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IRAs provides news, tips and advice covering the funds, fundamentals and strategies for successful investment in individual retirement accounts.

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Self-Directed IRAs: The Best Underrated IRA Tool Around

Tue, 21 Jun 2016 11:51 GMT

Imagine being able to assume control of your retirement account, invest where you want and lower your fees. That may sound too good to be true, but it is true. Less than 6% of Americans know about these accounts. They are called self-directed IRAs. Think of it as it sounds: You have the ability to self-direct where your money goes. You can explore alternative investments or stick with what you know, but you're in control. You have the freedom to make your own investment choices within your IRA. Trisha LaVeck, founder of Safe Money Consulting, regularly helps clients better understand the benefits and advantages of a self-directed program. "People utilizing a self-directed IRA now have the ability to diversify assets outside of traditional mutual funds, bonds or stocks. We like real estate and lending options. Real estate feels more tangible than stocks. A self-directed IRA empowers investors to make their own decisions and investments." How does a self-directed IRA work? Once you've made the decision to take control of your retirement future, now you must find a custodian or qualified trustee to hold your IRA assets. Next, you and your custodian will work together to request funds be transferred from your current retirement account to your new self-directed IRA. Most custodians have professional transfer desks to help you or your financial advisor can help, too. Once your funds are in your self-directed IRA account, your custodian will take care of the transaction of sending your money wherever you've decided to allocate it. Research shows that 95% of self-directed IRA accounts have just one asset class in them. Once this asset begins to generate cash flow, those funds go directly back into the self-directed IRA account your custodian is managing for you. Your money continues to grow over time and all qualified funds remain in your IRA until you are ready to retire. This ensures you are compliant with the IRS. Remember: your custodian follows IRS regulations and will process transactions for you, maintain records, file IRS required information and provide statement access to you; however, they won't give you advice, since they are a neutral 3rd party. You are responsible for understanding tax implications for any investment you choose and you must perform any due diligence to know where you should direct your money. La Veck continues, "Many people are so frustrated with their investment options, high fees and portfolio performance within a company sponsored 401(k). When an employee leaves their employer they can decide to roll their 401k over into a self-directed IRA. Rollovers from 401(k) plans are the most common way to fund a self-directed IRA. A traditional IRA to a self-directed IRA is the second most common way." Where can I self-direct funds to? With a self-directed IRA you can direct funds beyond the market into alternative investments, such as, real estate, tax liens, private company stock, partnerships, private mortgage lending, precious metals, intellectual property, foreign currency and private equity. Benefits of a self-directed IRA: There are several benefits to using a self-directed IRA. The greatest benefit is the ability to diversify your retirement money to protect against market volatility, as well as inflation. People want the freedom and flexibility to be ready for changing economic conditions. Some people take it a step further and want to stimulate entrepreneurial activity with their investment choices. Additional benefits of a self-directed IRA are: LOW Fees. Flat annual fees from $150 to $500 Tax-deferred or tax-free growth Passing wealth down to the next generation (certain self-directed IRAs allow the passing of assets to beneficiaries after death with little or no tax implications) Complete control and ownership of your retirement future and investment choices, without the headache of trying to follow IRS rules/regulations Protection from creditors and bankruptcy, since under Federal bankruptcy laws, up to $1million of IRA assets are exempt from ba[...]

Target Date Funds Offer Convenience -- but Also Pitfalls

Fri, 20 May 2016 11:09 GMT

While interest in target date and other types of balanced funds continues to grow — especially among younger investors — the convenient funds do offer some snags all investors, young and old, should know about. Target date funds — also called lifecycle funds — are designed to offer a diversified portfolio that automatically rebalances to focus more on income through time. In 2014, 60% of 401(k) participants in their 20s had such funds, according to a new joint study by the Investment Company Institute and the Employee Benefit Research Institute. Just slightly more than 40% of 401(k) participants in their 60s did likewise. "The Pension Protection Act granted plan sponsors permission to use target date funds as default investments, which is a significant factor in their popularity," said Jeff Kletti, head of Investments at Wells Fargo Institutional Retirement and Trust. "Prior to target dates, the most common default was a stable value or cash investment, so target date funds were definitely an improvement." Kletti said such funds are an important first step in helping to improve diversification for participants, and are useful in the sense investors don't need to know a lot about investing to use such funds. That said, people should be aware of certain things as they invest. "There is a risk that participants, regardless of age, may not understand how [target date finds] are intended to be used," said Kletti, explaining for example that participants may divide their balance across multiple versions of the funds or mix with other funds, thus fighting against the management/allocation strategy of such funds. Kletti added there's also a risk to participants as they amass more outside assets — which tends to be the natural progression of participants as they near retirement — as target date funds do not factor in outside assets. "The full picture isn't taken into account as an individual's allocation is determined based solely on his or her estimated retirement date and the balance in that particular 401(k) plan," Kletti said. "Managed account-type products, on the other hand, do allow for more customization and some managed account platforms even factor in outside assets among other participant attributes that might influence asset allocation." Robert Johnson, president and CEO of the nonprofit The American College of Financial Services, agreed that by their very nature, target date funds do not consider any other assets that the investor has — which can be a detriment to those who have other holdings. "If, for instance, an investor has significant real estate holdings or has a defined benefit pension plan from a previous employer, that investor would likely want a more aggressive asset allocation than the target date fund provides," Johnson said. An investor also may want aggressive asset allocation based on their earnings streams, another drawback of target date funds since they treat all earnings streams as equal, he added. "For instance, a tenured college professor has a much more stable earnings stream than a commission sales person," Jonson said. "The college professor can afford to adopt a much more aggressive asset allocation, because his future earnings stream is more secure." Nevertheless, target date funds do make a lot of sense for the average investor in that they are one-decision, "set and forget" products, said Simon Hamilton, managing director at The Wise Investor Group. Such funds eliminate the temptation to market time, chase past performance and, in general, succumb to investor emotions such as fear and greed - all of which tend to lead to subpar returns, he adds. "They also provide one-stop diversification, which is often hard to do in plans with limited offerings," Hamilton said. "They are great for employers, because they reduce the fiduciary liability of employees 'blowing themselves up' in overly aggressive investments." H[...]

5 Financial Planning Changes You Need to Know Right Now

Thu, 04 Feb 2016 16:19 GMT

2016 will be a big one for changes in tax regulations and financial planning deadlines so investors better be 'ready'.



Jim Cramer Likes Wells Fargo at $45, Kroger at $35, and Hormel

Wed, 20 Jan 2016 17:48 GMT

TheStreet’s Jim Cramer said stocks may be in retreat, but there is no systemic risk to the market.



Here Is the Most Common Estate Planning Mistake - And How to Avoid It

Sat, 31 Oct 2015 14:00 GMT

The most common estate planning mistake may surprise you.



Don’t Wait to Set Up Charitable Giving Strategy Says Wilmington Trust

Wed, 30 Sep 2015 15:27 GMT

There is no time like the present to start planning for charitable deductions, or drafting a philanthropic strategy.



Executing the Backdoor Roth IRA, Personal Finance's Sneakiest Maneuver

Mon, 24 Aug 2015 18:24 GMT

NEW YORK (MainStreet) – A Roth IRA is the ultimate retirement vehicle, as it allows you to contribute post-tax dollars to a retirement account. That means a Roth IRA grows tax-free and is withdrawn tax-free since you've paid taxes on the money upfront. Essentially, consumers pay taxes on the seeds they sow instead of the robust crop they harvest in retirement. That's just peachy -- until you bump up against income barriers. If you make too much money, you might find yourself blocked from contributing to a Roth IRA -- that is, unless you go through the backdoor.   Slipping into a Roth IRA For 2015, only individuals making less than $131,000 per year or a married couple making less than $193,000 per year can contribute directly to a Roth IRA. Thus, higher income earners are effectively locked out from contributing directly to a Roth IRA. However, in 2010, income restrictions were removed from Roth conversions, which opened the "back door" to allow anyone to contribute to a Roth IRA, either directly or indirectly. If you exceed the Roth IRA income limits, you can perform the below steps to contribute to a Roth IRA: 1. Open a traditional IRA, if you don't have one already 2. Make a nondeductible contribution to your traditional IRA, up to the limit of $5,500 per year for those under 50 and $6,500 per year for those 50 and over 3. Shortly thereafter, convert your nondeductible contribution from your traditional IRA to your Roth IRA Upon your conversion, you'll only owe taxes on the growth of your nondeductible investment from the time when you initially made your contribution to your traditional IRA to when you ultimately converted it to your Roth IRA. Since this is typically a very short amount of time, your tax liability from the conversion should be minimal. Matthew Heaney, a 51-year-old software engineer based in San Jose, has been utilizing the backdoor Roth IRA strategy since he heard about it five years ago. "Because the money grows and is withdrawn tax-free, what you see is what you get," he said. "During retirement, I'll be able to make withdrawals from my Roth IRA without having to worry about paying taxes or how those withdrawals will affect my taxable income." Financial advisors also swear by the Roth. Jeff Jones, a Certified Financial Planner with Cypress Financial Planning in Woodbury, N.J., leans on Roth IRAs extensively in his practice. "After ensuring company 401(k) matches are being maximized and high interest debt is eliminated, I make sure every client utilizes a Roth IRA to the fullest extent," he told TheStreet. Pre-tax 401(k)s and traditional IRAs, on the other hand, allow you to invest pre-tax monies into a retirement account that grows tax-free. When you begin taking withdrawals from these accounts, you'll be taxed on the entire amount of your withdrawal (contribution and growth) at your ordinary income level. This additional tax diversification could be a very valuable benefit, especially if you’re able to isolate tax-inefficient investments, such as REITs, into your Roth IRA. That could help those planning for retirement save a bundle in taxes.While there is some fear that the government could eventually shut down the backdoor Roth IRA -- trying to put the kibosh on a tax break that seems too beneficial to citizens -- it's a skilled trick retirement savers can safely use to their advantage. As an added bonus, unlike traditional IRAs, Roth IRAs don't have the required minimum distribution that takes effect an an account holder nears age 71. That means, a Roth IRA account holder has the flexibility to let his money grow or take it out for use as needed.    Beware of the Pro-Rata Rule The backdoor Roth IRA strategy works best when you do not have any outstanding traditional, SEP, or simple IRAs. If you do have [...]

