In most instances, when an item makes it way through the Internet
circuit, it’s an eye-catching video or an embarrassing photo. And, often
as not, it puts a smile on your face.
Recently, however, a certain graph is making the circuit and it’s
nothing to laugh about. Like many people in today’s high-tech world, you
may work with graphs on a regular basis.
Or maybe you haven’t seen a graph since your high school economics
class. In my 16 years of writing this personal finance column, I know I
have never highlighted a graph.
So, what makes this graph so unique that I’m featuring it in a personal
finance column? Just the fact that it’s putting fear into the stomachs
of many investors.
The graph shows the ups and downs of the Dow Jones Industrial Average
Index (DJIA) from 1928 to 1929. But it’s overlaid with a graph of the
same DJIA fluctuations beginning in July 2012. What makes that scary, of
course, is that the two charts look eerily identical.
If we continue to follow the trend of the 1928-29 graphs, the next line
on the current graph will be severely downward. In 1929, that downward
movement ignited the Great Depression.
So, naturally, the chart with the two graphs has spread quickly. Bad
news travels fast and fear gets attention and nobody wants to see the
value of their life savings fall off a cliff.
I have always stated that nobody has a crystal ball into the future.
That being said, I’m a longtime subscriber to Investor’s Business Daily,
which runs numerous graphs every day that can be valuable tools in
finding stock market trends. And while they’re frequently accurate,
they’re by no means infallible.
Perhaps the current graph is correct and we’re headed for a severe
economic downturn. But I urge everyone to park your emotions before
panicking and making the next downturn a self-fulfilling prophecy.
Over time, markets always fluctuate. At some point there will be a
downturn. And when that happens, I don’t want to see people panic and do
something irrational with their nest egg because they fear we’re
falling into a Depression. A market decline doesn’t mean the economy is
about to collapse.
If you look at history, our current environment is much different than
the 1920s. The Great Depression was fueled by a debt crisis. Mom and pop
investors borrowed large sums against their stock portfolios in order
to buy more stocks. When the loans were called, panic stock selling
ensued. Today, there are limits on loans against stock accounts.
There was also a collapse in the banking industry back then. True,
today’s banks are far from perfect, but they’re much stronger than just a
few years ago. Plus, they now have to go through a stress test and have
to comply with a ton of regulations.
In the 1980s, there was a 20 percent tumble in one day. The anticipated
problems of Y2K turned out to be no problem. And, more recently, we
overcame the mortgage meltdown and near banking collapse.
Surviving those, I’m confident we can all survive the next pullback, and
I don’t believe it will lead to a Depression. History does repeat
itself. But this is one instance where I don’t believe it will.
Monday, February 24, 2014
Tuesday, February 18, 2014
Is the new MyRA right for you?
While watching President Obama’s State of the Union speech, I was
surprised to hear him introduce yet another retirement savings vehicle.
In addition to 401(k) and 403 (b) plans, and both the traditional and
Roth IRAs, we now have the MyRA (my retirement account).
I was pleased that he stressed the importance of saving money for retirement. Anything that can be done to motivate people to do so is fine by me.
However, I’m a bit surprised that one of the key features and selling points of the new MyRA is the convenience of payroll deductions. Since there’s already a bill in the legislative process to make payroll deductions more convenient for employers with the existing IRA plans, that doesn’t seem to be much of an incentive.
With MyRA, Uncle Sam will pick up all the administrative costs. It only takes $25 to open an account and subsequent contributions can be as low as $5. With these smaller amounts, the target audience is clearly the low-end of the wage scale.
Investments will go into a government bond fund backed by Uncle Sam. The President emphasized that, since the U.S. Government backs deposits, there’s no risk of loss of principal.
That being said, long-time readers of this column are aware that rising interest rates and inflation are enemies of bonds. In other words, the risk of any bond is the loss of “purchasing power” due to inflation. But I’m supportive of any investment that gets people saving for retirement.
