Posts Tagged ‘retirement account’

Everyday Money Mistakes

Posted on: June 8th, 2010 by

Money Mistakes - Financial Planning - Rockville, MDFor the amount of financial advice that we find in books, magazines, and online, we still tend to make a lot of mistakes when it comes to our money.  Some of these mistakes might not cost us huge sums, but others can cost us a small fortune.  Even the small mistakes, multiplied over a lifetime, can add up to an enormous sum.

One of the big things is mutual funds.  Do you actually know how much you pay for the funds in your retirement account?  Mutual fund companies don’t send out monthly or quarterly bills.  Instead, they quietly deduct their fees from the returns on your investments.  These fees can add up to thousands of dollars over a lifetime of investing.  To see how much you are really paying, use a free service use a free service such as to track the actual expense of your funds and ETFs.

Errors in your way of thinking can cause problems as well.  Don’t equate monthly payments with affordability.  Too many people decide whether they can afford something based on whether they can manage the monthly payment.  This is particularly true for homes and cars.  Just because you can handle a payment does not mean you can truly afford the item.  Monthly payments ignore the true cost of ownership.  A car, for example, also requires insurance, gas, repairs, and maintenance.  Instead of focusing on the monthly payment, separate needs from wants and evaluate how you might better use the money.  If you have consumer debt, for example, consider paying off the debt before buying something that will commit you to future monthly payments for years to come.

If you can reduce your mortgage payments, do it.  Reducing a mortgage by even 1% can result in substantial savings.  Whether it’s due to falling mortgage rates, which are at historic lows, or an improved credit score, you may be able to save thousands of dollars of the life of your home loan by refinancing.  Even if you have a low rate now, you should look into the current mortgage rates to see if you can do better.  That 1% savings may justify refinancing over the life of the loan.

A lot of people miss the great deals they can find online.  You can find deals, coupons, and promo codes on just about everything.  Also, many retailers offer additional discounts if you buy online.  Shopping online is often more convenient than going to malls or stores and having to wait in lines.  Before you set out on your next shopping trip, check online and see what coupons or deals are available for the products you are looking for.  The deals could be substantial.

Now that we are post tax season, pending you didn’t file an extension, you should take the time to scan over your return.  If you got a rather large refund, it’s simply the result of you having too many withholdings taken out of your check.  Letting the government hang on to the money for a year until it comes time to file again gives the government an interest free loan.  Instead, ask your employer for new W-4 forms and adjust your withholdings so you can pocket more of your paycheck now.

Finally, don’t mislead yourself into thinking that making the minimum payments on credit cards will get you out of debt.  Even low interest rate credit cards charge a high interest rate.  Just making the minimum payments will add a lot of interest to your total payments over the life of that debt.  Rather than making just the minimum payment, commit to paying more than the minimum, even if by just a few dollars.  This will help pay off your debt much faster.

Job Hopping and Retirement

Posted on: April 26th, 2010 by

Financial Planning - Rockville, MDFrequently changing employers can make it more difficult to save for retirement. The median job tenure of American workers was 5.1 years at the same job in 2008, according to a new study by the Employee Benefit Research Institute. Many pension formulas reward long-term and highly paid employees more than workers with a shorter job tenure. Some job hopping workers also move in and out of retirement plan coverage throughout their career and cash out small 401(k) balances when they change jobs, both of which lead to smaller retirement account balances.

Some 401(k) plans provide better investment options or charge lower fees than others. 401(k) match formulas also vary considerably among employers and short-term employees don’t always get to keep the 401(k) match. Only 37 percent of 401(k) plans offered immediate vesting in 2008, according to a Profit Sharing/401k Council of America survey of 908 plans, which means you get to keep your employer’s match as soon as it is deposited. Other plans require you to stay with the employer a certain number of years before you can keep the match. Some companies also have a graduated vesting schedule that allows you to keep a certain percentage of your employer’s 401(k) match based on the number of years you have worked for the company. If you leave the company before the match is fully vested you forfeit some or all of your employer’s 401(k) contributions.  You should speak to a financial planner to find out how this may effect your retirement.

The job tenure for males approaching retirement between the ages of 55 and 64 had declined steadily from a peak of 15 years in 1983 to 10 years in 2008, EBRI found. Among females the same ages median time on the job has gradually increased from 8 years in 1963 to 10 years in 2008. Public sector workers job hop considerably less often than private sector workers. The median private sector worker had been on the job just 4 years in 2008, compared to 7 years for those in the public sector. Only about 11 percent of all workers have been at their job 20 or more years in 2008.

3 New Ways to Save for Retirement

Posted on: April 19th, 2010 by

Financial Planning - Rockville, MDHalf of Americans don’t have a retirement plan through their employer, and those that do, few are saving enough to finance a retirement that will last several decades.  To encourage more workers to plan for the future, federal initiatives were established to make saving easier.  Often, when employees are left to their own devices, they fail to sign up for their company’s 401(k) plan.  To get more workers to save though, many large companies now automatically enroll their employees unless the worker takes the initiative to opt out.  A new rule also makes it easier for smaller companies to automatically sign up their employees and increase their amount of savings each year.

Another easy way to save is to convert your unused sick & vacation days into your 401(k).  The new federal initiative allows workers to roll over their unused days into their retirement account.  Although many workers have not taken advantage of this, it can pay off tremendously in the long run.  One theory is that, on average, US workers only receive about 15 paid days off per year and people value these days tremendously.  They may not use them all within the year, but employees tend to hold these days very close and are not willing to convert/roll them over.

Finally, especially for those that have filed extensions on their tax returns, you can have a portion of your tax return directly deposited into an IRA OR you can easily purchase Series I Savings Bonds simply by checking a box on your return.  Additionally, next year, it will become available to add co-owners to the bonds, such as children.  You can speak to your tax preparer about how to go about doing this.