Retirement 101: Getting back to basics

By Ashley Thiesen Caldwell | February 6, 2010

In an age of endless advice, experts and how-to’s, it can be very easy to lose sight of the foundations of retirement savings. We stumbled across this blog and thought it would be of great interest to our readers.

Since the most recent market meltdown, Americans are re-evaluating their financial situations.

Some, mostly those who have invested some time and money in the process of “planning,” are doing so with at least a clue of what their target is or should be.

Those who have not planned are likely more fearful of the uncertainty of the future, fueled additionally by the fact that they have no clue of what they may be aiming at.

For most, retirement is a goal.

It is either something they are striving for, or, if they are already in retirement the goal is to exist in it successfully.

By simple definition, don’t run out of money before you run out of time.

With all the fancy products, schemes, hedge funds and the like that have populated the investment world for the past 20 years, Americans have lost their taste for the risk that was imbedded within them.

We’re going back to basics.

We are looking for things that can make a solid foundation for what is likely to be a somewhat “scaled-down” retirement lifestyle.

Guarantees and insured accounts have pushed their way to the forefront of American thinking.

No longer do we hear Suze Orman “pooh-poohing” variable annuities or Guaranteed Insurance Contracts (GIC’s) because of their fee structure or complexity.

In the three market recessions that have come along since 1990, these basic building blocks of financial security have been among the few things that protected investors from serious economic loss.

People are restoring their priorities as well.

They are looking more to protecting their income sources, managing risk and building cash reserves before going out looking for that hot investment opportunity.

Getting out of debt has become more popular than ever, especially since the big banks have nearly all raised their fees and credit card interest rates.

Once these bottom tiers of the financial security “pyramid” have been properly constructed, we can turn to the task of trying to make our money grow to outpace inflation.

Retirement is likely not going to be the luxury car or the annual trip to Europe as many may have hoped.

We are becoming more focused on a reasonable and perhaps even frugal lifestyle that will give us a better chance of being able to afford to live another day with the freedom to make our own choices. People are living longer and are doing so under greater economic duress than ever in recent memory.

The greatest threat to our financial freedom is our own longevity.

With retirements now projected to last 30 years or more, do we have 30 years of income put away in a source that is guaranteed?

Since tomorrow is the first day of the rest of our life, what are we waiting for?

Al Benelli is a Certified Financial Planner™ and founder of The Merlin Group. Securities and investment advice offered through Capital Financial Services Inc., member FINRA/SIPC, 2605 Egypt Road, Trooper; 610-676-0668.

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Personal Income on the Rise

By Ashley Thiesen Caldwell | January 4, 2010

According to new government and private reports, personal income rose for the third straight month. After adjusting for inflation, income was up 1.7% over the three-month span. This is excellent news considering the 10% plunge in income in late 2009.

Predictions indicate that personal income will continue to climb throughout 2010. This is a direct result of the fact that people saving more than they have in recent years.

Over the long haul, greater savings should translate into more investment, which would ultimately help the economy. However, in the short term, higher savings would very likely limit economic growth by keeping consumer spending sluggish.

Many forecasters are projecting consumer spending to grow about 2% this year. That could pick up if the job market recovers faster than expected. The latest reports show that unemployment dropped to 10% in November. Job cuts halted after almost two years of consistent cuts.

Reports indicate that consumer confidence is returning, albeit at a very slow rate. This is typical following a financial crisis. The healing process is long and arduous. The most important thing for the average person today is to be smart with their money.

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Refresh Your Retirement Plan

By Ashley Thiesen Caldwell | January 3, 2010

Making some New Year’s resolutions? Read this very informative and timely article from Wall Street Journal on retiring.

By TOM LAURICELLA

New Year’s resolutions should not just be about losing a few pounds or learning a new language. They should also be about putting your retirement planning in order.

January offers the perfect opportunity to do so. Year-end financial statements are on their way, and they’ll provide a bird’s eye view of how investment strategies performed during the stock market’s decline and sharp rebound.

Also, tax season isn’t far off, so it’s a chance to get a jump-start on totaling up expenses and income that can help with long-term budgeting.