The new MyRA is similar to the current Roth IRA in that contributions are not tax deductible and the monies grow tax-free if used for retirement. As I write, not all details are available, but I imagine there will be taxes due on the interest and perhaps a penalty if funds are withdrawn before age 59 ½.
Unlike the other IRA investments, there’s a maximum cumulative total of $15,000 in the account. At that point, the MyRA is transferred into a Roth IRA.
Because the target audience is the low end of the wage scale, I was surprised that the MyRA also has features and benefits for middle and upper middle-income families. For instance, those that currently have an employer-sponsored 401(k) can also participate in the new MyRA.
In fact, families with household incomes up to $191,000 can open a MyRA. Just a word of caution, at this point I’m still waiting to see the final definition of what exactly household income entails. The $191,000 limit is by no means at the low end of the wage scale.
Although I’m pleased that we’re talking about saving for retirement, the fact is that one more choice was just added to an already complex menu. Sometimes in life the biggest step toward any goal is the first step of participation. If the new MyRA gets more people to take that first step, then it will ultimately be a good thing.
If it becomes another government program with overly complex rules, regulations and exceptions to those rules and regulations, then I think it will ultimately have minimal impact.
However, in my book, any time the President discusses the importance of saving, especially for retirement, I am supportive. Hopefully, the new MyRA will be a launching pad for a successful retirement.
I was pleased that he stressed the importance of saving money for retirement. Anything that can be done to motivate people to do so is fine by me.
However, I’m a bit surprised that one of the key features and selling points of the new MyRA is the convenience of payroll deductions. Since there’s already a bill in the legislative process to make payroll deductions more convenient for employers with the existing IRA plans, that doesn’t seem to be much of an incentive.
With MyRA, Uncle Sam will pick up all the administrative costs. It only takes $25 to open an account and subsequent contributions can be as low as $5. With these smaller amounts, the target audience is clearly the low-end of the wage scale.
Investments will go into a government bond fund backed by Uncle Sam. The President emphasized that, since the U.S. Government backs deposits, there’s no risk of loss of principal.
That being said, long-time readers of this column are aware that rising interest rates and inflation are enemies of bonds. In other words, the risk of any bond is the loss of “purchasing power” due to inflation. But I’m supportive of any investment that gets people saving for retirement.
The new MyRA is similar to the current Roth IRA in that contributions are not tax deductible and the monies grow tax-free if used for retirement. As I write, not all details are available, but I imagine there will be taxes due on the interest and perhaps a penalty if funds are withdrawn before age 59 ½.
Unlike the other IRA investments, there’s a maximum cumulative total of $15,000 in the account. At that point, the MyRA is transferred into a Roth IRA.
Because the target audience is the low end of the wage scale, I was surprised that the MyRA also has features and benefits for middle and upper middle-income families. For instance, those that currently have an employer-sponsored 401(k) can also participate in the new MyRA.
In fact, families with household incomes up to $191,000 can open a MyRA. Just a word of caution, at this point I’m still waiting to see the final definition of what exactly household income entails. The $191,000 limit is by no means at the low end of the wage scale.
Although I’m pleased that we’re talking about saving for retirement, the fact is that one more choice was just added to an already complex menu. Sometimes in life the biggest step toward any goal is the first step of participation. If the new MyRA gets more people to take that first step, then it will ultimately be a good thing.
If it becomes another government program with overly complex rules, regulations and exceptions to those rules and regulations, then I think it will ultimately have minimal impact.
However, in my book, any time the President discusses the importance of saving, especially for retirement, I am supportive. Hopefully, the new MyRA will be a launching pad for a successful retirement.
Monday, February 10, 2014
Can you afford affordable care?
The Affordable Care Act, commonly known as Obamacare, continues to be
discussed, debated and digested virtually every day in the news. Like it
or not, everyone has an opinion by now.