How to Execute a Successful Backdoor Roth IRA When You Make Too Much

Mon, 24 Aug 2015 17:52 GMT

The backdoor Roth IRA -- It's one of most nimble personal finance tricks out there.



How The Self-Employed Can Still Cut Their 2014 Tax Bill

Fri, 14 Aug 2015 12:14 GMT

NEW YORK (MainStreet) –- While it's too late for much of the taxpaying public to reduce the hit they took in 2014, self-employed filers still have some time to soften the blow. Back in April, we made clear that you could take an extension and put off filing your 2014 tax return until October 15. However, what self-employed workers including freelancers, cab drivers, contractors and consultants often don't know is that you can also set up a Simplified Employee Pension (SEP-IRA) any time before that deadline and make tax-deductible contributions while getting deferred growth. ReKeithen Miller, certified financial planner with Palisades Hudson Financial Group in Atlanta, points out that the SEP-IRA allows self-employed taxpayers to reduce their 2014 federal income taxes by offering them the opportunity to contribute up until their tax-filing deadline. That includes the six-month extension, he says. “If you got an extension and haven’t filed your return yet, you have until October 15, 2015 to make 2014 contributions to your plan,” Miller says. Granted, you those same workers could also contribute to a Solo 401(k) during that same timeframe, but that assumes they had the foresight to establish that plan by the end of 2014. However,if you're a self-employed individual without employees, other than a spouse, who may contribute to the plan if he or she is employed by the business, a Solo 401(k) is certainly worth your time. “If you are self-employed, consider adopting a retirement plan such as a SEP IRA or Solo K which allows maximum pretax contributions up to $53,000 for 2015,” said Masood Vojdani, founder and CEO of MV Financial, a Bethesda, Md.-based wealth management firm with $500 million in assets under management. “Business owners as well as self-employed individuals should consider enhanced retirement plan designs such as a new comparability profit sharing plan or a cash balance plan.” Which one is best? It depends on your circumstances. A SEP-IRA is similar to a traditional IRA, in which investment earnings grow taxed-deferred until withdrawal. However, a traditional IRA caps contributions at $5,500 (or $6,500 for those 50 and over). A SEP-IRA's contribution limits are the lesser of 20% of net business income or $52,000 for 2014. In most cases, banks, insurance companies and brokerage firms will allow you to set up a SEP-IRA online. “When considering which type of plan to set up, self-employed individuals should consider the amount of income they expect to earn over the next several years, the amount they want to contribute to the retirement plans, whether or not they will have employees, and if they want to contribute to the employees’ retirement plans or allow the employees’ to fund their own plans,” says Ben Sullivan, Certified Financial Planner & Portfolio Manager with Palisades Hudson Financial Group, Scarsdale, N.Y. “It’s also important to consider the amount of complexity that you’re willing to deal with when administering a plan.” Employees can make a SEP-IRA just a bit onerous, because you'll have to contribute the same percentage of salary for them as you do for yourself. However, since SEP-IRA contributions are deemed to come from the business, not the individual, a participant can also contribute to a Roth IRA in the same year he or she makes a SEP-IRA contribution. “By contributing to both, you can take advantage of tax-free Roth IRA growth and increase the tax diversification of your retirement savings and have more flexibility when you’re taking out money during retirement,” Miller says. Meanwhile, if you were wise enough to sense impending disaster back in December, a Solo 401(k) might just be a better option. It can be structured as a traditional 401(k) with tax-deferred gains or as a Roth 401(k) with the taxes paid at the tim[...]

Why Building Your Nest Egg Just Can't Wait

Mon, 20 Jul 2015 15:04 GMT

NEW YORK (MainStreet) –- If you haven't gotten around to laying that nest egg yet, don't be surprised if it hatches later than you expect. Your rainy day fund or financial nest egg are crucial for financial stability, but the Great Recession made saving for either more difficult than it should have been. As a result, Voya Financial found that 74% of Americans have never calculated their monthly retirement income needs. Meanwhile, 51% of retirees have never tried to determine if their current savings will be enough to last through retirement – though 39% assume what they have will not last 20 years. A full 13% of current retirees don’t know how much savings they have in the bank in the first place. Franklin Templeton, meanwhile, found that 55% of Americans are considering working during their retirement, with 30% of those ages 18 through 24 planning to never retire at all. “If you wait too long, you might have to delay retirement and keep working a lot longer than you’d like,” says Melinda Kibler, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla. According to a survey conducted earlier this year by, 20% of Americans lose sleep by worrying about whether or not they're saving enough. That percentage jumps to 50% among Americans ages 50 through 64, but just about all demographics worry about having enough money to cover major life changes like having children or losing a job, nevermind retirement. Kibler advises keeping six to 12 months worth of expenses tucked away, but acknowledges that not enough people do so. The key obstacle is complacency: the lack of discipline that prevents people from prioritizing finances or forming and committing to a solid financial plan. With help from Kibler, HSBC financial advisor Brian Schwartz and Citizens Bank's head of everyday financial planning John Rosenfeld, we've amassed the following reasons for getting your nest egg or emergency fund together as soon as possible: Your family is counting on you...Even if it doesn't exist yet, the family you intend to have in the future requires a whole lot of financial maintenance. You may not be thinking about schooling and doctor's visits now, but they're coming. “If you're in the process of starting a family, plan now,” HSBC's Schwartz says. “Run through multiple scenarios and discuss what your family will look like five and ten years from now. Generally, the recommendation for a family of four is to have six months of funds saved.” You're younger than you think...If retirement isn't imminent, chances are you're in or nearing your prime earning. Schwartz notes that this is the time to be fearless in making big decisions in order to create disposable income. If that involves moving to a less expensive home, refinancing higher interest mortgages or forcing yourself into greater retirement savings, do it. Kibler recommends dividing equity investments among a U.S. large-cap fund, a U.S. small-cap fund and an international fund for starters. She recommends having bond and money market fund exposure in your investment portfolio as well, though it may be better to invest in bond funds outside your retirement plan. “Saving for retirement takes discipline," Kibler says. "There are lots of competing demands on your money, but by the time you get to your mid-30s, it’s very important to save, even if you have to start small.”  You can rest later...If you are capable of doing so, Schwartz recommends that consider a second job if even temporarily. If the choice is to work more now or work when you're 70, consider front-loading while you have the option. “Since neither employers nor Social Security will fully fund a decent retirement, you have to take the initiative,” Kibler says. You can slim your spend[...]

