401(k) Post Mortem

A recent Wall Street Journal Article has this shocking news about 401(k)s: they dropped 24% in 2008.

The author goes on to say that this could have been worse – because the S&P 500 declined by 37% in the same year.

BUT – be careful. She later writes that doesn’t mean 401(k)s did any better than the market average. Why? Because that data includes worker contributions! So the losses were actually worse than 24%, but people kept adding to their accounts!

Someone with a small 401(k) could have lost much of its value in the market, but if she contributed that same amount during the year her account would have shown no change.

Is that how we are going to prepare for retirement? Contributing more and more every year and not knowing if the money invested will grow or shrink?

No wonder author Garrett Gunderson (see Wednesday's blog on Retirement Myths) says, “A 401(k) is not the "safe" and "smart" plan that you have been told it is; in fact, it's an extremely risky investment for most people.”

No wonder people worry if they will have enough money for retirement. It is not secure money. Why lose money? There is no need to lose money – you can have no downside risk and still have upside potential in an annuity.

Roth IRAs

Did you know that on January 1, 2010 the Roth IRA conversion rules are changing? For one year only, people who make over $100,000 may convert their traditional IRA’s into a Roth IRA. (See an example in Advisor Today.) People under that threshold may convert at any time!

Why Consider a Roth:

1. There are no required minimum distributions in a Roth.
2. Assets in a Roth grow tax free, not tax deferred.
3. Beneficiaries can inherit the accounts tax free, and also start a “stretch Roth” to provide tax-free cash flow for life.

If you plan on using your IRA funds soon (within 10 years), or you expect to spend all of your IRA funds during your lifetime, the conversion may not be right for you. When you convert to a Roth, you have to pay the taxes on the money at that time. However, if you convert during 2010, you will be allowed to stretch the tax payments over 2 years.

To find out if a Roth is right for you, ask at least these 3 questions:

1. Do you believe taxes will be higher or lower for you in the future?
2. Do you plan on growing your retirement account for at least 10 years?
3. Do you want to avoid required minimum distributions so you can accumulate your money longer?

If you answered “yes” to the 3 questions, a Roth conversion may be right for you.

To find out what to put in your Roth that will have potential for growth without any chance of loss, click on the button to the right to consult with me today.

Retirement Myths

We have grown up thinking certain things about planning for our retirement, and some of these are just not true. Garrett Gunderson, in his book Killing Sacred Cows, dispels some of these myths.

I also just read a very concise article that made some of the same points, which I’ll summarize here.

Myth #1: You will not need as much income in retirement. But who wants to work hard and save money only to scrimp during retirement? And some costs, notably medical expenses, can go up.

Myth #2: Taxes will be lower in retirement. However, after the current recession and bailout, the government will continue to need more, not less, revenue in the future.

Myth #3: My house can provide retirement savings. With the downturn in housing values, this will no longer work for many people.

Myth #4: I can make larger returns in the stock market. The stock market has lost money in the last decade, and many experts think it could be volatile for years to come.

There are ways to leverage your savings with tax-deferred compounding interest that is guaranteed, and at retirement can provide income for life.

Click the button at the right to contact me about preserving your retirement money today!

Exceptional Personal Service

When I find someone who does what they promise, and is quick to return a phone call or email, what a joy that is! I want to work with them more, and I go out of my way to send business their way.

ON the other hand, dealing with someone who doesn’t take responsibility, who doesn’t act quickly and treat each matter as an important one – or perhaps with an entire company that has this attitude – that is the worst! I want to run, not walk, away and wash my hands.

I recently took the Strengths Finder test online, after buying the book, and found that the theme of Responsibility is one of my strengths. I understand: this means that I hate to let others down, I like to follow through, and I like others to do the same.

Recently I dropped the ball myself and forgot to change an appointment with a colleague when I found out I couldn’t make it. Luckily he checked ahead of time, but I still felt terrible, and had to call him and apologize and make it right.

So I know I personally put a premium on being responsible and dependable, and enjoy working with others who do the same. You may want to take the Strengths Finder test and find out if responsibility is in your top five. And even if it is not, you may likely be working with people for whom it is – and it will help you to keep that in mind.

Health Care Reform From the House

Last Thursday the House of Representatives rolled out their Health Care Reform bill, with sweeping changes proposed for our health care system.

Obama praised it for including a public health care option, and being fully paid for.

This would be accomplished through 4 primary measures:

1. Offering subsidies to help the uninsured purchase insurance through newly created exchanges.
2. Requiring individuals to buy insurance and all but the smallest employers to offer health coverage to workers.
3. Taxing individuals making more than $500,000 and couples earning more than $1 million; this would bring in an estimated $460 billion over 10 years.
4. Expanding eligibility for the government's Medicaid health insurance program for the poor to people with incomes up to 150 percent of the official poverty level, which is cheaper than providing subsidies.

According to the Insurance Journal, debate could start as soon as this week, and the sides are splitting right down party lines.

A Flexible Health Insurance Option for Small Business

Going forward, and anticipating the future with Health Care Reform, many small businesses are looking for creative options to save money and yet offer good coverage for their employees.

Here is one such creative solution.

United Health has a new plan called Multi-Choice, and it has been getting positive press, such as this article in the Puget Sound Business Journal.

The company can purchase one of two packages, each of which has multiple benefit options. The employees can choose their coverage from a variety of copay and deductible levels. The employer contribution is a set amount for each employee; the employee contribution will vary depending on the plan that they chose.

New employees can come to the company and elect a plan that is similar to their old plan. The business can grow and change, and within this one package offer options to all of their employees.

This is a win-win for both companies and their workers. It provides predictable health care costs for the company, and choice of the amount of coverage to each and every worker.

Seattle Officer Slain

If you live in Seattle, you have heard the news of policeman Timothy Brenton being murdered on Halloween night. (You can read about it the Seattle Times.)

In a random, ruthless, drive-by shooting the 39-year old officer was killed and the student officer who was with him was wounded.

This kind of horrible violence is completely senseless, and has no place in a civilized society.

And in fact it is relatively rare in Seattle – the last time a police officer was shot in the line of duty was in 1994.

Timothy Brenton was a dedicated husband and father of two, and today our thoughts and prayers go out to his family.