Against the backdrop of the hard economic times and losses that many investors have suffered in stock investments, here are some New Year’s resolutions for your retirement plan:

Start building a cash cushion. If you’re within three to five years of retirement, says Bill Losey, a financial planner in Wilton, N.Y., now is the time to start making sure you’ve got the cash on hand that you’re going to need to pay bills once you stop working.

The most recent bear market shows why. Anyone who planned to retire at the end of 2008 — and waited until then to sell investments and put aside the cash needed for routine expenses — would have been selling in the midst of the worst stock-market decline since the Depression. Even many bond investments lost value.

Mr. Losey says there’s no rule of thumb for the pace at which a person should convert part of an investment portfolio to cash. Variables include the size of the portfolio and whether the retiree will have a pension or other reliable income stream.

With “some people, I want to be sure and liquidate [enough to meet all income needs] right now,” he says, “and…for some people we say, ‘Let’s liquidate half today’ ” to cover expenses for the first three years of retirement.

Give your bond portfolio a risk check. Investors flocked to bonds in 2009, especially corporate and junk bonds. It turned out to be a great move. Many high-yield bond funds posted big gains.

Meanwhile, with rates on money-market funds essentially at zero, investors looking for additional income have been tempted to move money into higher-yielding longer-term bonds. But these bond investments carry the risk of losing value whenever interest rates start to rise.

While the Federal Reserve thus far isn’t signaling an imminent rate increase, many analysts believe when the Fed raises rates, it will do so quickly and not gradually.

That means taking a close look at how your bond investments will perform in a rising-rate environment — now.

“The problem is that people say, ‘If the market falls, we’ll take the money and do something else with it,’ but by the time you are cognizant of it, it’s usually too late and you end up with a big loss,” says Susan Kaplan, a financial planner in Newton, Mass.

She is suggesting to many retiree clients that they hold so-called bond ladders — portfolios of bonds that mature gradually over time — that mature in no more than five years and, thus, are less vulnerable to rising rates.

Add a different kind of diversification. The past two years provided a real-life stress test for retirement portfolios. Perhaps the biggest disappointment was the degree to which diversified portfolios suffered losses so steep that, even with the market bounce since the spring, many retirees still are in the hole.

The experience showed the shortcomings of what had become conventional wisdom about building diversified portfolios. In steep down markets, stocks of all kinds — U.S., international, growth, value — tend to fall in unison. Most stock mutual funds are inherently bad investments for bear markets because managers are forced, essentially, always to be bullish and be fully invested in stocks.

For investors, the resolution should be to do a better job of bear-proofing a portfolio. One way is to add asset-allocation funds, which allow managers to aggressively play defense. This can be done through owning gold or by profiting when stocks fall by selling them short, which involves selling borrowed shares in hopes of replacing them later at a lower price.

Scott Dauenhauer, a financial planner in Laguna Hills, Calif., has been complementing traditional buy-and-hold stock investments with funds such as Pimco All Asset All Authority, which allows the managers to short stocks and invest in other assets such as gold.

“Such a portfolio may lag…in an upturn where stocks become excessively overvalued,” he says, “but should come in handy during crashes like [those of] 2000 and 2008.”

Save money. It’s the most basic, but most important, resolution you can make. It’s also often the hardest to fulfill.

Lew Altfest, a financial planner in New York, suggests you pay yourself by writing a check or transferring money to an account you don’t usually use.

Mr. Altfest also sees a connection between saving and dieting: Tell your friends that you’re going to save a certain amount of money over the next six months. “In a way it’s like going to Weight Watchers” and talking about weight-loss goals in front of a group, he says. “You’re putting peer pressure on yourself.”

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Can you afford to retire?

By Ashley Thiesen Caldwell | November 16, 2009

If you’re nearing retirement and unsure if you’re ready, or able, to retire in this economy, there is help. Numerous financial companies are developing retirement plans that can assist you with these ever-important decisions. Fidelity, Vanguard, Nationwide, and Schwab are the leading companies offering these retirement plans.

