Do you know your challenges and goals?   Do you know what will be demanded of you at the different stages of your life?   A lot of folks are not sure and need some guidance.

Sometimes having a guide to walk you through each stage can be helpful?  The Financial Stages of Your Life Guide will help direct you through the financial challenges that you will face during each phase of your life.   Here’s a review of what the guide can offer you:

The Financial Stages of Your Life Guide

20’s : Getting Started

Your young and wild.   You can do anything, Your invincible.  Now what?

• You transition from education to establishing a career.
• You start looking around to see what the world has to offer you.
• You start working.
• You start developing credit.
• You start interviewing for jobs.
• You start sending applications out for an apartment.

30’s – 40’s : Accumulation

You have begun to settle down.  You have to be responsible now.  There are people counting on you.  What do you do next?

• You get married.
• You start families.
• These are your professional years.
• You develop your careers.
• You start accumulating assets and building equity.
• You apply for mortgages.
• You start your 401k retirement accounts.
• You buy some life insurance policies.

50’s : Final Working Years

Your children are becoming little adults, so now you can focus on your financial goals.  Learn how.

• These are the beginnings of your final working years.
• You accumulate as much as possible for retirement.
• You apply for student loans for your children.
• If you still have outstanding balances on your own student loans you start paying extra on those loans.
• You start to consolidate other outstanding debt.
• You pay off as much debt as possible.

60’s : Begin Retirement

• You start the transition from working years to retirement years.
• You start to ask yourself some serious questions about your future.
• Have you saved enough money for your retirement years?
• Will you have to continue to work during your retirement years?
• If you have to work part-time, what would that look like?

70’s

Ahhh -  Retirement.  Job well done.  You have worked your entire life for these years.   Relax and enjoy them, you’ve earned them.

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1)  Business 401k plan (sometimes referred to as a Traditional 401k plan).

2)  Simple 401k plan (sometimes called the small business 401k plan).

3)  Simple IRA plan.

The IRS considers all 3 of those retirement plans qualified retirement plans.  And even though the are all qualified retirement plans, different rules apply to each.  And each one may offer some similar features but also offer slightly different features.  We will review the differences.

In some cases, a business 401k plan or Traditional 401k plan may be too costly for a small business.     A small business may actually save money in fees by offering a small business 401k plan or Simple 401k plan or Simple IRA to their employees.

Each type of qualified retirement plan comes with different advantages and disadvantages for the business owner.   Let’s review those.

Different 401ks Offer Different Features:

Traditional 401k Plan:

Advantages for the business:

• The business can maintain another qualified retirement plan, such as a profit-sharing or SEP.
• This other qualified plan can run concurrently with the Traditional 401k plan.
• Employers have the discretion to match or not.
• Employers are not required to match.

Disadvantages for the business:

• There are testing requirements set up by the IRS.
• Non-discriminatory and top-heavy are two tests required by the IRS.
• An outside independent firm must be hired to perform the testing.
• This is an added cost to the business.

Simple 401k Plan:

Advantages for the business:

• The plan is not subject to IRS discrimination testing.
• Lower administration fees than a traditional 401k plan.

Disadvantages for the business:

• The deadline to start a Simple 401k plan is January 1st to October 1st.
• The employer cannot maintain another qualified retirement plan.
• The employer can only offer the Simple 401k plan if the business employs less than 100 employees.
• The employer is required to make matching contributions.

Simple IRA Plan:

Advantages for the business owner:

• There are no testing requirements.
• Easy and inexpensive to set up and administer.

Disadvantages for the business owner:

• Employer can only offer the Simple IRA Plan if the business employees less than 100 employees.
• Employers must match.
• The matching can be dollar for dollar up to 3% of employee’s compensation up to the employee’s contribution amount.
• Or the employer can match 2% of compensation to all employees regardless of whether they made a contribution or not.

Different qualified retirement plans meet different needs of the business owner and offer different features for the employee.   Review the advantages and disadvantages of each before deciding on which retirement plan to implement in your business.

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The Simple IRA plan is popular with business owners for two reasons.  The first reason is because it Is easier to start and administer than a 401k plan.  The second reason is that  the administration fees are usually less than a 401k plan.  If the business owner can save money, everyone wins.

