Archive for the ‘Retirement savings’ Category

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How You Can Screw Up Your 401k!

Monday, October 11th, 2010

403b, and 401k Investing

A recent article by Karen Blumenthal in the Wall Street Journal listed 5 common mistakes made in your employer based retirement accounts-401k or 403b.

I will list those mistakes and give you my take.  You can put your two cents in down in the comments!  No, not your 2 cents in your retirement account-that would be a bigggggg mistake.

A free exchange of ideas-the American Way…..

  1. Worrying Excessively Over Where You Invest Your Money-The writer points out that the amount you save may be more important than what you save it in.  If you invest in pork bellies or cotton futures, that may not be true.  But most employer sponsored accounts do protect you from your penchant for splitting a pair of fours (not good), when taking a card would be a better play.  Don’t treat this account like a chance at the lottery.  Stay Conservative. Limit your choices to mainstream bond/stock mutual funds, blended funds, and money-market funds. Most 403b plans don’t give you a choice of  high stakes risk investments-to protect YOU from YOU.
  2. Investing Only Enough to Get The Match-I don’t know that I agree that is a mistake.  Because of the limitations of employer plans re investment choices, I think investing in your own Roth or Traditional IRA, if you are eligible, may be a better choice than piling in all your tax advantaged savings in your employer plan.  Drive the Beamer today rather than put 10-15% away for retirement! That’s what immature, short-sighted, stupid people do-think driving a car they can’t afford makes them a better person.
  3. Not Taking Your Family’s Total Retirement Situation Into Account-Put your total family retirement savings into perspective.  If you have a spouse with retirement savings, and you have a lot of other investments, such as rental income, a family business, or a spouse with a large retirement account-then besides being thankful, you should also make sure your investment choices are balanced between all the family holdings. DIVERSIFY, DIVERSIFY, DIVERSIFY! Then RE-BALANCE, RE-BALANCE, RE-BALANCE-at least yearly.
  4. Avoiding Excessive Holdings of Company Stock In Your 401k-Now most of you that work for non-profit hospitals, or small non-publicly traded companies, don’t have that concern-there is no company stock.  But if you are working for HCA or another public company, make sure you keep only a small portion of your retirement account in that stock-the article says less than10%.  I would say less, unless the company is a leader in its field.
  5. Watching Expenses In Your Investments-This may not be a big concern for many, as the expenses of the plan itself is not in your control.  But if your individual choices, such as a stock or bond mutual fund, has differing expenses, then go the cheapskate route.  Decreasing the cost of your investments, can make your gains swell as big as Lady Gaga’s……(I was going to say head-get your mind out of the gutter!)

You find the expenses  and a lot of other important info. in the Prospectus-that booklet of fine-print given to you about each investment, or online at the mutual fund’s website!  Yes, you should be reading those documents.  This is your yeaaaars, and yeaaaaars of  retirement we are talking about, not just a date night!

For a couple of more common 401k 403b mistakes, for no extra charge:

  • Not moving your money when you change jobs-if you change jobs, you should transfer (roll-over) your money to your new 403b.  Having your money spread out over several accounts, makes keeping up with things almost impossible.
  • Job Hopping-Most 403b/401k accounts have a vesting time.  This means the matching money is not all yours until you have been employed for a certain number of years-many are 3-5 years in length.  Don’t chase 25 cents an hour and lose thousands from your 403b.

So take a few minutes and think about your employer provided retirement account.  Make sure you have fine tuned that baby, to run like Usain Bolt- fast but under control!

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Posted in personal finance, Retirement savings | 8 Comments »

Catch-Up Contributions: A Little Help For Graying Nurses-and Nurse Shawna!

Tuesday, August 17th, 2010

Nurses Over 50

Last week, we introduced Nurse Shawna.  She and her husband have been neglecting their retirement plans, while getting their kids educated, and maybe letting their lifestyle creep ahead of their income.  A common story for many.  Baaaaad Nurse!!

Help is on the way!  Because even our Congress, with its 11% approval rating, saw the sagging retirement efforts of many, passed a bill several years ago allowing “catch-up” contributions.    This will greatly help Shawna, but before we go into those details,  let’s discuss a little background info.

