.
There are however five indications that can be used, to gauge the level of satisfaction you are getting from the relationship with your advisor.
1. First you should determine whether the advisor you are dealing with, has set any service goals, against which, his client may assess his service. Some advisors meet up regularly with their sponsors, and discuss with them the goals to be set for the coming financial year. The advisor will then set up a calendar which contains deadlines related to compliance as well as things that he will deliver.
2. Assess whether the sponsor is satisfied, with the fiduciary protection, which the advisor is providing him. The advisor should be able to identify a cautious process for decision making, for his plan sponsors, and he should be able to collect information needed and then assis his clients in making an informed decision.
3. You should assess whether the advisor has had any positive impact on the rate of employee participation and average deferrals.
4. A plan sponsor should be given all the fee-related information from the advisor. The advisor should therefore discuss all the fees with the sponsor, in an open line of communication.
5. Some sponsors are so happy with their advisors that they are willing to serve as a reference, to new and potential clients. References coming from previous clients who are satisfied with the service serve as a good gauge for the advisor.
Reference: http://www.planadviser.com/magazine/article.php/4250
Saturday, May 23, 2009
CPA Retirement Plan options
An employer can offer you many benefits however the best one of all would be a retirement plan. This is a tool that employers use to attract as well as keep, employees who are highly qualified.
A CPA is able to offer a large number of retirement plans, whose specifications and features suit the needs of both individuals, as well as businesses.
CPAs offer three types of retirement plan, being the individual retirement plan – or IRA, the Corporate Retirement Plan as well as Retirement plans for the self employed.
Corporate retirement plans can be further classified into three categories:
• A simple IRA – which is like a retirement account for an individual. These are available in various types such as are the Simple IRAs, the traditional IRA, SEP IRA as well as the Roth IRA. Employers normally establish the simple IRA, while contributions made individually by participants go to a Simple or SEP IRA.
• A Simplified Employee Pension is a retirement plan which can be set up by both employers as well as self-employed persons.
• A Qualified Plan on the other hand, is set up by an employer, to provide retirement benefits for his employees and his beneficiaries.
• Finally a 401k plan is a plan that can take contributions by both the employee as well as the employer. This is applicable only for an individual who is a sole owner of a business, and his spouse.
When it comes to Individual retirement accounts, we find the traditional and the Roth IRA. The Roth IRA is the better option for the younger individual, or for someone who things that after retirement, he will be in a higher income tax bracket.
A Self-employed Retirement Plan follows the same rules as the corporate one. The major difference is that self employed persons or those who have a partnership, pay their tax on the 1040 as opposed to the Schedule C.
Reference: http://www.theking-ofcontent.com/351/cpa-retirement-plans-2/
A CPA is able to offer a large number of retirement plans, whose specifications and features suit the needs of both individuals, as well as businesses.
CPAs offer three types of retirement plan, being the individual retirement plan – or IRA, the Corporate Retirement Plan as well as Retirement plans for the self employed.
Corporate retirement plans can be further classified into three categories:
• A simple IRA – which is like a retirement account for an individual. These are available in various types such as are the Simple IRAs, the traditional IRA, SEP IRA as well as the Roth IRA. Employers normally establish the simple IRA, while contributions made individually by participants go to a Simple or SEP IRA.
• A Simplified Employee Pension is a retirement plan which can be set up by both employers as well as self-employed persons.
• A Qualified Plan on the other hand, is set up by an employer, to provide retirement benefits for his employees and his beneficiaries.
• Finally a 401k plan is a plan that can take contributions by both the employee as well as the employer. This is applicable only for an individual who is a sole owner of a business, and his spouse.
When it comes to Individual retirement accounts, we find the traditional and the Roth IRA. The Roth IRA is the better option for the younger individual, or for someone who things that after retirement, he will be in a higher income tax bracket.
A Self-employed Retirement Plan follows the same rules as the corporate one. The major difference is that self employed persons or those who have a partnership, pay their tax on the 1040 as opposed to the Schedule C.
Reference: http://www.theking-ofcontent.com/351/cpa-retirement-plans-2/
Thursday, May 21, 2009
401k Plan or IRA?
Saving for your retirement is not an option, it’s a necessity. When it comes to the where to save for your retirement, here you have the option.
Lots of people are facing an issue when it comes to choosing between an IRA and a 401k plan. So here is some information to help you solve this puzzle for the best. As far as tax is concerned, both a company provided 401k plan as well as a traditional IRA take the contributions before tax is charged to your salary, thus lowering the balance on which tax is charged.
The 401k plan does have an advantage however. In some companies the employer will match his employees’ contribution which would mean doubling your savings money. Other companies will offer you a percentage of your pay, and this is always something that you should take advantage of, because it is free money!