As a business owner you just have to be aware of the required match, so that at tax preparation time you do not miss the deadline date for matching.  The employer match in a Simpler IRA plan is due no later than the filing of the employer’s income tax return.

The rules and regulations established by the IRS for Simple IRA’s are different than the rules of 401k plans.

Rules & Regs of Simple IRA’s

Administration of a Simple IRA:

• NO discrimination testing required.
• Lower contribution limits than a 401k plan.
• Easy to start.
• Easy & inexpensive to operate.
• Employer must have less than 100 employees.
• Employer cannot offer another qualified plan, such as a 401k plan or profit-sharing plan.

Eligibility:

• To be eligible an employee must earn $5,000 or more in compensation in the prior 2 years.

Contributions:

• Employees may contribute.
• Employers must contribute.
• For 2010 and 2011 the maximum contribution limit if $11,500.
• Catch-up contributions are allowed in a Simple IRA Plan.
• Employees over age 50 can take advantage of catch-up contributions.
• For 2010 and 2011 the catch-up contribution is $2,500.

Matching:

• Employers must match.
• Employers have 2 matching methods to choose from.
• Employers can match the employees’ contribution or their compensation.
• If they match the employees’ contribution, the match is dollar for dollar up to 3% of the employees’ contribution amount.
• The other matching method is where the employer makes a 2% of compensation match to all employees, regardless of whether or not the employee made a personal contribution.
• The employer will have to determine which matching method is most cost efficient.

Loans:

• Loans from a Simple IRA are not permitted.

Withdrawals from a Simple IRA:

• Withdrawals made before age 59 1/2 are subject to a 10% early withdrawal penalty.
• If withdrawals are made within the first 2 years of starting your contributions to a Simple IRA Plan, the early withdrawal penalty is increased from 10% to 25%.
• Early withdrawals will also be subject to taxes.

Research shows that companies who offer some type of qualified retirement plan, such as a Simple IRA or 401k plan, have an easier time attracting and retaining talented employees.   So the IRS established Simple IRAs to provide smaller business owners with a more cost efficient qualified retirement plan that they could offer their employees.

Simple IRAs help the employees save money for their retirement and help the business owner save money on fees and administration costs.

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Believe it or not, you may have extra money but just don’t think you do. If you are looking in the wrong places for extra money or you don’t have the right attitude, you will never get your investments into a growth mode.

It’s common to waste money, it’s rare not to.  If you can narrow down the places you waste money, you can find extra money for your investments.

Finding Extra Money In All The Right Places

Find Extra Money By Reviewing Unnecessary Fees

• Late Fees

You will save money on late fees if you always pay your bills on time.  To change your attitude about late fees, set up automatic bill paying to avoid paying late.

• Banking Fees

You will save money on banking fees by avoiding overdraft fees.   Change your attitude about bank account balances, make sure you always keep a balance.

• Interest Fees

Pay off your credit card bill in full every month to save money on interest.  Credit card companies love it when you carry a balance on your card; they earn lots of money by charging you lots of interest.

Unnecessary Miscellaneous Expenses You May Be Paying

• Bottled water.

Generations have survive on good old tap water; some say bottled water is just a gimmick.   Maybe it is maybe it isn’t, one thing is for sure though, attaching  filters to your faucets and use tap water is definitely a lot cheaper than buying bottled water.

• Paid Television.

What did folks do before cable, satellite or dish television…we had more family time, we played more board games, we talked more.  Okay so you don’t like talking, that’s okay, you can still have access to movies.   

You can save money plenty of money by renting movies from your library or Net Flix or the Red Box or other movie rental services.

• Eating Out.

Eating at restaurants should be a treat, not a necessity.   You can still eat out occasionally, but save money by bringing your lunch to work 3 out of 5 days every week.   Or bring your lunch to work every day and eat out only on weekends.

• Smoking.

Sorry smokers, but your habit is expensive and you could save a lot of money by quitting.  By giving up a pack a day you could save over $2000 a year.  That nice savings would look real good invested into an IRA account or a 401k account.

• Club Memberships.

If you stopped working out at the health club, cancel the membership.  You will save money and you will stop feeling guilty about not working out.

• Magazine Subscriptions.

If your magazines are stacked up, you don’t have time to keep up on read them, so cancel the subscription.

