Posted: March 13th, 2011 | Author: Joe | Filed under: Investing, Saving | Tags: CD rates, Certificate of Deposit, Inflation, Investing, Saving | No Comments »
Senior financial analyst with Bankrate.com Greg McBride shares the current state of certificate of deposit rates and the best moves going forward.
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Since interest rates are still near an all-time low, yields on most CD’s are pathetic. Couple that with the specter of rising inflation and it’s a tough road for CD investors and anyone living on a fixed income. It’s not surprising then that Mr. McBride recommends finding the highest yielding CDs.
The problem is that even the highest yielding CDs are unlikely to keep pace with a rapid spike in inflation. Still, if you’re looking for the safety and security of CDs, stick to the shortest terms so you can be ready to renew at higher rates when interest rates begin to rise.
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Posted: February 28th, 2011 | Author: Joe | Filed under: Retirement, Tips | Tags: Home Buying, Investing, Mistakes, Retirement, Saving, Tips | No Comments »
Yahoo! contributor Kris Calhoun recently wrote an article for their “First Person” column titled: First Person: How I’m Sabotaging My Retirement wherein he chronicles some of the money mistakes that have cost him the most.
I for one congratulate Kris for his honesty and willingness to examine and learn from his mistakes. After all, if we can’t learn from our mistakes then we are not only doomed to repeat them but no good will possibly come from them either.
It’s a cliche that we need to learn from our mistakes, but I’ve often thought that we should learn from other people’s mistakes as well.
And so I’d like to offer my thanks to Kris for sharing some of his mistakes, so that we may all learn from them.
Know who you are
Kris states that one of his biggest financial mistakes was buying a house:
“The home I purchased in 2008 is probably the worst thing I could have done to hurt my financial future…. At the time, my wife and I thought we were doing things the right way. We put a nearly 45% down payment on the home, took out a 5.35% fixed rate, 15-year mortgage, and made extra payments along the way.”
So far so good, right? I mean many people who bought homes in the last five years in particular are struggling, due to declining values, evaporating equity and job instability. But those don’t seem to be a factor for Kris.
He states how he did everything right, financially speaking – hefty down payment, low interest fixed-rate 15-year mortgage. These are exactly the things you should do to mitigate the effects of the housing crisis. In fact, I’d say Kris was ahead of the game since most people can’t afford to do these things, yet he did.
The real mistake Kris made was in not knowing himself and his spouse:
“we really don’t like the area we chose and have found that home ownership just isn’t for us (I worry about things constantly and am afraid to go on vacation anymore for fear that something will happen to the house)… I’m kicking myself for ever allowing myself to be talked into home ownership (I’ve always been more of an apartment kind of guy)”
So his mistake is really costing him more of his mental health and happiness, which in turn causes financial problems when he can’t recoup his costs when selling his house.
The lesson here is to know whether you’re inclined to be a homeowner before you become one. Home ownership is not something to be taken lightly or dabbled in – it’s a serious commitment of time and money.
Weigh the pros and cons of job hopping
The next mistake Kris shares with his readers is his career change from hotel management to freelance writing.
There are some obvious hits to your financial bottom line here:
- reduced income (at least short term)
- reduced consistency of income
- reduced (or non-existent) benefits like:
When you freelance, you are responsible for all the stuff your employer used to take care of. You’re on the hook for paying for heath care and contributing 100% to your retirement plan – all on a lower salary!
Kris may eventually earn more as a freelance writing, but it’s going to be a lot tougher than hotel management.
For the record, Kris made the switch to spend time with his newborn son. It’s a goal I can admire, since my wife made a similar choice 8 years ago and we’ve been living on a single income ever since. But these kinds of career moves take a lot of planning to make them work…
Risk avoidance investing
Perhaps because of his move to freelance work, Kris admits his investing style is much too conservative. This is a good thing, when you need the funds relatively soon. But for a retirement that’s decades away, low risk, low return investing choices are more detrimental.
He says his holdings are primarily in low-risk, income style assets. There are easy ways to get higher returns with little to no effort, and still remain diversified so sticking to fixed income with retirement 30 years away is a needless mistake, in my opinion.
No room for error
Lastly, kris admits to something I think a lot of people can relate to: Things are OK at the moment, but that’s mainly because expenses have been relatively low.
