Nov 10, 2009

The Vultures Circling Your Nest Egg

Our changing economy has affected nearly every aspect of retirement. Household names in investment and insurance companies were turned upside down. Workers looking forward to early retirement have realized tremendous setbacks. Individuals who disregarded social security as an income stream worth counting on are now reconsidering. Retirees that have relied on social security for years are concerned about growing national debt and the safety of this income. 

Now is the time to ensure that your retirement assets are accounted for and managed efficiently. Unfortunately, there are costs associated with retirement today that may creep in and destroy your nest egg. 
  • Are you leaving a 10% tip when you purchase investments? Many investors pay large commissions to investment brokers and insurance salespeople. These commissions are often hard to decipher and in many products, the fees are not transparent. When you work with a financial company, make sure that you understand what fees are associated and how they are paid. Good investment decisions are the ones that are focused on making money for you, not the investment company. 
  • Ignoring your tax situation can erode your savings. Currently the highest marginal tax rate for an individual is 35%, historic highs exceed 90%. That means that, at high tax rates, on the next dollar you earn you can keep a dime. In the next few years we can count on increased taxes, not only on the marginal tax rate but in many areas. In order to pay for government programs Americans will be required to pony up. There are many strategies that can be used to minimize taxes including conversion to a Roth IRA and tax deferred investments. 
  • Last year Bernie Madoff destroyed investor’s nest eggs to the tune of more than $50 billion dollars in his Ponzi scheme. Investors across the nation are now looking to ensure that everyone involved in the management of their retirement assets is on the same team. It is important that your investments are protected by a series of checks and balances. If you are working with a financial planner with fiduciary responsibility, the firm is legally obligated to do what is in your best interest. If your investment advisor is fee-only and not commission based, the billing structure at that firm allows the advisor to focus on your needs and not on sales. The discount broker your advisor works with is also interested in making sure accounts are secure. Mutual fund companies also account for client assets to ensure safety. These three entities work to keep each other in check. Clients hit by the Madoff scheme saw no transparency and understood that there were no checks and balances. These investors heard of substantial returns and this was enough to entice them into investing without proper research. Like your parents always said, “If it seems too good to be true, it probably is.”
  • $1 for you $1 for them, $1 for you $1 for them. During the life of your loan on a thirty year mortgage you pay nearly double the original purchase price of the home.  For every dollar used to pay principal individuals are putting a dollar toward the bottom line of their mortgage company. Paying the minimum payment on a credit card can be even worse. Folks that get serious about paying down debt and staying out of debt will reduce stress and increase their chances of success in every other area. If you have not built a house of cards out of debt, good for you. If you have found yourself in a hole, STOP DIGGING!
  •  Sometimes the biggest thief is you. Individuals often get in the habit of spending as much as they make and getting accustomed to living on more and more money. Emergency savings accounts go unfunded and when life doesn’t go quite the way we expect, the only money available is debt or assets set aside for retirement or education. It is crucial to get in the habit of saving and creating systems to force ourselves to save. Consider earmarking a certain amount of money to draw from a checking account into savings. Pay yourself first.

  •  Whether the kids are out of the house or one is still lingering in the basement, make sure that you are not providing too much support. Retirees find it difficult to say no to children who seem to have a real need, but if it becomes a recurring problem, get your finances in check. If you find it too difficult to turn down requests, get help. You can use your financial advisor, your banker, or someone who is willing to be the go-to person for the kids. Tell the kids that this person is in control and send requests to a trusted advisor. 
In order to make retirement a reality in this day and age it is crucial to make sure that you are in charge of your finances and that the folks assisting you have your best interest at heart.
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