Washington Spending and the Graying of Nursing

Are you a little frightened right now by what is going on in Washington?  The amount of spending in Washington is scary.

Nobody knows the implications it will have for our  country’s future.  Even the most sanguine of economist’s admit, this is uncertain territory.

In past times,  this type massive government spending-such as after the Great-Depression, the average age of our county was much younger.

How much younger?  Less than 7% of the population  was over 65 in 1930.  Now 43 % of households are over 50 yrs of age.

The percent of the public debt vs Gross domestic product is at a level not seen since 1950, and according to the Congressional Budget Office,  the percent of public debt/GDP is expected to continue to rise over the next 10 years.

Aging Population

What does the aging of our population mean.  To me it means it will be ever more difficult for the country to grow itself out of this deficit.  And, I am an eternal optimist, glass half-full kind ‘uv a guy!

“What does this have to do with nurses over 50?” you might ask.  “Why- saving for retirement of course!!!”  The feds will be out of money, unless they print too much.   Then with inflation, the money we have will be worth much less!  The implications for Social Security are obvious to all! You can’t depend on it!

Nurses are aging too!

photo by kalacaw

Aging well, of course, but aging nonetheless.

Nurses are aging along with the population-with the 2008 National Survey on Nurses by the feds showing over 45% of nurses over 50!

Because of all of these demographic factors, the federal government has seen the need to help older workers put more retirement money away!

Catch Up Contribution Provisions

This assistance is known as Catch-Up provisions- no, not catsup…

Normally the amount of money you can put away in various retirement accounts is capped.  Many of you may not realize it, cause you aren’t even coming close to the limits now.  But these tax advantaged retirement accounts, such as your 403b at work, or IRA’s, while generous, have a limit.

Again, you may not realize it because you have never approached the cap, if you are saving at all.

But we are going to change that-areeeeeent we?????  And if you want your retirement to be more fun than watching Oprah re-runs, then you need to get started increasing your retirement savings.  Maybe start slowly, so it doesn’t hurt as much.  Increasing your pre-tax deposits in your 403b a percent or so more at the time.

Here is a brief list of  the extra income you can deposit in your various retirement accounts:

  • 403b, 401k: $5,500 extra per year over your already generous limits. (most don’t hit the limits!)
  • IRA (traditional and Roth): $1,000 over your normal limit of $5,000

Now remember, these are per person, so if you are married, and your spouse is over the age of 50 as well, you can potentially put an extra $12,000 per year.

Nurse Shawna’s retirement savings dilemma:

What can Shawna and her husband do, to get back on track to the comfortable retirement they had been dreaming about.  What are her goals, “To buy a second home near their oldest daughter.”  ” To be able to travel, and see the country.”

We aren’t rich, we don’t need the Ritz- we can enjoy a Holiday Inn Express, as long as we have each other and our kids to enjoy!”  ” I just don’t want to be still on the floor, with nurses calling in sick, when I am 75 using my walker to get around!”

Nurse Shawna’s financial to-do list!

To use the “catch up” provisions to increase her 403b deposit to the max.  Her 403b adviser can walk her through the tax minefield regarding income limits.  Now remember she had an extra $1,000/month of cash flow freed up with her last child finishing school.  With the tax advantages of 403b deposits being made “pre-tax” she will actually be able to put ~$1200 extra per month into her retirement savings.  If she hits that 403b limit, then the extra can be placed in an IRA.

This will also max her out on the 3% match from her employer- adding additional monies, that she was missing out on.

She and her husband have looked over their lifestyle creep, and found many ways to save money and try to add to their savings.  This includes selling a bass boat he no longer uses.  They have dropped memberships, magazine subscriptions, and had a big yard sale to get rid of the stuff the kids left behind.

They are beginning to pay attention to the small and large ways they spend money.  They are also considering downsizing their home, so they can build up the savings to buy that second home in the next 10-15 years.

Limits on preferential taxed savings:

Now the limits on how much can be deposited in 403b’s, and the income limits on tax deduct-ability of IRA’s, is complicated.  I will attach an article for your reference.

