General Retirement Advice

It is estimated you will need a minimum of $1,000,000 to cover your monthly expenses during your retirement years. The average Americans live 10-20 years after retirement. You will need at least 80% of your income during retirement.

If you are stressed and anxious reduce your investments in stocks and bonds, however when the market returns you will lose money when moving your investments back to stocks and bonds because the prices will be higher. Investing in individual stocks on your own is risky. Consult a financial advisor to ensure you minimize losses and maximize gains. Here are some general retirement tips to ensure you enjoy your retirement.

Diversify at a minimum:
Pre-retirement invest 60% stocks, 40% bonds/cash; near retirement (5-10 years) invest 40% stocks, 60% bonds/cash; during retirement invest 20% stocks, 80% bonds/cash.

What to invest in:
1. Invest in emerging market funds (foreign markets)
2. Equities (mutual funds) or other items that return a dividend or capital gains
3. Pharmaceuticals
4. Oil and petroleum
5. Commodities (corn, soy, wheat, coffee beans, petroleum, copper, coal, salt, sugar, soy beans, aluminum, rice, gold, silver, palladium, platinum, electricity, gas, oil, etc.). However some commodities are overpriced right now and should only be invested in when the prices are low.
6. Bonds (corporate or treasury)
7. Real estate, however keep in mind if the price is low it can continue to decrease but over a long period of time you will gain equity and can make a profit
8. Defensive stocks (don’t depend on economic prosperity) - food and beverage industry, manufacturing companies such as Philip Morris, Proctor & Gamble, alcohol and tobacco
9. Under-priced stocks (offer price is lower than price of the first trade, however they carry a higher risk factor because they may not rise in the future) – IPO’s, airline stocks, small cap stocks, etc.
10. Money Market Accounts/CDs – use these for an emergency fund savings account for unexpected expenses
11. Utility stocks – water, gas, electric, telephone companies
12. Green technology and green energy stocks for long-term gains such as Canon, Green Mountain Coffee Roasters, Nike, Whole Foods, Google, etc.

How to Save:
1. CDs
2. Money Market Accounts (MMAs)
3. Bonds
4. Online Savings Accounts
a. CD current interest rates nationwide go up to 1.27% (AloStar Bank of Commerce NR for $1,000 minimum balance) and Money Market Accounts rates nationwide go up to 1.05% (First Trade Union Bank for $1,000 minimum balance). Online Savings account interest rates go up to 1.15% (Discover Bank High Yield Savings Account for $500 minimum balance).
5. Create an emergency fund to cover monthly bills and expenses for nine to twelve months.
6. Pay down debt
7. If you receive government benefits/checks think of at least 1 additional way to generate additional income if your check is last or does not arrive at all due to the debt ceiling
8. Contribute extra to your 401(k) or other retirement type account now. Money you invest now can buy more fund shares which will provide you with additional gains when the market goes back up

College or Retirement

Nowadays many parents struggle with deciding to plan for retirement or save money to pay for their child’s college education. Yearly college tuition costs can range from $5,000 to $50,000 per year.

Parents should not have to make the choice to plan for retirement or save money to pay for their child’s college education. Your child may not be financially secure enough to take care of you when you get older which is a major reason why parents should plan for retirement. You will need to save money for 30-40 years to have enough to cover your living expenses when you retire.

Planning for retirement or saving money to pay for their child’s college education is an emotional choice. The decision to do one or the other should be a rational choice. If you save money to pay for a college tuition that could total between $20,000-$200,000 that is less money that you can contribute to your retirement account.

Think about worse case scenarios, if you child drops out of college you are stuck with a bill, less money in your retirement account and will have to take care of a child who is unemployed. If your child changes their major or transfers to another school, this will extend the time they are in school and increase tuition costs. You can’t control what your child does but you can control yourself. If you take out a home equity loan you will also be stuck with another bill.

Parents should plan for retirement because college tuition can be paid for with financial aid, savings bonds, 529 plans, part-time employment from 9th through 12th grade and summer jobs during their college education put the money in a high interest savings account.

Suggest that your child apply for financial aid which can be either grants, scholarships, or loans. If a child has to participate in paying for college they will be more responsible with their money, understand the value of money and the value of a college education.

Talk to a financial advisor to get advice on how to save for both and the options available to you. A financial advisor can help you determine what age your what to retire, how much you will need during retirement, how much you need to save to pay for your child’s college tuition. You can withdraw money from your retirement account but if your child decides not to attend college, you will have to pay a penalty on the money taken out of your account. If you lose your job or quit your job you may have to pay your loan in full and pay taxes and penalties on the money that was not repaid.

You cannot plan to pay for college tuition when your child is in high school. Planning early is the key. If you save just $5 a month towards your child college tuition when they are born that equals to $260 a year. You may have to tell your child that you cannot afford to pay for their college tuition.

