Category Archives: Retirement and Investments

04/23/12

Group Benefits

It’s open enrollment time for us, and I love this time of year! (DORK!) Getting to organize the upcoming benefit year for our family brings me peace of mind and security. 

 

I recently did our family’s open enrollment online, choosing health care and dental options, long-term disability and life insurance, and for the first time for us—both a Flexible Spending Account for Medical and Flexible Spending Account for Dependent Care (ie, Max’s preschool).  All of this will help reduce our monthly after-tax pay, which means less money each year to old Uncle Sam.  That makes me happy :)

 

Here is some information I wrote recently for my Money Matters column in Kentucky Living magazine.  Hope it helps others going through open enrollment.  Can you feel the excitement in the air!?

 

Group Benefits

As an incentive to employees, most employers offer group benefits to eligible employees.  Commonplace are benefits such as health, dental and vision, life, disability, and long term care insurance, retirement plans, stock options, health savings accounts, and flexible spending accounts.  Here are some things to consider regarding your groups’ benefits:

 

Do your own research:

These decisions will have a great impact on your family’s everyday life (such as health insurance) and your family’s future (such as retirement).  Therefore, it’s prudent to devote time, effort, and research before you enroll in any benefit.  Ask your employer questions.   Read over the pamphlets, discuss with your financial or tax advisor, and do some research online.  Consider attending open enrollement info sessions if offered by the provider, free of charge.  Visit the provider’s website for details of benefits, financial calculators, FAQs, and other tools to navigate the process.

 

Review other options:

Many times, purchasing  insurance through a group policy can be cost effective and especially helpful to those with pre-existing conditions.  However, don’t just assume this to be the case.  Compare what is offered with your group to individual life, disability, or long term care insurance you could obtain outside the company.  Even if it’s not cheaper, it may provide more flexibility, options, and continuity than your group benefits.

 

Follow up:

Be your own advocate. Monitor your benefits throughout the year, rather than only during open enrollment.  Major life changes such as a birth of a child, divorce, or marriage, usually mean the employee may make changes to benefits mid-year.  Write down notes during the current benefit year of changes you’d like to make come next open enrollment.

11/2/11

Social Security benefits for next generation? Don’t count on it!

Is our Social Security in Jeopardy?

 

My answer would be, “Absolutely.”

 

In fact, the Social Security Administration admits to the same questionable and doubtful view of the future of its program.  Here is what the Social Security Administration itself has to say on the matter,

 

“The financial conditions of the Social Security and Medicare programs remain challenging. Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided. “

 

During the infamous “Debt Ceiling” debate in August, concerns about Social Security and Medicare were again brought to the forefront of the American people’s attention—as they should be.

 

As most know, Social Security is in serious fiscal trouble.  While many experts believe there is no immediate concern for those currently receiving benefits, or to those who may do so in the near future, I don’t feel as confident.  It’s my opinion that Americans will need to rely more on their own income and savings, and less on Social Security retirement benefits to maintain their desired retirement lifestyle.

 

According to the SSA, 94% of American workers are covered under Social Security. 

 

Social Security is mostly funded through payroll tax in which employees and employers each pay 6.2% of wages up to $106,800.  Self-employed individuals pay the combined rate of 13.4%.

 

While disabled workers and survivors receive benefits under the SSA, the majority of beneficiaries are retired workers.  In 2011, $40.7 billion will be paid out as retirement benefits.   The average monthly benefit paid to a retired worker in 2011 is $1,175.

 

As a young individual in this country, I am not relying on any form of Social Security for my retirement.   I encourage readers under the current retirement age to conservatively assume such benefits will be unavailable or greatly reduced in the future. 

 

Yes, I understand that as a taxpayer I am contributing to Social Security.  But I am not naive enough to believe these funds are being set aside for me (or my generations) future needs.  On the contrary, what we are paying into the system now is help funding our parents and grandparent’s generation.

 

Somewhere, the cycle has to stop.

 

While no politician wants to be involved in cutting any type of social security benefits, the truth remains that there is actuarially speaking, not enough funds to sustain the system in its current form.  Changes will inevitably have to be made either to the amount of benefits received, or qualifications for receiving such benefits.

 

Thus, my family and I will work hard to create our own stream of retirement income for our future.  Any social security we receive I will consider a bonus or unplanned addition. 

 

 Will I be frustrated if I never receive a dime of benefits after years of contributing to the system? Of course.  Am I hopeful major reform is made and that Social Security can be sustainable for our generation and those to come?  Sure.  But, realistically do I see that happening?  No.

