Automatic enrollments don't guarantee people will put much into a 401(k) account. Photo Credit: MJ/TR/Flickr?CC-BY

A survey recently found that laws allowing employers to automatically enroll employees in 401(k) plans don’t work as well as was hoped. When workers automatically contribute to a retirement plan unless they opt out, they will often put in less than they would if they chose to start a plan.

Automatic contributions fall short of voluntary contributions

A recent study of 401(k) contributions found that a 2006 law giving employers the right to automatically enroll workers in a 401(k) plan has not been very effective in getting people to put more money toward retirement, according to the Wall Street Journal. The law was passed during the George W. Bush administration, which emphasized privatizing Social Security and other retirement plans. The onus was that if people had a 401(k) to contribute to, they would put more money aside into a retirement account. However, the Employee Benefits Research Institute found that most workers who are automatically enrolled into a 401(k) often put in far less than their counterparts who voluntarily begin contributing to a plan.

Most choose default setting

The study found that more than 50 percent of people who were automatically enrolled into a 401(k) plan would contribute 3 percent or less of their salary to their retirement accounts, or whatever the employer-set minimum contribution was. However, more people are contributing to retirement funds as total contributions to 401(k) plans has increased by 13 percent nationwide since the law was enacted in 2006. Aon Hewitt, a human resources company that administers a large amount of 401(k) plans, reported that 85 percent of employees participate — don’t opt out — in companies that use auto-enrollment on average and 67 percent opt-in at companies that don’t.

Next generation of retirees face cash shortfalls

Average contributions were found to have dropped slightly over the past few years, and most people are thought to not be able to rely on 401(k) savings alone for their retirement. The Government Accountability Office, according to Reuters, recently released a report stating that more people can expect outlive their retirement savings in coming decades and need to contribute more heavily to retirement accounts and look into annuities as a possible retirement booster. The GAO also recommends people wait until after retirement age to file for Social Security benefits. More people are expecting to work longer as well, according to WalletPop, as financial services firm First Command found in a survey. The First Command survey found that up to 22 percent of survey respondents between ages 25 to 70 who made at least $50,000 per year expected to work until at least age 70.

Sources

Wall Street Journal

Reuters

WalletPop

The number of people using their retirement accounts as a source of spare cash is increasing. Photo Credit: godfreja/Flickr.com/CC-BY

The number of people taking loans from their 401(k) accounts is reaching record highs. More people are resorting to taking money from their retirement accounts, which many advisers would say is not a sound financial move. Some members of Congress are trying to limit the number of times a person can borrow from their retirement funds.

Retirement accounts being raided

AON Hewitt, the human resources company of the AON Corporation, noted in 2010 that one in seven, or about 14 percent, of people who had a 401(k) managed by AON Hewitt had borrowed from their retirement account, according to SmartMoney. That was a 14 percent increase from 2009. During 2010, investment houses T. Rowe Price and Vanguard both noticed an 11 and 14 percent increase in 401(k) loans, respectively. It is thought that up to 28 percent of all people holding a 401(k) account have taken a personal loan from their own retirement account at some point. It is estimated that up to 30 million people may borrow from their retirement accounts by 2014, according to CBS.

Congress seeking to cap borrowing

In May of this year, Congress announced that it would be introducing a bill that would limit the number of times that a person could borrow from their 401(k). Senator Herbert Kohl, a Democrat from Wisconsin and namesake of the Kohl’s department store chain and the chairman of the Senate Special Committee on Aging, sponsored a bill called the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act. It was co-sponsored, according to Business Week, by Mike Enzi, a Wyoming Republican. The bill would limit the number of loans a person could borrow to three per person over their lifetime. Currently, there is no limit, and a person can take a loan against a 401(k) as many times as they want to, or are permitted to by their employer or plan administrator. The bill, according to Govtrack, was referred to the Senate Finance Committee in mid-May and hasn’t gone anywhere since.

Advantages to borrowing

Taking an installment loan from one’s 401(k) has some advantages and disadvantages. First, any interest or appreciation that the funds would have made while the loan is being repaid is lost. However, the interest rate on the loan itself may make up for any lost interest. If an account is only gaining 3 percent but the interest rate on a 401(k) loan is 6 percent, the borrower technically has doubled their gains for the amount of money that was borrowed. If the loan, according to SmartMoney, is used to pay off high interest debt, that is also a net benefit; essentially, a high interest debt has been replaced with a low one. Also, the thing about borrowing from a retirement account is that one pays ones’ self back, not a bank. That said, if one loses their ability to repay, or defaults on the loan, then retirement funds have been lost. Furthermore, the Internal Revenue Service imposes a 10 percent tax on early 401(k) withdrawals.

