Stop The Leakage

One of the most concerning retirement issues facing our society is the ‘leaking’ of 401K accounts to loans and early withdraws. In the past, when Americans were faced with financial issues, they were likely to access credit if they had no personal savings to offset the situation.

Today, 401k ‘loans’ are becoming the norm at an alarming rate and can severely harm the growth of 401K participants retirement accounts. According to the 2014 study from the Transamerica Center for Retirement Studies, 23% of Americans have taken some form of loan or early withdrawl from a 401K or IRA account.

There are many factors to consider when taking a loan on your retirement account and you need to be knowledgeable on how it could affect you. If you are considering a loan or withdrawl, consult your financial advisor first. The best way to offset needing a loan is to prepare yourself for a hardship by having no or little debt, and savings set aside for a ‘rainy day’’.

CBS news aired a story in May 2014 outlining some of the risks and penalties associated with taking a 401K loan. You can view this story at CBS.com

Click here for printable version

7 Steps to Retirement Readiness

1. Save for Retirement. You have to start and continue to save in order to have money to retirement

2.Take a look at total compensation. When considering employment, choose employers who have a retirement plan for their workers.

3.Participate. Participate in all retirement options available to you even outside of work.

4.Develop a plan and stick to it. Your financial advisor will help you plan and execute your plan.

5.Become educated. If you don’t understand something, it’s up to you to research and understand regarding your investments and retirement strategy

6.Take advantage of the ‘Saver’s credit’ when filing your taxes. The IRS rewards you for participating in a retirement plan.

7.Be proactive to ensure employment now and in retirement. Keep your skills up to date, network, and go back to school. If you become unemployed, if you haven’t been proactive regarding updated knowledge, you won’t be rehired.

-Transamerica Center for Retirement Studies.

Click here for printable version

Understanding Correlation In Your Portfolio

Perhaps you have heard the term ‘correlation’ from your financial advisor or read an article about correlation. Correlation in finance, is a statistical measure of how two securities move in relation to each other. When the prices of two securities usually move in the same direction, the securities are considered ‘correlated’. The amount of correlation ranges from 0, which means no correlation, to 1, which means perfect correlation. Perfect correlation means that the relationship of two stocks moving together in the same way is positive 100% of the time. Perfect correlation is extremely rare. An example of positively correlated stocks is oil and gas stocks. They will usually move up or down in price at the same time and in the same way.

The opposite of this is negative correlation, where two stocks appear to be moving opposite of each other. This is measured from 0 to -1. -1 is considered perfect negative correlation. A perfect negative correlation means that the stocks move opposite of each other 100% of the time.

Your financial advisor tries to achieve no correlation within your portfolio in order to diversify your portfolio. When some of your securities are losing value, others that are non-correlated will be gaining value or not moving at all. The goal of this is to minimize the investor’s losses.

Click here for printable version

Social Security: The 'Great Insecurity'?

If you are currently receiving Social Security retirement benefits and it is a big part of your retirement income, congratulations! You are the second or possibly third generation that has benefited from what was a great plan for workers in our country.

If you are part of the generation that is 45 to 55 years old, this benefit will be much different for you. Under current laws, people in this generation have had their ‘retirement age estimator’ benefits changed to keep up with the demand for benefits currently burdening our Social Security system. We have less workers paying into the system than earlier generations, due to family size changes and other factors.

• The Social Security website’s Retirement Estimator is for those who are applying for or receiving benefits. For those who are not in that group, the ssa.gov website page provides the following disclosure and direction to another ‘estimator’ calculator:

‘We can’t provide your actual benefit amount until you apply for benefits. And that amount may differ from the estimates provided because':

• Your earnings may increase or decrease in the future.
• After you start receiving benefits, they will be adjusted for cost-of-living increases.
• Your estimated benefits are based on current law. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 cents for each dollar of scheduled benefits.
• Your benefit amount may be affected by military service, railroad employment or pensions earned through work on which you did not pay Social Security tax.’

So what can you do regarding your retirement benefits possibly being decreased when you retire? Do not include it as part of your retirement income. Plan to make up the difference through other investment options and account types. If you receive your anticipated Social Security Retirement benefit you will have more retirement income than you planned for. Most financial planning software automatically includes the benefit based on your age and income. Your financial advisor can provide you with a plan that includes additional options to offset the shortage, which is estimated to be 25% less in the future compared to the generation currently receiving retirement benefit payments. For additional information regarding Social Security Retirement benefits, visit the Social Security website.

Click here for printable version