Financial Answers "IN SIMPLE LANGUAGE"

Happy Halloween to all!  I am going to end this month on a positive note.  Not an easy thing to do considering our current economic situation.  But let’s do it anyway.

 

It All Started Here

 

I have been reading about how people are foregoing funding their current retirement accounts because of their economic problems.  Let’s take a little step back in time to the 1970’s. 

 

Richard Nixon was President- for a while-and the Vietnam War was still going on until 1975. It’s around this time the government started to look more closely at retirement plans.

 

By the end of the ‘70s-Jimmy Carter was President,1977-1981-Congress created the Internal Revenue Code Section 401k.  The name 401k caught on and started to be used more and more to describe this defined contribution plan that was becoming popular with American businesses.  What was so different about this new 401k defined contribution plan? It authorized paycheck deductions as a way of saving and funding your future retirement.

 

Up to this period of time most businesses had defined benefit plans which our parents were going to retire on plus social security.

 

Defined What?

 

Let me explain what we are talking about here.  A defined benefit plan is a retirement plan sponsored by your employer in which the employer funds the pension and then later “defines or sets the benefit” that you are going to receive.  This allows you to know what you will be receiving when you retire.

 

The defined contribution plan, our 401k, let’s you, as the employee participant, define or decide how much money, up to certain limits, you want to save each paycheck for your retirement.  You never know how much you will have or what your monthly, quarterly or annual pension amount will be until you are close to retirement.  However, historically, you should have more in your 401k than you would have from a company’s defined benefit plan.  Clear as mud?  I hope not.

 

Saving Less

 

Unfortunately what is happening today, 2008, because of the economic downturn and the stock market getting killed almost every day, many people are running scared and have stopped contributing to their retirement programs.  People are saying that they don’t want to throw good money after bad with the market so crazy.  Wrong!  This is not the time to stop funding your retirement programs.  No one says you have to put your hard-earned dollars into stocks, bonds or mutual funds.

 

Cash is King

 

Right now cash is king and that is where you need to put your retirement contributions.  Put your money into the money market accounts that most, if not all, 401k plans allow.

 

This is what is happening when you stop making your 401k contributions:

• First, you are paying more federal and state income taxes because more of your gross pay is being taxed instead of being deferred through your 401k program.
• Second, you are losing out on the matching portion of your 401k program provided by your employer, which is free money.
• Third, you are missing out on the magic of “compound” interest, the ninth wonder of the world.
• Fourth, you will have to fund your retirement with even more dollars later on to try and catch up for the time you weren’t saving through your retirement program.

 

Do you understand now how this is not the time to stop funding your retirement program?  Yes, I know how difficult times are with the rise in prices on just about everything, or so it seems.  Do the best you can and seriously consider leaving your current 401k payroll contributions alone.  See if you can adjust some other part of your life like entertainment or travel.

 

Your retirement future is too important and one thing we can’t create for ourselves is more time.  So to end this on a positive note, reap the positive benefits mentioned above by continuing to fund your 401k program and your later retirement life will thank you for it.  Optimism is a life stimulating tonic.  Pessimism is a life disease.  You decide.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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A little something different in this blog post.  I have been receiving several invitations to attend free lunch and/or dinner meetings from a variety of financial organizations.  Maybe it was coincidence but I have also been reading about these free meals in a variety of financial publications that I get each month.

 

Is There Really a Free Meal?

 

After reading these invitations, I had to ask myself whether or not there is such a thing as a free meal.  I mean the invitations said right on the form that this was not a sales presentation.  It was just some nice person wanting to give me a free meal. I only had to listen to them for an hour or ninety minutes on a variety of topics that they said should be important to me.  What harm could there be in that? 

 

So I decided to do some detective work on the validity of these invitations and the people sending them out.  I was curious because the articles that I had been reading in my financial magazines were saying that because the economy has been weakened the scammers or scam artists are crawling out of the woodwork. Their sending out invitations to these “free meal” seminars and workshops in greater numbers.

 

What’s Going On?

 

It seems these scammers are targeting more and more older people, over 60, that’s not me, by filling up their stomachs and emptying their wallets.  Now don’t get me wrong.  There are a lot of very reputable firms and people out there doing a very good job of providing value and service to our senior people.  And I applaud their efforts.  However, there are also a lot of “not so nice” people out there trying to rip off every senior that they can.

 

Who’s Watching?

 

Federal and state agencies are sending their own people and volunteers to these seminars and workshops to see what is really going on.  The Securities Exchange Commission (SEC), The Financial Industry Regulatory Authority Inc of New York and Washington (FINRA) and state regulators that are members of the North American Securities Administrators Associations Inc. of Washington have been sending investigators to many of these events.  Their findings have been disturbing.

 

As SEC Chairman Christopher Cox stated, “every rock we turned over seemed to have a bug or a worm crawling out from underneath.  In each of the sweeps we conducted, we found significant fraud.”

 

Who Do I Trust?