Sources

SmartMoney

CBS

Business Week

GovTrack

Internal Revenue Service

The United States Senate doesn't want people using their 401(k) accounts as a piggy banks. Image from Wikimedia Commons.

The United States Senate is currently considering a bill that would prevent people from using their 401(k) funds as a source for personal loans. The new legislation that is being put forth would potentially put a limit on how many times a person can draw from retirement accounts before retirement.

Retirement accounts are not piggy banks

A bill is going before the Senate that would put a permanent cap on the number of times a person can legally draw on 401(k) or other IRA funds before retirement, according to BusinessWeek. Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) are proposing the bill to limit withdrawals from 401(k) and other retirement funds in order to keep people from draining retirement accounts and jeopardizing their futures because of a temporary shortfall. Senator Kohl was quoted as saying that a retirement account is not intended for use as “a piggy bank.” The bill is called the “SEAL 401(k) Savings Act.”

Nearly a third of account holders borrow

By the end of 2010, almost 28 percent of all people who had some sort of 401(k) or similar account had an outstanding loan they took from the account, according to a study by Aon Corp, and the average balance was $7,860. Aon Corp also found that of the people who took out installment loans from their retirement funds, 58 percent had at least two outstanding loans. Aon also found that close to 70 percent of people who borrow from retirement accounts default. Fidelity Investments, according to USA Today, found that about 22.5 percent of 401(k) account holders with Fidelity had a loan balance outstanding at the end of 2010. This indicates that between one-fifth and one-third of people who have a 401(k) or other type of retirement account end up having to use it as a source of emergency funds.

Retirement becoming more daunting

The prospect of being able to retire one day, and to do so with confidence, is becoming more daunting for many people. Social Security, Medicare and Medicaid are typically pillars of security for retirees because portions of their paychecks have been going toward these programs for decades. However, it is becoming apparent that these entitlement programs may not be the guarantee they once were. Social Security is on track to becoming insolvent, and the Social Security Administration would need to raise $6.5 trillion to become totally solvent again, according to CNN. The Social Security Trust Fund is set to be depleted sometime within the next 25 years according to many estimates, and current Social Security payroll taxes won’t cover all outlays.

Sources

BusinessWeek

USA Today

CNN

A growing number of people are willing to raid their retirement accounts. Photo Credit: MJ/TR/Flickr.com/CC-BY

An increasing number of people are having to turn to their retirement accounts to scare up cash. Withdrawing from an IRA, whether its a Roth or 401(k) plan, incurs stiff penalties, but people will do it when they are desperate enough. Being able to retire securely is becoming far more difficult.

Nearly one-fifth of workers make early withdrawal

Some people, when in dire straights, turn to their retirement accounts as a source of emergency cash. Though withdrawing money from one’s IRA can be a lifesaver — or seem like one — at the time, it may not be. It carries a stiff penalty, but more people are resorting to withdrawing from retirement accounts, according to Bankrate. The Financial Security Index, an annual survey by Bankrate.com, found that about 19 percent of respondents dipped into their IRA accounts at some point in the last year. About 17 percent of the people in the survey who are employed full time reported dipping into their retirement account at some point in 2010. Early withdrawals indicate that the people who withdrew the money did not have much money put away in case of emergency.

Fewer people believe they will retire

Retirement is becoming a dream that not many people believe they will be able to realize, according to CNN. A survey by the American Institute of Certified Public Accountants revealed that nearly 40 percent of working people surveyed believed they would not be able to afford to retire. Almost 56 percent said that they couldn’t afford retirement savings because food and gas costs were too high, and 55 percent had no idea how much would be necessary to save to retire. As a result of less confidence in the ability to retire, the younger set in the workforce are more apt to stay with an employer who offers a top shelf pension plan, according to Daily Finance. A Towers Watson survey revealed that 43 percent of respondents believed it was a great reason to stay at a job, up from 28 percent in 2009.

Retirement security at all time low

A secure retirement is something many people place a premium on, now more than than ever. People are less confident that they will be able to retire, and the state of the Social Security Administration is part of that. Roth IRA and 401(k) plans depend on stock values, so every economic downturn ruins many people’s nest eggs. More people are becoming interested in defined benefit plans, which have become rarer in the past few decades. Defined benefits, what many people refer to as a “pension,” is a flat rate payment given to a retiree each month. A traditional retirement account, like a 401(k) account, is called “defined contributions,” meaning an employer makes contributions while an employee works for them.

