Retirement Security

When it comes to planning your financial retirement, diversity  is the key to turning a significant profit. Never have all your eggs in one basket.  There happen to be a lot of interpretations, however, of what it means to truly diversify your investment portfolio.

There are those who believe that to diversify your portfolio you only need to choose stocks in various sectors rather than focusing on one. This was a huge problem when the Dot Com boom went Dot Bust. Many people learned valuable lessons during this time frame and have taken it a little bit to heart. However, there is nothing to say that we will never again experience a significant stock market crash. If this were to happen and your entire retirement hopes, dreams, and funds rested on the stock market for salvation you would be in deep and shark infested waters financially as a result.

I do not mean to imply that a stock market crash is probable or imminent by any means.  The good news is that safeguards were put into place years ago to prevent a crash of the scale that we all know as “The Crash”. This means that while you may take heavy hits, chances are the market will recover if you are willing and able to wait it out. However, if you are putting yourself in a position to rely solely on stocks, you need to take a very serious look at your overall investment plan and see where changes can be made.

It goes without saying that no decision in regards to your financial future should be made without first discussing them with your financial adviser. This information will give you some knowledge so you know what you want to talk to him/her about.

My personal preference is to have some money tied up in mutual funds and other money tied up in real estate, which can provide some form of continuous income month after month. I’m not much of a gambler however and have chosen a low risk path to retirement financing and funding. There are those who are far more adventurous than I when it comes to investing in their financial futures. For those of you who are willing to take the risks there are securities as an investment in order to provide a wildly speculative ride. Securities are very risky for investors; particularly those who are novices and even some seasoned investment veterans tend to shy away from this sort of investment. If you do invest in securities, I strongly urge you not to risk your entire investment on them.

Mutual funds provide a little safer bet when it comes to your financial future. Again there are no guarantees but these are much safer bet than securities. The problem with mutual funds for many is that there are so many from which to choose that it is still a difficult decision for beginning investors to make. These decisions are the reason that a good financial adviser is so terribly important when mapping out your financial destiny.

All in one funds are essentially collections of mutual funds. These provide a safe bet for those who wish to find an easy investment possibility that is a fairly safe (if not wildly conservative) to place your money and watch it slowly grow over time. All in one funds do tend to become less aggressive in time. This means that as you age, they will become more conservative in the placement in your money in an effort to best protect it while still growing your money.

This is from personal experience. I don’t know if this will shock you, but it did me and my family and I thought I would alert you so you can take steps before signing a lease.

My dad signed a 1 year  lease for a senior living apartment this past April. He was always worried he would forget a payment as his memory was deteriorating so he would pay in advance at times. My sisters and I were always scrambling to keep up with things so he did not pay too much.

About 4 months into his lease his health deteriorated and he spent the next few months going back between the hospital and rehab facilities. Unfortunately he lost the fight in September of this year.

We notified the apartment and the lady said since he had only been in the apartment for less than 6 months, we should be fine just paying the rent for October, which was fine as he died near the end of September and we were in no state of mind to clean out his place. She said they would also keep the security deposit. OK – We could live with that. We were cleared out completely by the end of October.

Then she hedged. Pay for November and December and we keep the deposit. Our attorney said they had no legal right so we said no. They countered with us to pay November and they keep the security.

That’s still not right. Think of it. A person dies and they do not consider that a reason to close the lease?! Well, we intended to fight it but the bottom line was it is the holidays as I write this and it’s just not worth it.

My advice is to check the senior facilities in your area and see what all their policies are before you or your loved one signs on the dotted line. You or your family could be put through even more trying to close an estate if things are not taken care of beforehand.

In a 401(k) plan, your account balance will determine the amount of retirement income you will receive from the plan. Even though contributions to your account and the earnings on your investments will increase your retirement income, any fees and expenses paid by your plan may substantially reduce the growth in your account. Take the following example.

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

In recent years, there has been a dramatic increase in the number of investment options that are typically offered under 401(k) plans as well as the level and types of services provided to participants. These changes give today’s employees who direct their 401(k) investments greater opportunity than ever before to affect their retirement savings. As a participant you may welcome the variety of investment alternatives and the additional services, but  beware; you may not be aware of their cost. As the example above shows you, the cumulative effect of the fees and expenses on your retirement savings can be substantial.

You should be aware that your employer also has a specific obligation to consider the fees and expenses paid by your plan. ERISA requires employers to follow certain rules in managing 401(k) plans. Employers are held to a high standard of care and diligence and must discharge their duties solely in the interest of the plan participants and their beneficiaries. Among other things, this means that employers must:

• Establish a prudent process for selecting investment alternatives and service providers

• Ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided

• Select investment alternatives that are prudent and adequately diversified

• Monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices

An annuity is when you pay money to an insurance company in return for its agreement to pay either a regular fixed amount when you retire or an amount based on how much your investment earns. There is no limit on how much you can invest in a private annuity, and earnings aren’t
taxed until you withdraw them.

However, annuities present complex issues regarding taxes, fees, and withdrawal strategies that may not make them the best investment
choice for you. Consider discussing this type of investment first with a financial planner.

What if retirement is just around the corner and you haven’t saved enough? Here are some tips. Some are painful, but they’ll help you toward your goal.

• It’s never too late to start. It’s only too late if you don’t start at all.
• Sock it away. Pump everything you can into your tax-sheltered retirement plans and personal savings. Try to put away at least 20 percent of your income.
• Reduce expenses. Funnel the savings into your nest egg.
• Take a second job or work extra hours.
• Aim for higher returns. Don’t invest in anything you are uncomfortable with, but see if you can’t squeeze out better returns.
• Retire later. You may not need to work full time beyond your planned retirement age. Part time may be enough.
• Refine your goal. You may have to live a less expensive lifestyle in retirement.
• Delay taking Social Security. Benefits will be higher when you start taking them.
• Make use of your home. Rent out a room or move to a less expensive home and save the profits.
• Sell assets that are not producing much income or growth, such as undeveloped land or a vacation home, and invest in income-producing assets.