Tag Archives: Retirement

After Mutual Funds & Merlot

German wine humor postcard

German wine humor!

Mutual Funds and Merlot was so much fun last Friday. We drank a great Merlot from Columbia Crest (Grand Estates). Topics included your objectives for your investment funds and how those should match up to your mutual fund choices. We looked over the Vanguard portfolio allocation charts (seen here) from 1926-2014 to learn how asset allocation adds to or decreases average return.
One question asked,”what would it look like if the Depression (1930’s) years were left out”? Those years have the largest declines. Declines were pretty dramatic in 2008, a popular Standard and Poor’s 500 fund from Vanguard (VFINX) was down 37.02 that year. When looking at mutual funds returns now, be sure to check the ten year as well as the five year returns; as the 2008-2009 numbers have dropped out of the five year averages.

We also reviewed fees and terminology (no-load, load etc.) and I shared that when I began in this business (mid 1980’s) the highest front end mutual fund charges were 7.75%!

We did not cover all of the types of mutual funds; only open-ended mutual funds and index funds (a subset of open-ended funds). I also reviewed a decision tree of sorts:

  • Money to Invest (how long)
  • Tax Treatment (Taxable or non-taxable)
  • Diversification (individual issues or pool of securities e.g. mutual fund)
  • Objectives for your funds (growth, income, combination)

My next class will be Riesling and Retirement

(February 3, 2016)

2015-06-06.Winegrapes.blossoms.

German wine grapes in June 2015 by DCT

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Filed under Be Prepared, January Financial Tasks, Just for Fun

Employer Retirement Plans: The Power of 1%

Did you fail to grab some cash last year?

Here’s the scoop on how many people left employer matches on the table last year. I read this study from Financial Engines and was astounded at the billions of dollars unclaimed.

financialengines_infographic_final (3)

What if you can’t set aside even the minimum for the employer match? Then what?

I would not be living up to this blog’s title, if I didn’t address this issue. Here are some reasons I’ve heard for not participating in an employer retirement plan:

  • I can do better on my own.  Really? Tell me about it then.
Wring out your own retirement dollars....and show me the money

Wring out your own retirement dollars….and show me the money.

  • The plan is too complicated. That could be true, but there is no excuse for not asking for guidance in order to figure it out. Sometimes the guidance, advice, information is free. Begin with your company resources, then go outside the company if their resources and/or people cannot help you make sense of it all.
cropped-calculator-with-numbers-and-glasses-seniorliving-org.jpg

Seek assistance, whether it is virtual or from a live human!

  • I don’t have enough money. If you are living in a basement, eating noodles and drinking Mountain Dews [for the calories] , this could be true. However, even 1% in the traditional 401(k) or federal thrift savings plan (TSP) will lower your taxable income and you might not miss it. At $15.00 per hour, or $30,000 per year gross income, let’s see what that looks like over 45 years (67-22) until retirement, with minimum salary increases (1% annually). See chart below:
Results Summary
Current 401(k) balance $0
Years to invest 45
Annual rate of return 7%
Annual salary $30,000
Expected annual salary increase 1%
Percent to contribute 1%
Your 401(k) contribution* $300.00 per year
Your employer’s 401(k) match $0.00 per year
This is a 0% employer match to a maximum of 0% of your annual salary.
Total you will contribute over 45 years $17,113.77
Total your employer will contribute $0.00
Total at age 67 $100,836
(chart constructed with Index of Retirement Calculator)

With minimal effort, while not making much money, you could save $100,836 for your future. Note: this example assumes an average annual return of 7%, which would mean not being in a bank account, but at least in a mutual fund composed of a combination of stocks and bonds. (Posted rate for illustration purposes only. Not FDIC insured…)

Start saving now!

Visit your company intranet or HR department now. No time like the present to begin saving!

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Filed under Corporate Retirement Plans, Everyday Financial Tasks, New to the Work Force

Hire a Professional: 6 Steps to Prepare

One of the most common questions every financial adviser hears is,”What shall I bring to a meeting?

In order to maximize your time with a professional (visit www.letsmakeaplan.org to find a CFP® ), I suggest six steps to take first:

 

1. Pull a truly free copy of your credit report at www.annualcreditreport.com  (your scores are based on the report information)

2. Pull a copy of your accrued Social Security Benefits ( Yes, you will be able to receive a benefit in the future)

3. Gather up your employee benefits books or intranet site, last year’s tax return (first two pages is a good beginning) and any company retirement plan/bank/credit card/student loan statements.

