Project Retirement

Rick Henderson is a well known author, speaker and educator. His newsletter writes about how to use medically underwitten immediate annuities. Visit http://www.members.shaw.ca/mutualfunds to learn more about The Medical Diagnosis Help Program Newsletter

First, Choose a Custodian

There are many choices for who will hold your money including banks, mutual funds, and brokers. Not surprisingly, each has its relative advantages, not to mention its particular fee and commission structures. To make the right decision, it’s important for you to get several pieces of information.

Broadly speaking, you have three custodian choices: banks, mutual funds, and brokerage firms.

Banks frequently offer lower account minimums, so they may be a great choice if you have just a small amount to invest. Just make sure they have the investment options you need and watch their fees, especially any fee specifically for a small balance account.

Directly investing with mutual funds can be a good choice too as it helps to keep things simple. Most mutual fund families offer enough investment choices for you to find the appropriate option for you but not so many as to become overwhelming. Like with banks, be sure to evaluate mutual funds’ fees and commissions. In addition, compare the expense ratios between mutual funds. There can be enormous differences. You’ll often find that index funds have much lower expense ratios, often with superior recent performance. (Although, of course, past results are not an indication of future performance.)

Brokerage firms usually offer the most choices for your investments, so those people looking for anything sophisticated will almost have to start here. Even those whose needs may be more basic may find that a brokerage is still a great place to begin, especially as account balance minimums have fallen in recent years.

Second, Fill Out Their Forms

Once you’ve selected your custodian, you’ll have to fill out some fairly basic forms. Just take your time and answer the mostly demographic questions. You can do this online, at a branch, or even a combination (print them out online and then mail or hand them in). Once your completed forms have been processed, you’ll get confirmation that your account is open and receive an account number!

Third, Fund Your Account

The next thing you’ll need to ensure is that the money you’ve set aside finds its way into your IRA. To do so, you’ll typically need to mail (or hand) a check representing your initial deposit. Afterwards, you can often set things up so that you can make future deposits electronically.

Last, Invest Your Money

Now that your money is in your brand new IRA, don’t forget to invest it. After all, when your money is first received into an account, it’s still cash. You need to provide instruction for what types of investments to purchase. You’ll need to make sure you properly allocate your assets as part of this process. For the equity piece, an index fund is a wonderful way for new investors to begin.

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Retirement Memoir Guidelines
1. The retiree’s titles must match the titles that appear in Wolverine Access (unless any of those
titles are found to be in error).
2. Emeritus titles in general should match titles in introductory paragraph unless a title does not
carry over into emeritus status.
3. The second paragraph must include degrees (type, date received, institution), history at the
University (date hired, all job titles/promotions, and dates). All information must be
verifiable from information available on official records. This includes the names of any
awards received from the University or elsewhere.
4. Names of all awards, titles, degrees, and institutions must be checked and must be official
(e.g., “The Ohio State University,” NOT “Ohio State”; “The Johns Hopkins University,”
NOT “Johns Hopkins”). If in doubt, almost all of these things can be verified on institutional
websites.
5. Capitalization, abbreviations, punctuation, etc., generally follow guidelines outlined in the
Chicago Manual of Style. Titles are only capitalized if they refer to a specific person or the
official name of an office or department, e.g.,
“Provost Sullivan attended the meeting.”
“The provost and the vice president for research attended the meeting.”
“She works in the provost’s office.”
“She is an administrative associate in the Office of the Provost and Executive Vice
President for Academic Affairs.”
6. Memoir must fit on one page in 12-point, Times Roman font, with 1” borders.
7. Please include the name and phone number of the person who prepared the memoir, in case
there are any questions.

In a press release, the IRS announced it will leave the 401k limit at $15,500 for 2008. The annual limit on catch-up contributions for those 50 and over will remain unchanged at $5,000.

