Lucesco asked:


Buying a home, even with the downturn in the market, is still the most successful way to invest money. But I don’t make enough money to both save for much of a down payment and still put much money aside for retirement. So how do I choose where to put what money I don’t need to live on?

Ana

Jenn asked:


I’m 24 yrs old and I’ve been thinking about opening up a retirement plan. But I dont know what to look for. Any suggestions would be great! I am a freelance interpreter so my employment does not offer one.

Kim

Jeffrey Stoffer CFA, CFP asked:


What is retirement? The definition has evolved over the last half century. How you view retirement can affect how you plan and invest. The current economic situation also comes into play. By viewing retirement as a process, by starting early and planning, it is possible to reconcile your values and priorities with the available resources to create your own definition.

The notion of retirement is actually a fairly recent phenomenon. In the early 20th century people worked until they were no longer able. By mid century there were too many older workers and high unemployment among younger people. Pensions and Social Security were seen as a way to ease older adults out of the workforce, making way for the young.

The early version of “retirement” was not pleasant for many people. They were relegated to a view of life from the porch. Suddenly no longer needed, their self-identity was called into question. The event called retirement was not necessarily something people looked forward to.

It was not until the 80’s that people started to look upon retirement as something more than idleness without purpose. The notion of the “golden years” came into being. Retirement was to be a time when people could count on Social Security and a pension for a life of travel, sunsets in faraway lands, and cocktails with umbrellas on a tropical beach. This view seems the equivalent of going out to eat with nothing but desserts on the menu. How could life get any better than that?

Have you fallen into the trap of seeing retirement as an event, where suddenly your life will transform for the better? Retirement beckons as a time of change and new opportunity, particularly if you have been unhappy in your job. You may find yourself working too hard and, without realizing it, sacrificing joy in the present for some imagined future that you hope will be better (I confess, I fell for this one.)

The idyllic, golden years view of retirement, may not be your ideal retirement; and pensions are becoming a thing of the past. Not to mention changes that may occur with Social Security in the coming years. If we have not spent considerable time thinking about and planning for the transition to retirement, it could be an event filled with disillusionment. Our idealistic and fanciful expectations may clash with a very different set of economic realities.

So how do we begin to figure out what retirement is, or should be? I found the following exercise enlightening, and I suggest you try it: write down your ideal day, from start to finish. What is really important to you? Look to those activities that bring you joy and satisfaction. What are the things you want to do more of or could not see yourself living without? Your menu for the future starts here, with what you value most.

I want to emphasize the focus on what you actually see yourself doing – what you want to be doing – in retirement, because we are a nation of “doers.” We don’t just sit around on a beach. We multi-task, we get stuff done. We are also concerned that we will have to work longer than the previous generation. But we are good at it. And how we define ourselves is tightly interwoven with what we do.

The menu of choices available to us is wide. I am willing to bet there are a number of you who have dreamed of starting a small business. Or you have a hobby that you would like to share with young people. There are so many ways to contribute to our communities that can provide a sense of meaning and purpose, as well as potential income. We have the opportunity to make choices about what we do in ways our forefathers never did. Few of us will inhabit a rocking chair on the front porch, unless it is by choice.

And what about economic reality? Now is a bad time to ask that question, but if you have been investing for a number of years you know that markets have their ups and downs. The present time is our cold, slap-in-the-face reminder that we need to pay attention to our investments. It is a reminder that our retirement funds are important and we should be careful stewards of these nest eggs. The bottom line is that by starting early with planning and investing there will be more time for your vision and your economic situation to converge, more time to make decisions that bring you closer to your definition of a well-lived retirement.

The definition of retirement is changing. Clinging to past assumptions or pre-conceived ideas will only hinder us from creating a future that reflects our values. If we see retirement as a process, it becomes clear we need to focus our attention on that process now. This does not mean that we sacrifice the joy and meaning of the here and now. Our futures may unfold in wonderful ways we haven’t even thought of. We can take charge of the future by creating our own unique vision. We can accomplish this by taking steps now, and consistently along the way. The result will be a sense of comfort that we are creating a retirement based upon our choices and values.



Reginald

Milos asked:


Many people retire after they find themselves financially stable enough to support all their needs. There are also some who consider first how much they have already saved for them to say that they are already ready for retirement. Well, money matters really play a vital role in retirement and to become financially secure after retirement takes time, effort and of course, proper planning.

The concept on financial retirement planning is not something that is fresh or new to the people’s ears. It has been around for more than a decade now, and many successful retirees have considered financial retirement planning at some point in their lives. Now, if you are thinking about retiring from work, but you want to make sure that you will be financially stable when the right time to retire comes, knowing everything that is involved in the planning is definitely one of the best moves you can make.

So to start with your financial retirement planning, simply note that you are dealing not just with money here, but for a better future. Note that and if possible, save as much as you can as early as possible. As what many retirement experts have said, the sooner you start saving, the more time your money has to grow.