If you look real hard at where you are spending your money, you will surely be able to find some waste.  Invest that extra money; it all adds up.

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401k retirement plans can sometimes seem overwhelming; and that’s unfortunate because they should not be.

Your 401k plan will seem complicated if no one ever took the time to explain the basics. It can get quite frustrating when you have questions but you’re never sure who to ask. This leads to feeling like you don’t have much control over your 401k retirement account.

Believe it or not though, you actually have more control over it than you realize. The first step to gaining personal control is understanding what it’s all about. Let’s break down what areas of your 401k plan you do control and which areas you do not.

What You Do Control:

401k Contributions.

Allocation of your 401k contributions.

Your 401k Distribution.

• You have some control over when you start to take 401k distributions.
• The IRS also has some control.
• 401k rules, set up and controlled by the IRS, stipulate certain dates that you must follow to start 401k distributions.
• The part you have some control over is which date you want to start.
• The IRS allows distributions to start between ages 59 1/2 and 70 1/2.

What You Do Not Control:

How your 401k contributions are processed.

• You cannot just write your employer a check for your 401k contribution.
• Your contribution cannot be an IRA rollover.
• An IRA rollover is a rollover, not a contribution.
• Payroll deductions are the only way you can make your 401k contributions.

Matching.

• You do not control whether or not your employer offers matching as part of the 401k plan.
• Some employers are generous enough to match your personal 401k contribution, some are not.

The match amount.

• If your employer does offer matching, you do not control the amount of the match.
• You do control whether or not you contribute enough to receive the full match.

Vesting Schedule.

• You do not control when the employers match becomes yours; in other words,  is vested.
• Most employers set up a vesting schedule between 3 to 7 years.
• To receive the free money your employer gave you in the form of a match, you have to keep the assets in the 401k plan during that  scheduled time period.

The Investment Platform.

• You do not get to decide which investments are included within the 401k plan.
• Your employer works with the 401k plan provider to determine the investment funds offered in the plan.
• It is the fiduciary responsibility of the 401k plan sponsor (your employer) to select investment options for the plan that offer diversity and cover all asset classes.
• Most 401k plans use mutual funds as the investment platform.
• Most plan sponsors do a very good job at offering a diverse selection of investments.

Rollovers

• You do not control whether or not a 401k plan accepts rollover money.
• Some 401k plans accept 401k rollovers from other 401k plans, some do not.
• If you change jobs and your new employer’s 401k plan does not accept rollover money, you always have the option of rolling your account balance into an IRA.

Loans

• You do not control whether or not a 401k plan offers 401k loans.
• Even though 401k loans are allowed by law, employers are not required to include them in the plan.

401k plans seem complicated and overwhelming until you break down the pieces; then you can feel more in control.  Hopefully all of the information we presented takes away the overwhelming feeling you had about 401k plans.

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Your ability to save for your retirement and defer paying the taxes on that investment money until you retire is the benefit of investing into a 401k account.    Very few other investments allow you that tax deferred benefit.   But since all 401k plans are not designed the same, you need to learn about the basic rules before moving forward with your investment.

All 401k plans do not have the same flexibility and structure.  Below you will learn about 401k plan options, 401k rules and 401k contribution limits.   With this basic knowledge, you can then approach your employer about your own company’s 401k plan design.

Just remember that the 401k plan benefits of tax deferral far outweigh any obstacles in regards to the 401k plan rules.   Learn about the basics so that you can have confidence when you talk with your employer about your retirement account.

Your Guide To 401k Plan Basics:

401k Plan Options:

A 401k plan can be designed to include any or all of the following:

Your employer’s 401k plan administrator should be able to explain in detail which of the above options are built into your company’s 401k plan.

401k Plan Rules:

These rules apply to contributions, withdrawals, loans and rollovers.

401k Contribution Rules:

Withdrawal Rules:

• At age 59 1/2 you can withdraw from your 401k plan without incurring a penalty.  You will have to pay taxes on the amount of your withdrawal.
• If you make a withdrawal before 59 1/2, you incur a 10% penalty.   You will have to pay taxes on the withdrawal amount.
• If you become disabled or meet the hardship qualifications, you can withdraw before 59 1/2 without incurring the 10% penalty.    But you will still have to pay taxes on your withdrawal.