The companies have developed programs that offer, at little or no cost, a detailed assessment of whether you’re in danger of outliving your savings. You’ll also receive detailed advice as to how to effectively budget and manage your nest egg.

The companies generally pair you with a financial planner who goes over your current finances along with your retirement goals. The program is very involved and may take hours to complete. However, the end result will focus on saving and investing, which obviously coincide with the financial company’s offered services.

Fidelity’s retirement income planner is free of charge and is suited mainly for those within five years of retirement. The detailed questionnaire is very time consuming, taking approximately 90 minutes to complete. Consequently, if you already have a budget worked out, a shorter version of the questionnaire is available.

Vanguard’s financial plan is free for people who have at least $500,000 with Vanguard or those who move $100,000 or more to Vanguard. For others, the cost is $250 if you have an existing balance of $100,000 to $500,000, or $1000 for those with less. Vanguard’s process is highly efficient with a 30-minute questionnaire.

Nationwide offers their RetireSense program is aimed at those ages 55 to 70 and is completely free. The only expenses would be commissions paid if you buy or sell investments. Nationwide has a rather short, one-page questionnaire, along with a three-page budget worksheet. One flaw with the program is that it doesn’t account for taxes as it is mainly focused on retirement income.

Schwab’s real life retirement services are free to those with brokerage or 401(k) accounts at Charles Schwab. The plan involves an optional nine-question survey along with an in-depth consultation with a financial advisor. Schwab sends clients quarterly reports that track whether investment held at the firm are allocating according to plan.

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Rewriting Investment Rules

By Ashley Thiesen Caldwell | October 29, 2009

The once-guaranteed investment rules have changed remarkably during the recent economic downturn. It was often common practice to assume that stocks would always rise over the long run, that bonds are for retirees and investors with little desire for risk, and that companies rarely cut their dividends.

All of these rules have changed recently and can no longer be counted on. The new rules include the idea that bonds may be the better long-term debt, diversification of your portfolio needs to be more than just different types of stocks, and that nothing is risk-free – even the common money market fund.

As the meltdown essentially cut the stock market in half, investors and advisers have begun to question the time-honored strategies of the longest investing binge in history. The surging bull market dated all the way back to 1982.

A recent rally over the past six months has restored some wealth and given everyone a chance to reflect on the mistakes they made. It also allows investors and companies to determine how they can prevent future losses.

Here are five examples, courtesy the Associated Press, on how the year after the meltdown has changed the old thinking about investing:

1. ASSET ALLOCATION

CONVENTIONAL WISDOM: Safe investing means adjusting the mix of stocks and bonds in a portfolio based on an investor’s age and appetite for risk. Younger investors were advised to own more growth stocks, then transition as they aged into more shares of well-established, blue-chip companies and into bonds, which return less but are less risky. Stocks were expected to beat bonds handily over the long haul.

NEW THINKING: A broad measure of the bond market, the Barclays Capital U.S. Aggregate Bond Index, is up nearly 14 percent since October 2007. That compares with a 28 percent decline for the Standard & Poor’s 500 stock index.

Going back five years, to well before the recession, bonds still win. They’ve returned an average 5 percent a year versus just 1 percent for the S&P 500. And the last 10 years have been a lost decade for stocks. They’ve had an average annual loss of 0.5 percent compared with an annual gain of 6.2 percent for bonds.

You have to measure back 20 years to find a long-term edge for stocks, and even then it’s small.

“It’s definitely blown up the view that stocks always outperform over long periods,” says Tony Rodriguez, head of fixed-income strategy at First American Funds in Minneapolis.

Investors have taken the hint. They put $209 billion into bond mutual funds through August, 13 times more the amount invested in stock funds, according to Morningstar. Typically, stock funds attract more than twice as much as bonds.

But bonds also may face headwinds in a few years. Deficit spending by the federal government may ignite inflation and drive interest rates higher, which would depress the price of bonds.

“Bonds are about to take a big hit,” predicts Dan Deighan of Deighan Financial Advisors, a firm in Melbourne, Fla., that manages more than $150 million for wealthy investors.