 

Take your future into your own hands.  Work hard, budget, save for retirement, and accumulate your own wealth and retirement income.

 

10/17/11

Think you have enough Money for Retirement?

Think you have enough money for retirement? Consider these sometimes forgotten retirement points:

 

1. Life Expectancy
The good news is that with advances in technology and science, people are now expected to live longer than ever. The down side of this of course, is that dollars in retirement will have to be spread over 20, 30, possibly even 40 years of your life. 

 

2. Rate of Return
Remember that during your retirement years, it is likely you’ll want to shift your investments to a more conservative portfolio and thus,  you’ll probably see lower returns than in your pre-retirement years.

 

3. Inflation
How many of you, over the age of 65, paid more for your last car than you did for your first house? You don’t have to be old or wise to witness the effects of inflation all around. Just look at the price of stamps, gasoline, or college education costs, for a real eye opener.  The money you have saved for retirement now might sound like a lot, but consider it in terms of future purchasing power.

 

4. Lifestyle

When budgeting, a lot of people underestimate their expenses in retirement.  Although some costs associated with working will decrease (such as taxes, transportation, and savings) other costs will increase (such as travel, hobbies and health care.)

10/17/11

Is my Money Safe?

Until recently, most people felt somewhat confident in our financial services industry. But with the disappointing news of insurance companies going bad, banks failing and getting bailed out, and the stock market on a roller coaster ride, the public now wants to know, “So how safe is my money?”

Money at the bank:


“It’s more important than ever that customers understand the risk associated with where they place their funds,” says Ashley Roberts, private banking officer with Republic Bank in Kentucky. The best way to be certain about your funds is “with the backing of the United States government in the form of FDIC insurance,” Roberts explains. Though most are familiar with FDIC, coverage can be somewhat confusing depending on how your bank accounts are titled. Currently, the basic coverage limits are $250,000 per owner, per participating bank. To see if your accounts are fully covered, go online to www.fdic.gov and use EDIE, an online coverage estimator. You can also call toll-free (877) ASK-FDIC.

 

Money under the mattress:

Under the mattress, in the cookie jar, buried outside, or in the freezer might feel like a comfortable place to keep your money, but there are too many “what could go wrong” variables, making this the least safe option of all. For one, the money you keep at your home is not insured. It could also be lost, stolen, or easily accessible for spending. While it’s appropriate to keep some cash on hand, large sums of money are most suitable in a bank environment with tight security and monitoring.

 

Money in investment accounts:
While there is nothing equivalent to FDIC insurance for investment accounts, many brokerage firms are members of SIPC, or the Securities Investor Protection Corporation, www.sipc.org. “SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks, and other securities are stolen by a broker or put at risk when a brokerage firm fails for other reasons.” In other words, it does not guarantee your account won’t lose value, but rather that it will step in should your broker or brokerage firm fail.

 

10/17/11

Nervous About the Markets?

Nervous? While there are no magic words to remove that feeling in your belly every time you think about your investments, hopefully these tips will provide enough comfort to get a little shuteye at night. While much of our current economic condition is unprecedented, history teaches good lessons in dealing with market downturns.  Keep in mind that your investment choices should fit your investment risk tolerance.  If you can’t sleep at night because you are worried about your money, you are probably invested too aggressively for your comfort level.

 

Consider your time frame:
If you have 10, 15, or 20-plus years before retirement, you should have smaller concerns about short-term downturns. In fact, for a young individual, this is an opportunity to buy into a market we expect to eventually turn around.

For those who need funds soon or who are in retirement, the current market is less of an opportunity and more of a threat. However, you must also consider the threat of inflation and the threat of selling out of equities at their low points. While it might be tempting to “go all cash,” some stock exposure might be necessary to keep your portfolio diversified and strong for the long retirement years ahead.

 

Missing the best the Market has to offer:

 

It is dangerous to sell off equities when you might be selling at the lowest point. Principal Financial Group explains that missing some of the best days in the market because of nervous sell-offs can have a detrimental effect on your overall return. Consider this example, provided by Principal Financial:

An individual who was invested in the S&P 500 from January 1, 1997, to December 31, 2007, would have turned a $10,000 investment into $21,789 for an average annual return of 8.10%. Alternately, an investor who panicked and sold their positions during this same period and missed the 10 best trading days would have seen their return fall from 8.10% to 3.58%.

The point is, no one can time the market. No one knows when the bottom will hit or when things will turn around. You want to be in the game when the turn around comes.

