Job tenures have gotten shorter

Saving up emergency money for retirement can be considerably harder for consumers who job hop throughout their careers. According to a new study done by the Employee Benefit Research Institute, the median job residence was 5.1 years in 2008. That’s a startling fact considering that ten years prior it was over 15 years. The signs are showing that consumers are making more moves during their career, but it could be costing them in later years. Many pensions and long-term benefits are calculated based on the number of years an employee stays with a company. Job hoppers tend to move in and out of different retirement plans and cash out small 401k amounts when they change jobs. This can greatly diminish their retirement account balances when they exit the job market.

Craig Copeland, author of the study, (see http://www.usnews.com/money/blogs/planning-to-retire/2010/1/15/why-job-hopping-makes-you-worse-off-in-retirement.html) said, “Since defined benefit pensions that are final-average plans have a formula based on tenure and average salary, workers who frequently change jobs will not receive the maximum benefit from this type of retirement plan because they do not remain with their same employer for an extended period. In fact, short-tenure workers with less than five years in a job may not qualify for any pension benefit at all.”

Does it make sense to job hop

In today’s economy it’s a difficult call whether or not to job hop, but cutting down on retirement savings is another reason to stay put. Some 401k plans provide a good investment option or charge lower fees than others to convert. Plans vary widely though among employers and short-term employment. For example, only 37% of 401k plans offered immediate vesting in 2008, according to a Profit Sharing survey of almost 1,000 plans. That means employees got to keep their employer’s match as soon as it was deposited. The other plans had a stipulation tacked on requiring employees to stick with the company a certain amount of years before they were allowed to keep the matched deposits. With consumers so focused on emergency money funds and their retirement, that makes a big difference in the decision to leave a position or stay.

The study also showed

The study also showed that public sector workers job hopped considerably less often than private sector job holders. The median private sector worker stayed with a job for four years, while a public sector worker stayed for over seven. About 11% of all workers have been at their jobs for over 20 years. It’s telling that older workers stay longer, while younger workers tend to move more often. Copeland said, “It is part of the ‘now generation.’ Older workers were willing to put up with more, but many in the end benefit more for sticking it out. Today’s worker is much more impatient.” The days of instant gratification are upon us and the survey showed that more and more employees are ready to leave when signs of discomfort come along.

Thinking about a job move

Emergency money is never easy to find and in today’s economy, it is even harder to hone in on. The best advice a worker can heed is to look at more than a mild job issue to set them looking elsewhere for employment. It could mean the end of a paycheck and having a more difficult time in retirement due to lost savings.

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Think tax-deferred golden eggs

A 401(k) plan is a type of retirement plan that is offered as a voluntary investment opportunity for employees. Individual employees determine a percentage of the wages that they’d like to invest before taxes are taken out. The allowable percentage will vary from employer to employer, and the federal government places a maximum on how much can be invested annually. This maximum amount fluctuates, however, according to the consumer price index and inflation, so it is not necessarily the same each year.

Often, employers will match their employee’s contributions to a 401(k) plan either in whole or in part. The contributions made by the employer and the employee, however, are not immediately taxed, nor is the interest that the investment accrues. However, when funds are withdrawn for retirement or other needs, they are taxed at that time.

What happens to money in a 401(k) plan?

Most who invest in a 401(k) plan have the option of applying their money to many different investment vehicles, such as mutual funds, stocks and other investments. It is important, however, for employees to understand all potential risks and benefits associated with these investments and make a decision based upon this information. It is always a good idea to sit down with a qualified financial planner to help make this determination.

What if I need to withdraw money before I retire?

Money can be withdrawn from a 401(k) plan before retirement for emergency cash or for other reasons. Generally, it is a good idea to refrain from doing so, however, unless it is absolutely necessary. The reason for this is that money that is withdrawn is subject to taxation and the money will no longer earn interest or other gains once it is removed from the account. However, some people find themselves in a position where they need money right away. In this case, it is good to discuss withdrawing cash from a 401(k) plan with a financial planner or an accountant to be sure about what will be owed on the money and to discuss any other pertinent details about withdrawing it before retirement.

