Voices in Finance » Retirement

Is Securing a Personal Loan on Your Pension a Good Move?

J. Hamilton Fraser — Mon, 25 Jul 2011 09:56:04 +0000

Securing debt by using your pension as collateral has become more popular in recent years – in particular for people who are approaching their retirement.

Older people often find that their pension is their largest asset. So if you anticipate receiving an ample pension in just a few years time, but you need some money now for home improvement or some other unexpected cost, taking a loan can seem like a good move.

Some lenders will allow you to borrow up to 50% the net value of your existing pension account, which could be a substantial amount and might serve a very important purpose.

Before you take out such a loan though, think carefully about the pros and cons:

Pros:

One obvious advatage is that this type of loan will be relatively easy and therefore perhaps faster to get – and it is likely to come with a lower interest rate too.

In fact, you may not even need to provide a credit check, so long as you can prove the value of your pension assets…

Cons:

The first thing to do is think about your own financial situation and whether you really need this loan. If you can reduce the principal at all, then so much the better.

This loan will effectively reduce your pension income when you do retire, so you should carefully consider what you need to live on and where you can save money in order to boost your own finances.

Remember that once you retire you will have fewer expenses to account for and it should be possible to save money in other places if have the time to look around for special offers and freebies. They all help.

How to apply

If you decide that you do need to take out such a loan, you should first check that you qualify. Many lenders will only offer such a loan if you are within 5 years of retirement.

Even at this age, some lenders may be wary of allowing this type of loan, so it is worth shopping around and asking questions. You might also need to take out life insurance to cover the term of the loan.

Are You Ready For Retirement?

Mike — Mon, 20 Jun 2011 15:14:34 +0000

According to the United States Department of Labor, fewer than half of all Americans are adequately planning for the 20 years that the average American spends in retirement.

It is estimated that a person on an average or higher income will need at least 70% of their current income after retirement to maintain their current standard of living. For low income earners, the estimate is 90%.

Some people hand over their retirement planning to expert financial advisers. Basic retirement security requires planning, commitment and discipline but it is not complex.

There are many resources available both commercial such as moneysupermarket and governmental to help you plan your retirement strategy.

Some experts may take risks that are not acceptable to you, resulting in losses that affect the outcome of your retirement plan. It is wise to only risk a portion of your money and to spread your investments to minimise risk.

To begin with, it is important to assess your retirement needs. Be realistic and set achievable goals based on your current standard of living.

Consider how inflation will affect what you can afford in the future. This will require expert analysis by a professional for accuracy, but a good rule of thumb is that prices double every 10 years.

Find out what type of retirement plan your employer offers. If there is none, then request that be one be created. If a plan exists, then find out what the benefits are and what happens if you leave the company.

If your employer offers a 401(k) retirement plan, then sign up and contribute as much as you can. There are tax benefits to doing this and your employer may contribute more as you do.

It is always important that a person diversifies their retirement portfolio. On top of your employer’s plan, there is also the Individual Retirement Account. Here, you can save $5000 tax free a year or more if you are over 50.

Additional options are purchasing retirement annuities, investing in stocks and bonds and buying property. All of these require expert financial advice and are higher risk than government sponsored plans.

The younger you are when you begin saving, the greater your options and the better the returns. As a young saver, you can take on more risk as a part of the plan.

Typically, a young investor, say 30 years old, has 30% of capital in secure savings and 70% in a variety of higher risk ventures. As a person gets older, so the risk portion should decrease and the secure portion increase.

It is vital that retirement savings are left untouched. There are usually penalties involved in early withdrawals and there may also be a loss of tax benefits.

There is also the Social Security benefit to consider. This typically pays out at 40% of your final salary but check with your annual Social Security Statement to find out exactly what you will be entitled to.

Retirement planning for peace of mind and well being is essential in this day and age. The sooner you start the better but always better late than never.

What Are Roth IRA Rates?

J. Hamilton Fraser — Thu, 09 Jun 2011 02:17:04 +0000

When you hear someone who talks about IRA rates what comes into your mind? A lot of people, especially those that are just new to IRAs have different ideas of what IRA rates are. Some may define IRA rates as the rate that you have to pay for a company to open an IRA account while some believe that these rates are the rates that you get from your IRA account.

So what is an IRA rate? In a strict sense, there is no such thing as IRA rates. The rates that you are hearing about that concern IRA are the rates of returns that you get from your IRA account. Say you open a Roth IRA. You will be given different types of investment options that may range from stocks, certificate of deposits, mutual funds bonds and a lot more. When you choose an investment say, you want to invest in mutual funds, you will earn from it and from there you will be able to calculate your IRA rate.