Buy my CPA consultant, who is also a Certified Financial Planner, has advised me on writing this article, and his advice was:

“This is one of the most complicated areas of tax law.  The amount of money you can set aside in these programs is strictly enforced by the IRS, and there are penalties and interests if you get it wrong.  I highly recommend- if you are trying to hit these upper limits- to obtain the advice of a tax professional!”

Don’t let that precaution,-give you an excuse to slow your savings, however.  Just keep in mind, just as you have professional knowledge and your advice can save your patient’s life, or improve their health; it is equally important to use financial professionals for financial advice!

You over 50′s out there!  What say you?

Have you increased your retirement withdrawals at work, or in your IRA?  If not,  what are you waiting on?  Help from the gov’ment????  I wouldn’t hold my breath….

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Posted in Retirement savings | 1 Comment »

Nurse Over 50: Needs Personal Finance Transplant!

Thursday, August 12th, 2010

Nurses Financial Summary:

Let me introduce Nurse Shawna.  She has been an RN for 15 years. Before nursing school, she worked in a manufacturing plant.  Once the plant closed and the jobs went overseas-she went back to school- being the first in her family to go to college.

She is making the national average nursing salary of $53,000 per year as a nurse manager.    She has enjoyed the comfort a good job has brought to her family, and combined with her husband’s salary-they are doing quite well.

However, she just had her 55th birthday. She had an epiphany on  her birthday-she didn’t want to work forever.   She and her husband recalled that commercial, where the couple is on the phone talking about how their friends had to sell their home in retirement-as they didn’t have the money to keep it.

For the first time in years-Shawna began to think about their long-term financial future.

Her employer,  a large city hospital, matches up to 3% of her salary in a 403b.  But Shawna is only contributing 1%.  Her last child had just graduated from college, and was finally off the payroll.   He has gotten a job, even in this environment-hallelujah!

Prior to his graduation, Shawna and her husband had been doing what a lot of people do, sacrificing their future for their kids’ college.

They had opened IRA’s on the advice of a friend years ago, but hadn’t put anything in them for several years.

Financial Fast Facts for Shawna:

  • Home mortgage- 20 years left on a 30 year mortgage at 6%
  • 403b-Hers-3% match-she is only having 1% taken out of her check-Account balance $75,000
  • 401k-Her husband-he is matching 2%-balance $125,000
  • IRA’s-traditional combined balance of $1500
  • With the youngest out of college and getting a rein on their spending-they are going to have free cash flow of at least $1,000/month.

Nurse Shawna and her personal finances:

What can Shawna and her husband do, to “catch-up” on their retirement savings?

I will write a follow-up post next week, on the catch-up scenario, but welcome reader suggestions or questions in the meantime.

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Posted in Retirement savings | 5 Comments »

Making Money From Nothing: Can YOU Do it?

Friday, July 30th, 2010

Money for Nothing

Myths, Mystics, and Magicians conjure up visions of the supernatural.  The idea that something worth having can be created out of thin air, without blood, sweat, or tears is an idea that has enthralled kids and kids at heart for centuries.

The billion dollar success of the “Harry Potter” series with the emphasis on magic wands, flue dust, invisibility cloaks, and spells is just a recent reminder of our fascination with making something from nothing.

Magic-Wand-by-terwilliger911

But Shakespeare, had his witches, as King Arthur had his Merlin.  The goose that laid the Golden Egg, and spinning hair into gold, also come quickly to mind.

The modern day equivalent can be found in those that want to turn a quick buck, without doing their due diligence.

This might include:

  • Lottery tickets
  • Single stock investing
  • Texas Hold-em
  • Flipping homes
  • Resort real-estate

Brett Arends, in his column in the Wall Street Journal, recently wrote a story on the Ten Stock Market Myths That Just Won’t Die.