Set certain goals that are realistic and make those goals an important part of your financial retirement planning. You can project your possible expenses based on your needs. Consider how much your life after retirement will cost and try calculating everything that is involved. Settle only when you find out that everything is tackled and solved.

You can also consider a 401K plan as a special part of your financial retirement planning. The 401K is after all one of the best and easiest ways for saving after retirement. But before you consider the plan, make sure that you have understood everything that is involved in it, how it works and how you will benefit from it. There are also the IRA retirement plans for you to take. But as mentioned, know first what the plans entail and how they work to support everything you’ll need after retirement.

As you go along the financial retirement planning process, try to look at your asset allocation. It has been maintained that how you divide your portfolio between stocks and bonds will have a big impact on your long term returns. And, speaking of long term returns, several retirement experts have noted how important the decision of paying attention to the stocks and bonds is. According to them, stocks offers the best opportunity for you to achieve high returns over long periods of time, while bonds should not be considered heavily even in retirement for that will increase the inflation level, thus destroying the purchasing powers of the interest payments of your bonds.

Finally, when considering a financial retirement planning, it is best to consider yourself working part-time even after retirement. What you will earn on your part-time job will help increase what you’ve saved for your retirement. It will even keep you socially engaged.



Jamie

Rodney G asked:


I am interested in using my retirement funds to purchase a new beach property while prices are down and I believe that within 10 years that investment will be much better than stocks bonds etc.
I was told by another person not on this forum that the funds could be transferred into a “profit sharing plan” and from there could be invested in whatever manner the manager sees fit. The plan would be a corporation and as long as the manager (me) did not use the property for other personal things and any rents were paid directly to the plan that this would be a qualified investment> any thoughts?

Brian

Rex Truman asked:


A retirement calculator is one of the most useful things you can use when planning your retirement savings. You see most people plan for retirement without any idea of how much they need to save, or how much they want in retirement. A retirement calculator provides the answers.

A retirement calculator shows you how much to need to save to get the income you need when you retire. Or it may be how much you want! That depends how much you are making, and how young you are. Either way do use a retirement calculator.

You can find a retirement calculator on many web sites, so you do not need to get the services or a retirement planner or investment advisor to find the answers. In this way, you use the retirement calculator, calculate the amounts you need, and then visit an investment advisor or retirement planner.

To decide how much you need to save, you need:

1. The income you need to live on at today’s prices

2. The rate of inflation per annum between now and the retirement date.

3. The rate at which your fund will grow.

Let’s go through these and how they relate to a retirement calculator. First, how much do you need to live on? Remember, that retired people do not normally spend as much as people who work. When you retire, you won’t need:

special clothes for work the sort of car that keeps you up with the Joneses

you will be able to take holidays at off-peak times

and you will have time to do things – instead of paying to get them done.

So your costs will be lower. So let’s say you are earning $60,000 a year now, you might think that $50,000 would be enough. Next you need to remember that if you are healthy, you expect to live for 15-20 years, and so need to allow for inflation in that period – so actually you need more! This is where a good retirement calculator comes in.

2. The next thing the retirement calculator needs is the rate of inflation, or what you expect it to average until you retire. With the price of oil going up, we know that inflation over the next decade will be higher than it is now. Official figures put inflation at around 2-3%, but the true figure is more like 5%.

This means that you need to allow for at least 5%, and probably 7% and feed that into the retirement calculator.

4. At what rate will your retirement plan grow? A difficult one this. Five years ago, people were talking in terms of 10%, but not now experts suggest a lower figure. The problem is that a retirement fund or retirement plan has to be prudent – you don’t want to wake up one morning, a year or before you retire, to find that a crash on Wall Street has cut the value of your fund by 30%. You just won’t have the time to get that money back.

So you will be doing well to get 10% return, but could almost guarantee 5-6%. Maybe 7-8% would be a realistic figure to put into the retirement calculator.

The retirement calculator is just some software set up to make a calculation after you enter some figures. As I said earlier, the retirement calculator needs:

Required income

Inflation

Expected return

And of course, how long till you retire.

Here are some results from a retirement calculator:

Required income: $30,000 per annum

Years till retirement: 15 years

Annual inflation: 2.5% (unrealistic)

Annual yield: 5%

Income needed in 15 years: $43,448

Required value of retirement plan in 15 years: $825,000

Quite a lot of money for a modest retirement income. Here’s another one:

Required income: $30,000 per annum

Years till retirement: 20 years

Annual inflation: 5%

Annual yield: 8%

Required value of retirement plan in 20 years: $987,573

If you want an income of $45,000 when you retire – equivalent to less than $30,000 today – you will need: $148,000.

When you use a retirement calculator, make sure you use one that does calculate the income you will get at retirement adjusted for inflation – over 20 years, you will need 50% more than think you need today. If you do this, then you will benefit form using a retirement calculator.



