Posts Tagged ‘retirement savings’

Cash Balance Plans

Posted on: April 27th, 2010 by

Retirement Planning - Financial Planning - Rockville, MDAs far as retirement plans go, cash balance plans are definitely not as well known or discussed as traditional 401(k)s with regard to retirement planning.  Cash benefit plans are a form of defined benefit plan.  Participants are guaranteed a certain amount of money when they reach normal retirement age, and the participant gets to choose from one of three types of distributions: lump sum, single life annuity, or joint and survivor annuity.  Cash balance plans are also backed by the Pension Benefit Guaranty Corporation.  This means that if the participant’s employer goes under, the PBGC will pay the pension up to the legal limits.

As with traditional defined benefit plans, the employer bears all the investment risk.  The employer will invest the money in any manner they choose, however they will establish a guaranteed rate at which the employees money will grow by.  The nice thing about these plans is that their value never goes down, which is great if there is a volatile stock market.

Now, when it comes time to take the money out, you should discuss your options with your financial adviser to determine where you stand on your retirement savings.  Financial advisers will suggest that if you feel you may outlive your assets and don’t want to take on investment risk, you should consider single life annuity or joint and survivor annuity distributions.  The annuities provided by the employer do not have the expenses of annuities purchased on the open market.  Of course, you can still take a lump sum, especially if you already have many sources of fixed income to pay for your retirement expenses.  Before deciding which distribution method is best for you, you really should sit down and analyze your finances and discuss whether or not you have enough to last those 30 years of retirement.

Playing Retirement Catch-Up

Posted on: April 1st, 2010 by

Financial Planning - Rockville, MDYour in your 50s and  haven’t saved a dime for retirement, but you have a job – Don’t panic.  You still have time to make up some ground.  It will require you to make significant changes in your lifestyle now, but they certainly won’t be as painful as the changes you would have to make if you continue to put it off.  Any financial planner will tell you that its never too late to start.

You have to start by saving.  And that doesn’t mean just cutting out your daily Starbucks, that means saving, at the very least, 10% of your gross income.  You can do this one of two ways: First, you can pay down high-interest debt that isn’t already tax-deductible – namely credit cards.  Or, you can just start socking funds away.

Make sure to take full advantage of the tax codes (see your CPA or financial adviser) when putting your funds away to maximize your return.  Take full advantage of your company’s 401(k) plan in which contributions are excluded from  your current year’s income.  Investments in such retirement funds grow tax-deferred until they are withdrawn.  If your company does not offer a 401(k), open an individual retirement account at a mutual fund company or brokerage.  If you don’t  have an employer pension plan, you can put away up to $6,000 pre-tax each year.  You can also fund tax-advantaged retirement savings with a second job or side business.  Starting a side business is a good way to maintain income into your retirement as well.  You may be able to put your earnings into a special savings plan for the self-employed.  As for investing your retirement funds, if you are not well versed in the options, you should speak with an experienced financial adviser to help figure out how and where to invest.

The biggest disadvantage you have to starting your retirement savings late is that you lose out on what would have been compounding interest in the previous years.  But even if you are in your 50s, you are still going to be able to take advantage of compounding interest on your investments.  Since retirement is estimated to last upwards of 20 years, your investments will still compound and may even double (at a rate of 5%, investments are estimated to double in 15 years).  So if you you haven’t started saving yet, now is as good a time as any.