So unless you live under a rock, you can not help but have noticed the turmoil surrounding the stock markets and economy in general. Today was actually considered a ‘good’ day after the Dow Jones Industrial Average rose by nearly 4% to end at 11239.77. Did I say a ‘good’ day? This comes after the markets plummeted over the past few trading days. Any gains since the beginning of the year have been wiped out and once again millions of employees have seen the value of their qualified retirement plans take a significant hit. The reality is that for those people who were planning on retiring in the next month or two, unless they were financially independent, they are now considering either working longer to make up for the losses incurred the last few days or figuring out how to make less money last for their so-called ‘golden’ years.
For those of you who follow this blog, my previous post discussed many of the issues with qualified plans. Note this was written BEFORE the most recent financial turmoil, so I’m not simply jumping on a band-wagon here. In fact, quite the opposite, I tend to not follow the masses when it comes to financial management. Here are a couple of concepts though that I believe everyone should think about and act on:
1) Do not gamble with your retirement savings
The stock market is not a sure thing. If the events of the last few days have not proven that to you, then I don’t know what will. If the value of the stock market goes down 50%, it needs to go up 100% just to get back to the point it was. It took 2 years to recover from the crash in 2008, 2 years just to get back to where people were before. If you are in your 20’s you may have time on your side, but I personally know others who were close to retirement in 2008, but had to continue working simply because they gambled that the market would continue its upward trend. They lost the bet. If you have some discretionary income that you want to use to prove to yourself that you can do better than those astronomically highly paid traders on Wall Street, then knock yourself out. However when it comes to your main retirement vehicle, look for something that protects you from the down-side of the market, but still lets you participate in the upside.
2) Use tax advantageous retirement strategies
Qualified plans are great in the sense that they allow you to fund them using pre-tax dollars, thereby allowing you to reduce your tax liability today. However, the IRS is really not being as generaous as you might think, for when it comes time to take distributions from your qualified savings plan you will pay tax on whatever amount you withdraw at whatever the prevailing tax rates are, depending upon which tax bracket you are in. Ah yes, I hear the proponents of qualified plans now….’you will be in a lower tax bracket in your retirement’. Really? Taxes are at a historically low rate at the moment and unless something has changed, the last time I looked our national debt was the highest it has ever been. You really believe that taxes are going to stay where they are? Think about that for a while and tell me if you still think that most investors will be in a lower tax bracket during their retirement years. Look for a plan that will help you generate sufficient tax-free income during your senior years. You work hard for your money – make sure you get to keep as much of it as possible.
That’s enough for now. Hopefully if nothing else this will get you thinking. If you want to know more, as always feel free to contact me directly and I can help see what makes sense in your personaly situation.
To end with , I thought in the spirit of craziness it would be fun to share the events that lead to a Darwin award. For those of you that don’t know what a Darwin award is, this is an award that is given to recognize those that improve the human species……by accidentally removing themselves from the human gene pool. These awards are all the result of actual events. I just hope that those honored had life insurance…Enjoy!
Sunderland, England paramedics found a prone man suffering injuries including a scorched colon, caused by a Black Cat Thunderbolt rocket. The 22-year-old had, unbelievably, inserted this rocket in his back side, laid down on his front side, and lit the fuse in an attempt to make the rocket fly up into the air. But it was pointing the other way! The regional Firework Association chairman spoke for us all when he said, “This sort of thing is beyond belief.”
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I don’t know who you wrote this for but you hpleed a brother out.