Eric

chilliemurphy asked:


I have been working for almost 10 years and have been building my 401K since I started right out of college – now, I want to go back to graduate school, but I don’t know if I’ll be able to get any financial aid or favorably-priced student loans if I have retirement assets. Am I required to dip into this money as a first-dollar plan, or can I keep my retirement assets intact & still get financial assistance (even a Stafford loan)? Thanks!

Robert

aikon56 asked:


Can a 66-year old individual with no retirement or regular income file for a tax return and be eligible for the stimulus package check in May 2008?

Thanks.

Pamela

Tommy asked:


I have a STC book my company gave me and it has the 2004 numbers for all the retirement plans. I know there was a major change in late 2006, so should I know the old rules or the new ones?

Also, I’m getting at least 90% on all practice exams and understand the options in the book very well. The only thing I have trouble with is remembering some details like all the exemptions for rule 2790. Is the exam that detailed?

Maurice

Shelby Smith asked:


Many of you are in the red zone right before retirement, or you’ve already retired. No doubt your number one fear is running out of money in retirement. You’re part of a very large and growing demographic force: 35 million over age 65, 50 million drawing Social Security and 78 million baby boomers now turning 62. This means the future demand for everything used by the “retirement set” will increase, and “retirement prices” will rise dramatically. Many of you may have accumulated a retirement nest egg in a pension account, will draw a company pension and/or have other savings and investments earmarked for retirement. Where should you keep your retirement money?

If you’re keeping up with economic and financial developments, here’s what you’re seeing: sub-prime credit meltdown that has destroyed housing and is now spilling over into automobile debt and credit cards; highly volatile stock and bond markets; a weak dollar fueling higher prices for oil and other goods; more unemployment and rising inflation; retail sales, consumer confidence and new jobs creation in sharp decline; drastic interest rate cuts by the Federal Reserve to avoid a recession; a money giveaway stimulus package from Washington to prop up the lagging economy; widespread talk of recession and stagflation. These all add up to troubled economic times which should prompt you to review where you have your retirement money.

You’re told the stock market is the best long term, but “long term” has a different meaning in retirement. Didn’t the dot.com stock market meltdown in 2000-2002 send many retirees back to work and prevent others from retiring? Aren’t the current inflation-adjusted stock market indexes below their previous peaks? Regardless, the loud voices of Wall Street and investment companies are advising you to buy now at bargain prices. Are the markets headed higher or is their advice self-serving? Who can forecast the economy or the stock market?

If the stock market craters as it did in 2000-02 and 1973-74, and you lose some of your retirement money, how will you replace it? Since there will be no second chance, I encourage you to think carefully before you commit your money. If you’ve been told that you’ll do just fine over the longer run (generally meaning ten years), make sure you can wait this long for a market rebound. Also remember that a rebound is not certain!

What about fixed rate places like government bonds, bank CDs and money market accounts? These are rock-solid safe unless your greatest fear is outliving your money. Since current fixed rates are lower than inflation, you’ll be losing purchasing power with these choices. The potential loss of purchasing power will only add to the risk of outliving your money. What about real estate, collectibles and non-market investments? These are not only risky but generally illiquid. Before committing your retirement money, ask yourself this question: “How will I handle the worse case outcome?”

There is one savings place that offers an “opportunity” to make an above-market rate of return without the risk of loss if held to term. It is guaranteed by some of the world’s oldest, strongest and largest financial companies. The rate of return is determined by stock/bond market indexes with owners sharing in the upside potential but avoiding downside losses. The worse case outcome is a guaranteed positive rate of return. The earned interest is income tax deferred until actually withdrawn and there is no mandatory age when the money must be used. Additionally, it can be turned into a guaranteed lifetime income that can be started, stopped and stored. What’s more, it offers penalty-free partial liquidity for emergencies and bypasses probate if the owner names a beneficiary. It can be opened for a small or a large amount, and sometimes more money can be added later. There is no law which limits the amount of money that can be placed in it. It is truly a safe place to keep retirement money.

It is maligned by Wall Street and bankers because it competes with their products. The financial press doesn’t like it either – primarily because they are uninformed, misinformed or just plain biased. I’m talking about fixed index-linked annuities that are offered by insurance companies: the same companies that insure your home, live, health, business and other valuable assets. The worse case outcome is a positive, albeit small, rate of return if held to maturity, but there is an opportunity to do much better. Fixed index-linked annuities are not for everyone, but you need to consider them as one of your safe options for retirement money. Where are you keeping your retirement money in today’s uncertain and troubled economic climate? If in risky places, now is a great time to review your options.

Shelby J. Smith, Ph.D.

March 2008

Learn about safe money places – check out the Retirement Pros website http://www.theretirementpros.com/ I’m also doing free monthly video seminars online sign up at: http://www.theretirementpros.com/Tele-Seminar-MRM.php

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Marian