In other words, when prices start to rise and inflation really takes hold then things are going to get really bad. Without steady increases in income and with the cost of living rising daily, your standard of living will decline and at some point saving for retirement at all becomes a dream for another day.
Since we can’t control the global economic landscape, the best thing to mitigate this is to create as many side income streams as possible, cut your expenses as much as you’re comfortable with, and be involved in local and national elections to ensure that fiscal restraint and responsibility once again take hold in government.
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Posted: February 24th, 2011 | Author: Joe | Filed under: Retirement | Tags: 401(k), Investing, Opinion, Retirement | No Comments »
I came across this article today and what really caught my eye (besides the stark numbers) was that Baby Boomers who are now just reaching retirement age are referred to as “The 401(k) generation.”
It’s true that the 401(K) came into prominence during their working lives, but I would hardly consider them “The retirement savings plans that many baby boomers thought would see them through old age.”
The article seems contradictory too. On the one hand, we are told that these Boomers have relied on them for retirement, and then we’re told that one reason the 401(k) has fallen short for these Boomers is that they never really contributed enough with any consistency. Which is it?
Also, the 401(k) came into heavy use in the 1980′s. These Boomers were well into their 30′s by then. Did they wait until then to start saving?
I realize I’m being a bit over the top, but only because the article doesn’t really portray the situation correctly. For example, it doesn’t really go into how this generation was caught at the crossroads between pensions and individual retirement accounts. That’s a circumstance of the times, and doesn’t really mean that the 401(k) plan has failed as a vehicle for retirement savings.
One thing is certain, retiring boomers have tough road ahead.
Personally, I consider my own generation and the current (X and Y) to be the generation of the 401(k) because we know that social security will not be viable for us and we are responsible for our own retirement. I encourage you to read the article because it may just scare you into action on your own retirement planning!
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Posted: February 17th, 2011 | Author: Joe | Filed under: Investing | Tags: Investing, IRA, IRA Conversion, Retirement, ROTH IRA, Tips | No Comments »
This is a
guest post from Debbie Dragon. Debbie is a writer for RothIRA.com, a site which strives to educate it’s readers on the pros and cons of
Roth IRA products.
While 2010 is already wrapped up, there are still financial considerations you need to make about the previous year in the near future when it comes to Roth IRAs. In 2010, the conversion rules have changed regarding converted Traditional IRA accounts and Roth IRAs. The government made it effective in 2010 that account holders could spread the income tax payments owed on the conversion over the following two years – 2011 and 2012.
This rule change would allow you to keep half of the income tax amount you owe still in the account, earning compound interest until the tax deadline for the following year. It is currently too late to take advantage of that tax incentive if you have not already made the conversion. But there is still good news for those wanting to convert to a Roth IRA in 2011.
Making the Change
In the past, there were strict limitations on who could make the conversion from a Traditional IRA account to a Roth IRA based on income. For now those laws have changed and are beneficial to anyone. Since you can still convert tax deductible investments as permitted by the government, making the switch in 2011 is a good investment strategy.
To make the conversion, you will have to pay the taxes you will owe later now but once the funds are converted, you will not have to pay income taxes on the amount you save ever again. For those who can afford to pay the income tax due out of there own funds rather than their investment funds, the conversion will be that much more beneficial.
When You Shouldn’t Switch
There are certain circumstances that may not prove to be beneficial to convert to a Roth IRA. First, if you know for sure that the rate of your income taxes will be lower in your retirement years than where they stand today, making the conversion does not really benefit you financially.
Secondly, if you don’t have the cash necessary to pay the income taxes you will owe from making the conversion, it is not wise to use your investment funds as a payment source as you will be required to pay a penalty on those funds as well as the tax.
Retirement Power
The most beneficial aspect of converting from a Traditional IRA account to a Roth IRA in 2011 is the investment power you are using towards your retirement years. Retiring with tax-free funds available later in life is a strategic move anyone can accomplish. For those who do not qualify for a Roth IRA account because of the income limitations, consider opening a Traditional IRA account and converting to a Roth IRA in the future.
Choosing your investments wisely for an easier, more comfortable retirement is part of your overall good financial health. If you have not taking the steps to plan for a financially healthy retirement, it is never too late to start investing, though it is always best to being when you are young. Not all financial strategies meet the needs of every future retiree but it is worth your time and money to explore what works for you. The Roth IRA account definitely has many advantages and it may be the ideal starting point for your retirement investment planning.
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