How New York Stock Exchange Glitch Wounded an American Icon

Thu, 09 Jul 2015 20:57 GMT

UPDATE: This article, originally published at 1:31 p.m. on Thursday, July 9, 2015, has been updated with comment from the New York Stock Exchange. NEW YORK (TheStreet) -- What we learned Wednesday when the markets were barely fazed by a three-hour shutdown of the New York Stock Exchange felt a lot like Dorothy Gale's discovery that the Great and Powerful Oz was really just a carnival showman standing behind a curtain. The New York Stock Exchange  is the original business behind the Wall Street brand, synonymous with American capitalism and financial prowess. Pictures of the havoc there during the Black Thursday crash in 1929 and the Black Monday crash in 1987 have become history book staples. Last year, it was the global leader in initial public offerings, or IPOs, for the fourth straight time, raising $70.3 billion, according to a regulatory filing. So when it shut down at 11:32 a.m. Wednesday, "Breaking News" alerts flashed across financial news channels, and newspapers and Web sites trotted out the banner type. But U.S. markets kept functioning with only minimal disruption. The trading floor, as usual, was largely empty. The crowds were outside, and they were mostly tourists, accompanied by a brief surge in TV reporters. It should have mattered more. A decade or two ago, it would have. That it didn't shows the gap between the symbolic importance of the building at the corner of Wall and Broad streets and its actual place in markets dominated by electronic platforms and algorithm-based trading. By the time the exchange fully reopened at 3:10 p.m., that place was all too evident.. For the three preceding hours, trades that might otherwise have been routed through the NYSE were instead sent to one of 10 other public exchanges or 50 private exchanges, also known as dark pools. Traders, some of whom were on the NYSE floor during the outage, found other ways to go about their business. Those based outside of New York, such as Michael Antonelli, a sales trader at Robert W. Baird, barely noticed the outage. "Dark pools are just one example of other places to execute stock," he said in an interview. Others are the BATS Global Markets exchanges, the New York Stock Exchange's Arca platform, which was unaffected, and the Nasdaq Stock Market. On Wednesday, they helped. "Instead of routing to the NYSE, I can route to a dark pool and look for liquidity," Antonelli said. Indeed, the NYSE accounts for only about 20% of the public trading volume today, according to BATS, as compared with nearly 80% almost 20 years ago. Wednesday's NYSE volume was in line with previous days as the system was up and running for the 4 p.m. market close -- which is typically one of the highest-volume trading times. That explains why a trading floor once packed with people jockeying for position and relying on elaborate hand signals to communicate now serves more as an elaborate television set. Must Read: Warren Buffett Not Threatened by $28 Billion Insurance Megadeal "It is the biggest stage in the world," former NYSE marketing chief Marissa Ricciadi said in a 2013 interview. "The venue itself is both the financial news epicenter as well as a TV studio." And that calls into question the importance of the NYSE's often-lauded human touch. "It's hard to say that 25% of all NYSE trading is done on the floor," said David Greenberg a former NYMEX board member and president of Schaeffer Greenberg Advisors. "While it might be on the floor, I would assume that 24%of the 25% is traded electronically on their pads and could be done from anywhere." The shutdown also calls into question how much the exchange learn[...]

6 Ways to Ramp Up Retirement Savings by Boosting Your 401(k)

Tue, 07 Jul 2015 16:22 GMT

NEW YORK (MainStreet) —Retirement is likely the last thing on Millennials’ minds as they embark on their first career trajectory, yet saving early through a 401(k) plan yields great returns in the long-run. These six tips will help build and create a plan to maximize your retirement goal even if you have already started socking away your hard-earned money. Tip 1: Save Early and Often Advice from your parents, friends and personal finance websites can be overwhelming and even contradictory at times, but following this mantra is the best way to start. Whether you opt in for auto enrollment or have money automatically deducted from your checking account into a savings account, saving money from every paycheck means you are on the right path. “Plain and simple, if you want to become financially secure, you need to start at an early age,” said Jamie Hopkins, a retirement professor at the American College of Financial Services in Bryn Mawr, Pa. “This is the most important financial decision you can make.” Enroll in the 401(k) plan as soon as your company permits it. Some businesses let you sign up on day one while others make you wait three months or longer. Believing that you can catch up later on is a problematic. “I would recommend enrolling as soon as you are allowed,” said Catherine Golladay, vice president of 401(k) participant services at Charles Schwab, the San Francisco-based financial institution. “Thanks to the power of compounding, the sooner you start saving, the more money you can have in your account in retirement.” Tip 2: Sign Up For Your Employer Match in a 401(k) Many employers still match a portion of the amount you invest in your 401(k) plan. While some companies are more generous and match, say, 8% of your salary, others start at 3%. The key is to find out how much you need to put in before the company starts matching, he said. “Failing to take full advantage of the matching contribution is like leaving free money on the table,” Hopkins said. One of the incentives used by employers is to match 50 cents for every dollar you contribute for up to 6% of your salary. A recent Voya Financial survey found that 83% of employers match some of the money that employees contribute to their retirement plan. “Take advantage of auto escalation if it is available in your plan, so your retirement savings will go up a little each year to coincide with your raise,” said James Nichols, head of retirement income and advice strategy for retirement at Voya Financial. Tip 3: Choose More Aggressive Investments Don’t allow fear to play a factor in your decision on choosing investments which produce a greater return. Invest in high quality mutual funds or exchange-traded funds over bonds, said Grant Easterbrook, co-founder of Dream Forward Financial, a new low cost 401(k) plan based in New York. Index mutual funds such as the S&P 500 are popular, because they give you a broad exposure to many sectors and diversifies your portfolio easily. “Don't be afraid to pick ‘aggressive’ investments, because you're not going to need the money for 30 to 40 years,” he said. “You don't have to worry about needing to take your money out when the market is down like a 50 or 60 year old nearing retirement does.” Avoid just signing up and contributing, because if your 401(k) “just sits in cash, you are missing the point,” said Bijan Golkar, CEO of FPC Investment Advisory in Petaluma, Calif. “Too many first-time 401(k) savers simply start contributing, but do not select any investments,” he said. “If you want to be safe, choose three different index funds if it’s possible: domestic equities, bonds or international equities. It is that simple.” When you are youn[...]

Retirement Goals Taken Seriously by Millennials, But Will They Save Enough?

Thu, 02 Jul 2015 11:21 GMT

NEW YORK (MainStreet) — Jacob Lumby, a 25-year-old in Lubbock, Texas who works at an online marketing company, is not saving up for a down payment on a dream house. Nor does he have a savings fund for an exotic vacation or exotic car. Instead his wife, Vanessa, and he are squirreling away thousands of dollars each year for retirement. “We are very actively saving for our future, and reaching financial independence is a priority,” Lumby said. “The general goal is to have the freedom to make career decisions without having to worry about money. That freedom isn't created by saving 3 to 5% in a 401(k).” Lumby is not alone, according to new numbers from a Wells Fargo study. The percentage of eligible employees investing in their 401(k) jumped 13% between 2011 and 2015, demonstrating an increasing commitment to retirement planning. Still the overall improvements are meager: the study revealed only slightly more than half of Millennials now participate in their 401(k) — 55% compared to 45% in 2011. On top of those numbers, only 54% of Millennials are contributing enough to capture their full company match. “For the past few years, Millennials have been hammered with news about how Social Security may not be sustainable over the long-term,” said Melinda Kibler, a financial planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla. “Millennials need to be saving on their own, because they cannot count on Social Security to provide for their retirement. Participation hikes in 401(k) plans are a signal this message is being heard.” Kibler said employers have made 401(k) plans easier to access than ever, with online access and online educational materials. That has likely increased their attractiveness to Millennials. However, Kibler warns while 401(k) plans are a great start for retirement saving, they alone are likely not the answer. “If you are making the maximum contribution to your 401(k) and your budget allows, consider setting up a traditional or Roth IRA for added retirement savings,” Kibler said. Millennials can contribute up to $18,000 to a 401(k) and $5,500 to a traditional or Roth IRA in 2015, Kibler said. Since Millennials have a longer time horizon before they'll need their retirement funds, they should consider a more aggressive portfolio than those closer to retirement, which will allow for more growth in the long-term, she said. “As Millennials age, they can slowly reduce the risk in their portfolio, to protect themselves in the case of a market downturn,” Kibler said. Evaluating other financial products that can help sock away money for retirement are great, but it’s also just as important to remember not to disrupt those saving plans, said Dale Horn, senior vice president of wealth management at UBS. “It's also incredibly helpful to have savings on the side, so that when the inevitable unforeseen expense — home repair, car, etc.— occurs, you won't be tempted to disrupt your 401(k) savings,” said Horn, adding the same holds true for decreasing other unforeseen risks and having proper insurance. Joe Markel, a Millennial and a financial advisor at Purkiss Capital Advisors in Ridgefield, Conn., agreed other investment accounts are wise, especially for young people in his generation just starting out in the work world. “Other investment accounts such as Roth IRAs may be more tax-advantageous in the long run, especially for lower-earning workers who anticipate being in a higher tax bracket later in life,” he said. Lumby and his wife also already contribute to an IRA. While their dedication to retirement savings may seem extreme, Lumby is comfortable even if it means missing out on a few th[...]