Sources

Bankrate

CNN

Daily Finance

Find a good financial planner to help you generate investing ideas. (Photo Credit: CC BY-ND/Brook Rushing/Creative Loafing)

People invest because they want to create wealth. Day traders may savor the adrenaline rush, but profit is the purpose. In order to invest effectively, however, it pays to know some basics. It also pays to know how not to invest.

Invest in a 401(k)

Experts advise getting started with a 401(k) plan from your place of employment, preferably with matching funds from the company. The money deposited is not taxable as long as it remains in the account, earning dividends, interest and capital gains. Let it sit for a while and gain interest for your retirement.

About.com reminds investors that a 401(k) is not an investment per se but an account that holds investments in stocks, bonds, mutual funds and more, depending upon your 401(k) variant.

Save for a rainy day

In addition to a retirement account, it is essential to establish savings. Online resources like Motley Fool or any worthwhile financial adviser can help you decide how much you should realistically be saving.

Max out your Roth or Traditional IRA

A Roth IRA retirement account gives you the flexibility to make contributions after taxes, so taxes are paid only upon withdrawal. Maxing out your contribution limits will enable you to build a fine nest egg. Even if you don’t qualify for a Roth, a Traditional IRA still grants you sizable tax benefits.

Expanding beyond the retirement account

Producing additional wealth can mean opening a brokerage account and buying stocks. Before investing, however, you should have a clear vision of your goal. Know what you want and how long it will take you to get there based upon the amount of the investment and rate of return.

Pay off your credit cards first

The interest rate on credit cards make them the worst debt consumers can hold. Take care of all credit card debt before beginning to invest in stocks.

How NOT to invest: Don’t sit on your hands

Motley Fool points out that stock market is unpredictable, but t if you venture nothing, you will gain nothing. The miracle of compound interest smiles upon those who buy in. If you invest in stocks and stop paying attention, you’re asking the market to swallow your cash. Follow your stocks and move on if and when the time is right. Remember your financial goals and don’t go too far outside your comfort zone unless you’re prepared for possible loss.

In and out is expensive

If you’re investing through a brokerage firm, frequent trading in and out of the market will produce major fees. Day traders make up for this in volume, but for the basic investor, long-term investments (ideally five years or longer) are the safer course. If short-term investment is necessary, consider money market funds or CDs, advises Motley Fool.

Sources

About.com

Motley Fool

From socks to stocks

Having a Roth IRA can give your retirement fund teeth. (Photo Credit: ThinkStock)

Retirement planning is a frustrating yet necessary process, especially with the precarious position of Social Security. Here are the top five reasons a Roth IRA retirement account is for you, courtesy of Smart Money.

Make tax-free withdrawals upon retirement with a Roth IRA

A Roth IRA enables you to put your contributions in after taxes. Thus, it is unnecessary for you to pay taxes on that money once it is withdrawn upon your retirement. More money is always helpful. Payday loans are fine in a pinch, but they don’t constitute a retirement plan.

Social Security won’t enable you to maintain your standard of living

You’ve heard the debates over whether Social Security will actually continue to exist forever. But let’s assume that it sticks around, and you believe it will cover you post-retirement. The government hasn’t let you down before, right?

Wrong. It’s all too common to read something like this on a Social Security statement: “You can retire on the princely sum of $2,000 per month. You may already be a $24,000 winner!”

Roth IRA beats 401k mutual funds

A 401k retirement account gives a retiree the option of choosing from one of two different types of mutual funds. That is very limiting. With a Roth IRA, you have a greater ability to manage your retirement funds.

Flexibility is always nice

Smart Money points out that Roth IRAs give the retiree a great amount of flexibility when it comes to managing their funds. Contributions can be withdrawn without establishing a compelling cause. Furthermore, a Roth IRA can be used to save for a child’s education. There are other benefits to being flexible, too. Check with your financial adviser.

Diversity in numbers

Putting all your eggs in one basket is never a good idea, and this old saying holds true with your next egg. Some people look to both a Roth IRA and a traditional IRA or 401k in order to more readily absorb the bumps and bruises of fluctuating tax rates. It’s a sound strategy that anyone concerned about retirement should discuss with a financial adviser. Be prepared and minimize your need for short term loans.

Sources:

Smart Money

Roth IRA basics

Wikipedia entry on mutual funds

When former news anchors hawk IRAs

Personal financial literacy begins in the home, but a survey shows that most parents give their own financial skills failing grades. Flickr photo.