One major complaint has been the unexpectedly high cost. There’s no question that many people, including me, have not only seen a dramatic increase in monthly premiums but also a reduction in coverage.
My cost nearly doubled, so I understand the anger. But, I was curious when I saw a new line on my monthly health insurance bill for federal and state taxes and fees. It totaled $80 per month, just over 10.5 percent of my new increased premium.
It was surprisingly difficult to get details about this new line, but I was persistent, and eventually discovered that it’s a complex summary of several new taxes and fees, seven to be exact.
Here’s a dollar breakdown of how those seven new items apply to my monthly bill; what they’re for and how they’re to be used.
First, there’s a Federal Insurance Premium tax, which is a tax on the insurance industry by the federal government, which, of course, is passed on to the consumer. For me it comes to just over $25 per month.
This is followed by a competitive effectiveness fee, which helps fund a patient-centered outcome research institute that helps compare different medical treatments. This adds just 42 cents to my premium.
Then there’s a reinsurance fee, which adds nearly $13. This is to help stabilize the cost of insurance during the future years of health care reform.
In addition, there’s a risk adjustment fee that costs me 17 cents per month. This is to compensate insurance companies for having to insure less healthy members, thereby helping to keep costs stable.
My favorite is the market place fee of just over $22. This is to help fund the fiasco that is the Affordable Care Act health insurance marketplace web site. It’s supposed to be self-sustaining and removed by January 2015. I have my doubts that it will ever go away.
But wait, there’s more. Michigan got into the act with the Michigan claims tax, a 1 percent tax on health insurance claims. For me, this amounted to just under $7 per month. Finally, there’s the state insurance premium tax, which taxes Michigan health insurance policies that cover individuals rather than groups. This one costs me just over $12.50 per month.
Summing up, this one new line on my bill adds another $950 per year to my tab. And that’s on top of a health care premium that nearly doubled.
As a financial advisor, I always suggest to my readers and clients that they understand any charges and fees associated with an investment. In that same manner, I think it’s important that, as taxpayers and consumers, we understand where and how those that collect our money are spending it. I was alarmed to see a new tax item that totaled in excess of 10.5 percent. I wonder how many even noticed this new line item tax, let alone questioned it? Personally, when I see a new tax that’s in excess of ten percent, I want details. I think the regulators and health care industry could have done a much better job with their disclosures.
One major complaint has been the unexpectedly high cost. There’s no question that many people, including me, have not only seen a dramatic increase in monthly premiums but also a reduction in coverage.
My cost nearly doubled, so I understand the anger. But, I was curious when I saw a new line on my monthly health insurance bill for federal and state taxes and fees. It totaled $80 per month, just over 10.5 percent of my new increased premium.
It was surprisingly difficult to get details about this new line, but I was persistent, and eventually discovered that it’s a complex summary of several new taxes and fees, seven to be exact.
Here’s a dollar breakdown of how those seven new items apply to my monthly bill; what they’re for and how they’re to be used.
First, there’s a Federal Insurance Premium tax, which is a tax on the insurance industry by the federal government, which, of course, is passed on to the consumer. For me it comes to just over $25 per month.
This is followed by a competitive effectiveness fee, which helps fund a patient-centered outcome research institute that helps compare different medical treatments. This adds just 42 cents to my premium.
Then there’s a reinsurance fee, which adds nearly $13. This is to help stabilize the cost of insurance during the future years of health care reform.
In addition, there’s a risk adjustment fee that costs me 17 cents per month. This is to compensate insurance companies for having to insure less healthy members, thereby helping to keep costs stable.
My favorite is the market place fee of just over $22. This is to help fund the fiasco that is the Affordable Care Act health insurance marketplace web site. It’s supposed to be self-sustaining and removed by January 2015. I have my doubts that it will ever go away.
But wait, there’s more. Michigan got into the act with the Michigan claims tax, a 1 percent tax on health insurance claims. For me, this amounted to just under $7 per month. Finally, there’s the state insurance premium tax, which taxes Michigan health insurance policies that cover individuals rather than groups. This one costs me just over $12.50 per month.