Loan Rules:

• Some 401k plans are designed to allow you to take a loan against your 401k balance.
• Maximum loan percentage is 50% of your vested account balance.
• Maximum loan amount cannot exceed $50,000.

Rollover Rules:

• When you leave your employer, you can rollover your balance to your new employers’ 401k plan.
• You can also rollover your balance to an IRA.
• You face less risk of paying taxes and a penalty if you have the money transferred as a direct rollover or trustee-to-trustee transfer.  This is where your employer works directly with the ”institution” receiving your rollover vs you taking possession of the money and making the transfer yourself.
• If you take possession of the money with the intent of depositing it into your new employer’s 401k plan or an IRA, you have 60 days to make that deposit or you pay taxes on the amount plus a 10% penalty if under the age of 59 1/2.
• If you take possession of the money, your employer is required by law to withhold 20% right off the top for taxes.

401k Contribution Limits:

• For 2009 the 401k contribution limits are $16,500.   If you are over the age of 50, the 401k plan limits include a catch-up contribution amount of an additional $5,500.
• For 2010, the 401k contribution limits remained the same as 2010.
• The 401k contribution limits for 2011 will remain the same as 2009 and 2010. (see above)

The 401k contribution limits are adjusted by the Department of Labor and the IRS to keep up with inflation.   These limits generally change every year, but sometimes they remain the same as the previous year.   To be on the safe side, double-check with your tax accountant every year on the new 401k contribution limits.

401k plan rules can be complicated so we attempted to simplify the rules, limits and plan options for you.    By learning your basics you will be confident when talking with your own company’s 401k plan administrator.

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When you are downsized or leave a job for other reasons, you have four options on handling your 401k account balance.

You can leave it with your prior employer,  cash out your 401k retirement account, roll over the account balance to an Individual Retirement Account or roll over the balance to your new employer’s 401k plan.  All four options have different consequences.   Let’s look at those consequences.

4 Ways To Handle Your 401k Retirement Account:

Option #1 – Leave your balance with prior employer.

• You may leave your 401k investment balance with your prior employer if your account balance meets the minimum threshold set up by the IRS.
• The IRS minimum account threshold is $5,000.
• If your 401k account balance is below $5,000, your prior employer can force you to roll your account out of the plan.
• If your account balance is above $5,000 leaving it with your prior employer is okay if you like the variety of investments offered in the 401k retirement plan and you feel comfortable with the administration, management and the services provided.
• Make sure you are still eligible for all of the same services once you leave the job.
• Make sure the old employer’s plan does not charge fees for former employees to remain in the 401k plan.
• Keep in mind that you likely have less control.
• You cannot take a 401k loan on monies in an old employer’s plan.
• The 401k investments in a 401k plan are often selected by the employer, so you have less choice.
• The 401k retirement plan may have a smaller core lineup of investment choices.
• Money left behind in an old employer’s 401k plan is often forgotten.

Option #2  - Cashing out your 401k retirement account balance.

• Cashing out is the worst options of all four.
• Cashing out is very expensive and not worth it.
• If you cash out your 401k account, you will be immediately taxed on the account balance.
• If you are under age 59 1/2, you will also be subject to a 10% early withdrawal penalty.

Option #3 -  Rollover to your new employer’s 401k retirement plan.

• A 401k rollover to your new employers plan is an easy option.
• First, find out when you are eligible to participate in the new plan.
• You may want to become eligible to participant in the new plan before rolling over monies from the old plan.
• Find out what the investment choices will be, do you like the variety better than your old employer’s 401k plan.
• Find out about the fees, are they lower?
• Is the new employers vesting schedule better than the old 401k plan?
• You can generally take out a 401k loan out against the balance of your new account.
• If you decide to rollover your 401k balance to your new employers 401k plan, be sure that the rollover check is not made out to you personally.
• Make sure the 401k rollover is a Direct Transfer or Trustee-to-Trustee Transfer.
• A Direct Transfer or Trustee-to-Trustee transfer is one where the financial institutions pass the money between themselves without you ever taking possession of the money.
• If you take possession of 401k rollover money and do not redeposit into a qualified retirement plan within 60 days, you will be taxed and pay tax penalties if you are under age 59 1/2.
• Once a 401k rollover is completed, you cannot change your mind and put the money back.