If your child does not get financial aid, encourage your child to go to a state college to cut down on costs. You may have to make sacrifices, live in a modest home, live below your means and buy more needs vs. wants. Ask friends and relatives instead of giving your child a gift to make a donation to their college tuition. Whatever you decide make sure you don’t go into debt and make your current or future financial situation worse.

Retirement and You

Last week was designated as National Savings Retirement Week to help bring awareness to the need to plan for retirement. Many Americans still do not save enough for retirement and some do understand the importance of saving for retirement.

According to a 2009 EBRI a study of employees: 43% of workers said they have less than $10,000 in savings, while 27% of workers said they had less than $1,000. According to the FDIC: 97% of Americans will be dependent to some degree on family, friends or the government in retirement; a 65 year-old couple retiring today has a 63% chance that one of them will live to 90 years old; a 65 year-old couple retiring today will need approximately $240,000 to cover just medical expenses even with Medicare assistance.

You will need at least 60-70% of your salary during retirement. You should plan to save enough in your retirement account to cover living expenses for at least 20 years. Here is a retirement checklist to use when saving for retirement.

1. Do you have a retirement account?
2. Have you contacted a professional to map out your retirement plan and goals?
3. Do you know your retirement account balance?
4. Do you check your quarterly retirement statement?
5. Is your retirement portfolio diversified?
6. Do you know where you will live, what age you want to retire and the lifestyle you want to live during retirement?
7. Have you determined what costly expenses you will need during retirement (healthcare, prescriptions, etc.)?
8. Have you created an estimated budget for retirement?
9. Will you have enough life, health, disability and long-term care insurance?
10. Do you plan to pay off your mortgage and any other large debts prior to retirement? If not, how do you plan to pay for those expenses?
11. Do you want to be fully retired or work part-time?
12. Will you be eligible for social security when you retire?
13. Is your beneficiary information is up-to-date?

Here are 6 ways to help you prepare for retirement and increase your retirement savings.

a) Don't panic. Don’t make decisions based on emotions or get overwhelmed by the media, fear, anxiety and nervousness of those around you. Stay calm and follow the plan you have setup with your financial planner. Don't torture yourself by checking the stock market everyday or checking your retirement account balance every week or every month.

b) Review. Review your financial goals with your financial planner at least once a year to ensure you are on track to meet your goals. Also, check your statement for any errors and notify your financial planner immediately.

c) Time. Your money cannot grow if you take it out too soon. It takes a minimum of 7 years to see a significant return on your investment so leave your money in your account.

d) Diversify. If you have all of your investment in one area, re-allocate your investments to at least 3 areas to minimize losses.

e)DRIPs. To offset any losses you may have experienced you can purchase a Dividend Reinvestment Plan (DRIP) or use it as an easy way to start investing.

f) Buy now. The motto is "buy low, sell high" is very appropriate during a recession. This is a great time to buy stocks or to invest in a mutual fund. When the market bounces back you will have achieved great gains.

IRA Changes in 2010

To plan for retirement you should begin contributing to an IRA when you begin working your first job. However, it is never too early to plan for retirement; you can open an account prior to 18 years old.

You should contribute 10-20% of your total monthly income to savings and retirement to ensure you have enough money to cover your monthly expenses during your retirement years. When you retire you will need at least 60% of your yearly salary to cover your monthly expenses.

An Individual Retirement Account (IRA) or traditional IRA is a personal savings plan which allows you to put money aside for retirement and provides tax benefits. You may eligible to deduct a portion or all of your contributions to your IRA and may be eligible for a tax credit equal to a percentage of your contribution.

Money in your IRA is not taxed until the money is distributed to you. IRA's cannot be owned jointly. To contribute to an IRA you must be under age 70 1/2 at the end of the tax year.

A Roth IRA is personal savings plan that follows the same rules of a traditional IRA but you cannot deduct contributions to a Roth IRA. However, the initial contribution is taxed but future distributions are tax free.

Contributions can be made to your Roth IRA after you reach age 70½ and you can leave money in your Roth IRA as long as you live. There are limits on the amount that can be contributed yearly to a Roth IRA.

Starting in 2010, you can convert a traditional IRA to a Roth IRA. Anyone can convert as much of their qualifying retirement accounts into a Roth IRA as they like. For conversions in 2010, conversion taxes can be spread over two years: 2010 and 2011.

For conversions after 2010, taxpayers will have to pay the full tax due. Married couples filing a separate return can now convert or rollover amounts to a Roth IRA. Contributions can be made to your Roth IRA regardless of your age. Once you're 59 1/2, funds can be withdrawn whenever you like.

Talk to a financial advisor before you make any changes to your IRA to ensure conversion to a Roth IRA is the best decision for you.