Your 401(k) fund pre-tax contribution limits set by the IRS for 2008 are:

# $15500 for those under 50 years of age

# $15500 plus $5000 additional catch up contribution for those over 50 years of age

There are several different limits that apply to a 401(k) plan in addition to the overall contribution limit. These limits could result in a contribution limit less than that specified by the IRS. Your plan administrator should have written information about your particular plan that explains these limitations as well as other regulations that apply.

To maximize your 401(k), you should try to contribute the maximum amount you are allowed each year.

Resources:
IRS
PlanAdviser

A 401K plan is a company sponsored qualified retirement plan for employees. Contributions and earnings in a 401K plan are not subject to federal and most state income taxes until the funds are withdrawn. A 401K plan allows you to save money on a pretax basis with most employers contributing matching funds to make the plan even more lucrative. Usually you will have the option to decide how much you contribute (up to the maximum allowed by the government) and where you will invest your contributions (from a list of funds provided by your plan sponsor).

You can find out when you are eligible to start participating in your company’s 401K plan from your benefits coordinator. Once you are eligible to sign up, you will be given a list of funds in which you can invest. You can invest up to the yearly maximum allowed by the IRS. In the calendar year you turn 50, there is a catch-up amount you can invest in addition to the maximum for each year.

Your contributions are deducted from your pay check before taxes are withheld. These contributions are then invested into the funds you select from the sponsor's list. Your employer’s matching funds are also invested at the same time.

Most fund sponsors have a web page where you can access your account, change your investment options, and maintain your account information. You will also receive a statement of your account periodically showing how much your plan is worth along with an accounting of your investments. You should study this statement to be sure your investment strategy is working in your favor.

The best way to maximize your 401K investments is to participate in the plan. Check with your benefits coordinator to find out if and when you are eligible to start participating in the 401K plan. Next, you should contribute the maximum you can afford up to the limits placed by the government or your plan. At least contribute the amount necessary to get the company matching funds. Consider your contribution a payment to yourself and the matching funds an extra bonus. The earlier you start to contribute to any retirement fund, the more money you will accumulate at retirement. Starting early will also allow for recouping fluctuations in the market. Learn all you can about the funds offered for investment so you can make the best choice possible. Continue to research the funds offered so you can be ready to rebalance your plan if necessary.

Each company has a vesting process and it is to your benefit to understand exactly when you will become vested. The vesting schedule outlines how much of the company matching contributions and earnings on those contributions that you own at any given time. If you leave the company before you are fully vested, you will lose the unvested portion of the money in your plan.

Some 401K plans allow for hardship withdrawals. If you have a qualified hardship and decide to withdraw from your fund, the withdrawal is taxable and your ability to contribute to the fund is suspended for six months. If you are under 59 1/2 you will have to pay a 10 percent penalty unless the money is for certain medical expenses or a disability. Some 401K plans offer participants the benefit of borrowing against retirement savings. Plans usually allow you to borrow up to 50 percent of your vested assets up to $50,000. You usually must repay the loan in equal payments over a five year period using payroll deduction and you can repay the loan in full at any time. Check with your benefits coordinator for your company's policy on loaning money from the 401K plan.

Once you have started participating in a 401K plan, you should check to see if you need to rebalance your investments on a regular basis. Most companies will have a yearly open enrollment period at which time you can discuss your retirement goals with the plan sponsor. Once you have reassessed your goals and your risk factor, you can look at your investments to be sure you have the correct balance.

A 401K plan is an important part of retirement planning. You should learn everything you can from your employer about the plan that is offered. Gather information on such things as vesting, contribution limits, and matching funds. Research all available information on the funds offered for investing. Track your investments regularly and ask for assistance if you feel your investment options aren't performing satisfactorily.

Source

The list of reasons you may not be rich doesn't end at 10. Caring what your neighbors think, not being patient, having bad habits, not having goals, not being prepared, trying to make a quick buck, relying on others to handle your money, investing in things you don't understand, being financially afraid and ignoring your finances.

