Archive for IRA

Don’t Bet Your Retirement On An 8% Return

· Wednesday, January 18th, 2017

Planning for Retirement

Planning for retirement can seem overwhelming. Here are Section 705’s suggestions for a successful future! In investing, time in the market is crucial. If past growth rates continue, the time you leave your savings alone actually matters more than the amount you save. Retirement Planning: IRA, 401K, and Stock Market

The problem with that, though, is that past growth rates probably won’t continue. Over the last 30 years, the stock market has averaged 7.8% growth, a rate that is the foundation of many retirement plans. If you’ve invested your whole 401(k) in total market index funds hoping for that growth, you may be unpleasantly surprised.

The 7.8% growth is a historical anomaly driven by demographic factors. Because of slowing industrial growth, decreasing population growth, and competitive overseas markets, that rate is projected to slow to 2% in the next year, and possibly past that.

This drop has significant ramifications. For 25-year-olds saving for retirement, a two-point drop over the next decade could necessitate saving twice as much before they retire.

Dealing with macroeconomic trends can be overwhelming. These steps can prepare your portfolio for struggling gains.

1.) Max out employer match

About 31% of American workers with access to a 401(k) don’t use it. Beyond the missed savings, employees are losing out on matching funds programs.

Matching funds programs are essentially interest payments. Your company will pay 100% interest on your 401(k) deposits. Increasing your 401(k) contributions to the maximum match level will minimize the impact of slow growth within your portfolio.

2.) Watch the fees

Ask your HR representative for a breakdown of your company’s investment management fees.

Review your fees and gauge if they’re reasonable. Most large companies have fees of 0.5%, with the numbers increasing for smaller companies to about 1.4% If you’re paying more, consider switching the funds you’re using.

3.) Revisit the Roth question

With the assumption that taxes usually increase over time, a Roth 401(k) generally makes sense for young people. However, with returns expected to drop and savings amounts likely to be a larger determinant of total wealth accumulation, it’s time to rethink this conventional wisdom.

If a tax deduction now in the form of a traditional 401(k) contribution would enable you to save more, it might be worthwhile. Growing your nest egg is essential; you can find ways to manage taxes once you’ve got enough saved for retirement.

4.) Look for predictable returns

As interest rates rise, growth slows as a result of decreased credit availability. That same force makes savings through other instruments more valuable.

An Individual Retirement Account (IRA) can hold savings certificate funds, like those available at 705 Federal Credit Union. These offer a predictable rate of return that isn’t dependent on macroeconomic forces, thus minimizing risk.

The principles of smart retirement planning don’t change. Spend less than you earn. Avoid debt. Invest as much as you can, as often, and as cheaply as possible. With a bit of planning, you’ll enjoy a prosperous retirement.

SOURCES:

http://www.marketwatch.com/story/9-things-you-need-to-know-about-401k-fees-2014-07-08

http://www.financialsamurai.com/the-401k-participation-rate/

http://www.denverpost.com/2017/01/11/millennials-double-retirement-savings/

Categories : Budget, Credit Union, Retirement

Tags : 401k, Investing, IRA, ROI, Saving, Stock Market

7 New Year’s Resolutions For A Richer 2017

Posted by Emily Beatmann

· Friday, December 16th, 2016

New Year, New You!

Photo Credit: http://ow.ly/44VN30j5jgg

The New Year is a great time of renewal. That makes it a good time to make bold, decisive changes in your life. Leave behind the baggage that was 2016 and start fresh with a blank slate in 2017. If you’re looking for some resolutions to improve your personal finances, we’re pleased to offer seven ways to make 2017 the year of the dollar!

1.) Track your spending

Determine where your money goes. Carefully record every dollar you spend for a month; apps like Mint can make this process automatic. Keeping track of where your money ends up may ultimately encourage you to spend more judiciously.

2.) Make a budget

70% of Americans live financially spontaneous lives, without planned spending. This is a circular problem: If your budget doesn’t include setting aside money for long-term expenses and savings, you’ll end up spending everything on unplanned things and events. Stop the cycle by creating a budget that modifies your spending to be more in line with your priorities.

3.) Get out of debt

The biggest stumbling block to financial security and saving towards long-term goals is debt. Make the move towards debt reduction this year by adding an extra $50 or $100 to your credit card payments. Alternatively, focus all your payment resources on the highest-interest debt until it’s paid off, then move on to the next highest.

4.) Start an emergency fund

The best way to avoid going into debt is to have some money available to handle the occasional, yet inevitable, emergency. Set a specific goal, like adding $10 per month to a savings account. At the end of the year, you’ll have more than $100 available in case something goes wrong.

5.) Start a retirement account

When you have a retirement account, your monthly statements serve as reminders to think about and plan for your retirement. The challenge, though, is taking that first step. Don’t get hung-up on perfection; any kind of retirement account is better than none. If your job offers a 401(k) matching program, sign up to get at least the full matching funds amount – it’s free money. Do a bit of research, then open the account that seems like the best idea.

6.) Automate your savings

Fighting that impulse to spend what you’ve earmarked for savings is a constant struggle; it’s easiest to take the decision out of your hands. Change your direct deposit to put some of your paycheck directly into a savings account, where you won’t even think about spend it impulsively.

7.) Get educated

Knowledge is power, and that’s especially true in the world of personal finance. There’s loads of information out there; resolve to read one personal-finance article a week. This will give you great ideas for improving your financial situation.

Happy New Year from all of us at 705 Federal Credit Union. We hope you have a safe, happy, and prosperous 2017!