Option #4 – Rollover to an Individual Retirement Account.

• IRA’s can have great investment flexibility than 401k’s.
• You usually have a greater variety of investments to choose from.
• A 401k IRA rollover is the way to make an IRA transfer out of the 401k plan without being taxed or paying tax penalties.
• If you do decide to transfer your account balance out of the 401k to an IRA fund, you need to first complete an IRA transfer form.
• You may be able to obtain this form from your 401k plan administrator.
• The plan administrator may direct you to their online 401k program.
• But sometimes the plan administrator may direct you to the financial institution that is receiving the IRA transfer.
• The receiving financial entity has to provide their own proprietary IRA form.

A 401k IRA rollover is commonly used if you become unemployed after a downsizing and you do not want to leave your money in your former employers’ 401k.   You can keep your 401k account as is – but at least you know that you have the option to transfer out of the plan if you so desire.

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Are you planning for your retirement the right way?

Proper retirement planning means the difference between having a great retirement and a retirement where you will have to keep working.

How are you planning?   How are arriving at the amount of money you will need to accumulate before you end your career to be able to live comfortably for the rest of your life in retirement?

Are you working with a financial planner to come up with this number?   Are you looking at all sources: your 401 k, your IRA’s and personal savings and social security?

How To Plan For Retirement The Right Way:

You Need A Retirement Investment Number:

• Your retirement investment number is the amount of income you will need to carry you through your entire retirement period.
• You need to know how much income you will need to maintain your standard of living when you retire.
• And then determine how long that retirement income needs to last.
• How long you will need this investment money for depends upon what you plan on doing at retirement: will you work part-time, travel, start a new career?
• You can use a retirement calculator to arrive at this investment number.
• You can work with a financial planner to also come up with your investment number.  Your financial planner may also use a retirement calculator.
• Determine your retirement investment number early in your career so you have a target to work towards.

How To Reach Your Retirement Number:

• Cut back your current spending.
• Only buy what you need, not what you want.
• Accumulate as much as you can, the power of compounding will grow your money.
• Start as early in your career as you possibly can; your first job is the best place to start.   If you are well into your career, teach your children to start saving when they start their first job.
• As long as the child has earned income, receives a W2, they can contribute to an IRA.
• Use your first pay check every month to pay your fixed expenses.
• Fixed expenses would be your mortgage or rent, car payment, real estate taxes, 401 k contribution.
• Fixed expenses are “mandatory” expenses, they have to be paid.
• Use your second pay check to pay for your variable expenses.
• Your variable expenses include: utilities, food, entertainment.

Where To Get Your Retirement Income:

• Social Security has become a very weak source of retirement income for future generations.   So you need to bulk up your other sources of retirement income.
• 401 k plans are a very strong source.    If your employer matches your 401k contributions, you receive free money.
• Individual Retirement Account’s are another strong source of retirement income.   Your investments can be more flexible than a 401k.   The contribution limits are not as high as 401k plans and the rules and regulations can be complicated, but IRA’s are a nice supplement to your other retirement planning sources.

By planning today for your retirement; you can only imagine what the type of retirement you will have.   But by not planning and preparing you can also imagine what type of retirement you will have, a hard one.

You are never too young or too old to plan and invest for retirement, start today, you will be glad you did.

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If you want to retire someday – you need to start thinking about where your retirement income will come from.

Unfortunately there are no retirement fairies that will hand you money when you feel like retiring.

The Social Security Administration used to be the retirement fairy; but that is becoming more and more unreliable as a source of retirement income.

The retirement investment vehicles that are becoming more and more reliable as a source of retirement income are 401k retirement plans and IRA’s.

401k retirement accounts and IRA’s, are both retirement type accounts and are available for your investments; but you need to make the committment.   No one will invest for you.  No one cares about your retirement as much as you do.   No one can develop the discipline to invest on a regular basis, but you.

Your Retirement Income Sources:

401k & IRA Investments.

How Much Retirement Income Will You Need?

Retirement Calculators.