Workers Nearing Retirement Seek Last-Minute Returns in ETFs

Wed, 01 Jul 2015 09:59 GMT

NEW YORK (TheStreet) -- More millennials, Gen Xers and baby boomers are looking for healthy investment returns in health care and large-blend ETFs, a study of portfolio data at TD Ameritrade  reveals. "Those over 65 are turning to ETFs for their efficiency, cost, exposure to emerging markets and diversification of their portfolio," said Lule Demmissie, managing director of investment products and retirement at TD Ameritrade. "Millennials have smaller portfolios and less disposable income to invest." Must Read: 10 Stocks Billionaire John Paulson Loves "Over the past 24 months," she said, "TD Ameritrade has seen a 20% increase in accounts with a 50% increase in assets under management [in ETFs] for clients over the age of 55." "ETFs are a better choice for greater diversification, because mutual funds often carry with them a minimum purchase requirement of $1,000 to $2,500," Demmissie said. The findings illustrate a shift in investment trends between 2012 and 2014: Clients ages 26 to 35 hold 13.63% of their total assets in ETFs, while clients ages 66 to 75 have 6.11% in ETFs, and clients 76 and older have just 3.73% in ETFs.   According to company data, all generations have been stepping back from international stock ETFs since 2012, with the largest decreases coming from millennials and retirees ages 66 to 75. "It has to do with geopolitical risk," said Demmissie. An even greater decline was to be found in commodities ETF holdings, and again, the greatest retreats were made by boomers and retirees. "The [commodities] indexes had been on a downtrend, and our clients are moving on par with the market," said Demmissie. "A lot of these commodities all over the world have taken a hit." By contrast, large-blend ETFs had the largest allocation growth, with their share of portfolios increasing 7% on average across all age groups. Large-blend ETFs invest in large-cap stocks across a number of industries. "The U.S. market continues to be the most popular market among large-blend ETFs, with ETFs that track the S&P 500 being the most popular, along with the Russell 1000, Dow Jones and S&P 100," she said. TD Ameritrade further found that investors ages 56 and up are more apt to invest in health care-related ETFs than millennials and Gen Xers, because the industry is more relevant to boomers due to their age.  “Boomers are more familiar with these companies as they are taking more medications than millennials,” she said. Investing in ETFs also make sense for pre-retirees because of their lower fees. “In this interest rate environment, saving on fees is top of mind,” said Demmissie. According to Morningstar, the expense ratio for ETFs is an average of 0.25% compared to 1.2% for mutual funds. “Boomers are shifting more assets into ETF for greater efficiency and lower cost,” said Demmissie. Must Read: Here's What You Don't Know About Retirement Planning Click to view a price quote on AMTD. Click to research the Financial Services industry. [...]

Millennials Leading Charge Into Foreign Stocks and You Should Follow

Tue, 23 Jun 2015 17:45 GMT

NEW YORK (TheStreet) Americans are increasingly investing in foreign stocks, and millennials are leading the way. The generation born from 1980 to 2000, whose estimated population of 92 million makes it the biggest in U.S. history, consistently invested more in international stocks than any other age group from 2005 to 2011, according to a new study by the National Bureau of Economic Research. The gains occurred despite rising appetites overall for foreign investments. "Younger cohorts [are] investing more internationally than older ones, and each cohort [is] investing more internationally over time," says the June-dated report titled, "Who is Internationally Diversified." Older people are consistently less internationally diversified than younger ones, according to the report. Millennials held almost one-fourth of their equity holdings in non-U.S. stocks by the end of 2011, based on analysis of investments by 3.8 million individuals in 401(k) retirement plans. That was higher than any of the other age groups studied, with the oldest, those born before 1950, holding less than 15% by the end of 2011. In addition, the study found that all age groups saw a steady increase in the allocation toward non-U.S. stocks over the past few years. The authors of the study do caution that investments in 401(k) plans may not be the whole story for everyone. "Because we only have data on the 401(k) allocations, which for many individuals may not represent their full investment portfolio, it is conceivable that some people under- invest in international equity in their 401(k) plan, but have international allocations elsewhere," the report says. Still, the only investments many people have are in their 401(k) plans, and the trends do in some ways reflect the changing state of the world. Must Read: Tightening Labor Market Forces Companies to Raise Salaries, Deloitte Finds "These young investors have grown up in a period of funds and ETFs, and everything is just a point and click away," says Jack Ablin, chief investment officer at BMO Private Bank in Chicago. "Older investors had to jump through several hoops to do so." But it's more than just technology and information flow: Investing opportunities have also changed. "Three-quarters of the world's GDP and three-quarters of the world's listed companies are outside the U.S." says Tim Cohen, chief investment officer for international equities at Fidelity. As the U.S. markets have rallied since the financial crisis, there may be more opportunity overseas, he continues. That's because overseas markets may offer better value than those at home, given the tremendous rally in the U.S. indices since the financial crisis. Another big reason to invest in non-U.S. stocks is to reduce overall volatility in a portfolio.Since overseas markets don't always move in lockstep with U.S. markets, overall changes in the value of a portfolio tend to be lower.So if you want to take the plunge, how much should you invest? Cohen says an ideal allocation would be about 30% of the equity portion of a portfolio. That would still leave you with 70% of the stock portion in U.S. equities.  Investors should remember to rebalance their portfolio once a year, he added. If you had a 30% allocation five years ago and haven't rebalanced it, then your foreign stock allocation will now have a lower percentage, given the outperformance of U.S. stocks over that period, he explains. Those who do decide to move a portion of their money overseas should remember that there are risks. "I would[...]

Your IRA Could Be The Next Target For Hackers

Tue, 23 Jun 2015 10:53 GMT

NEW YORK (MainStreet) — Many Americans assume their money is relatively safe regardless of where the account is located. As hackers have moved from retailers to banks, the likelihood of retirement accounts being the next target is increasing. While having access to financial accounts, including banking and retirement portfolios, has increased accessibility to consumes, it has also increased the risk of fraud “significantly,” said Paul Martini, CEO of iboss Network Security, a San Diego network security provider. The recent attack on the IRS used personal data such as Social Security numbers stolen in previous breaches and cyber attackers are now “monetizing insight from personal information aggressively,” said Ben Johnson, a chief security strategist of Bit9 + Carbon Black, a Waltham, Mass. security company. “Retirement accounts are squarely in their crosshairs,” he added. IRA and 401(k) accounts are even more attractive targets for hackers, because most people do not track them the way they do their credit cards or checking accounts. The thefts could wind up being undetected for months. Even cyber criminals who are “semi-skilled” can access a victim’s 401(k) or IRA account easily using stolen personal information and social engineering tactics, Johnson said. “Once they have access to the account, it can be emptied in a matter of minutes, but the victim may not realize it until they do their annual review of their retirement accounts months later,” he said. Although retirement accounts are insured by the FDIC for up to $250,000, FDIC insurance only “comes into play if a bank fails,” said David Barr, a FDIC spokesperson. “Banks carry separate insurance to cover losses or other liabilities.” Vanguard, the Valley Forge, Pa. mutual fund company that has more than 20 million investors and manages $3.3 trillion globally, will reimburse funds taken from an account in an unauthorized transaction, said David Hoffman, a Vanguard spokesman.  In 2014, Vanguard added two-factor authentication which allows investors to opt into a service that requires them to enter a code which is sent to their cell phone via text message before they are able to log onto the website.  "Clients can choose to always receive this code for log-ins or only from unrecognized devices," he said. "This service is designed to provide added protection when accessing Vanguard, because someone will not only need to know your user name and password, but will also need access to your mobile device to obtain a one-time security code that would be sent to you during each log on once you opt-in to this service." After studying the top nine banking Trojans -- the software written to steal information from consumers that would allow the attackers to take over their bank accounts and transfer money out -- Symantec's research found that all nine of them are capable of stealing log-in and password information from customers of over 1,400 different banks, said Kevin Haley, director of security response at Symantec. “People's finances are already under attack,” he said. “The threat is there today.” Any data posted on the Internet is vulnerable to attacks, including that related to your 401(k) and IRA accounts. “Your money can disappear,” said Sergio Galindo, a general manager for GFI Software, an IT services provider based in Durham, N.C. If it happened to JP Morgan Chase and other financial companies that invest in millions of dollars to prevent and detect “rogue access,” then it can happen to any account, he said. Finding the hackers[...]

How Is Your IRA Performing? Compare Your Results to These 4-Year Stats

Mon, 15 Jun 2015 15:52 GMT

NEW YORK (MainStreet) -- Of nearly $25 trillion in total U.S. retirement accounts, more than $7 trillion is held in IRAs. A 40-year-old savings innovation, the venerable accounts are now nearly half comprised of mutual funds (48%), with a great deal of the assets coming from 401(k) rollovers. So, how are these multi-layered and often restrictive retirement savings accounts doing? The Employee Benefit Research Institute has compiled four consecutive years of data on 25.8 million accounts with total assets of almost $2.5 trillion. The study shows a widely varying degree of savings success. From 2010 to 2013 the average balance for those with IRA accounts during each of the years increased more than 32%. But nearly one-quarter of investors had increases of less than 3% over the same period. However, the highest quartile of balance changes exceeded 57%. Roth IRAs saw even larger gaps in balance improvement. The lowest quartile of balance changes were over 26%, but the highest quartile account holders saw balances improve by more than 84%. Investment performance – and probably more importantly, contributions – make the difference. Over that same four-year period, only about 11% of traditional IRA owners made annual contributions. But Roth IRA owners were better savers: 37% made contributions over the four-year period. The Roth IRA is where the young money is going. Nearly one-quarter (23.9%) of Roth accounts receiving contributions were owned by individuals ages 25 to 34. A skinny 7.5% of traditional IRAs saw contributions from the same group of young adults. Average annual contributions for all IRAs increased from $3,335 in 2010 to $4,145 in 2013. “Just over 45% of those owning IRAs had less than $25,000 in their accounts at year-end 2013,” write Craig Copeland, senior research associate at EBRI and lead author of the report. “For all IRAs combined, 27.2% of individual owners had balances of $100,000 or more.” IRAs, along with just about every other investment account on the planet, suffered in 2011. But they rebounded well from the setback. Combining all accounts for the same person, the average IRA balance dropped from $91,864 in 2010 to $87,668 in 2011. But by the end of 2013, the average balance was up to $119,804 -- an increase of 30.4% from 2010 to 2013, and 14.1% from 2012 to 2013. “The increases found in the average balances in 2013 are likely to continue, as is the importance of IRA assets for individuals during retirement,” Copeland said in a statement. “With growing 401(k) plan balances and IRAs being a popular destination for 401(k) assets when people change jobs or retire, the amount of income derived from IRAs will grow significantly as a supplement to Social Security for the Baby Boom and Gen X generations.” [...]