Here are 10 more possible reasons you aren't rich:

You care what your car looks like: A car is a means of transportation to get from one place to another, but many people don't view it that way. Instead, they consider it a reflection of themselves and spend money every two years or so to impress others instead of driving the car for its entire useful life and investing the money saved.

You feel entitlement: If you believe you deserve to live a certain lifestyle, have certain things and spend a certain amount before you have earned to live that way, you will have to borrow money. That large chunk of debt will keep you from building wealth.

You lack diversification: There is a reason one of the oldest pieces of financial advice is to not keep all your eggs in a single basket. Having a diversified investment portfolio makes it much less likely that wealth will suddenly disappear.

You started too late: The magic of compound interest works best over long periods of time. If you find you're always saying there will be time to save and invest in a couple more years, you'll wake up one day to find retirement is just around the corner and there is still nothing in your retirement account.

You don't do what you enjoy: While your job doesn't necessarily need to be your dream job, you need to enjoy it. If you choose a job you don't like just for the money, you'll likely spend all that extra cash trying to relieve the stress of doing work you hate.

You don't like to learn: You may have assumed that once you graduated from college, there was no need to study or learn. That attitude might be enough to get you your first job or keep you employed, but it will never make you rich. A willingness to learn to improve your career and finances are essential if you want to eventually become wealthy.

You buy things you don't use: Take a look around your house, in the closets, basement, attic and garage and see if there are a lot of things you haven't used in the past year. If there are, chances are that all those things you purchased were wasted money that could have been used to increase your net worth.

You don't understand value: You buy things for any number of reasons besides the value that the purchase brings to you. This is not limited to those who feel the need to buy the most expensive items, but can also apply to those who always purchase the cheapest goods. Rarely are either the best value, and it's only when you learn to purchase good value that you have money left over to invest for your future.

Your house is too big: When you buy a house that is bigger than you can afford or need, you end up spending extra money on longer debt payments, increased taxes, higher upkeep and more things to fill it. Some people will try to argue that the increased value of the house makes it a good investment, but the truth is that unless you are willing to downgrade your living standards, which most people are not, it will never be a liquid asset or money that you can ever use and enjoy.

You fail to take advantage of opportunities: There has probably been more than one occasion where you heard about someone who has made it big and thought to yourself, "I could have thought of that." There are plenty of opportunities if you have the will and determination to keep your eyes open.

(Money Magazine) -- In a sense, retirement planning is all about deferred gratification. You live below your means while you work so you can save for a time when you can live however you want. In short, you give up something today so you can live better tomorrow.

But what if preparing for retirement had a more immediate payoff? Wouldn't it be neat if you could enjoy the fruits of your effort now?

Well, maybe you already do. That, at least, is the implication of a recent survey by insurer Northwestern Mutual and health education company LLuminari. The study didn't address retirement per se.

But as the charts to the right show, people who do the sorts of things that constitute good planning tend to feel happier than those who don't. It appears that the very act of preparing for retirement may deliver a reward now as well as later.

No one is suggesting that getting ready for your post-career days guarantees lifelong bliss or that there's a formula for achieving nirvana. (Save an extra $100 a month and be 50% more fulfilled!)

But the notion that taking steps toward a secure retirement can make you more content is hardly a stretch. Economists, psychologists and others who study happiness find that people who have a sense of control over their lives cope better with stress and live more happily, while those who feel powerless are more likely to be depressed.

Or as the playwright George Bernard Shaw put it: "To be in hell is to drift; to be in heaven is to steer."

So what can you do to make yourself feel better about feathering your nest? Apply these three happiness-linked actions to your retirement planning:

If you fail to set goals early on, you'll be drifting instead of steering. So think about the percentage of pre-retirement income you'll want to replace once you retire - say, 80% to 90%. Then use a calculator like our Retirement Planner to see how much you must save each year to have a shot at reaching that goal. Keep refining your savings target as you near retirement.

If the amount you're putting into your 401(k) falls short of your savings target, boost your contribution. If maxing out your 401(k) still leaves a gap, you can funnel additional savings into an IRA or tax-efficient options like index funds or tax-managed funds.