Summing up, this one new line on my bill adds another $950 per year to my tab. And that’s on top of a health care premium that nearly doubled.
As a financial advisor, I always suggest to my readers and clients that they understand any charges and fees associated with an investment. In that same manner, I think it’s important that, as taxpayers and consumers, we understand where and how those that collect our money are spending it. I was alarmed to see a new tax item that totaled in excess of 10.5 percent. I wonder how many even noticed this new line item tax, let alone questioned it? Personally, when I see a new tax that’s in excess of ten percent, I want details. I think the regulators and health care industry could have done a much better job with their disclosures.
Monday, February 3, 2014
Finding a job isn’t what it used to be
A few days ago, a couple of my grandchildren were visiting. They know
that I’m in the financial services profession and that I write a column.
When I asked them if there was a particular topic they wanted me to
write about, one suggested Zambonis and the other said garbage trucks.
Don’t worry, neither has a place in a personal finance column, but it
reminded me that, years ago, my firm hosted the late Art Linkletter at
one of our retirement education seminars.
In the early days of television, long before HD, Mr. Linkletter had a show with a feature called “Kids say the darndest things.” He was also one of our nation’s first retiree advocates, and famous for the quote, “Old age is not for sissies.”
Connecting the dots between the innocence of youth and retirement are the many years of being in the workforce. For many, working is a task or a chore, done for a paycheck. For others, like me, it’s not so much work as it is a passion or career.
In other words, work is more than just a paycheck. If you look beyond the news reports that show unemployment numbers going down, you’d find that there are a staggering amount of Americans who would rather be in the workforce than wringing their hands and giving up.
As parents and grandparents, we have to do our very best to prepare our families for a world that will be far more complex than we could ever imagine. When Art Linkletter first aired, there were only a few stations. Television pictures were fuzzy and in black and white. One can only imagine what TV technology will bring into our homes in the years ahead.
I recently came across a study published by bankrate.com which indicated that people would not only move out of state to take a job, but also that four of ten young adults factor in health care benefits in the job selection process.
I mention this because there’s an image of 30-year-olds living in the basement, dependent on the Bank of Mom and Dad. Uncle Sam is about to spend millions encouraging youth to sign up for health insurance coverage. I’m a bit baffled because the bankrate.com study already shows that health care coverage is important to young adults.
What doesn’t get written about often enough are the young adults who boldly leave the comfort of home for their jobs rather than live in the basement. Most of the young adults I know are driven and have no desire to remain dependent on their parents.
For example, my youngest son graduated from college in a very tight job market. He left the comforts of home to find work in Texas. He soon found it, and worked around the clock for a low wage doing some of the dirtiest jobs in the Texas oil fields.
It paid off. In just over a year, his talent and work ethic were recognized and now, just a few years later, he has climbed the corporate ladder. He’s doing so well, he can now afford to fly mom and dad in for a visit. I would like to tell my youngest son, the Texan, how proud I am and wish him a Happy Birthday.
In the early days of television, long before HD, Mr. Linkletter had a show with a feature called “Kids say the darndest things.” He was also one of our nation’s first retiree advocates, and famous for the quote, “Old age is not for sissies.”
Connecting the dots between the innocence of youth and retirement are the many years of being in the workforce. For many, working is a task or a chore, done for a paycheck. For others, like me, it’s not so much work as it is a passion or career.
In other words, work is more than just a paycheck. If you look beyond the news reports that show unemployment numbers going down, you’d find that there are a staggering amount of Americans who would rather be in the workforce than wringing their hands and giving up.
As parents and grandparents, we have to do our very best to prepare our families for a world that will be far more complex than we could ever imagine. When Art Linkletter first aired, there were only a few stations. Television pictures were fuzzy and in black and white. One can only imagine what TV technology will bring into our homes in the years ahead.