Can I change my mind about how to invest the money in my 401(k) plan?

Most often, this answer is yes. Unless a person is invested in their company’s stock program, money from a 401(k) plan can be channeled to another investment. Usually, a person will choose to do this when their financial goals have changed or when they are unhappy with the performance of the investment vehicles they have chosen. At any rate, most plans allow a person to make changes by making a simple phone call. In some cases, changes can be made daily, while others only allow for changes at certain intervals. This is another reason why it is advisable to sit down with a financial planner before investing in order to know what your options are should you change your mind.

Invest now for a bright future

Understanding what a 401(k) plan is and how it operates increases a person’s wealth education. With a sound financial plan, that includes retirement planning and investing, people can grow their wealth and make their money work for them. No matter a person’s income level or debt situation, everyone should be thinking forward and learning what opportunities exist for investing in a bright financial future.

Never too old to ride a bike; never too young to plan for retirement

There was a time when planning for retirement was relatively straight-forward. A person simply worked at a job until age 65 and then retired to live off pension plans and Social Security benefits. This was the reward for years of hard work with one employer and paying into a dependable government-sponsored retirement fund.

Life has changed

Much has changed in terms of retirement planning and benefits. Years ago, life expectancy for most seniors was much lower than it is today. Today, people are living longer, which is good news. On the other hand, retiring at age 65 isn’t always financially feasible with people living to age 90 or longer. As life expectancies increase, it becomes more difficult to acquire adequate funds for a comfortable retirement.

Jobs have changed

Today, most people change jobs or careers several times during their working years. In many of these jobs, pension benefits do not exist. To compound the problem, Social Security benefits have not kept up with cost of living increases, and most people cannot live comfortably on them today.

Health care has changed

The problem becomes overwhelming when you add health care costs to the mix. Health care costs, especially for older people, tend to be uncertain even as they continue to rise. Because of this, the future support of many elderly individuals is in question.

Have you started to think about your retirement?

With all these retirement issues facing every person in the United States, it would seem reasonable that we would find alternatives to existing retirement plans and begin saving money for our retirement years. Planning ahead makes sense, but a lot of people are at a loss when it comes to taking action.

Plan for the worst, hope for the best

Experts agree that everyone should begin their retirement planning by assuming the absolute worst-case scenario. We should assume that Social Security benefits will not be available or, at least that they will not be sufficient to support us. Also, we should assume that medical care will create a significant financial burden. No one hopes that these worst-case scenarios will materialize, but we should plan as though they will so that we are prepared. In the unlikely case that they assumptions don’t materialize, we’ll have more than enough money to live on, and what could be wrong with having a little extra to do the things you’d like to do?

Plan for a comfortable retirement

Here are a few suggestions for insuring that your retirement is a comfortable one:

Start an emergency fund. Save as much as possible or, at the very least, have six months of living expenses in a savings account earmarked for emergencies. If you’re like a lot of people today, your living expenses may exceed your wages or salary and you may have to rely on payday loans or credit cards to get through a month. When you figure out how much you need to save and set aside, consider your actual living expenses and not just your income.
When available, participate in your employer’s retirement plan. If you don’t have a retirement plan at work, invest in an Individual Retirement Account, (IRA). Sometimes employers will match a portion of the contributions you make.
Set financial goals and stick to them. Many people dream of sending their children to college, retiring early, and traveling the world. The reality is, however, that these things will not happen without proper planning. Taking the time to sit down and seriously assess the financial backing that will be needed to support these goals, and then creating a plan to invest and grow money over time is the only way to make dreams like these come true.

Start planning now!

Almost everyone who lives long enough will eventually have to retire from working. Some people look forward to retirement, while others dread it, fearing that they won’t be able to survive. The sooner you start to think about and prepare for retirement, the better off you will be. Retirement planning is not just for the elderly. The more time you have to plan and the more time you have to save, the more you’ll look forward to the day you retire, so the best time to start planning is right now.

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.