Who else do kids have but their parents for getting a personal financial education? And what are they learning? A recent survey showed that most people learned their personal finance skills at home, from their parents. But the same survey showed that a great portion of those people gave themselves failing financial grades. Some people say that personal financial literacy needs to be taught in school. Others say that it’s not hard for parents to get up to speed on personal financial literacy so they can pass the knowledge along.

Parents in dire need of financial education

In its 2010 Financial Literacy Survey, the National Foundation for Credit Counseling asked people where they learned the most about personal finance. Most said they learned their personal finance skills from their parents at home. But when people were asked to grade themselves for financial literacy, nearly 25 percent gave themselves a C, D or F. The NFCC concluded that those in charge of the financial education at home are in dire need of financial education themselves.

Reading, writing and personal finance?

In this tough U.S. economy, many parents are drowning in debt, not planning for retirement or saving for college or able to purchase a house. NJ.com reports that these people may have been able to avoid these troubles if they took basic financial literacy courses in school. The NJ article said only 14 percent of teens nationwide take personal finance classes in school. NJ proposed that if the rate of teens taking personal finance classes in school nationwide had been higher in the past, perhaps the U.S. economy would be stronger today.

Kids set up for financial failure?

Last year, Wells Fargo conducted a survey and found out that only 5 percent of people ages 18-21 are confident they will achieve their financial goals. The survey discovered that only 41 percent know what a credit score is; only 28 percent understand annual percentage rates; only 41 percent understand the concept of the 401(K); and only 31 percent understand compound interest.

A financial tune-up for parents

It may be awhile before your school district decides to follow the lead of New Jersey, which is running a pilot project requiring financial literacy classes for high school students. But until then you can set a good example for the kids by getting your financial house in order with a mid-year financial tune-up. Boston.com offers five good places to start:

1. Budget and Spending — Take a look at your spending plan from the beginning of the year and compare your cash flow for the first six months. Did you allocate enough to cover expenses, or are you falling behind in certain areas? Start tracking every penny you spend, put a plan in place and stick to it.

2. Savings — Set aside cash for emergencies and short-term goals. Even a small amount can play an important role. The Consumer Federation of America found that with just $500 in the bank, you’ll sleep better and will be more likely to avoid high-cost borrowing and nasty fees for overdrafts.

3. Debt — Carrying high debt loads can have a big effect on your credit score, make monthly budgeting more difficult and leave you more vulnerable in emergencies. The first step toward solving these problems is to stop using plastic and chart a plan for paying off your cards.

4. Taxes —There’s a lot of uncertainty for people who try to plan for taxes this year, because Congress has not yet addressed a number of expired tax laws. But tax rates are expected to go up for all but the lowest income brackets in 2011,so be prepared.

5. Retirement — A retirement plan review starts with your 401(k), but it doesn’t end there. It includes Social Security and company pensions, as well. Figure out how much money you need to provide for yourself, and then to put a plan together.

Choosing a retirement plan doesn't have to be a game of chance

Many people are unaware of the different types of retirement plans available to them. While most are familiar with the basic plans offered through their employer, few know much about additional plans they may still be able to invest in. Self-employed people in particular find themselves wondering how they can plan for retirement and what plans are available to them.

Qualified vs. non-qualified retirement plans

Plans are generally classified as qualified retirement plans or non-qualified ones. Qualified retirement plans are those most commonly used by large companies. These offer tax incentives to employers for contributing to the retirement plans of their employees. Besides the fact that employers generally match an employee’s contributions, qualified retirement plans are of benefit in that employee contributions are made on pretax income directly from one’s paycheck. This means that money that would otherwise go to the government is invested in one’s future instead. Also, taxes do not have to be paid on such contributions until money is actually withdrawn from the plan when a person retires or decides to withdraw the money for other purposes.

Here is a list of the most popular qualified retirement plans:

• 401(k)
• Roth (401)
• Defined-benefit plan
• Stock bonus plan
• Defined-contribution plan
• Money-purchase pension plan
• Profit-sharing plan
• Keogh plan (for self-employed individuals)

A non-qualified retirement plan, on the other hand is often used to reward high-ranking employees who earn a substantial income. Employees who invest in non-qualified retirement plans can still enjoy tax-deferred investing, but, unlike with qualified plans, they may lose the ability to transfer their money to another type of retirement account when they leave their job. This means that they may have to withdraw all of their money upon leaving their job and pay taxes on it at the same time.