How Millennials Are Making More Than Anyone on Their Retirement Plans

Fri, 12 Jun 2015 12:33 GMT

NEW YORK (TheStreet) -- The number of workers investing in 401(k) retirement plans administered by Wells Fargo  has risen 13% in the past four years. Their average account balance has grown even more: It's up 33%, at $93,000. "I get very excited when I see the percentage of employees enrolling in plans ticking up over the last four years because it tells me people understand that participation in their workplace retirement plan is vital," Joe Ready, head of Wells Fargo's Institutional Retirement and Trust, said in a statement. Must Read: Cleaning up at Citigroup After Currency Rigging Case With 2,500 Pain-Gain Ratio Altogether, the San Francisco-based bank administers plans for about 3.8 million workers at U.S. companies. The recent volume growth reflects an increase in employers enrolling workers automatically -- 40% do so now, compared with 30% in 2011 -- as well as heightened interest in retirement plans among Millennials, Wells Fargo said. Numbering 92 million, the generation born between 1980 and 2000 is the biggest in U.S. history. About 55% of Millennial workers eligible for a Wells Fargo plan are investing in it now, up from 45% in 2011. The bank also saw growth in investment by new hires and workers making less than $40,000 a year. "We know that systematic, pre-tax savings and investing works," Ready said. "The first critical step along that journey is to get people in the plan. To see such gains among people who are historically the hardest to get saving for retirement is also quite encouraging."Nationwide, the amount invested in 401(k)s and similar pension plans climbed 46% over the past four years to $5.52 trillion, according to data from the Federal Reserve. Household net worth increased about 33% to $84.9 trillion. Despite their increased interest in saving, Millennials still lag in the amount of pay they devote to it. Only 28% of them contribute at least 10% of their salary, lagging behind Gen X-ers at 35% and Baby Boomers at 45%. "What we really need to see is a more robust increase in how much people are saving," Ready said. "The reality is that people need to save their way to retirement. This is true for all generations, and especially so for the younger population that has time on its side and can take advantage of the compounding effect of time." Millennials, many of whom came of age during the financial crisis and its aftermath, tend to have more diversified portfolios. Some 82% of them split investment between at least two equity funds and one fixed-income fund, with no more than a fifth of their contributions allocated to employer stock. That outpaces Gen X-ers and Baby Boomers at 78% and 75%, respectively. Millennials are "the most diversified generation, and are making the biggest gains," Ready wrote. They're particularly fond of Roth 401(k) plans, which allow participants to invest after-tax earnings and make tax-free withdrawals upon retirement. About 16% of Millennials use Roth plans, compared with 11% of Gen X-ers and 7% of Baby Boomers, Wells Fargo said. Wells Fargo also found that women are slightly more likely to participate in an employer's 401(k) retirement plan than men, at 65% versus 62%, although they tend to invest smaller portions of their paychecks. Must Read: Why Bitcoin and PayPal Aren't Real Threats to the Big Banks Click to view a price quote on WFC. Click to research the Banking industry. [...]

Either Rebalance Your Retirement Portfolio or Risk Capsizing Your Future

Wed, 10 Jun 2015 12:30 GMT

NEW YORK (MainStreet) – Don't feel too good about a retirement portfolio stocked with winners and lacking losers. That imbalance is more dangerous than you think. Rebalancing a portfolio is an important part of any investment strategy, but it's vital to your retirement. Sure, you can set and forget your asset allocation, but rising markets can make your financial future overly dependent on one investment. Meanwhile, falling markets can chip away at underperforming investments and leave your overall portfolio depleted and vulnerable. This basically requires you to sell off some of those high-flying winners and buy up some more of the losers while they're at their lowest. If you're doing this in the confines of a tax-free retirement account, you don't have to worry about the tax implications of those moves, but you do have to consider maintaining at the level of risk you're willing to accept in a well-diversified portfolio that's built for the long haul. Steve Wallman, founder and chief executive of Folio Investing, notes that you want your portfolio to be in a position where it can grow over time and where you can take a little risk and allow yourself time to recover if there's more volatility than you expected. “You're able to go for higher levels of risk to get higher levels of return, but you should only do that if you're well diversified, because otherwise you might be in a position where you really bet wrong on a couple handfuls of stocks,” Wallman says. “If that's the case, you may not be able to recover at all, especially if they go under.” If you're looking for an example of how imbalanced portfolios can go wrong, just look back to 2001 and the Enron collapse. Wallman notes that whole retirement plans were wiped out not strictly because investors bought shares of Enron, but because they made those shares far too large a portion of their retirement plan instead of diversifying. “While long-term investors may not be concerned about the short-term impact of global events or changes in monetary policy, it’s still important for them to be aware of how those events could impact their long-term goals,” says Joe Correnti, senior vice president of brokerage product at Scottrade. “Ups and downs in the market can alter investors’ asset allocations and, if left unchecked, could result in their long-term plans getting off track.” So when's the right time to rebalance? Correnti notes that some investors choose to rebalance their portfolios on the same day each year, while others rebalance as their personal financial situation changes (new job, retirement, additions to the family, etc.). Wallman, however, says rebalancing should depend less on the calendar and fluctuations at home than on the health of the portfolio itself. “It depends on how diversified and well-balanced the portfolio was to begin with,” Wallman says. “We think people should start with 30 or 40 securities, a well-diversified mutual fund or something with a half-dozen or dozen well-diversified mutual funds or ETFs to begin with. If that's what we're talking about, then movements of plus or minus 10% off of their benchmarks are probably good indicators that they should push the button and rebalance.” Even that approach to rebalancing should take a few variable into consideration. For one, rebalancing your investments doesn't always come free. If your brokerage charges a commission for such transactions, then annual rebalancing can get costly. “If you're in a platform where you're being charged a commission of $8 or $9 per trade and you've d[...]

Retiring With a Mortgage Is Bad – Or Is It?

Tue, 09 Jun 2015 12:35 GMT

NEW YORK (MainStreet) -- Debt is bad, right? We should work as hard as we can to pay off our mortgages and race into retirement debt free. But wait. Not all experts agree. Brandon Opre, a financial planner in Fort Lauderdale, Fla., says there are good reasons for not being in a hurry to pay off your home. Must Read: Warren Buffett's Top 10 Dividend Stocks "It's one of the country's biggest tax breaks -- deducting the mortgage interest," Opre says. "Why be in a hurry to give that up?" Another reason: your payments do not increase with inflation. "Presuming one has a low fixed-rate mortgage, unlike most things in our lifetimes, the cost of the mortgage does not increase," he says. "A $2,500 mortgage payment in 2000 is the same payment in 2025, and the house has probably appreciated in value. In other words, a mortgage is not adjusted for inflation, nor increased over time." Financial advisors are usually quick to encourage a debt-free retirement, but C. Eric Christiansen, a CFP in Spokane, Wash., admits that’s not always how life works out -- and having a mortgage during life-after-work is not all bad. "Financing is fairly cheap at this time -- let other money in your portfolio work for you, knowing you can pay the mortgage off down the road," Christiansen says. "Continuing to carry a mortgage is O.K., but is it good?" asks Katherine Dean, a managing director of wealth planning for Wells Fargo Private Bank. "Well, the answer is -- it depends. There can be potential pros like continuing to have a mortgage interest deduction. There can also be cons like having less cash flow or experiencing lost opportunity cost because you are unable to use the money in other ways." Dean also cautions those who may be tempted to tap IRA or 401(k) assets in order to pay off a mortgage before retirement. Penalties can kick in for retirement plan withdrawals prior to age 59.5 -- and taking large distributions from a qualified plan in a single year may push you into a higher tax bracket. But more than one advisor notes the peace of mind that comes with owning your home outright. Plus, being mortgage-free allows more financial flexibility. Your monthly expenses are lower and easier to manage, and the home equity allows a budget backstop. "There can be an emotional component behind the desire to live in a home that is owned free and clear," Dean adds. "For others, continuing to receive a tax break through the mortgage interest deduction is attractive, but be aware that the benefit may not be as big as you think." Dean says since mortgage interest is frontloaded, the tax deduction slowly diminishes as the debt is paid down. Must Read: Need a Job? Here Are 10 Industries With the Most Job Opportunities Ron Vejrostek, a tax advisor in the Denver area, says having a mortgage in retirement is "almost always a bad idea." "Many would have you believe that it is always good to have a mortgage and keep your cash working, and they tout that it is beneficial because of the tax write-off," he says. "In the end, taxes are always cheaper than interest." For example, if people in the 25% tax bracket pay $10,000 in interest, the tax break is only $2,500 -- and that's the best case scenario. "In reality, you only get a break on the amount that exceeds the standard deduction," Vejrostek says. He runs the numbers. Say a married couple over the age of 65 pays mortgage interest and cl[...]