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2. STOCK DIVERSIFICATION

CONVENTIONAL WISDOM: You should diversify your stock portfolio to protect yourself in bear markets and get the best returns in bull markets. In downturns, count heavily on “value” stocks — those considered cheap compared with historically steady earnings. To take advantage of good times, own more volatile “growth” stocks — those expected to have rapidly growing earnings.

NEW THINKING: The dramatic stock rally since March suggests a slowdown is inevitable and that it’s time to move more into value stocks. But a robust economic rebound could reignite the rally, meaning growth stocks would provide the best chance for big returns.

It all depends on what type of economy emerges. Typically, the economy will grow at least for several years after a recession. But this time, Americans are hesitant to spend because of the high unemployment rate and the lasting effects of the housing bust.

A slow economic recovery could send the market into a “W” pattern — big gains followed by a second steep decline.

Compounding the confusion, a large proportion of value stocks are banks, which are still not back to full strength and many of which are still taking losses from declines in commercial real estate.

“What we’ve experienced with many of the banks is a junk rally — the lower the quality of the stock, and the closer a business got to dying last year, the better it has done since,” says Paul Larson, a Morningstar Inc. stock strategist.

Experts say to expect more volatility in the economy — a choppy recovery, not a steady upward climb. That makes any broad bets about which types of stocks that will gain the most in coming months and years an unusually dicey proposition.

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3. ALTERNATIVE INVESTMENTS

CONVENTIONAL WISDOM: Keep stocks and bonds as the foundation of your portfolio and put minimal amounts in other types of assets.

NEW THINKING: Put more of your retirement nest egg in tangible assets. Think not only about your home but also about other kinds of real estate, as well as gold bullion, says Deighan, the Florida financial adviser.

“After last fall, people were looking at these standard diversification models, and saying, ‘I thought I was well-diversified,’” he says. “Well, according to those computer-driven models, you were. But you really weren’t.”

Many investors have already turned to gold and real estate as hedges against stock market downturns, higher inflation and a weakening U.S. dollar. Real estate prices in much of the country are perceived as having hit bottom. Gold had a great run over the last year — from about $700 an ounce last fall to more than $1,000 this month.

Mutual funds investing in stocks of companies that mine gold or other precious metals have beaten all other fund categories over the past year, with a nearly 36 percent return, according to Morningstar. Over the past five years, only Latin American stock funds beat precious metals.

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4. DIVIDENDS

CONVENTIONAL WISDOM: Stocks that pay dividends ensure you a steady stream of income.

NEW THINKING: So far this year, companies have cut dividends at a record pace. During the five decades before last fall’s meltdown, about 15 companies increased their dividends for every one that cut, according to S&P. So far this year, dividend cuts are running ahead of increases. The total cut so far this year by S&P 500 companies — $47.4 billion — already tops the full-year record of $40.6 billion set last year.

Companies cut dividends because they need to conserve cash. And once a company cuts, it often doesn’t restore its dividend to its previous level until it’s confident it can afford to give up the cash. And that can take years.

Elaine Durham Mobley, a widow and retired bank accountant, used to receive $5,161 in dividend checks every three months from Bank of America and General Electric. Those checks now total $682. About a third of her $64,000 in annual income has vanished.

“I always thought these dividend stocks were quite safe,” says Mobley, 75, of Sautee Nacoochee in the mountains of northern Georgia. “But we have to remember the law: There’s nothing sure in life but taxes and death.”

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5. RISK

CONVENTIONAL WISDOM: Some investments are risk-free. You can put money in them and not worry whether it’s safe.

NEW THINKING: There is no such thing as risk-free. At the height of the financial crisis, one large money-market mutual fund, the Reserve Primary Fund, exposed investors to losses because the fund bought debt of Lehman Brothers, which went bankrupt. It was just the second instance of a money fund “breaking the buck,” or falling below $1 a share, in the past four decades.

The government rushed in with guarantees for money funds similar to banks’ FDIC insurance — guarantees that expired this month. New rules will further restrict the investments money funds can make and lower their risk. But they come at a cost. Money fund are averaging yields of less than one-tenth of 1 percent — barely better than cash.