Finding the best rates for your Roth IRA investments is one of the important steps that you should do as an account holder. The rates will directly affect your retirement funds and it is a must that you should see to it that you will get the best Roth IRA rates for your investment to make your retirement goals possible. However finding the best Roth IRA rates may require patience and hard work. It needs careful analysis and tons of research.

To find the vest rates for your Roth IRA account, the first thing that you do is to choose the type of investment for your account. If you plan on investing in stocks and mutual funds you have to keep in mind that these investments will give you variable rate of returns and is a little bit risky. If you want an investment that is virtually free of risk and will give you a fixed IRA rate, you may want to invest in certificate of deposits. After you have figured out what type of investment you want you can now compare rates from one Roth IRA provider to another.

You May Not Be Able To Retire If You Do Not Save Your Money Now

J. Hamilton Fraser — Sat, 04 Jun 2011 22:18:10 +0000

Today many people are finding that they can not retire, or retire they way they had wished to because they have not made the necessary savings they would need. The amount of money it takes to retire is reportedly rising each year, that means that for a young adult to retire it will take more than their grandparents. But these reports may be misleading and as long as you take a few steps then you should be on the right track to a good retirement.

The most important thing to have during retirement is money, and most likely you do not want to keep working for that money. Having a fund in which you place your extra money and letting it gain interest would be the best plan. One plan of action could be a Roth IRA or an annuity depending on your financial status. But even before you have a retirement fund in place you will need a retirement plan in place.

Planning out how much money you will need during retirement is an essential part to being prepared. You need to plan for housing depending on if you will own your own home or not as well as other expenses. Medications, food, transportation, insurance, and utilities are among the bills you will need to forecast into your calculations. Sometimes the best thing you can do for retirement is to make sure all your mortgages are paid off as well as loans.

If you do not have any mortgages or loans to pay on when you are ready to retire then the amount of money you will need will be significantly less. Taking steps such as planting your own garden and or raising your own cows can cut your food costs as well as having your house and car already paid off. The expense reported to retire may be accurate if you are totally dependent on everyone else and have non of your loans paid off, but if you are prepared for retirement then it will take a lot less money.

How to Select the Best IRA Funds?

J. Hamilton Fraser — Mon, 04 Apr 2011 10:10:08 +0000

It is pretty important for you to consider what investments you want in the IRA account. The most obvious strategy in doing this is to put the investments into a variety of financial instruments. With this strategy, you can be sure that there is diversification in your account making the risk lower. It may be difficult for you to select all those financial instruments yourself. Fortunately for you, the best IRA funds have already pre-selected the best options for you. You just need to select the best IRA mutual funds that suit your personal preferences.

If you are not one to track the stock market, then consider getting some ETFs and index funds. The index funds track major indices like the DOW, Nasdaq and SP to find the best investment options. Finding out about these funds is also very easy. You just need to approach any financial planner and they will be able to advise you on the best IRA funds available.

When you are thinking about the investments options, you need to make a decision between a bond fund and equity fund. The difference is the bond fund is generally more stable but the returns are less than equity funds. As a generally rule of thumb, bond funds are perfect for near retirement age individuals as its primary concern is the preservation of capital. Equity funds are more for people who are still some years from retirement. This is because the main aim of an equity fund is wealth accumulation. It is definitely more risky but the returns are higher. There is also the possibility of a combination fund with different percentages allocated to bonds and stocks according to the risk appetite of the individual.

Besides all these things to consider, selecting the best IRA fund would also be influenced by how much you have in your account. If your funds are limited, it is recommended that you just select one investment and wait for it to be profitable before moving to the next one. However if the balance in your ira account is high, you can try out a couple of these funds at the same time to optimize profitability.

401k Advisors Serving Up Impartial Advice?

J. Hamilton Fraser — Wed, 02 Mar 2011 15:42:12 +0000

This article will focus on the behaviors of 401k advisors as reported in the recent GAO report: 401(K) Plans: Improved Regulation Could Better Protect Participants from Conflicts of Interest.

There are three groups that make up the 401k arena: Plan Participants (you), Plan Sponsors (your company) and Plan Providers (the companies that sell the entire 401k package to your company).The report highlights conflicts of interest, particularly relating to the selection of investment options within the plan.