Your Choice of Mutual Funds and ETFs May Be Dragging Down the Performance of Your Retirement Savings

Fri, 05 Jun 2015 19:10 GMT

NEW YORK (MainStreet) -- Redundancy is standard operating procedure for NASA space missions -- but for investing, not so much. Duplicate holdings don't serve much purpose in an investment portfolio, but, unfortunately, most of these drags on performance are hidden. It's called "overlap," and it's a hazard found in mutual fund and ETF holdings. "The S&P 500 was Vanguard's flagship, the first index fund launched in 1976, and a lot of people use that fund," says Walter Lenhard, a senior investment analyst for the Vanguard Equity Investment Group. "But the most popular fund these days is our Total Stock Market portfolio. And there's a lot of overlap. If you buy both of those funds, you really have about a 75% overlap in large- and mid-cap names." There are lots of companies - even whole sectors - that can be duplicated inside a mutual fund or ETF. That's not exactly in the spirit of diversifying. Investors buy index funds, thinking they have a broad market covered - but not realizing that two funds with totally different names can be duplicating an investment strategy. You may want exposure to emerging market stocks, but are you sure you want to double down? Ask your investment advisor to produce a mutual fund holdings list on your portfolio. You may be surprised how many of your funds are holding Apple , Bank of America and Amazon . That's not necessarily a bad thing; it's just a hint as to how much overlap may be occurring in your portfolio. In fact, two-thirds of the companies represented in the CRSP mid-cap index are in the S&P 500 large-cap index. But the problem goes beyond investments classified by company size - large-cap, mid-cap, small-cap and so on - it can also be complicated by matters of style (such as growth and value) and sector (like technology and financials). In other words, a small-cap fund may be fishing in the same pond as your technology fund. That large-cap mutual fund is buying the same stocks as your S&P500 index ETF. And with overlap comes a gap. "If you're not careful, you might create a portfolio completely missing an entire country, or doubling the weight of that country," Lenhard said. "If you use the S&P 500 for your large-cap exposure and then you went with another very popular index, the Russell 2000, you're really missing a lot of the mid-cap names between the two." Think of it this way: If all of your players are covering right field, what happens when Latin American stocks knock a home run into left field? Overlap issues can begin at the very formative stages of a portfolio's construction. Research fielded by UCLA and the University of Chicago in 2001 revealed that many investors have a tendency to choose nearly every investment offered in their 401(k), all in an effort to "diversify." In another study conducted last year by the University of Pennsylvania, investors were presented a menu of ten mutual funds to choose from. One-third chose to divide their investment among all ten funds, even though two were clearly identified as S&P 500 index funds with identical past performance records. "Ten or fifteen years ago, people were more interested in the Morningstar nine style boxes, or slicing and dicing the market," Lenhard says. "They wanted small-cap value, mid-cap growth -- these days the trend is in the exact opposite direction. They want an aggregate solution, one solution that's going to cover as much [of the market] as possible.&quo[...]

Major Retirement Mistake: Not Having a Withdrawal Plan for Your Assets

Thu, 04 Jun 2015 13:51 GMT

  NEW YORK (TheStreet) — Over the past three years, financial planner Kyle Winkfield has seen a 50% increase in the number of clients approaching retirement who want a formal withdrawal plan for their retirement money. "The conversation typically starts with them wanting to know if they will be OK in retirement and have enough money to keep them in the lifestyle they want,” said Winkfield who is president of The Winkfield Group in Rockville, Md. Must Read: Warren Buffett's 7 Secrets to Dividend Investing Revealed Winkfield's observation is no surprise given that 63% of newly retired 66-year-olds have no plan for how much to withdraw from their IRAs or 401(k) plans, according to new research from T.Rowe Price.  “They are not taking out much money because it’s early in their retirement,” said Anne Coveney, senior manager of Thought Leadership, the research arm of T. Rowe Price that uncovers investor trends and behaviors. “As they get further along, their situations might change in terms of health care, so they do need a withdrawal plan because they will need that money.” The T. Rowe Price study of people who have been retired one and five years found that 63% withdraw from investment funds on an as-needed basis and live mainly on Social Security or a pension. “We’re seeing the first generation of retirees who have some accounts beyond just a pension,” Coveney said. “They may have pensions as well as 401(k) plans, but the pensions are not as much of a source of income as in previous generations." Of the 51% of newly retired 67-year-olds who have a formal withdrawal plan, 36% withdrew no money in the last 12 months, 11% are withdrawing 1% this year, 9% are withdrawing 2% and 7% are equally withdrawing 3% and 4%. "So many have a plan but it is to start scheduled withdrawals at a later date in retirement," Coveney told TheStreet. "Overall, the delayed rate of withdrawals is a positive sign." When financial adviser Bob Gavlak draws up formal withdrawal plans for clients, he includes a strategy for turning on different income sources, a detailed financial breakdown of the first five years of retirement, overall budget recommendations and a first-year withdrawal rate. "This is important because one threat to a successful withdrawal plan is a major downturn in the stock market at the start of retirement, and if we know the first year withdrawal rate we can better understand how much exposure the client has to a downturn," said Gavlak, a certified financial planner with Strategic Wealth Partners in Columbus, Ohio. Withdrawing money for living expenses from an investment fund that is losing value early in retirement can cause a severe shortfall later on. Gavlak recommends utilizing guaranteed income strategies where possible through pensions and/or annuities to protect from market volatility. "Invest in income-producing securities to help add value even in price-reduction markets and annually adjust your withdrawal plan to reflect changing economic and personal financial environments," Gavlak said. Although T. Rowe Price reports that those who are making withdrawals withdraw on average 5%, the 4% withdrawal rate is still a common rule of thumb when it comes to planning. You need to take into consideration the fact that other things are going to come up like the hot water heater needs to be replaced, a new car or a last minute vaca[...]

Retirement Investors May Have Been Doing Rollovers Wrong All Along

Thu, 04 Jun 2015 12:59 GMT

NEW YORK (MainStreet) — You work hard and build up a nice, fat 401(k). Then, as you get set for retirement, you roll it over to an IRA. That's the way it's done. But what if investors have been doing it wrong all along? What if you should roll your IRA into your 401(k)? It's called a reverse rollover. And it's a strategyamost financial advisors are not familiar with, according to Michael A. Martin, a financial advisor with Legacy Financial Partners in West Palm Beach, Fla. "One of the most beneficial things about a 401(k) versus an IRA is that if you are still working and over 70.5, you won't need to begin your Required Minimum Distributions if you don't need the income," Martin says. "For executives and high-income earners, this is a real benefit, as many of them don't want to start drawing from these types of accounts and want to continue to defer the tax. With many people still working at this age — or coming out of retirement to work — it makes a lot of sense." Martin says many of the people who can benefit from such a strategy are often small-business owners, but there may be a hitch. "Unfortunately this little-known tax-deferral strategy doesn't apply to them if they have more than 5% ownership in the sponsoring company," Martin adds. But for the rest of us, a reverse rollover may offer some other benefits as well. "If you leave your employer in or after the year you turn 55, you can take withdrawals from your 401(k) prior to age 59.5 without the 10% early withdrawal penalty," says Ed Snyder, a certified financial planner in Carmel, Ind. "If you are in a situation where you are retiring early, have a large IRA from a previous rollover and will need income from your investments, it makes sense to move the IRA to the 401(k) so that you can take penalty-free withdrawals." Steven Brett, an independent financial advisor in Melville, N.Y., bullet points some additional reasons a reverse rollover might make sense: It promotes ease of record-keeping and the convenience offered by a consolidation of accounts. A reverse rollover potentially increases the amount you can take as a loan in a retirement plan — if the plan allows for loans. The 401(k) plan may offer access to lower expense ratio mutual fund share classes. Another benefit may be creditor protection. Qualified retirement plans, such as 401(k)s, are federally protected from seizure by creditors, even if you file for bankruptcy. IRAs can have creditor protection as well, but such laws vary from state to state. Of course, no investment strategy is perfect, and the IRA-to-401(k) rollover does have some possible drawbacks. Advisors often tout the wider investment choices available in an IRA — and the fact is, not all 401(k) plans allow IRAs to be transferred in. But, all in all, it may be a good idea to consider a little reverse engineering for your retirement savings strategy. a [...]