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The Right Way to Save

By Ashley Thiesen Caldwell | October 11, 2009

Personal savings has been boosted to an all-time high this decade. Due to the financial crisis, more people are moving their money into savings. Government data shows that we have reduced our debt and cut our spending.

So where do you go from here? How do you start rebuilding? Financial advisers suggest putting 10% to 20% of your income into savings and retirement.

Studies conducted by Harvard University estimate that about 10% of Americans save too much, while 30% have a healthy savings plan. This leaves 60% of us who maintain poor saving habits.

Here’s a plan to help you out with saving throughout the various stages of life:

When you’re starting out

Saving money from a first-job salary is tough, but once you get in the habit, it will pay huge dividends. By transferring a little money to your savings from each paycheck, you will accumulate an emergency fund right away. If you have lots of high-cost credit cards, you’ll want to start paying those off.

After you’ve worked on those two areas, you can start thinking about retirement. It may seem impractical to start saving for retirement when you’re still young and starting out, but growth is exponential, and time is on your side. 401(k) contributions offer a tax break, and some employers offer matching contributions.

Ultimately you want to contribute at least 10% of your pay toward retirement. If you cannot afford this, at least make an effort to take full advantage of your employer’s contribution match, usually found in the form of a percentage of your pay.

Your next priority is to start building your other savings and reserves. These accounts give you options. It is money that allows you to buy a car and make a down payment on a house, or gives you the flexibility to do the things you really want to do.

When you have a family

At this point you’ll want to start thinking about a college-savings plan for your young kids. This will give you the opportunity to save for many years.

Again, you should be tending to your cash fund and retirement savings first, but you’ll want to consider at least a small contribution to a 529 plan, which grows tax-free.

College is expensive, but try not to get overwhelmed: It doesn’t have to be fully funded before your child leaves high school. If you’re also paying down a mortgage, that’s a form of savings too.

When the kids leave home

When the college account is cleaned out, people in their 50s and 60s should focus on building up their retirement savings, aiming to contribute the maximum allowed, up to $16,500 annually—plus $5,500 in catch-up contributions each year—plus whatever they can save outside those accounts.

Empty-nesters may also want to consider replacing that college account with one for long-term care, which covers home health aides or nursing-home care. If a family’s assets are more than, say, $300,000 and less than $1 million to $2 million, long-term care insurance, while costly, may make sense.

When you retire

After retirement, your accounts may need a little rearranging. Funds needed for the next five years or so should be in cash or short-term investments so they won’t be subject to stock-market fluctuations.

Starting a vacation account is also important if you plan on doing any retirement traveling. Many retirees make travel a top priority.

Funds you won’t need for five to 10 years should be treated as medium-term savings, while funds over 20 years are long-term savings.

This blog is meant to act as a reference. Please consult your personal financial advisor about your financial accounts.

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Retirement for the Baby Boomers

By Ashley Thiesen Caldwell | October 1, 2009

The idea of a traditional career and retirement are slowly fading. Long gone are the days when people worked for the same company until they turned 65, retired, then enjoyed the rest of their lives while collecting Social Security and a nice pension from the company of which they were so loyal.

Life today isn’t so simple. Social Security shows little promise for the future and, for most people, “pensions” amount only to personal 401(k) investments with minor company assistance.

This arrangement, although not as good as arrangements in the past, still promised many a comparable retirement lifestyle. But with the recent economic downturn, many people are forced to delay retirement, lower their standard of living, or in many situations, both. Recent dips in the stock market have translated to significant drops in 401(k) investments for most people.

According to the Bureau of Labor Statistics, 77 million Baby Boomers will reach the “normal” retirement age within the next few years. The decisions they make to stay in the workforce as long as possible or to retire at a reasonable age (even if it means living on a somewhat reduced income), will have an enormous impact on the local and national economy.

These older employees bring years of stability and experience to a company and are valuable assets in the workforce. However, with this being the case, a bottleneck is created making it much more difficult for younger people to find jobs.

Despite your particular situation, the next few years will have their share of challenges. Careful spending and rational budgeting are essential to help you reach your goals.