Many retirees are looking for debt relief as they settle their finances. After years of wise saving and careful investing, you may find yourself on the brink of retirement. Although you may be tempted to quit immediately and look for a nice quiet home to retire in, there are still some things that should be addressed. Here are some things to settle before leaving the workforce for good.

Your retirement funding

First you need to figure out the amount of funding you need to retire. At the beginning of your career it was more difficult to estimate future expenses. Now that you’re on the brink of retirement, you know how much you need to sustain your lifestyle and have extra daily cash. Make sure you address the following issues when assessing your retirement fund.

• Where do you plan to live? Do you plan to keep your home? Do you still have some mortgage payments left? Will you sell your home and downsize?
• Consider the length of time you need funding for. Statistics show that the average man today lives until 82 and the average woman lives until 85. That means you need on factor in about 20 more years of retirement funding.
• Are you planning to work part time? If so, you’ll still be generating an income to work into your calculations.
• What will your lifestyle be? Normally 60 to 80 percent of your current income is how much you’ll need after retiring. However, that doesn’t include extras such as travel, starting a business or helping fund a grandchild’s college. You may need to keep the same income during retirement.

Estimate income

Put together a list of all your income sources. This should include pensions, Social Security and investment income. Add the cash value of your life insurance policies, income from real estate and the equity you have in your home. Deduct any payments you are going to need for debt relief, and that should give you the extra funds you’ll have monthly.

Financial planning

The next step is to figure out how much money you’ll be withdrawing from savings and what rate you will be depleting it. A standard figure is to liquidate 5 percent of the principle each year of retirement. Again, this number must be customized based on your plans for retirement.

You also can look at your tax-deferred and taxable investments. Your tax-deferred investments naturally compound and they have a greater potential value. Earnings and deductible contributions however, are subject to taxes once withdrawn.

There are also RMDs, or required minimum distributions, to consider. These numbers are based on the IRS life expectancy tables. If you don’t take the right distribution on schedule, you could be subject to up to 50 percent of the required amount. Be sure to check with your retirement planner to stay aware of all changes in these rules.

A rock-solid will can help you

To fully settle your retirement planning, you must address your will and the distribution of your estate. A rock-solid will can help to quell any arguments or fights about money issues from those who you name as beneficiaries, and those who you don’t. Also check to make sure the beneficiaries on all retirement accounts and life insurance policies are current.

Enjoy your Retirement

Finally, once the above items are settled you can cruise into your official retirement. It pays to do some careful planning to make sure your finances are in order. You don’t want to leave open-ended wishes or your family to manage your debt relief. Take aim to sort through your retirement so everyone can enjoy it. Then, you can rest and have some peaceful years, and your family can enjoy knowing you’re taken care of.

Many consumers are worried about debt relief as they reach retirement age.  With news of Social Security and Medicare being tapped out within the next few decades, Americans are looking for other options to retire in comfort.  Fortunately, there are some jobs that still focus on pension plan guarantees.  Here are some industries that still support their retirees.

• Public-Service Sector workers.  Local, state and federal government positions are still highly attuned to retirement benefit payouts.  According to the Bureau of Labor Statistics, almost 80 percent of state and local government workers had traditional pensions last year. Olivia Mitchell, director of the Pension Research Council, stated “Police officers, firefighters, teachers and judges have always had pension plans.” She also noted that these careers are all putting more money into firming up their workers’ retirements to provide security for them.
• Large, private companies. Although pension plans are more difficult to find in the private sector, a recent study showed that 21 percent of private-sector entities had a plan for retirees. This is a huge benefit for employees who know they will have a guaranteed payout for their retirement years.  Consumers need to look for employment, but be aware of the retirement funding statistics. A recent poll showed that only 9 percent of companies with less than 100 employees and 34 percent of companies with more than 100 employees offer traditional pensions. Management and professional positions are also the most likely to offer  retirement plans, regardless of the size of the company.  Service-sector jobs are the least likely to have any retirement benefits.   Geographically, mid-Atlantic, Northeast and Pacific coastal regions are the most likely to have jobs with retirement benefits, in particular in their large metropolitan areas.
• Businesses with less than 10 employees.  Although most small businesses don’t offer retirement funding, exceptionally small offices normally do. This means offices with less than 10 employees, commonly doctors’ offices, law offices or family-owned businesses.  Author and expert on retirement Fran Hawthorne stated, “Very often, the owners of small doctor’s offices set up the pension plan because they want a tax-free way to put money aside for retirement. … The law requires that if you do this, you must provide the same pension for all your employees based on income.” This is encouraging news for Americans who want to work in the small business sector but still have a plan for retirement and debt relief in their elder years.