Here is a list of the most popular non-qualified retirement plans:

• 457 plan (also known as a Tax-Sheltered Account or TSA )
• 403(b) plan
• Roth IRA
• Traditional IRA
• Rollover IRA
• Converted Roth IRA

Along with the previously mentioned Keogh plan, self-employed entrepreneurs also have the following retirement plan options:

• SEP IRA
• Simple IRA

Each of these plans is unique and offers its own benefits, as well as drawbacks. Before selecting the one that is right for you, read up on what each offers and consider sitting down with a professional who can explain the ones that you’re most curious about. Wealth education involves good research, asking a lot of questions and discovering the investment options that are best suited for your budget. By having a general understanding of the retirement plans that are available to you, you can now begin a further exploration in finding the one that is perfect for you.

Prepare for a great future today

While many people spend a lifetime working for money, smart investors know how to make their money work for them. Investing in a good retirement plan is one approach to doing so and understanding how each one works is the beginning of wealth education. It is never too early to begin retirement planning and those who do not have a plan are strongly urged to start one now. If you’ve been relying on cash advances or a loan till payday to pay your monthly obligations or for emergencies, try to imagine how you’ll be able to manage as a senior citizen who is without a payday at all. Start preparing for you future today by defining a personal budget that includes contributing to a good retirement plan.

We all want to hear good news; it’s human nature. Perhaps that’s what the Obama administration and current Federal Reserve leadership are playing off of as they paint a picture of America’s economy in real recovery. But the reality is that many things still could go wrong before we’re out of the woods. Your payday loans bloggers finds this opinion piece in the Nieman Watchdog to be interesting, so he will summarize the top 7 for your economical viewing pleasure. Here are your top 7 signs that the economy could still mess up, friends!

1. The middle class is disappearing – People are feeling better about their 401(k)s lately, but homeowners are still struggling with negative equity. Not only that, but they borrow $.25 to $.30 for every $1 equity increase. Since home prices are still way down, middle class homeowners are largely still up the creek, and millions more are living paycheck-to-paycheck, according to Harvard Professor Elizabeth Warren.
2. You want this recovery done WHEN? – Ben Bernanke says the signs of recovery are already there, but there are people who fear that’s just a result of the massive stimulus package. A Washington Post column asserts that “The surprising strength of the bounce-back testifies to the wisdom of the underlying strengths of the U.S. economy and the success of the policies, but is likely to peter out as the stimulus begins to wear off and the inventory correction is completed.”
3. We may only be putting on a band-aid – Obama has even said this himself. Stop adding to the debt, he says. But the Watchdog columnist worries about a lack of demand. Credit and housing used to be America’s big economic growth areas. Now what’s going to get people (investors) excited? People are still holding on to their money, says Nobel laureate economist Joseph Stiglitz. No spending could mean a double-dip of recession.
4. How would we dig out of another recession? – Interest rates have already been lowered; zero percent is not a possibility for the Fed. Would bailout and stimulus money be there again, after how unpopular Obama’s plan was the first time around?
5. Throwing away the crutches too quickly – New York Times columnist Paul Krugman notes that President Roosevelt and the Fed were a bit too hasty when they declared an end to the Great Depression in 1937. They jumped back on the reducing the deficit wagon before the wheels were secure, and the wagon lurched off the road again for a while.
6. Pumping the system could be what has stocks up – And how long will that last? Foreign investors swooping in on the weak dollar helped, as have nearly zero-interest loans. But there’s no solid sense that this will continue, says the Watchdog.
7. Wall Street hasn’t been slapped hard enough – Which could mean they’ll have every intention of playing their games again. Obama may have called Wall Street a Ponzi scheme, but they’re still wearing their “too big to fail” pants. The president’s stance toward banks has now become less aggressive, leaving the door open for a repeat performance of much of what got us into trouble in the first place. On CNBC, economist Simon Johnson admitted that it will be “exciting” to see whether America can have back-to-back financial crises.

Does that sound exciting to you, payday loans blog readers?

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Wise moves made today will pay off tomorrow

Consumers may need personal loans to manage through retirement if they aren’t careful with their 401(k) accounts. A 401(k) account allows a working person to save for retirement, invest the savings and defer taxes until after retirement when, in most cases, the account holder’s income will be subject to a lower income tax rate.