I recently came across a study published by bankrate.com which indicated that people would not only move out of state to take a job, but also that four of ten young adults factor in health care benefits in the job selection process.
I mention this because there’s an image of 30-year-olds living in the basement, dependent on the Bank of Mom and Dad. Uncle Sam is about to spend millions encouraging youth to sign up for health insurance coverage. I’m a bit baffled because the bankrate.com study already shows that health care coverage is important to young adults.
What doesn’t get written about often enough are the young adults who boldly leave the comfort of home for their jobs rather than live in the basement. Most of the young adults I know are driven and have no desire to remain dependent on their parents.
For example, my youngest son graduated from college in a very tight job market. He left the comforts of home to find work in Texas. He soon found it, and worked around the clock for a low wage doing some of the dirtiest jobs in the Texas oil fields.
It paid off. In just over a year, his talent and work ethic were recognized and now, just a few years later, he has climbed the corporate ladder. He’s doing so well, he can now afford to fly mom and dad in for a visit. I would like to tell my youngest son, the Texan, how proud I am and wish him a Happy Birthday.
Monday, January 27, 2014
Make sure you can afford your next new car
I hope you had an opportunity to visit the North American International
Auto Show this month. I thought it was spectacular and I tip my hat to
all of the auto firms that exhibited, especially our beloved three,
General Motors, Ford and Chrysler.
The products coming out of Detroit continue to be incredible and I think the rest of the world will soon discover and appreciate the quality and innovation coming out of Motown.
Naturally, a large part of the car buying process is determining what’s affordable. If money were no object, many of us would probably be driving Ferraris or Rolls Royces.
That’s why, as a financial advisor, I have to go through sort of a tug of war between encouraging people to save and invest or spend judiciously. That’s an especially tough call when a big-ticket item such as a new car is involved.
Of course, it’s important for families to have dependable transportation. It’s very difficult to be a reliable and responsible employee without one. So, in that respect, the purchase of a good vehicle is extremely important.
As a financial adviser, when advising on any big-ticket item like an automobile, I always recommend that families should be able to own what they purchase. You’ve probably heard the expression “house poor.” Well, the same principle can apply to cars. That’s why I often tell clients that more horsepower is great, but make certain you can afford to feed all the horses.
The auto show is a wonderful way to begin the New Year and perhaps do some research for your next new car purchase. To help put into focus what is affordable, I’d like to remind everyone that Uncle Sam is taking a larger bite out of your paychecks in 2014.
If you’re one of the 10 million Americans that earn in excess of $100,000, you’re going to have less disposable income because your Social Security tax is increasing. For 2014, the wage base jumps 2.9 percent, from $113,700 to $117,000. You might say that’s “only” about a $200 increase, but the total employee tax is now $7,254. And don’t forget, your employer matches that number.
For those married couples fortunate enough to earn more than $250,000, there is an additional Medicare surtax of just under 1 percent. Many of you will find this out when you file your 2013 tax return. The increase actually went it to effect last year, but it was under the radar, so I think many will be a bit surprised when they file their tax return.
There are several new taxes or tax increases attached to the Affordable Care Act as well, including a tax on medical devices costing more that $100.
The Auto Show certainly offers a number of outstanding choices from which to select a new car. But, as with any investment, you need to do your due diligence. In this ever-changing world, it’s important that you know what you can afford, especially after taxes.
It costs money to own a car or truck. In addition to maintenance, there’s insurance and the cost of filling the gas tank. It adds up. Going to the auto show is fun and exciting, but before you make your purchase, make certain you have a good grasp of reality.
The products coming out of Detroit continue to be incredible and I think the rest of the world will soon discover and appreciate the quality and innovation coming out of Motown.
Naturally, a large part of the car buying process is determining what’s affordable. If money were no object, many of us would probably be driving Ferraris or Rolls Royces.