• How do you know how much money you will need in savings before you are able to retire?
• How do you know if your current retirement investments are on track to get you to retirement?
• How do you know if your retirement investments will be enough to last throughout your entire retirement?
• Retirement calculators can be a very helpful financial tool.
• With retirement calculators you can establish a base to work from.
• Retirement calculators will show you how much retirement investments you will need to do in order to have enough retirement income.

To get your projections as accurate as possible you will need to be perfectly honest when working with the retirement calculator.

If you fudge the numbers, you will have an inaccurate picture of what it will take to get you to retirement.    If you fudge the numbers, you may not save enough  to last your entire retirement.

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Since we are living longer now a days, retirement for most of us will be one of the longest periods of our life.  For some of us, our retirement years could be over 20 years.      With that in mind, you may need almost as much money during your retirement years as you do during your working years.

If you use the process of investing, you will be ready for retirement.   401k investing is a combination of many puzzle pieces; individually the pieces are not as powerful as they are combined.

Dollar cost averaging, asset allocation, account diversification, 401k retirement account maxing, 401k retirement plan matching and IRA investing all work together like a puzzle.   These individual puzzle pieces when put together create a beautiful picture for you called your retirement.    Let’s get you ready.

Getting You Ready For Retirement

You earned millions!!  Where did it all go?

You can’t get it back, moving forward.

• It’s gone.
• The money you have earned and spent over your life time  -  –  is gone.
• But there’s hope.
• Start managing the money you do keep like a pro.
• How you manage the money you do get to keep is crucial to getting you ready for retirement.
• Money management is done best under a process.
• Money professionals and wealthy individuals all use a process to accumulate wealth, so should you.

Use The Process of Investing: It Works.

Dollar Cost Averaging – buys your investments on sale.

• By dollar cost averaging you are investing the same dollar amount on a regular basis regardless of market conditions.
• This process buys some investments at a high price and some at a low price.
• The highs & lows are averaged together – your money is well spent.
• The pro’s dollar cost average.
• Dollar cost average regardless of what you hear about the market and the economy.
• When the market is down, you are actually buying your investments on sale….so getting more for your money.

Proper Asset Allocation – lowers the impact of market dips.

• Asset allocation is the percentage split between the different investment styles within your investment accounts.
• Aggressive, moderate and conservative are the different investment styles.
• These investment styles are called asset classes.
• 401k accounts are usually invested in mutual funds.
• Cash or a cash equivalent are conservative.
• Bonds are conservative.
• Balanced funds are moderate.
• Large cap funds are moderate.
• Mid cap and small cap are aggressive.
• And international funds are definitely aggressive.
• Spreading your 401k contributions among the different asset classes will lower the impact to your account balances when the market drops.

Good Diversification – helps lessen the effect of market swings.

• If you spread your investments between cash or a cash equivalent, bonds and stock investments, you will have a diversified portfolio.
• Staying diversified will help smooth out the upward and downward swings the market puts your investments through.
• Market swings can cause your investment returns to fluctuate.

Maxing Out – gets you tax benefits.

• To take advantage of the tax benefits, max out your 401k  contributions every year.
• Your taxable income drops.
• You keep more of your money in your pocket.
• More money in your pocket gets you ready for retirement at a faster pace.
• You are accumulating money for retirement that doesn’t get taxed until you withdraw it.
• When you do withdraw it, you should be in a lower tax bracket, so taxes will be less.

Employer Matching – gets you FREE MONEY!!

• If your employer offers to match your 401k contributions…FREE MONEY!!
• With an employer match, your employer is handing you free money.
• You cannot turn down free money.

Individual Retirement Account’s – other retirement options

• IRA’s can be a supplement to your 401k investments.
• An IRA can be used as a retirement investment if your employer does not offer a 401k retirement plan.
• Your contributions can be tax-deductible.
• Your earnings on the account balance can be tax deferred.

How you manage your money throughout your lifetime will determine what kind of retirement you will have.   Getting ready for retirement is not about what you make but what you keep.

Good money management means keeping more of your money in your pocket.   With more money in your pocket, you will accumulate wealth quicker; and be ready for retirement with relative ease.

Getting ready for retirement can sometimes be a bumpy ride.   Things get in the way of accumulating your wealth; job changes, unexpected expenses; unplanned for situations.   If you follow the process of investing  that we discussed, you should be able to smooth out the bumpy ride.

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