To make contributions to the fund, an investor opts to have a portion of his or her paycheck paid directly into the 401k account. Many employers offer the additional benefit of matching an employee’s contributions by depositing additional money or by making profit-sharing contributions to the plan. Regardless of the added benefits, the basic 401(k) account is a simple and effective way for an employee to squirrel away money for retirement.

The downside of 401(k) investing

Although the idea is a good one, there are certain things a 401(k) provider doesn’t usually tell its depositors. Here are some of the most important things to know:

1.  Investment companies make big money on 401(k) accounts, even when account holders do not. The number of 401(k) investors has risen sharply in the past few years. According to Cerulli Associates, a research and consulting firm specializing in the financial services industry, that number has risen to 50 million providers. Though the companies are more and more efficient as a result of the increased competition, that doesn’t necessarily mean account holders see the financial benefit.

2.  The 401(k) account rarely offers top funds. The reason for this is simply that asset managers may not have top funds in each category. For example, a company may offer a great large-cap stock fund option but a mediocre small-cap one. In a recent Yahoo Finance article, Morningstar research director Russel Kinnel said, “If you see some lousy funds from the company that’s providing the plan, that’s probably why.”

3.  “Target-date funds” may not be accurate. As required by last year’s Pension Protection Act, 401(k) accounts have “target dates” as default options. Each 401(k) account allocates assets according to the account holder’s expected retirement date and becomes more conservative as the date nears. Research shows that some target-date funds may not earn enough for retirement. Kinnel added, “Retirees may need to supplement funds with personal loans, family help or part-time work to make it through their monthly expenses.”

4.  Account holders who quit their jobs may have to pay to keep their 401(k) at the former-employer company. A Hewitt study showed that 32% of people who quit their jobs ended up leaving their 401(k) accounts with their old employers. Leaving the account where it is may seem like an easier option than filing the intensive paperwork required for a transfer, but the hidden costs of doing so can be overwhelming.

5.  Roth IRAs may be more beneficial than 401(k) plans, although few employers offer them. Whereas traditional 401(k) accounts have tax-deferment features, Roth IRAs are taxed up-front rather than at the time of withdrawal. Only about 5% of retirement plans available through employers offer the Roth IRA option. The Roth IRA isn’t for everyone, but it can substantially benefit certain categories of employees.

Other savings may create more wealth

Other kinds of savings may create more wealth than retirement accounts. The 401(k) continues to be a work in progress and lawmakers are currently scrutinizing fees and procedures. Until the rules are finally settled, other savings vehicles may offer higher returns. In the same Yahoo Finance article, Brent Glading of the Glading Group said, “For those who are not averse to risk, high-end stocks and bonds can be great investments that offer a bigger return in a shorter amount of time…they aren’t for the faint of heart though. Only serious investors with a stable vision should even try to manage them.”

The 401(k) put to the test

The 401k account is a unique savings vehicle that offers a tax-deferred way to save money for retirement. Though many employees are relying on the accounts to carry them through their retirement years, analysts say that many account holders are not saving enough. They may need to rely on family help, personal loans or other types of savings to make it through retirement.

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Most people don’t. With more and more Americans retiring early in order to pursue other careers or small business opportunities, this question is being investigated more than ever. Myths abound, which lead people to believe that they must immediately roll all of their retirement savings into a single IRA account or, at least, cash out of their 401k plan all at once. This, of course, is not true, but without the benefit of good wealth education, few people actually know what their retirement plan options are.

Consider the following suggestions:

Suggestion Number One

If you were born before 1936 and have participated in your 401k for at least five years, it is possible that you qualify for an excellent tax strategy commonly referred to as a ten-year averaging. Such requires that you first withdraw your entire retirement savings at once. Upon doing so, you will figure your taxes on this amount by dividing the total by ten and then adding an additional $2,480 to the sum. Next, research the 1986 rate for single taxpayers and multiply that amount by ten. The resulting figure tells you how much you owe in taxes for your withdrawal using this option. If your 401k value is less than $400,000 in total, you may find that you can save a lot on taxes by using this ten-year averaging calculation.

Two things to note if you plan on using this strategy: First, the IRS will only allow you to use it once and, second, you can’t roll over part of your 401k and use ten-year averaging on the remaining amount. However, the benefit to using this strategy on your complete withdrawal is that taxes were a lot less in 1986 than they are now and using the rate for single taxpayers from that year will offer you far more savings.

Suggestion Number Two

Some companies allow retirees to leave some or all of their money in an existing 401k plan. Find out your company’s policy on doing so if you believe this will be of benefit to you.