4. Write down some family lessons that you learned about money (take 5 minutes and see what you come up with). For example, never borrow money, save 10% of everything, always buy on sale, etc. Walking up and down every grocery aisle was one of mine.

5. List your expenses (all of them), and then your income. See how they match up to the 50/30/20 rule. 50% needs/30% wants/20% savings.  (from the book called All Your Worth by Warren and Tyagi)

6. What are your financial hopes and dreams? Retire at 50, travel around the world for one year, start your own business…do share those with your adviser as well.

wikimedia-16_1_go-sign

Now you are more knowledgeable about your financial past and present, so that you can use a professional to discuss your financial future.

PS: You may decide to interview more than one person. Prepare these items and see who asks questions on any of the topics.

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What Your Mother Said…about Money

I don’t always quote other people’s mothers, but when I do, it’s usually about money.

My last work conversation on a recent day ended like this. Me to former colleague: Are you in the 401(k) plan in your new job?

Him: “I know, I know, I should be, my mother keeps reminding me!”

Me: “Well?”

What else did your mama say to you? She may not have said “a penny saved is a penny earned”, a la Ben Franklin, but I bet she had a few words to say about money over the years.

Taken in Philadelphia, Pennsylvania, in April ...

Taken in Philadelphia, Pennsylvania, in April 2006. Sculpture of Benjamin Franklin at the University of Pennsylvania. (Photo credit: Wikipedia)

Whether Mom gave you advice or not on your retirement savings, she probably would agree that you should not overlook free money. And many people do. If your boss offered you a 3% raise-in addition to anything else, you wouldn’t turn it down, would you?

Here’s the benefit my colleague is currently passing up:

100% match of 401(k) contributions of up to 3% of your gross income

Now this company has some other wonderful benefits, but let’s focus on the extra 3% of compensation that I allude to above.  This is the same number as the predicted average raise in the US for 2013.

Some numbers:

  • 3% of $75,000  = $2250 each year
  • 3% of $50,000  = $1500
  • 3% of $40,000  = $1200

This will become your money quickly. Usually you are fully vested in employer matching contributions in three years. Plans do vary, so ask your 401k administrator:
When do the matching contributions vest (or when will I own these contributions?) 

Money - Black and White Money

Money – Black and White Money (Photo credit: @Doug88888)

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Filed under Corporate Retirement Plans, Everyday Financial Tasks, Family Lessons About Money

Student Loan Debt … Debt Sentence?

In the Wisconsin public university system, the average student graduated with 5 times the student loan debt in 2011 than they had in 1982.

Logo of the University of Wisconsin Colleges

The amount went from $5,000 to $27,000 in just under 20 years. Let’s check that number against inflation. Between 1982 and 2011, the buying power of $5000 more than doubled to $11,654.87. Let’s review:

  • Wages increased 2.4x
  • Consumer Price Index: increased 2.3x
  • College Costs: increased 5x

We all have heard that higher education inflation is higher than “regular inflation”. For example, in 2009, the price of higher [public] education increased by an average 6.5%, despite a 2.1% decline in the Consumer Price Index (CPI) during the same time.

In 1981, I graduated from a different UW (University of Washington in Seattle) with that same amount of debt-$5000. At the UW today, the average student debt load is $23,000, $4000 under the other UW.University of Washington Campus & Vicinity

University of Washington Campus & Vicinity (Photo credit: AvgeekJoe)

What happens after the end of the “formal education”? You might have a job, you might be a boomerang child and move back home with your family, or you might get an “internship” that pays $10 an hour for a job that used to be given to a college graduate. That graduate may have made $20,000 in 1982. Last year, a college graduate or a worker of any age needed to make $46,619 to equal that 1982 buying power.

I know people who have $15,000, $25,000 and $50,000 in student loans. Even if they have “good jobs”, as opposed to a paid internship [formerly a permanent a job with benefits], it is hard to pay your bills.

Here’s a website for everyone to check out as their kids graduate from college this spring.  http://www.thecalculator.org/ This one is for Washington State only and illustrates how much they need to make to cover expenses in every Washington county. For information on other state self-sufficiency calculators, please click here.

For an interactive graph on student debt in the entire US, check out this chart at truthdig.org.

Please be careful as you check the cost of higher education for yourself and family members. Bankruptcy is not an option for student loan debt (or medical expenses).  Trick question:

  1. Who will loan you money to retire?

I’m not saying don’t do it, but really dig into the post-graduate numbers to see how much your graduate will need to earn to cover their debts. Ideally, they are by your side as you engage in this process!

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Filed under Be Prepared, Debts