Develop a plan and stick to it. No matter your age, you should set goals and strive to meet them. Don’t forget to review and revise your goals as times change.

Remember, retirement is a cherished goal for many and a time to enjoy the numerous years of hard work you’ve accomplished.

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Fixing Your 401(k)

By Ashley Thiesen Caldwell | September 21, 2009

For those of you who are looking to retire soon, the recent plunge in the economy may have changed your plans. However, the outlook for your savings probably isn’t as bad as you think.

A recent study by Financial Engines, a company that provides advice to retirement-plan participants, found that investors with as few as five years until retirement can recover their 2008 losses by making modest increases in savings and working two or three more years.

Young investors, on the other hand, have a great opportunity for investment. With many years in front of them before retirement, or even the thought of retirement, they are able to invest at bargain-basement prices.

Here are a few tips courtesy of USA Today on how you can rehabilitate your 401(k) plan:

Gen Y: People born from 1982 through the early 2000s

The “buy low” advice really works for you. You can afford to be bold because you don’t have much to lose. Having the market go down allows you the opportunity to buy at the bottom. For a young, moderately aggressive investor, it is recommended that you invest 85-90% in stocks and 10-15% in bond funds. Of the stock fund allocation, 45% should go in large-company stocks, 15% in small-company stocks, 20% in international funds, 15% in bonds and 5% in money market or stable value fund.

Gen X: Those born from 1965 through 1981

Time is on your side. You’re probably still years away from retirement, so you can afford to recover from market downturns, even larger ones. Some Gen Xers saw their portfolios shrink by 30% or more last year and may have had nightmares about retirement. Depending on your age, a drop this significant may only shave 7-10% from your retirement income – a deficit you can close by saving just 1% more each year. It can also be made up by working just one extra year.

Investors who plan to work at least 15 more years should have about 75 of their portfolios in stock fund while older Gen Xers should gradually move toward a mix of 60% stocks and 40% bonds. Of the stock allocation, 60% should be in large-company stocks, 15% in small-company stocks, and 25% international

Boomers: Those born from 1946 through 1964

Many boomers who sustained big losses will need to save more, work long, or both. Avoiding the stock market entirely isn’t a good idea, even if you’re close to retirement. It is recommended that boomers invest 65% or their portfolio in stocks, with 40% in large-company fund, 25% in international funds, 15% in small or madcap stocks and 20% in bond funds.

Many boomers are in their prime earning years, which means that they should try to save as much as possible. Workers 50 and older are eligible to make catch-up contributions to their 401 (k)s. And for those who receive a pension, investing more aggressively is a viable option as compared to those utilizing only savings to fund retirement.

There’s tons of advice out there, all differing in strategy and plan. Ensure you make smart, calculated decisions and invest wisely. You are not going to regain the money you lost in a short period of time. If you have questions on how to wisely invest for your retirement, seek the advice of a professional money manager. Happy investing!

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Roth IRA 101

By Ashley Thiesen Caldwell | September 14, 2009

With the recent woes of the economy, you’ve probably put your investment interests on the back burner. The recent changes in retirement investing just might make you revisit and restructure your accounts.

Beginning January 1, 2010, all U.S. citizens will be eligible to roll traditional individual Retirement Accounts into Roth individual Retirement Accounts. Converting to Roth IRAs is currently only available to taxpayers with modified gross-adjusted incomes under $100,000.

The tax advantages here are tremendous. In a traditional IRA, contributions are tax deductible, but all withdrawals are eventually taxed as ordinary income at current rates of up to 35%. There is no deduction for contributing to a Roth IRA, but contributions are not taxes when they are withdrawn.

If you were to convert your funds now, you would take money out of a traditional IRA, pay taxes on it at ordinary income rates and then roll the funds into a Roth, where all further growth is tax-free. If you’re planning on building up your retirement account, the taxes on a traditional IRA can really add up. In the long run, Roth IRAs will save you vast amounts of tax payments.

Another reason to convert is that Roth IRAs do not require you to take minimum distributions at age 70 ½ as normal IRA plans do. This will allow you to manage your money to match your personal requirements.