These conflicts of interest stem from “revenue sharing” and other business arrangements paid to the Plan Provider by third-party providers like the investment fund companies (mutual fund companies) that are included in the main menu of investments offered to plan participants. The potential conflict is in situations where plan providers may receive greater compensation from certain funds. Typically these arrangements can lead to greater costs for the plan which are passed on to participants.

The conflict of interest may also extend to the area of participant education offered in company plans. Many industry experts recognize that participants see education as investment advice. It is a common perception among participants that any education offered to help them select from available investment options will be generalized and unbiased. Yet, providers may focus on their own funds even though they may have a financial interest in the funds.

The GAO will likely undertake to regulate these potential conflicts out of existence and that is well and good. Yet, it simply brings home the idea that the very nature of the 401k industry has been to shift the burden for saving and investing for retirement directly onto the shoulders of every plan participant. The plan participant is ultimately responsible, whether or not she wishes to recognize it.

There are a growing number of 401k advisors, particularly independent investment advisors, who are prepared to accept the fiduciary liability of serving the plan participant. More and more they are willing to give individualized, one-on-one investment advice from developing asset allocation strategies to monitoring investments to alerting plan participants when it is prudent to change the investment portfolio.

Reasons Why You Should Open a Roth IRA

J. Hamilton Fraser — Tue, 05 Oct 2010 01:35:55 +0000

Investing may not be a thing for everybody especially when looking at the economy today wherein you do not know what will happen in the next few days. But if you open a Roth IRA or learn more about it you will realize that this is one investment that really works for your advantage. Here are more reasons why one should consider opening a Roth IRA account:

1. Tax Free Growth of the Retirement Account

You are putting money on your retirement account after all the taxes are deducted from your income. After that, your account grows freely without being taxed. Let us say you started to contribute to $5,000 per year on your Roth IRA at age 25. Assuming an 8 percent annual return on your investment, your retirement account will become 1.4 million dollars by the time you retire at age 65. All these will not be forwarded to the IRS if you wait until age 60.

2. Flexibility with Investment Options

Roth is perhaps the smartest moves in dealing with your hard earned savings from your incomes. With the Roth IRA, you are allowed to do whatever you want to invest in. After all, it is your money and you are free to do with whatever you want with it. You can choose to invest in stocks, bonds, mutual funds, foreign exchange rates and even in real estates.

3. Can be With Withdrawn before Maturity Date

If you have contributed to your Roth IRA account for at 5 years, you can withdraw a maximum amount of $10,000 tax free. This amount is limited to one person only. So if you are a couple you can withdraw up to $20,000. Not a bad amount especially if you are starting to build a home or wanting to open a small business.

The sooner you open a Roth IRA account then the better it will be. This is because, with long-term investments, you can take higher risks which give you higher return of investment. Learn how to open a Roth IRA account now and make the most out of this smart money-making moves.

The Truth About DIY Superannuation- Good Idea or Not?

Mike — Thu, 30 Sep 2010 08:02:14 +0000

General dissatisfaction with industry managed superannuation has produced a real groundswell of support for DIY super. The lousy returns, high fees and general underperformance of a funds which hold trillions of dollars worth of people’s savings has been a catalyst for real change in the industry, and it’s now starting to affect the capital base. Superannuation has become a sort of “travel insurance” for investors and people concerned about their retirements.

DIY super basics

DIY super is actually fairly straightforward in practice. It’s a method of providing for yourself by investment, like normal super, and in many countries there are tax advantages in this process. Not paying industry fees, of course, also improves the income for the DIY super funds.

Typical investments in DIY super include:

Stocks
Exchange Traded Funds (ETFs)
Bonds
Income earning financial products
Secured capital investments
Unsecured capital investments
Derivatives
Cash management
Gold

These investments are usually carried out as “spreads” across multiple products and holdings. They’re designed to avoid the dangers of single stream investments which may devalue, while increasing exposure to rising values in these markets.

The DIY investor will balance the spread across high yield options, for example, a $1 million investment may include:

$100,000 in some preferred stocks which earn more than ordinary stocks.
$300,000 in a blue chip index ETF
$100,000 in bonds
$200,000 in cash management
$100,000 in gold
$200,000 in a secure fixed term deposit.

You’ll notice this is actually a very low risk profile. Not much but the prices can go wrong, and if one sector, like the stocks and ETFs falls, another, like gold and cash management, is likely to rise, producing offsets.