 

Before going to any of these “free meal” deals talk to your “trusted financial advisor.”  If you have been following this blog for any length of time then you know I am big on working with your trusted financial advisor.  The same trusted financial advisor that has worked and helped you through the good times and the bad.  If you don’t have a trusted financial advisor then talk to your family and friends and ask them who they deal with and how they feel about that person.

 

There are many qualified and trustworthy people out there putting on “free meal” events which is a way for them to get clients and build their businesses.  There is nothing wrong with that.  But like every profession there are a lot of “bottom feeders” whose only purpose is to see who they can cheat and how much they can take from someone else, especially the senior citizens.  This is not just in this country, it is everywhere.  Don’t become a victim.  If it looks too good to be true it probably is.

 

AARP

 

AARP-it used to stand for the American Association of Retired People- is promoting a program called “Free Lunch Seminar Monitor” in which they are asking people to become volunteers to monitor the activities of these free meal programs.  

 

Go to the AARP site (www.aarp.org) and put in the key words “free lunch seminar monitor” and you will be taken to the program site.  There, if you are interested, is a checklist that you can download and take with you to your free meal deal.  It gives you instructions on what to do with the checklist.

 

Don’t be afraid to go to these free meal deals.  Just make sure you know who you are dealing with and what it is that they are giving you for free.  Think twice before you set up an appointment after the free meal deal unless it is with “your” trusted financial advisor.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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Last week we talked about two congressmen and a professor who were suggesting that we get rid of the tax deferral benefits of the 401k so popular in the United States.

 

How Popular?

 

Based on a survey taken by the Profit Sharing/401k Council of America, http://www.psca.org mentioned in the October 24^th post of In Simple Language, more and more employers are setting up automatic enrollment plans for their employees.

 

This survey is based on 1,011 plans with 7.4 million participants and over $730 billion in plan assets for 2007.  The employers involved responded either in a written survey or online.

 

It is interesting to note that 35% of all employers in the survey are using automatic enrollment programs.  This is a 50% increase over 2006, yet our politicians want to do away with the viability of the 401k program.  Does this make any sense? 

 

The survey also showed that over 53% of companies with 1,000 employees or more were using automatic 401k enrollment programs showing the increasing interest in using this effective defined contribution program.

 

The 401k plan contribution limit for 2008 is $15,500 of your gross pay before taxes which can be tax deferred in your 401k plan each year. This amount is indexed each year so the amount you can put away tax deferred will increase just about every year.   And there’s more good news.

 

Over 50

 

One of the beneficial features of the 401k program is the so called “catch-up” provision.  This allows participants, age 50 and over, to put an additional amount of up to $5000 in their 401k program. 

 

So we have $15,500 as your regular contribution maximum and another $5,000 because you are age 50 or older totaling $20,500 that can be tax deferred for 2008.  And that doesn’t include your employer’s matching contribution.  This is a great deal to secure your retirement yet our two congressmen and professor want to change everything.

 

Education

 

What I believe is that we don’t need a “new” retirement program we just need to better educate employees to the benefits of the existing 401k programs available through their employers.  And we also need to better educate the employers on why they need to provide 401k plans for their employees.  This could be a win win situation for both employers and employees through better education and information programs. 

 

Ask yourself, do we really need to change another retirement program and add to the enormous confusion that already exists?  Do we need to add yet another new pension program to add to our already existing programs such as the deductible IRA, non-deductible IRA, Roth IRA, SEP, SARSEP, Keogh, 401k, 403b, Simple 401k, Money Purchase Plans and so on?  No wonder no one can understand what they need to do to secure their retirement.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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To continue from Wednesday’s post, let’s look at what our two congressional geniuses-Congressmen George Miller D-California and Jim McDermott D-Washington-and our professor-Teresa Ghilarducci of the New School for Social Research in New York City are up to. 

 

It sounds like the beginning of a Dirk Pitt adventure by author Clive Cussler.  Unfortunately, nothing so adventurous.  However, this is much more important because of its direct affect on your financial future and eventual retirement.  Sounds important to me!

 

Let’s Get to the Details

 

So exactly what do these people have in mind for us?  Professor Ghilarducci has come up with a plan in which the U.S. government would provide all workers, that’s us, a $600 annual inflation-adjusted subsidy.  We would then be required to invest 5% of our pay, gross or net pay I’m not sure it doesn’t say yet, into a guaranteed retirement account administered by the Social Security Administration.  The money would then be invested in special government bonds that would pay a competitive rate of 3% a year which would be adjusted for inflation.  Wow! Just think a whole 3% a year.

 

You Want Who to Handle My Money?

 

Isn’t this the same Social Security Administration that is headed for the big, black abyss of bankruptcy in the near future?  We all know how well the government and its agencies do in investing our monies and balancing their budgets.  Do you want them doing this for you with your hard earned retirement money?  It almost sounds like they are trying to control all of our retirement dollars.