Roths have gained popularity over recent years and are now the largest repository of U.S. retirement wealth. Roths hold $4.75 trillion while 401K plans and private-sector donation plans amount to $3.49 trillion and $2.33 trillion, respectively. Much of this recent growth of Roths can be attributed to rollovers.

It is important to educate yourself in multiple areas when you are developing your personal financial plan. Seeking the advice of a professional will also prove to be very beneficial. Good luck and invest wisely!

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Never too late — or early — for retirement planning

By Ashley Thiesen Caldwell | August 31, 2009

This is a great article on retirement planning at any age from Newsday.com.

Never too late — or early — for retirement planning
By: Gary Dymiski

Confused about pumping money into a retirement plan? How much? Equities or bonds? Regardless of age, successful retirement investing can be accomplished by considering a few critical factors, especially time, say Long Island experts.

“Young people have the best asset of all — time,” said Ed Slott, a certified public accountant in Rockville Centre. “There is no greater moneymaking asset than time.”

Other factors include determining risk and the rate of return a person needs to retire on, said Michael Kresh, president of M.D. Kresh Financial Services in Islandia.

Regardless of age, Slott said, investors should put away the maximum for retirement. Kresh agreed, and added that young investors often can afford to be aggressive “because time is on their side.”

Determining how much risk an investor can afford is an individual thing, experts said, as is rate of return needed for retirement.

Like Slott and Kresh, Ellen Douglas, a certified financial planner and owner of Roslyn-based Fiscal Wizard, has clients who have been pumping money into their individual retirement accounts and other retirement funds since as early as January, when the market was down.

Many of Douglas’ clients have gotten returns of 30 percent, she said, by dollar averaging, or investing fixed amounts over a defined period of time.

“I told my clients they don’t have to dive into the pool head first,” Douglas said. “I like for them to get in slowly, dipping in one foot at a time.”

Slott and Douglas advise investing in a Roth IRA, which pays investors tax-free upon withdrawal. Kresh said diversification is important, too. Younger investors can put up to 80 percent in mutual funds that buy U.S. equities or global equities.

Here are some saving and investing strategies for all age groups.

20-Somethings
These investors can afford more risk because they have more time. The highest total return is in equities, so a diversification of 80 percent equities and 20 percent bonds is OK.

Buying individual stocks can be very complicated, said Michael Kresh, president of M.D. Kresh Financial Services in Islandia. Money-market funds that diversify for you are a good move.

The 30s and 40s
Laws over the next two years will be advantageous to converting traditional IRAs to Roths, said certified public accountant Ed Slott. “Not paying taxes when you are retired is a good reason to have a Roth IRA.”

Continue putting money into IRAs, said Kresh, even when the market is down. “It’s not as if you are transferring a huge amount at one time.” And don’t be afraid of a down market, he advises. “When the market is down it means there’s a sale.”

Heading into retirement
“Having 80 percent of your retirement money in equities might be a problem,” Kresh said, “because you might not have time to get through a major market correction.” The split should be more like 70 percent equities, 30 percent bonds.

Even in their early 50s, investors still can consider a Roth, Slott said. “Many people feel tax rates will go up,” Slott said. “The only way to beat the increasing tax rates is with a Roth. It might pay to convert, even when you are older.”

Financial planner Ellen Douglas is a proponent of diversification – 25 percent each in equities, real estate investment trusts, bonds and high-cash instruments – once investors reach their mid-50s. REITs, she said, give investors real estate returns without the headaches of taking care of a property.

Retirement
Continue to identify risk tolerance, Kresh said. “The more risk you can afford means having more in equities,” he said. Having more than half of your funds in bonds at a rate of 2 percent or 3 percent likely will not provide enough annual income.

“People who already are retired should have enough money put away,” Slott said. “If they have more than enough to live on, converting to a Roth for their children and grandchildren might be a good idea.”

Stay diversified. Statistics, says Douglas, indicate people are living longer. “After retirement, money has to last 20 to 25 years,” she said. “That means with a 4 percent annual withdrawal rate a person needs almost $4 million.”

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