Suggestion Number Three

Roll your money over into one or more IRA accounts. You can do this an unlimited number of times in as many IRAs as you like. Take the time to investigate this option on your own or with a qualified financial planner to determine if doing so fits your retirement needs. This might be an especially good idea if your company will allow you to leave some money in your 401k and roll over just a portion of the rest.

Suggestion Number Four

People who will be fifty-five years or older in the year that they retire may also consider cashing out of their 401k all at once or in part without penalties. Of course, ordinary taxes will be due on distributions, but, depending upon how much is in your account, this may be a smart option.

While these suggestions are meant to give you guidance on what to do with your 401k account when you retire, they should not be used in lieu of or to substitute the advice of a qualified professional. Also, do keep in mind that senior citizens age seventy and six months are required by law to begin taking money from all retirement accounts at this time. The only exception to this is money in a Roth IRA or if money is in a 401k with a company that still employs the person, provided that the employee does not own more than five percent of the company in question.

Divorce can seriously complicate finances like unsecured loans, savings and investments. If divorce is in your imminent future there are some things to begin thinking through. First of all, set some post-divorce financial goals. You want to stay focused on where you want your retirement savings to be, how much money needs to be in a college fund, and how you are going to reduce your debt. Second, make sure you review all your paperwork regarding shared accounts. This can include savings accounts, credit cards, loan documents, unpaid tax bills, and estate planning strategies. Finally, research your state’s QDRO, or Qualified Domestic Relations Order. This is a document that will prevent your spouse from making retirement account withdrawals while the divorce is in progress. Remember that if at all possible, it is highly advantageous to settle disagreements amicably and avoid paying thousands of dollars in lawyer’s fees.

The first order of business when facing a divorce

The first order of business should be protecting your financial situation. You’ll need a trusted lawyer who is well-versed in divorce and settling assets. It is crucial to hire a lawyer who knows the laws that affect divorce proceedings and the impact they have on your finances.

Dividing assets

Normally assets accumulated throughout the marriage are up for splitting. The exception to this rule however, is inheritances individually gifted. When assets are split, the court will consider each spouse’s earning ability, how much each contributed to the overall household assets and the length of the marriage. There are states that have exceptions though. In community property states like Arizona, California, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, all assets are divided equally between spouses.

Debt and the divorce

One of the biggest issues to address in a divorce is debt. Divorce does not eliminate debt. In fact if you are in a community property state, debt is split down the middle just like assets were. The caution in these states is that half the debt from one spouse, is shared by the other. Unsecured Loans, credit cards or retail credit can all plague the spouse who never created them. If you are in a non-community state then debt belongs solely to the spouse who incurred it.

The issue of debt is also relevant if married couples had joint accounts. These are important to address immediately because your spouse could continue to rack up debt and then leave you with it. All accounts that are shared should be frozen. Notify creditors of the situation and most will stop all charges to the account. Almost every major credit lender has a procedure to handle divorces.

Retirement assets settled

Money that is kept in a 401(k) account or pension plan can be divided up in a divorce. The amount included in the division is made up of funds accumulated from the time the marriage began to the time when the marriage ended. To claim a portion of your spouse’s 401(k) you need to have a court ordered QDRO and submit it to your spouse’s plan sponsor before the distribution period is finished. Some couples also opt to leave retirement funds untouched throughout a divorce. Particularly if the amounts for each spouse are close in value, this can be a viable option in handling the situation.

Estate planning

Finally, although unsecured loans, credit and savings are important, so is your future. Be sure to review your will and other documents to ensure that money is going to a new beneficiary. Those getting a divorce are cautioned to not wait to address the issue of estate planning. Review and amend an estate plan while carrying out the divorce proceedings. Though it is a difficult time for anyone when he or she is going through a divorce, securing their future is important. Taking pains to handle money wisely can protect assets and your future.

Papa John's and many other U.S. franchises are seeing growth as people take their job security into their own hands. Image from Wikimedia.

The number of consumers using installment loans to fund their own franchise is steadily increasing.  In a market where people are no longer sure of their jobs, many people are venturing into business ownership to build their own futures.  For example, Jon McIntoch of Philadelphia found himself laid off for the fifth time in his 30-year career as a banker.  Rather than leave his future in the hands of others again, he tapped into his 401(k) and opened his own business that provides home health care to those in need.   McIntosh is now one of America’s 1 million, and growing, franchise owners.