The key to success

Employees who are working for smaller businesses need to know that retirement funds are most beneficial when they stay with a company for an extended period of time.  Payouts are maximized based on time spent servicing a company.  It’s also beneficial to know that the sooner employees get retirement plans in place, the better they may fare at payout time.  Hawthorne added, “If you don’t get a job with a pension now, your (payout goes)  down every year because more and more pensions freeze each year.”

Planning for retirement

Planning for retirement is a number one concern of Americans today.  With unemployment running high, debt relief being sought and foreclosures increasing, people are wanting to store away money for the future.  There are still some ways to wisely handle the situation and live comfortably in the golden years.

Couples need to make debt relief a priority discussion when considering marriage. A new national survey for Fidelity Investments is showing some interesting results. Many couples aren’t in agreement on basic financial issues and don’t even discuss finances in any depth. Here are some of the topics those questioned stated they didn’t cover with their significant other:

• When is each person planning on retiring?
• How much money do they need to save to retire on time?
• What types of debt will be considered priorities to pay off?
• How much insurance coverage is each expecting to have?
• What budget will they follow and for how long?

Oddly enough the same poll was given two years ago and there has been a general decline in communication, although the economy has drastically turned for the worse. For example, two years ago 79percent of couples stated they didn’t agree on retirement plans, including the time to retire or if they would continue to work after retirement.  This year’s survey showed that same number is up to 82 percent. Other numbers in the most recent survey follow suit.

An expert predicted the results

Nicholas Yrizarry, a financial adviser in Virginia, stated that he thinks the results of the most recent survey are accurate and logical. His belief is that the recession has pushed people to focus on “putting out fires, dealing with debt relief, worrying about interest rates, credit card debt, over-mortgaged homes and job insecurity.”

Although reason suggests they should be making financial discussions a priority, most aren’t. Yrizarry added, “You’d think it should raise some eyebrows, and they would say we’d better start thinking about this, but actually they just shelve it even further, defer the inevitable.”

The survey

The 2009 survey shows that only  45 percent of couples make decisions together on daily household management of finances like budgeting and expense payments.  The norm is for one person to take the helm at finances.  Amy Gunnerson of Pittsburgh, Penn., a agreed with her husband that she would pay bills. “My husband doesn’t want a part in the daily decision making. He’d rather focus on work, while I decide what the priorities are. …It works for us.”

President of Barber Financial Dean Barber said this is typical of families because normally one spouse is “adamant” about finances while the other “really could care less. … It makes it very difficult, though, and puts a lot of stress on a marriage.” Experts agree that this isn’t the most beneficial way to handle life because when one person has different expectations, there could be potential problems.   Also, if the family dynamic changes, say with divorce or death, the financially passive spouse is left in the dark.

Discussions about retirement are also put on hold by 62 percent of couples.  Again, this could potentially cause problems if one plans on retiring early, but there aren’t enough finances to maintain their lifestyles.  Financial Planner David Summerhill of Summerhill & Franke stated, “Retirement planning isn’t just about an amount of money. It’s about having an age when the retirement is going to happen for each person, having a plan to make it happen and having a contingency plan if it doesn’t.”

Financial discussions

One of the most surprising results of this year’s survey is that only 15 percent of all couples believe they could handle full responsibility for household finances if necessary.  With these kinds of numbers it’s imperative couples begin having dialogues about finances.  Retirement planning, debt relief, savings goals and investing options are all topics that need to be discussed and decided up on periodically throughout a marriage.