That’s why, as a financial advisor, I have to go through sort of a tug of war between encouraging people to save and invest or spend judiciously. That’s an especially tough call when a big-ticket item such as a new car is involved.
Of course, it’s important for families to have dependable transportation. It’s very difficult to be a reliable and responsible employee without one. So, in that respect, the purchase of a good vehicle is extremely important.
As a financial adviser, when advising on any big-ticket item like an automobile, I always recommend that families should be able to own what they purchase. You’ve probably heard the expression “house poor.” Well, the same principle can apply to cars. That’s why I often tell clients that more horsepower is great, but make certain you can afford to feed all the horses.
The auto show is a wonderful way to begin the New Year and perhaps do some research for your next new car purchase. To help put into focus what is affordable, I’d like to remind everyone that Uncle Sam is taking a larger bite out of your paychecks in 2014.
If you’re one of the 10 million Americans that earn in excess of $100,000, you’re going to have less disposable income because your Social Security tax is increasing. For 2014, the wage base jumps 2.9 percent, from $113,700 to $117,000. You might say that’s “only” about a $200 increase, but the total employee tax is now $7,254. And don’t forget, your employer matches that number.
For those married couples fortunate enough to earn more than $250,000, there is an additional Medicare surtax of just under 1 percent. Many of you will find this out when you file your 2013 tax return. The increase actually went it to effect last year, but it was under the radar, so I think many will be a bit surprised when they file their tax return.
There are several new taxes or tax increases attached to the Affordable Care Act as well, including a tax on medical devices costing more that $100.
The Auto Show certainly offers a number of outstanding choices from which to select a new car. But, as with any investment, you need to do your due diligence. In this ever-changing world, it’s important that you know what you can afford, especially after taxes.
It costs money to own a car or truck. In addition to maintenance, there’s insurance and the cost of filling the gas tank. It adds up. Going to the auto show is fun and exciting, but before you make your purchase, make certain you have a good grasp of reality.
Tuesday, January 21, 2014
How to cope with economic anxiety
With the holidays behind us, and the unseasonably cold weather taking a
break, most households are back into their routines. But, as we all
know, in today’s world, there is nothing routine about our economy.
From an investor’s perspective, there have been two years in a row with excellent returns. 2013, for example, saw the DJIA post its largest ever annual point gain, a whopping 1,072 points. It was also the largest yearly percentage gain since 1995.
Yet, despite the strong investment returns so many enjoyed, it appears to me that investor anxiety remains high. Although the year is still young, I have already had several clients in my office echoing that very concern. They just seem to have a lack of confidence in this economy and are uncertain as to how it will impact them.
I certainly understand why such lack of confidence in the economy persists, but as a financial advisor I think there are steps you can add to your planning process that will help minimize some of the anxiety.
I believe the distrust of the economy and the anxiety is justified. With such issues as the debt ceiling debate, much uncertainty still lies ahead. The easy solution in the planning process could simply be to save as much as you can because you are very likely going to have to spend more in retirement than you ever imagined.
And while saving and investing more may be an admirable goal, it doesn’t necessarily mitigate any of the anxiety that may lie ahead. My suggestion for minimizing the anxiety of the unknown and lack of confidence in the economy is simply to improve what you can control and not worry about what you can’t. Let me provide some examples.
An often-repeated mantra is the lack of confidence in Social Security. Will it be there when you reach retirement age? Maybe. Maybe not. Because mathematically, there’s no way it can continue on its current path. Just take a look at your most recent Social Security report. It states in black and white, that at its current level, there will only be enough funds to pay 74 percent of the projection listed on your statement.
Rather than worry about it, plan for it by lowering your expectations. In other words, as you crunch the numbers in preparation for your retirement, simply anticipate less from the Social Security bucket.
Another worry is the cost of health care. Without being political, I believe the new health care law has increased anxiety, not reduced it. There are steps to take to help minimize anxiety. For example, if you work, and you have a high deductible health care plan, see if you’re eligible for a Health Savings Account. If so, contribute to it. You might also consider a long-term care policy or a life insurance policy with a living benefit.