 

Could this be another bailout plan for the Social Security Administration this time?  A “required” influx of money in addition to the “required” social security tax money they are already taking out of everyone’s paycheck. Is this just another part of the government’s plan to socialize our retirement system once and for all?  Do we really need the government to take care of us in our old age?  Or is this part of the plan to pay off the deficit or pay for more pork spending projects?  Doesn’t anything ever change in the thinking of these people?

 

Approve This And

 

If this new plan should become reality, the current system of providing tax breaks on the money you put into your 401k plan and its tax deferred earnings would be eliminated.  Professor Ghiarducci feels it is time the government stop subsidizing 401k plans.  Nowhere did I see any reference to the 403b plan, which is the sister plan to the 401k, of which Professor Ghiarducci, as an employee of a non-profit, is eligible to tax defer a portion of her earnings.  Why is that?

 

The part that really bugs me is the fact that if the tax deferral benefit is removed from all 401k plans then employers will lose their incentive to match employee contributions. This will hurt all employees but especially those in lower income brackets.  Here we go again.  Sticking it to the little guy.

 

Opposition

 

The Profit Sharing/ (401)k Council of America-http://www.psca.org -, in Chicago, a non-profit organization, represents employers that sponsor 401k or defined contribution plans as there are called.  The PSCA has stated that they want to see the employee benefit system in America remain voluntary.  I have to agree.  Anytime the government gets involved things have a way of getting screwed up.  Again, I remind you of the mess the Social Security system is in.

 

The ultimate question is do we want the government handling more of our retirement money?

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

·         Please ask your questions of In Simple Language.

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Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

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Every time I think our politicians can’t be any dumber or do even more stupid things along come guys like Congressman George Miller D-California, House Education and Labor Committee Chairman and his cohort, Jim McDermott, D-Washington, Chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support.  Could we make these titles a little longer?

 

Dumbacrats

 

I didn’t want to make this post, and especially this blog, into a political forum.  But these Washington yahoos keep poking their noses into financial matters that they know very little about or in most cases nothing about.  And since this is a free financial education blog I have to bite back when I see this kind of stuff.

 

The latest and greatest out of Washington, D.C., by these two congressional geniuses is the elimination of the tax deferral feature on your 401k plan.  How does that grab you?

 

Now I try to keep an open mind when I hear such things because you never know when someone will come up with a better idea.  This idea of eliminating the tax deferral feature of the 401k and being replaced by another new type of program is being proposed by Teresa Ghilarducci, professor of economic – policy analysis, at The New School for Social Research in New York.

 

Professor Ghilarducci had 25 years as a professor of economics at the University of Notre Dame, has written two books, publishes regularly in magazines and has a long list of economic and financial involvement.  This gives her theoretical credibility with me although she has never worked in a financial services environment and dealt with anything other than the cloistered environment of the academic world.

 

Our Congressional Heroes

 

Let’s look at the financial backgrounds of our two congressmen.  Wait did I say financial backgrounds.  Hmm let’s see.  George Miller is an attorney.  That’s no surprise.  Who in congress isn’t.  According to his biography taken right from the U.S. House of Representatives web site ( http://georgemiller.house.gov/bio.html) , Miller is an expert in:

·         California water issues

·         No Child Left Behind Act of 2001

·         Author of the College Cost Reduction and Access Act

·         Author of the bill to increase the minimum wage

·         Sits on the House Natural Resources Committee

I don’t see much financial expertise here.  Am I missing something?

 

Now for Jim McDermott’s biography (http://www.house.gov/mcdermott/biography.shtml)

• He is a physician specializing in Psychiatry
• Co-author of the Single Payer health care legislation
• Developed the State of Washington Basic Health Plan
• Served as a Foreign Service medical officer based in Zaire

I don’t see much financial expertise here either.  Again, am I missing something?

 

 

Screwed  Up

 

You wonder why congress and Washington and our financial system is so screwed up.  Here you have two congressmen with no qualified financial background that I see as relevant talking about screwing up the 401k plan for the tens of millions of Americans that as far as I know, and this includes me, is happy with the way the 401k works now.  It does work.  Ask the millions of Americans who have one.

 

Sure the market is way down but should we screw things up even more.  Maybe the doctor should psychoanalyze the lawyer and see what makes him tick.  Oh yea we already know.  Greed, power and ego!  Isn’t that both of them?

 

The next post will get into the gory details-hey it’s Halloween time- of what these people are proposing.  See you then.

 

If you read this far there may be something about this post that you are relating to.  There may be some financial related pain In Simple Language is talking about.  Tell us your story.  We really do want to know.

 

·         Please ask your questions of In Simple Language.

·         Please give In Simple Language your comments and suggestions about this post and/or future topics of interest to you.

·         Like what you read?  Send it to a friend.  Click on “share this post” right about leave a comment below.

·         Did you remember to bookmark this blog?

 

Thank you for taking the time to visit In Simple Language.  J     Copyright © 2008

 

Looking for a financial speaker or financial writer?  Contact Rich today at rsowa@insimplelanguage.com or call Sowa Financial Media now at (502) 569-1714.

 

Check out the “SERVICES” tab above the beginning of the post for all available services.

 

 

 

 

 

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