TedCo Software Financial Matters Blog

As the economy worsened, not only did retirement funds drop in value with the market, but also many people have been tempted to tap savings as a way to cut debt or otherwise shore up their finances after a job loss. Still more have found that employers have dropped matching contributions to shore up their own finances.

Worry about retirement seems to be widespread. A January survey by the National Institute on Retirement Security noted that 83 percent of Americans are concerned about their ability to retire.

Yet the worst thing you can do is tap or give up on your retirement funds. No one can know with any certainty when the investment markets will rebound, but even if you can contribute something, you stand to gain once markets start to rebound. Even more important, you risk penalties and the lost potential for earnings if you turn your back.

Before you make a move, seek out some advice. It’s a good idea to check in with an expert such as a Certified Financial Planner™ professional to see where your retirement funds stand in light of all your finances before you do anything.

In the meantime, here are things you can do to put your retirement funds in better shape.

Don’t stop funding your 401(k) under any circumstances: In March, the Spectrem Group, a Chicago-based consulting firm, reported that 34 percent of U.S. employers have reduced or eliminated matching contributions to their defined contribution retirement plans – which include 401(k)s and 403(b)s – since January 2008. The Pension Rights Center reports that besides the Big Three automakers, dozens of major companies have cut back their match, including Motorola, Starbucks, and JPMorgan Chase & Co. It’s a significant impact. US News & World Report recently reported that for a worker who earns $50,000 annually and receives a full employer match of 50 cents to the dollar on six percent of his or her pay, the match cut means $16,000 less for retirement. An employer dropping its contribution is bad news, but you should make every effort to keep up with your contribution because if you don’t, you’ll miss valuable tax deductions and the chance to build your funds more effectively for the long term.

Stay invested: Because no one precisely knows when the market is headed up or down it’s best to stay invested at a time when everyone is waiting for a rebound. Keep in mind that the market’s top performing days typically come at the start of a recovery, so leave your money in your 401(k) and IRAs.

Keep in mind that withdrawing or borrowing your funds can be costly: If you have an emergency situation, be careful. Workplace 401(k) plans do allow for hardship withdrawals, but you might have an option to take a loan, which would save you the taxes and the 10 percent penalty that accompany hardship withdrawals for account holders under the age of 59. The majority of 401(k) plans allow you to borrow up to 50 percent if your vested account balance or $50,000, whichever is less.

Adjust your spending so you can save more: If you have an existing Roth or traditional IRA or other means of saving for retirement, do whatever you can to get more money into these accounts. It may not come close to meeting the shortfall from losing an employer’s contribution or the chance to add to a 401(k) after you’ve lost your job, but it’s critical to keep some savings going.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm.

Have you wondered what effect the 2005 changes to the US bankruptcy laws have had?

The answer is available in a June 2008 report made available by the AARP Public Policy Institute titled, “Generations of Struggle“, by Deborah Thorne, Elizabeth Warren and Teresa Sullivan. The conclusions may surprise you because the report indicates changes at both ends of the age continuum. And even with the changes

In short, younger Americans are filing at a lower rate but bankruptcy filings have significantly increased for those age 55 or older.

The full, 16 page, report is available from the AARP web site.

You Know The Banking System Is Unsound When….
Credit card rates can go up … well, just because
Debit cards for your 401k

Not a lot of good news or positive views in these three, but certainly important considerations. I’d read them in the order provided. First Mish’s take on the banking system, then the eye-opening results of a survey of credit card companies that raise rates “just because”, and finally the worst idea of all … a firm that offers debit cards for 401k accounts … absolutely dumb.

This one’s not a pretty picture, but it’s very interesting reading.

“The Housing Crash and the Retirement Prospects of Late Baby Boomers” by Dean Baker and David Rosnick was released in just last month by the Center for Economic and Policy Research.

It’s a study of the retirement prospects of people between the ages of 45 and 54 under three alternative scenarios. The first is that real house prices fall no lower than the March 2008 level, the second scenario assumes the 2009 average will will 10% lower and the third assumes a 20% fall for the 2009 average.

You can read the full report online, but the stand out for me is that so many people may have planned to use their house as a source of funds for retirement. Interestingly, renters seem to come out ahead in this paper. The authors project renters in the same group in 2004 will have more wealth in 2009 than homeowners in all three of the scenarios!

The takeaway: buying one’s home is not about investing. Home buying is probably done best when one is actually buying a house in which to make a home.

More than half of U.S. employees have less than $25,000 in savings and investments (this includes retirement savings but excludes homes). About 40% of people age 55 and older have less than $100,000 in retirement savings!

The U.S. Senate unanimously approved a bill which designates October 21 through 27 as National Save for Retirement Week in an effort to encourage employees to save more for retirement.

How’s your retirement savings? If you’d like a good idea of what your financial future holds, download a free trial version of Future Value of Savings Calculator.

Take some time during National Save for Retirement Week to pay attention to your retirement savings.