If the future causes you anxiety, focus on what disturbs you the most and then determine your course of action.
Nobody has a crystal ball and families are beginning to realize that Uncle Sam isn’t going to pay for everything. With proper planning, you can take steps to help reduce economic anxiety. It’s a new year and I encourage all my readers to discuss your concerns with their advisors.
From an investor’s perspective, there have been two years in a row with excellent returns. 2013, for example, saw the DJIA post its largest ever annual point gain, a whopping 1,072 points. It was also the largest yearly percentage gain since 1995.
Yet, despite the strong investment returns so many enjoyed, it appears to me that investor anxiety remains high. Although the year is still young, I have already had several clients in my office echoing that very concern. They just seem to have a lack of confidence in this economy and are uncertain as to how it will impact them.
I certainly understand why such lack of confidence in the economy persists, but as a financial advisor I think there are steps you can add to your planning process that will help minimize some of the anxiety.
I believe the distrust of the economy and the anxiety is justified. With such issues as the debt ceiling debate, much uncertainty still lies ahead. The easy solution in the planning process could simply be to save as much as you can because you are very likely going to have to spend more in retirement than you ever imagined.
And while saving and investing more may be an admirable goal, it doesn’t necessarily mitigate any of the anxiety that may lie ahead. My suggestion for minimizing the anxiety of the unknown and lack of confidence in the economy is simply to improve what you can control and not worry about what you can’t. Let me provide some examples.
An often-repeated mantra is the lack of confidence in Social Security. Will it be there when you reach retirement age? Maybe. Maybe not. Because mathematically, there’s no way it can continue on its current path. Just take a look at your most recent Social Security report. It states in black and white, that at its current level, there will only be enough funds to pay 74 percent of the projection listed on your statement.
Rather than worry about it, plan for it by lowering your expectations. In other words, as you crunch the numbers in preparation for your retirement, simply anticipate less from the Social Security bucket.
Another worry is the cost of health care. Without being political, I believe the new health care law has increased anxiety, not reduced it. There are steps to take to help minimize anxiety. For example, if you work, and you have a high deductible health care plan, see if you’re eligible for a Health Savings Account. If so, contribute to it. You might also consider a long-term care policy or a life insurance policy with a living benefit.
If the future causes you anxiety, focus on what disturbs you the most and then determine your course of action.
Nobody has a crystal ball and families are beginning to realize that Uncle Sam isn’t going to pay for everything. With proper planning, you can take steps to help reduce economic anxiety. It’s a new year and I encourage all my readers to discuss your concerns with their advisors.
Monday, January 13, 2014
Save money in 2014 using the snowball effect
How much money would you guess is held in the collective retirement
accounts of everyone throughout the United States? Billions? Trillions? I
recently came across some data from the Investment Company Institute
that answers that question. I thought my readers would find it quite
interesting. I know I was surprised at the amount.
The ICI is the investment company industry’s primary source for statistical data and research on investors and retirement plans. According to their research, as of September 30, 2013, the total value of retirement assets in the United States was $21.7 trillion, which accounted for 34 percent of all household financial assets.
$21.7 trillion is a staggering sum of money. Especially when you consider that taxes have not been paid on most retirement dollars. In other words, there’s roughly $5 trillion in future tax revenues that Uncle Sam is waiting to scoop up.
Unfortunately, it probably won’t do Uncle Sam much good. More than likely, it’s already been spent before it ever lands in the government coffers.
Exactly where can this $21.7 trillion be found? In Individual Retirement Accounts, defined contribution plans, government pension plans and private sector defined benefit plans.
The largest amount, $6 trillion, is held in Individual Retirement Accounts. In the category of defined contribution plans, which includes 401(k) plans, there’s $5.6 trillion, of which an astounding $4 trillion is in the 401(k) plans. Nearly 60 percent of the $5.6 trillion is invested in mutual funds.