Problems and potential pitfalls

The DIY super manager is really only vulnerable to mistakes. As for all investors, the risk of buying in to investments which then reverse and go down is pretty inevitable. Best practice is to buy at the low end of any market, and use the spread effect to ensure there are other sources of income available.

Another danger area is the “fad investment” market. This could be some sort of housing project or other capital investment, spruiking huge returns on a non-existent product, or a great opportunity to buy stocks which have done nothing for a few years. The people who buy these things aren’t idiots, just the victims of what is basically fraud. The DIY investor is better suited to mainstream investment, anyway. This is the big capital market, and prices and product quality are a lot less debatable.

DIY superannuation and tax

The other potentially serious tripwire is tax. Many DIY super investors are good investors, but lousy on the details. Superannuation tax varies a lot from country to country, and even from state to state in some places. The need is to be fully aware of taxation obligations before investing, not after.

DIY super really is cheap travel insurance for your retirement, if you know how. Learn the investment options, plan your spread, and make sure you keep your tax covered. The rest is easy.

Understand Your 401K Rollover Options

J. Hamilton Fraser — Wed, 01 Sep 2010 21:09:19 +0000

When you leave a job that has a retirement plan in action, you may be wondering what your options are when it comes to a 401k rollover? Most of us have heard of rolling over our retirement plans but how many of us have actually done one? The good news is there are many ways you can go about it, all of which will help you save for your retirement, and you will have no problems transferring the funds.

Before you move the money, you need to make sure that you have the right paperwork, which can be obtained from the current 401k provider. Once you have it, you must make sure that all the information is correct and it is filled out properly. If you have a local brokerage assisting you then they can make sure you complete it properly, but if you go through an online investing house you may need to figure it out on your own. Failing to do this can result in your 401K plan being inactive and not making you any money and a hassle to get access to it.

Make sure you are aware of any potential tax implications involving your rollover, and don’t be tempted to cash out your funds. If you do so there will be stiff penalties and taxes owed to the IRS on the money you cash out. One of the easiest ways to continue in a 401K plan is to simply move it to the new company’s plan. While they will restrict you on the same governing bylaws and investments at that company, it is a seamless way to move the funds.

If you do not have a 401k plan at the new company, then you can look into mutual funds. You can find mutual funds to invest in at any brokerage or financial institution and are easy to buy. They are similar to an IRA and can give you modest growth on your retirement plans. You may choose to go with a higher fee full service brokerage house instead, where your funds are more diverse and have a better risk of a higher payout.

Ask what are your 401k rollover options? Take this question to an accountant or financial advisor and have them explain your options and help you set up for your retirement. They can educate you and help you make the right choices.

The Ultimate IRA Rules

J. Hamilton Fraser — Tue, 22 Jun 2010 20:00:06 +0000

IRA stands for Individual Retirement Account, which allows you to save for your retirement by contributing for as long as you make taxable earnings. Taxable earnings include fees, bonuses, wages, salaries, taxable alimony, tip, separate maintenance payments, and commission on sales.

There are established IRA rules concerning how much money you can place to your IRA, in what events or conditions can the money be distributed from your account, and the funds that are required to be distributed after a particular period of time.

When you place money in a traditional IRA, you may have contributions that are tax-deductible under specific circumstances. The tax deductibility on your contributions relies on your income, tax filing status, and eligibility to participate and contribute to employer-sponsored retirement accounts.

Eligibility Requirements

For you to deduct the maximum contribution amount, you should become aware of the income limitations and IRA contribution rules of individuals and couples that wish to become active participant in this retirement plan.

If you are single or head of household, you are eligible to receive the full IRA deduction if your AGI or adjusted gross income is not more than $55,000. If your income is between $55,000 and $65,000, you will be permitted to get a partial deduction. On the other hand, if you earn more than $65,000, you will not be authorized to deduct any contributions to your traditional IRA.

If you have the status of “married filing jointly”, you contribute actively to your account, and your AGI limit is set at $89,000, you can have partial deduction if you and your spouse’s combined earning is between $89,000 and $109,000. You will get no deduction if your earning is more than $109,000. If your spouse’s income limit is set at $162,000 or lower and you are not an active IRA participant, then your spouse will benefit from full deduction, while he or she will be granted with partial deductions if his or her earning is between $162,000 and $172,000. No deduction is awarded if your combined yearly income is more than $172,000.

The Internal Revenue Service indicates the maximum IRA limit on deductible contribution. For 2010, you can house as much as $5,000 if you are less than 50 years old, and $6,000 if you are 50 years old and older.