IRAs come in 2 types. The traditional IRA is the one we have mentioned above, where the contribution is tax deductible. The Roth IRA however, will invest your money post-tax. In this case however, on distribution upon retirement age, no tax is paid, and this is this plan’s major advantage.
So in short, the main 401k plan advantage is the match from the employer and the Tax advantage now, while the disadvantage would be related to the limited investment options that are available for your funds.
In an IRA, you will be responsible for all the investment choices and you will have to decided how much to invest, when and where. This makes this choice very flexible. The other advantage would be that you are able to control your tax liability by diversifying your savings into a Roth IRA and saving on future tax, or else going for a traditional IRA to lower your current tax liability.
Before making your decision, always assess your needs, as well as the risk you would like to take on your funds. Whatever choice you make, is always better than not saving at all.
Reference: http://cashmoneylife.com/2008/02/14/invest-401k-traditional-roth-ira/
Lots of people are facing an issue when it comes to choosing between an IRA and a 401k plan. So here is some information to help you solve this puzzle for the best. As far as tax is concerned, both a company provided 401k plan as well as a traditional IRA take the contributions before tax is charged to your salary, thus lowering the balance on which tax is charged.
The 401k plan does have an advantage however. In some companies the employer will match his employees’ contribution which would mean doubling your savings money. Other companies will offer you a percentage of your pay, and this is always something that you should take advantage of, because it is free money!
IRAs come in 2 types. The traditional IRA is the one we have mentioned above, where the contribution is tax deductible. The Roth IRA however, will invest your money post-tax. In this case however, on distribution upon retirement age, no tax is paid, and this is this plan’s major advantage.
So in short, the main 401k plan advantage is the match from the employer and the Tax advantage now, while the disadvantage would be related to the limited investment options that are available for your funds.
In an IRA, you will be responsible for all the investment choices and you will have to decided how much to invest, when and where. This makes this choice very flexible. The other advantage would be that you are able to control your tax liability by diversifying your savings into a Roth IRA and saving on future tax, or else going for a traditional IRA to lower your current tax liability.
Before making your decision, always assess your needs, as well as the risk you would like to take on your funds. Whatever choice you make, is always better than not saving at all.
Reference: http://cashmoneylife.com/2008/02/14/invest-401k-traditional-roth-ira/
Wednesday, May 20, 2009
Cashing Out The 401k Plan
If you are thinking of cashing out the funds that you saved in your 401k plan, then I suggest you think again. You might be going through financial difficulties right now, but in reality, if you cash your plan, it is going to cost you money both now, as well as in the future.
If you are in between jobs, or just waiting around for the next job to come by, then here are your options:
• Keep the funds in your old 401k plan
• Roll the plan over into the 401k plan, which your new employer offers.
• Roll it over into an IRA
• And finally you may cash your 401k plan, and suffer the penalties.
The best thing you could do before making your decision is consult your financial advisor or accountant. Cashing out your 401k plan, should be seen as the last resort in many cases.
Keep in mind that cashing out will cost you more, than using your credit cards to manage until the end of the month. Just to get an idea, if you decide to withdraw your 401k funds, you will have to firstly pay a hefty 10 percent penalty charge, which there is no way of getting around. You will also have to pay a tax percentage which runs around the 30 to 40 percent.
You should also consider that if you withdraw your saved funds, you will have to start from scratch, saving for your retirement age. If you’re in your forties or late thirties, then you might never accumulate again the required amount to see you through your retirement appropriately.
So at the end of the day, don’t just consider the charges and penalties, but also consider the effects that this withdrawal will have on your future.
Reference: http://hubpages.com/hub/Cash-Out-401k
If you are in between jobs, or just waiting around for the next job to come by, then here are your options:
• Keep the funds in your old 401k plan
• Roll the plan over into the 401k plan, which your new employer offers.
• Roll it over into an IRA
• And finally you may cash your 401k plan, and suffer the penalties.
The best thing you could do before making your decision is consult your financial advisor or accountant. Cashing out your 401k plan, should be seen as the last resort in many cases.
Keep in mind that cashing out will cost you more, than using your credit cards to manage until the end of the month. Just to get an idea, if you decide to withdraw your 401k funds, you will have to firstly pay a hefty 10 percent penalty charge, which there is no way of getting around. You will also have to pay a tax percentage which runs around the 30 to 40 percent.
You should also consider that if you withdraw your saved funds, you will have to start from scratch, saving for your retirement age. If you’re in your forties or late thirties, then you might never accumulate again the required amount to see you through your retirement appropriately.
So at the end of the day, don’t just consider the charges and penalties, but also consider the effects that this withdrawal will have on your future.
Reference: http://hubpages.com/hub/Cash-Out-401k
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