 

Diversify, diversify, diversify:
Those who are feeling the most pain are likely those whose portfolios were not diversified appropriately at the start of the downturn. Your portfolio should be a mix of equities of different sectors (retail, financial, manufacturing, consumer staples, etc.), geographical areas, size (small companies, large companies), and bonds, fixed income, and other natural resources or speciality sectors. Employees should never hold too much of their own company stock, even if you think your company is the most profitable and wonderful place in the world. Think Enron.

 

Use your team:

If you have a financial planner, CPA, or other advisor, make the “comfort call” and discuss your accounts. Even if no changes are made, the comfort it might bring is worth the call.

 

10/14/11

Advantages and Disadvantages of Online Trading

In the old days, if you wanted to purchase a stock you had to call up your broker, give them your trade order, pay a commission, and sit by the phone to await their confirmation.

 

With the creation of the internet however, came brokerage firms offering immediate and discounted on line trading.  From Scottrade, to E-Trade, to Vanguard, these on line brokerage firms offer “ordinary” citizens the opportunity to manage their portfolio on their own. With that, comes advantages and disadvantages to on line trading.

 

Advantages of On line Trading:

Flexibility:  On line trading is nearly instantaneous, providing you the freedom to trade at your leisure from anywhere, anytime.  No need to make a call, travel to your broker’s office, or even get dressed. This flexibility means you have the freedom of watching the market and making quick trades if needed. You don’t have to wait on anyone other than yourself.

 

Expenses:  For the most part, transaction costs are usually lower for on line trades than traditional brokerage firms.  E-Trade offers trades starting at $6.99, Scottrade at $7, and TD Ameritrade at $10. One reason for this is because overhead is obviously lower for on line firms.  Another reason for this however, leads us to one of the disadvantages of on line trading which is no advice.

 

Disadvantages of On line Trading:

No Advice: Buyer beware!  Unlike traditional brokerage firms that may offer investment advice specifically for your situation, you won’t find that on line.  Therefore, it might pay for inexperienced investors to meet with an investment advisor while still new to the game. You also won’t have guidance as to what price you should buy and sell with an on line firm.

 

Expenses:  While these can be an advantage because of low cost, many investors become “trading happy” and begin to make excessive daily trades which can not only lead to higher transaction costs, but possibly lower returns as well.

 

10/7/11

Finding a financial planner, CPA, or attorney

When looking for a professional, a great way to start is by asking people in your community you trust for referrals.  From there, go the extra step to check their qualifications and credentials through the following regulatory websites.

 

To check on your Broker/Dealer:  www.finra.org

To check on your CPA:  www.aicpa.org

To check on your attorney:  http://www.abanet.org

10/7/11

Should I manage my own money?

With the increasing popularity of the internet, managing your own finances has become a hot topic for consumers.  Resources on up to date market information, bank rates from across the nation accessible at the click of a button, and cable news shows and commercials teaching investment skills to the public, many people are being lured to manage their money on their own.

 

But is it safe to manage your own finances?  What should you do on your own and when is it time to turn to professionals?

 

According to Mark Lamkin, founder of Lamkin Wealth Management in Louisville, Kentucky, professionals such as Certified Financial Planners and CPAs should have a large involvement in your financial life.

 

“Managing money is about managing your behavior…and often times, you’re not the best person to have an objective opinion about yourself,” Lamkin explains. 

 

“Managing money is just about what “not to do” as it is about “what to invest in”…..managing your emotions versus facts is the critical part of investing.  Let me put it another way….Tiger Woods is the best golfer in the world. But he still has a golf coach. Find your coach, build a plan, and have well thought-out steps.”

 

Lamkin says there are things people can and should on their own, including budgeting, debt management and simple banking transactions. He also suggests that long term investors pay less attention to the media—especially in tough markets when it is easy to question your decisions.

 

If you are going to hire a professional, always do your research before meeting—and especially before you turn over your money.

 

According to the Certified Financial Planner Board of Standards, there are key questions you should ask before hiring a professional.  These include questions such as “What is your experience level and qualifications?” “How are you compensated?” and “Do you have any public illegal or unethical complaints against you?”

 

While it can sometimes be more cost efficient to manage parts of your finances by yourself, you must consider whether you honestly feel comfortable enough to do so on your own.  You must also consider the complexity of your financial situation.  Remember that no matter what—you hire—but you also fire.  If a professional is not living up to the standards you expect, then “go on take your money and run.”

 

Do you hire a money manager or manage your money on your own? Share with us under Comments…