In the pension category, federal state and local governments account for $5.4 trillion, while private sector defined benefit plans held $2.9 trillion. If you’re doing the math, annuity reserves outside of retirement accounts accounted for the other $1.9 trillion.
The bottom line is that there’s a lot of money in our nation earmarked for retirement. And every one of those dollars needs to be watched carefully and managed prudently. That being said, everybody has to start somewhere.
So, where should you start? Well, consider that an enormous snow boulder begins with a small snowball. If you don’t have any money in this staggering sum, or if you want to increase your share of the pot of retirement dollars, let me suggest two relatively simple ideas for 2014.
Only two things are needed. The easy one is a bucket or piggy bank. The difficult one is dedication.
One plan of action is flat line saving. That simply means you save a specified amount every week throughout the year. For example, by routinely saving $25 a week, believe it or not, you’ll have $1,300 by the end of the year. And that’s not counting any interest.
Another idea, one that requires you to keep an eye on the calendar, is to save the amount of dollars to match the week of the year. For example, for the first week of January, you only have to save $1. That’s easy! And so is saving $2 for week number two.
By week 20, you’re saving $20 and by week 40, you’re putting $40 into the piggy bank. Surprisingly, this method actually surpasses the $25 week routine because at the end of 52 weeks you’ll have $1,378 in savings.
You have to start somewhere and these methods are simple. Small amounts can grow into significant amounts. It simply takes dedication.
The ICI is the investment company industry’s primary source for statistical data and research on investors and retirement plans. According to their research, as of September 30, 2013, the total value of retirement assets in the United States was $21.7 trillion, which accounted for 34 percent of all household financial assets.
$21.7 trillion is a staggering sum of money. Especially when you consider that taxes have not been paid on most retirement dollars. In other words, there’s roughly $5 trillion in future tax revenues that Uncle Sam is waiting to scoop up.
Unfortunately, it probably won’t do Uncle Sam much good. More than likely, it’s already been spent before it ever lands in the government coffers.
Exactly where can this $21.7 trillion be found? In Individual Retirement Accounts, defined contribution plans, government pension plans and private sector defined benefit plans.
The largest amount, $6 trillion, is held in Individual Retirement Accounts. In the category of defined contribution plans, which includes 401(k) plans, there’s $5.6 trillion, of which an astounding $4 trillion is in the 401(k) plans. Nearly 60 percent of the $5.6 trillion is invested in mutual funds.
In the pension category, federal state and local governments account for $5.4 trillion, while private sector defined benefit plans held $2.9 trillion. If you’re doing the math, annuity reserves outside of retirement accounts accounted for the other $1.9 trillion.
The bottom line is that there’s a lot of money in our nation earmarked for retirement. And every one of those dollars needs to be watched carefully and managed prudently. That being said, everybody has to start somewhere.
So, where should you start? Well, consider that an enormous snow boulder begins with a small snowball. If you don’t have any money in this staggering sum, or if you want to increase your share of the pot of retirement dollars, let me suggest two relatively simple ideas for 2014.
Only two things are needed. The easy one is a bucket or piggy bank. The difficult one is dedication.
One plan of action is flat line saving. That simply means you save a specified amount every week throughout the year. For example, by routinely saving $25 a week, believe it or not, you’ll have $1,300 by the end of the year. And that’s not counting any interest.
Another idea, one that requires you to keep an eye on the calendar, is to save the amount of dollars to match the week of the year. For example, for the first week of January, you only have to save $1. That’s easy! And so is saving $2 for week number two.
By week 20, you’re saving $20 and by week 40, you’re putting $40 into the piggy bank. Surprisingly, this method actually surpasses the $25 week routine because at the end of 52 weeks you’ll have $1,378 in savings.
You have to start somewhere and these methods are simple. Small amounts can grow into significant amounts. It simply takes dedication.
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