How Retirees Can Prepare for Those Unexpected Financial Emergencies

Fri, 29 May 2015 17:02 GMT

NEW YORK (TheStreet) -- Retirees can be especially vulnerable to sudden financial troubles and expenses -- anything from unexpected bills for auto or home repairs, legal proceedings, or hospitalizations, to equity-draining issues like stock market downturns, thefts, rising taxes or even inflation. And seniors recognize that risk: An unexpected financial emergency was the greatest money worry among those polled by a 2015 Northwestern Mutual Planning and Progress study. Another top concern was long-term health care. Must Read: 5 Health Care Stocks John Paulson Is Betting On for 2015 "Longevity risk is a key consideration to plan for," said Rebekah Barsch, vice president of planning and sales at Northwestern Mutual. "We are all living longer and will potentially need some type of care later in life." Long-term care insurance offers both lifestyle protection and asset protection for longevity, but not every financial emergency can be prevented with insurance. Stock sell-offs, for example, are a hard-to-predict circumstance that require judicious investors to have some kind of hedge. "Losing an important source of income in retirement can create significant problems," said Greg De Jong, certified financial planner and financial advisor with Savant Capital Management in Naperville, Ill.  However, he says, "leaving substantial amounts in low-yielding bank deposits because it lets you sleep well at night may no longer be a smart approach." "The right annuity can provide principal protection and protection of prior gains while safeguarding a client's assets from market downturns," said Kyle O'Dell, president with Secure Wealth Strategies in Englewood, Colorado. A broker or financial adviser can help investors determine which low-cost annuity is right for their financial situation. "With this type of product, the client needs to understand that they probably won't receive the full upside of the market when things are going well, but they can certainly protect themselves from a correction in the market," said O'Dell. Although retirees often fall into lower tax brackets as their income declines, tax rates rarely stay the same -- and neither does inflation. "The biggest complaint I hear from current retirees is paying too much in taxes," O'Dell said. "Just in the last couple of years, we have seen the capital gains rate increase from 15% to 20% with a Medicare tax added on top of it." To protect themselves from the possibility of rising tax rates, pre-retirees can squirrel away money in investment vehicles such as Roth IRAs, from which disbursements are tax-free. "When you have money in places that are tax-free, you can manage your tax bracket to an extent during retirement," said O'Dell. "Inflation is the silent killer, and if we see high inflation periods again, retirees could have a tough time keeping up with paying for food and health care needs." Retirees can also stash their money in investment vehicles that are defensively managed, such as ETFs, bonds and mutual funds, to further guard against inflation. "These types of investments should help clients keep up with and hopefully outpace inflation in the long run," said O'Dell. Must Read: Guaranteed Retirement Income -- Can Your 401(k) Do This? [...]

The 401(k) Fix: Retirement Investors Should Consider Roll-Ins Rather Than Just Rollovers

Fri, 29 May 2015 13:27 GMT

NEW YORK (TheStreet) -- Buffet lines all across America are getting shorter. It may be because financial advisors are getting a bit more careful in hosting all of those "retirement rollover" free lunch seminars. Mounting pressure from regulators insisting that advisors work in the best interest of their clients is likely to slow the rollover marketing machine. Fact is, rolling a 401(k) into an IRA is not always the best thing to do. And securities enforcement agencies want you to know that -- and give you even more options. Must Read: 10 Stocks Carl Icahn Is Buying If you’ve done the hard part -- contributing to a 401(k) as a part of your retirement savings plan -- the next hurdle you’ll have to clear is when you change jobs or retire. Workplace retirement plans have been notoriously "sticky." It’s just not that easy to move your 401(k) from one job to the next. That lack of "portability" causes many workers to simply roll over their savings into an IRA, or worse yet, cash it out. According to a new study, 34% of Millennials and Gen-Xers and 24% of Boomers have cashed out at least one retirement account in their working lifetime. It’s a decision many of them later regret, once they consider the impact it's had on their retirement savings. "Cash-outs and stranded accounts trace their common roots to the fact that most participants want to keep their accounts with them when they change jobs, but frankly don’t know where or how to begin the process," says Warren Cormier, author of the study and CEO of Boston Research Technologies, in a release. Moving a plan from one employer to another -- called a roll-in -- can be an attractive option for investors. Consolidating assets throughout a working career can help savers keep track of -- and an eye on -- their nest egg. And many times, employer-sponsored retirement plans offer the benefit of low-cost, institutionally priced investments. Cormier’s study found that workers who left their 401(k) plan behind or simply cashed it out didn’t know how to roll their savings into their new employer’s plan (22%), thought the process would be very hard to do (17%), or said they just didn’t have time to deal with it (17%). IRA rollovers have been much easier, and widely marketed by investment firms anxious to gather the assets and reinvest them. Regulators are beginning to scrutinize rollovers in the context of a pending fiduciary standard mandating that financial advisors always put a client's best interests before their own. "The current rollover process favors distributions to individual retirement accounts (IRAs)," wrote Charles Jeszeck, director of the Education, Workforce and Income Security team at the Government Accountability Office, in a report issued last month. "Among other things, GAO recommends that [the Department of Labor] and IRS should take certain steps to reduce obstacles and disincentives to plan-to-plan rollovers. Such actions could help make staying in the 401(k) plan environment a more viable option, allowing participants to make distribution decisions based on their financial circumstances rather than on convenience." You may miss the free lunches at rollover seminars -- but end up having more options on how to best save for retirement. Must Read: Bond Market Strategies for the Coming Rise in Interest Rates [...]

Small Business -- and State Governments -- May Rescue Your Retirement

Tue, 26 May 2015 21:24 GMT

NEW YORK (TheStreet) -- Half of Americans employed in the private sector work for small businesses. That means many workers simply don’t have access to retirement plans. Big firms lure talent with tax-advantaged savings plans like 401(k)s -- and even match workers' contributions, while neighborhood businesses often lack the means to provide such benefits. But now, the small-business backbone of the economy is slowly rising to the occasion, often with the assistance of state governments. Must Read: Warren Buffett's Top 10 Dividend Stocks Here's one such example from the state of Washington: The Small Business Retirement Marketplace, signed into law last week by Washington Governor Jay Inslee, will provide an estimated 1.5 million residents in the state with access to workplace-based retirement accounts. “Employers do not have to do anything but deduct and forward the money -- the same way they handle taxes,” said Rep. Larry Springer, a co-sponsor of the state legislation, in a press statement. “We know people are very unlikely to save for retirement if they are not offered a plan through work. The Small Business Retirement Savings Marketplace will allow more workers access to a safe, easy and affordable way to retire in dignity.” Washingtonians will be able to defer a portion of their pay automatically to an IRA or another savings plan, and the accounts will be portable, enabling workers to take their benefits with them as they move from job to job. Employers will also have the option to match as much as 3% of employees contributions. “Small businesses often don't have the information and resources available to find the right retirement savings plan for their employees, and this program will provide easy access to low cost, low fee options that are fully portable and provide the same investor protections available to private investors," said Marin Gibson, Securities Industry Financial Markets Association managing director, in a release. The retirement marketplace has come into focus with a new national initiative of AARP called Work and Save. The nonprofit advocate for senior Americans estimates that 57 million U.S. workers have no access to a workplace retirement savings plan. “Social Security is a critical piece of the puzzle but never meant to be the sole source of retirement income for retirees,” said Doug Shadel, state director for AARP in Washington state, in a release. “Yet, 43% of today’s retirees rely on Social Security for 50% or more of their retirement income. The average benefit of $1,300 per month is simply not enough income to ensure people can live independently as they age.” Illinois passed the first such program in the nation earlier this year. The program is set to be rolled out in 2017 -- potentially affecting 2.5 million private-sector employees in the state. The Secure Choice Program also facilitates the creation of savings plans for workers employed by small businesses. And as in Washington state, employers are not responsible for the program’s administration or investments. Similar state-sponsored “automatic IRAs” are being developed or considered in Maryland, Connecticut, California, Massachusetts, Minnesota and Ohio. The Corporation for Enterprise Development estimated that more than 17 states are now[...]

More Retired Americans Are Outliving Their Savings and Saddled With Debt

Tue, 26 May 2015 15:33 GMT

NEW YORK (TheStreet) — There's a downside to living longer. One of the biggest fears for retiring Baby Boomers is outliving their savings. But that's the reality facing more Americans starting at 50 years old. Must Read: 11 Safe High-Yield Dividend Stocks for Times of Volatility and Uncertainty Some 12.2% of seniors who died at age 85 or older had no assets left, according to a study by the Employee Benefit Research Institute. And among singles who died at ages 85 or above, 9.1% had outstanding debt averaging $6,368, not including a mortgage. “Though quite stark, these findings are not a surprise,” said Bob Gavlak, certified financial planner with Strategic Wealth Partners in Columbus, Ohio. “I have found far too large a portion of clients have not properly planned or saved for retirement.” The general thought of these individuals is they will figure it out when the time comes and live off Social Security. However, that income may not be enough without a pension. “We’re seeing the first generation of retirees who have some accounts beyond just a pension,” said Anne Coveney, senior manager of Thought Leadership, the research arm of T. Rowe Price that uncovers investor trends and behaviors. “They may have pensions as well as 401(k) plans but the pensions are not as much of a source of income as in previous generations.” Among current retirees who have rollover IRAs or 401(k) plans, some 42% of household income is from Social Security compared to 18% from pension plans and 17% is from other retirement plans, including 401(k) plans and IRAs, according to new research from T. Rowe Price.  But depending on Social Security income could have dire financial consequences, such as having to rejoin the workforce after retirement. Amy Holler is officially retired but is working part time as a school crosswalk monitor in Long Island where she lives. "I didn't want to go back to work but I had to for financial reasons," said the 69-year-old former office supervisor. "I worked a few temp jobs before I found this position." In fact, some 31% of retirees rejoined the workforce because they had to compared to 69% who rejoined the work force because they wanted to, according to the T. Rowe Price study. "Retirement is the longest vacation that we're ever going to take," Gavlak told TheStreet. "Many people spend weeks, months or even years planning a vacation but oftentimes haven't spent nearly that much planning for retirement. It's important to do some research, prepare yourself and take steps to ensure you don't outlive your money." Must Read: Warren Buffett's 7 Secrets to Dividend Investing Revealed Click to view a price quote on TROW. Click to research the Financial Services industry. [...]