Franchises have grown tremendously in the past decade, and have developed new respectability within the job market.  Franchised businesses make up 11 percent of the US private-sector economy and receive 41 percent of retail spending.  Part of their popularity can be attributed to their simple premise. People can be their own bosses, get the training and support they need,  receive financing, and have help with marketing all along the way.  In January of 2009 a Franchise Expo was held in Miami and proved that the franchise business is here to stay.

The growth of the franchise

Steve Olson, publisher of Franchise Update Media Group, stated, that “in recessions, the number of franchises has actually grown faster than it has in good times.”  Between 2001 and 2005, franchises expanded 18 percent in the U.S. and rose to 900,000.

The business sector has also experienced a change in public perception.  In the past, many people equated the word “franchise” with a tacky and unprofessional business.  Those ideas are quickly changing.  Wayne State professor Timothy Bates stated, “There is absolutely no difference in the success rate or longevity of independent entrepreneurs versus franchises.”

New franchise owners

It’s no wonder the economy has given birth to a new generation of franchise owners. Many people have been burned by the recession with lay-offs, pay decreases and losses of home value.  Bates added, “People who have suffered in the economy, which is just about everyone, want to find ways of making themselves immune to future disasters.  They want to take their jobs into their own hands, and franchises can be a safe way to venture into being an entrepreneur, but having a firm plan with full support.”

Consumers are looking to venture into franchises more and more. And with the standard franchise fee being anywhere from $5,000 to $50,000, it’s a reasonable aspiration for many.  Consumers are using installment loans, family loans or traditional bank loans to handle the cost. The return is priceless because it empowers them to know that they have a say in their future.

Businesses of the future

Many experts insist that businesses of the future will be more self-owned.  Trade journalist Olson insists that the “new number of franchises will explode in this recession, provided would-be Subway and U-Haul lot owners can get financing.”

Financing seems to be the biggest deterrent to consumers.  Many are determined to make it work, however.  As Clifford Brant, new Papa John’s Pizza owner, stated, “I will do whatever it takes. I am not going back to being an employee who can lose his job at a moment’s notice again.”

Even if financing options aren’t easily had, consumers will use installment loans  and family help to make their dream of stable employment happen.

Apply for installment loans HERE

Saving money is not as easy as it looks. Image from flikr.com

The government has always pushed for people to put money into personal savings. Now President Barack Obama has created ways that will actually make saving easier for workers.

Just like Personal Money store makes online payday loans easier, Obama has come up with these three ways for individuals to save money: auto-enrollment in retirement plans, issuing tax returns as savings bonds and putting unused sick or vacation days into 401k plans.

1. Auto-enrollment in retirement plans

This will not make retirement plans mandatory for employees, it will simply make it easier for employers to enroll their employees in the retirement plans. CNN Money explains:

To make it easier for smaller and medium-sized employers to automatically enroll workers into retirement plans, the administration will clear up some bureaucratic paper-work hurdles for employers to offer that option.

2. Tax returns as savings bonds

This one is pretty simple. Recently the government made it possible for tax payers to get their refunds deposited directly into their bank accounts rather than sending a paper check. Similarly, now tax payers will have the option of having their tax return issued in the form of government savings bonds.

Automatically converting your tax returns into government savings bonds means that your money will be automatically saved and it will earn a higher interest rate than it would at a normal bank. The longer you leave your money alone, the more you will make off of it.

3. Saving sick and vacation days

Many people do not use up their sick days or vacation days at work. For the vast majority, that means that they are wasted. The government now will make it easier for employers to convert their employees’ unused sick or vacation days into dollars invested in their 401k plans. Again, this isn’t a mandatory thing at all. Employers and employees have the option of whether they want to do it or not, it simply will be easier.

Why the extreme measures?

Before you start spouting off about big government and personal freedom, remember that all of these things are completely optional. No one — not employers or employees — is require to participate. However, the benefits of personal savings in relation to the economy are obvious to everyone, so as part of the effort to turn the recession around, the White House has come up with these ways to encourage and facilitate personal savings. Just in case you’re in doubt about whether this help is necessary, here are some statistics from CNN Money:

Even among those with savings in the bank, the nest egg is relatively lean. Of workers 55 years or older, about half have less than $50,000 in savings, excluding their homes and pensions, according to the Employee Benefit Research Institute.

Some of these measures will be very lucrative for people. Unfortunately, these only help people who have jobs and qualify for tax returns. Saving money and investing wisely is very important, and I for one am glad to see that the government isn’t just talking about the fact that people should save money, but is actually taking steps to make it easier. I hope we will see more measures like this in the future, and that we can find a way to help people who don’t have 401ks and tax returns.