It's unrealistic to avoid borrowing altogether. But you can prevent debt from undermining your retirement security by not carrying a credit-card balance. Not only will you avoid onerous interest charges, but the Northwestern study shows that people who are most committed to paying off their cards are almost 20% more likely to describe themselves as cheerful.

So the next time you're trying to decide between a higher 401(k) contribution and a big-screen TV, you might want to go with the option that may make you feel good now and in the years ahead.

If you find yourself running short on time - say, you're in your 40s or even your 50s, and you haven't gotten started yet - there are still a few things you can do. The key is to do them now.

You should first max out your contributions to tax-favored retirement accounts like IRAs and 401(k)s. For 2008, the IRS allows $15,500 for a 401(k) (though your employer may impose lower limits), and $5,000 for traditional and Roth IRAs. Even the government understands that this is crunch time, and it has devised a few ways to help you out.

For example, workers age 50 and older can put more money into IRAs and workplace retirement plans than younger savers can. That means you can and should contribute an additional $5,000 to a 401(k) and $1,000 to traditional and Roth IRAs.

If you're arriving late to retirement planning, a traditional IRA may be a better choice than a Roth.

There are two basic types of annuities: deferred and immediate.

With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement.

If you opt for an immediate annuity you begin to receive payments soon after you make your initial investment. For example, you might consider purchasing an immediate annuity as you approach retirement age.

The deferred annuity accumulates money while the immediate annuity pays out. Deferred annuities can also be converted into immediate annuities when the owner wants to start collecting payments.

Within these two categories, annuities can also be either fixed or variable depending on whether the payout is a fixed sum, tied to the performance of the overall market or group of investments, or a combination of the two.

To build a nest egg large enough to see you through retirement, which may last 30 years or more, you'll need the growth that stocks provide.

The stock market returned 10.4% a year on average between 1926 and 2006, versus just 5.9% for bonds, according to research firm Ibbotson Associates. Given stocks' superior returns over the long haul, most financial advisers recommend that investors whose retirement is more than 20 years away hold at least 3/4 of their portfolios in stocks and stock funds.

Of course, a stock-heavy portfolio can give you some hair-raising moments (or years). For example, during the 1973-74 bear market, U.S. stocks lost 43% of their value - and it took the market three-and-a-half years to recoup those losses. The stock market also suffered a 47.6% decline during the bear market at the start of this decade. It's been suffering in 2008 as well.

If you don't have the stomach for steep downturns, you might increase your allocation to include more bonds or bond funds. Holding, say, 70% of your portfolio in stocks and 30% in bonds will let you capture most of the long-term growth of stocks while sheltering your investments to a certain extent during market downturns.

An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement.

Here's how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.

The size of your payments are determined by a variety of factors, including the length of your payment period.

You can opt to receive payments for the rest of your life, or for a set number of years. How much you receive depends on whether you opt for a guaranteed payout (fixed annuity) or a payout stream determined by the performance of your annuity's underlying investments (variable annuity).

While annuities can be useful retirement planning tools, they can also be a lousy investment choice for certain people because of their notoriously high expenses. Financial planners and insurance salesmen will frequently try to steer seniors or other people in various stages toward retirement into annuities. Anyone who considers an annuity should research it thoroughly first, before deciding whether it's an appropriate investment for someone in their situation.

Ah, the key question. One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye. But if you plan to build your dream house, trot around the globe, or get that Ph.D. in philosophy you've always wanted, you may need 100% of your annual income - or more.

It's important to make realistic estimates about what kind of expenses you will have in retirement. Be honest about how you want to live in retirement and how much it will cost. These estimates are important when it comes time to figure out how much you need to save in order to comfortably afford your retirement.

One way to begin estimating your retirement costs is to take a close look at your current expenses in various categories, and then estimate how they will change. For example, your mortgage might be paid off by then - and you won't have commuting costs. Then again, your health care costs are likely to rise. For more help making a precise estimate, use this calculator.