20% More Retirement Income -- Another Good Reason Not to Rollover Your 401(k)

Thu, 21 May 2015 16:47 GMT

NEW YORK (TheStreet) -- Maximizing your retirement income may require you to do -- nothing. Don’t roll over your 401(k) into an IRA, don’t determine a suitable withdrawal rate and don’t buy an annuity. Let your employer do the heavy lifting, and you just might increase your potential retirement income by as much as 20%. “The way you convert savings into income, that's just really hard for most people to figure out,” said Steve Vernon, president of Rest-of-Life Communications and a research scholar at the Stanford Center on Longevity. He says employers often can do a better job of developing retirement income solutions than workers. “If [participants are] left to their own devices, they often screw it up," he said. "They take out too much; they take out too little.”Must Read: 11 Safe High-Yield Dividend Stocks for Times of Volatility and Uncertainty And better yet, sponsors of 401(k) plans will likely be able to do it cheaper. “Plan sponsors can use their bargaining power, scale, ability to standardize -- and distribution efficiency -- to improve the retirement security of plan participants by offering their retiring plan participants a limited selection of retirement income generators that take advantage of institutional pricing rather than retail pricing," Vernon writes in an analysis for the Institutional Retirement Income Council. These solutions, he says, can increase retirees' incomes by 20% or more.  “As a retiree, the ability to take your savings and convert that into a stream of income to last for the rest of your life -- that's a daunting task," Vernon tells TheStreet. "A plan sponsor can really do a favor for their participants by offering them a few different mechanisms for converting their savings into income.” In the brief, Vernon outlines three example strategies that employers could offer to retirees: Systematic withdrawals, immediate annuities and guaranteed lifetime withdrawal benefits. By offering one or more of these options to employees, a plan sponsor can leverage the discounts built into the institutional pricing. “The first two methods we're offering are fairly administratively simple," Vernon says. "The third method is a little more complex." But, he adds, all three are well within the capabilities of typical plan sponsors. “For very little effort and a little extra cost, they can brag about a benefit improvement to their participants without spending lots of money,” Vernon says. “[They’re] actually delivering more retirement income to the employees.” Do employers offer such benefits? If they don’t now, it’s likely they will soon. The U.S. Department of the Treasury and the Department of Labor are encouraging plan sponsors to offer participants more retirement income options built into 401(k)s and other defined contribution plans. In October, the Treasury and the IRS issued guidance to plan sponsors designed to expand the use of income annuities in 401(k)s. “As Boomers approach retirement and life expectancies increase, income annuities can be an important planning tool for a secure retirement,” J. Mark Iwry, senior adviser to the Secretary of the Treasury, said in a statement announcing the guidance. “Treasury is working to expand the availability of ret[...]

Retirement Savings Shortfall? 4 Ways to Face the Challenge of Catching Up

Tue, 19 May 2015 15:48 GMT

NEW YORK (TheStreet) -- Kristen Bergevin, a Gen X-er, has been an avid investor, diligently allocating her savings for her nest egg in a 401(k), Roth IRA and savings accounts. The 41-year-old Los Angeles marketing executive is now making tweaks to her savings so she can bolster her retirement portfolio even more. She contributes the maximum amount to her 401(k), because her company provides a robust match, and she opened a flexible savings account a few years ago. Must Read: Warren Buffett's Top 10 Dividend Stocks "I am just your run-of-the-mill Gen X-er that has set up the systems for saving, and I just follow that," she said. "I think we all think we could have or could be saving more." While many Gen X-ers and Baby Boomers have fallen behind on saving enough money for retirement, it can be a challenge to make up the shortfall. Mitigating the gap means you have to be prepared to adjust your lifestyle. A realistic savings number is 10 times your current income, said MaryAnn Monforte, an accounting professor at Syracuse University. "Adjust your lifestyle now -- leasing a BMW 328i at $500 a month is not a necessity," she said. "A Ford Focus at $149 will you get to the same destination using much less gas. The $350 savings can be put towards retirement, not to mention the reduced insurance." Despite the fact that the retirement crisis has been writ large, with people living longer on inadequate savings, Americans are still struggling to save more money for their retirement. The median retirement accounts of families in which the head of household is between the ages of 45 to 54 is $87,200. For those between 55 and 64 years of age, it is $103,200, according to the Federal Reserve. Here are four ways to get your retirement savings on track. 1. Save More Today Create a budget of what you need to live on today, and focus on items you "need, not necessarily want," while paying down our debt, Monforte said. Any extra money should be allocated into a retirement account. If you want to augment your retirement savings and a higher salary is not on the horizon, consider taking on a second job for the sole purpose of saving and investing. "There really is no financial retirement at age 65 if you haven’t saved," she said. "You will need to keep working longer to supplement your income." Even if you have money allocated once or twice a month directly into a 401(k) or IRA, ensure that you don’t squander any raises. Save your raises before you consider spending it on a new car or vacation. A better plan is to save a percentage of your income and not a specified amount such as $500 each month so that you automatically save more as your income increases, said Robert Johnson, CEO of the American College of Financial Services in Bryn Mawr, Pa. "People often need to be shocked into reality on what it may be like to live on much less money," he said. "Financial planners will often ask the client to live on half or two-thirds of their current income to better understand what it feels like." Must Read: Fees in Your Retirement Account Are Higher Than You May Think 2. Open a Health Savings Account One way to stash away more savings a[...]

The Retirement Tax Cliff -- Time to Rethink How You Tap Tax-Deferred Assets

Mon, 18 May 2015 14:41 GMT

NEW YORK (TheStreet) -- Prevailing wisdom holds that American workers will generally land in a lower tax bracket once in retirement. But many retirees find just the opposite and are surprised that a long-recommended asset-tapping strategy may actually nudge them into a higher tax rate. So much for prevailing wisdom. Advisers have perennially suggested clients use taxable assets first for retirement income needs and draw from tax-deferred accounts such as IRAs and 401(k) plans last, in order to delay taxes on those plans as long as possible. Must Read: 11 Safe High-Yield Dividend Stocks for Times of Volatility and Uncertainty But according to Lena Rizkallah, a retirement strategist at J.P. Morgan Asset Management, many clients have been surprised just how much in taxes they end up paying, especially when required minimum distributions (RMDs) of tax-deferred accounts kick in at 70.5. "That's when they see all of a sudden their tax rate goes up,” Rizkallah said. "And also a lot of their Social Security benefit is subject to tax because their income went up." The leading edge of baby boomers is now approaching this "retirement tax cliff." For purposes of finding tax-efficient distribution alternatives, Rizkallah considered a married couple, with spouses of the same age who retire at age 60. Requiring a spending draw of $75,000 from a 30%/70% stocks/fixed-income portfolio of $1 million, the couple holds half of its assets in a taxable account and half in a tax-deferred account. The study examined three scenarios: A) Using the standard withdrawal strategy -- taxable withdrawals first, then RMDs from the tax-deferred account -- the couple remained in a 10% tax bracket until age 70.5. At that point "they kind of slithered into the 15% tax rate," Rizkallah says. B) Using the same assumptions -- tapping the taxable account first, but also taking additional distributions from the tax-deferred account -- the couple takes only as much as possible from the tax-deferred account without getting bumped into the higher tax rate. The withdrawals exceeding the couple’s $75,000 spending level are reinvested in the taxable account. C) Applying the same rules, except that the couple takes the extra tax-deferred withdrawals and converts them into a Roth IRA instead of reinvesting them in the taxable account. In scenario B, by making early tax-deferred account withdrawals, the couple took less in RMDs later and saved $52,000 in taxes. With the Roth conversions used in strategy C, the couple saved $240,000 in taxes and ended up with more than $330,000 in additional wealth. The hypothetical couple drew the same $75,000 income in all three instances but saw a drastically different impact to its remaining wealth, especially when utilizing the annual Roth IRA conversions. "They were able to substantially minimize their taxes overall in retirement," Rizkallah noted. "And very importantly, their ending wealth was really key. At the end of the day they got [the same income], paid the least amount of taxes and ended up with the most amount of wealth." It’s an elegant alternative to the traditional asset withdrawal strategy. But retirees seeking the most [...]