I will summarize a few of those  stock market myths here, with my commentary-(apologies to Mr Arends)

  1. This is a good time to invest in the market-I am guilty of this one.  My thinking is, that when everyone is bearish is a good time to be bullish.  I do think this is true, but that doesn’t mean it will be true today!  It also may take a year for everyone to figure out the sky is not falling-so you have to have a strong stomach and deep pockets.
  2. Stocks on average make you 10% a year- this may have been true over the past 100+ years-but we have had zero growth over the last decade.  Does that mean we are going to double in the next couple of years- I wouldn’t hold my breath.  I think those who base their retirement earnings on that number, may be disappointed if they are going to retire in the next 20 years.
  3. Our economists are forecasting…….-Economists opinions, are equal to weather people in my mind.  They may be able to predict the next 24 hours-beyond that is a guess.
  4. This is a stock pickers market- I hear this one every day,  on the business channel, while I eat my homemade p.b.&J gourmet lunch.  Studies show the average mutual fund under performs the market-so where is that damn stock picker when you need him.

For the rest of the list-check out Brett’s article-it’s good for a laugh-before you cry.

So what are we to do, if we want to increase our wealth, and don’t want to play the lottery with our savings.

Dr Dean’s wealth building  secrets:

(I am not going to make you slash your palm, and mix your blood with mine-like Clint on “Outlaw Josey Wales”…..)   But let’s just keep these between me and you.   shhhhh….

  • Start early-compound interest is your friend.
  • Live well below your means and save like hell!
  • Work your ass off! Now this doesn’t mean slaving away for 50 years in a minimum wage job.  It means working strategically, to increase your value in this economy.  That may mean additional schooling, OJT, multiple streams of income.  Most millionaires made their money consistently working, adding value-for their company, their employer’s company, or themselves, not by someone giving it to them.
  • Use your time wisely- I am writing this during a time when a patient canceled her appointment.  Make sure you have things to do during your down-time that are constructive.  Turn off the television, phone, and other distractions.
  • Diversify-and this doesn’t mean invest in 5 different categories of stocks-as Cramer does during a segment on Mad Money!.  It means investing in 5 or more categories-stocks, bonds, commodities ( Precious metals, energy, grains, industrial metals like copper), real-estate, and yourself.  You don’t have to do this all at once-gradually spread out your resources as you build them.

I promise there is not an original thought in the list above. (You are saying no-duhh as my kids were fond of muttering!) The secrets to success are not secrets at all.  They cannot be conjured up with a Magic Wand, even a special one found at Diagon Alley!

Secrets to Success

Like most things in life, the secrets to success should be called the “obvious path to success”.  The difference between those who succeed and those who don’t is frequently the difference between those who make the hard choices and sacrifices.

Now I don’t judge success by bank accounts, and monetary success.   Balancing your life between your family, friends, job, and spirituality-can make you rich in many ways-but if you want money for retirement, or to allow freedom of choice-then develop a plan and go make it work.

Reader Questions:

Do you know any magic ways to make money?  And will you share them?

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Posted in goal setting, Retirement savings, Wealth building | 5 Comments »

Retire on Social Security: Why?

Tuesday, June 22nd, 2010

Retire on Social Security

Are you going to be one of those who pay careful attention to your quarterly letter from Social Security? (if you are not old enough to be getting one, just wait.)

  • Letting you know what your benefits will be.
  • Trying to decide “Should I retire at 62, 65, or 66 1/2 to get the most out of the system?”
  • Decide whether it would be better for you or your spouse to retire first to maximize your check.

Are you one of those people- who pay attention to articles such as this one at Yahoo Money, “5 Places to Retire on Social Security“?

Forgotten - Photo by Alex E. Proimos

Are you one of those people-worried about having to choose between buying meds, meals, or cat food on your social security check?

Are you one of those people-who argue and worry about whether your money taken out of your check for social security will ever get back to you?

Are you one of those people- concerned about your quality of life, when you retire.

Blog Goals

My goal here at The Millionaire Nurse Blog, is to help you not give a damn about Social Security!

You will be in charge of your retirement, not the government.

But this won’t happen without your making up your mind that you are going to change your relationship with money, today!!!!

What Can You do to not need Social Security?

  • Begin to make debt your enemy, and decide not to spend without a plan. Remember your ultimate financial and personal goals.
  • Get on the same page as your partner/spouse regarding your finances.
  • If you are one of those who have trouble managing your money, then grow up-you need to take care of you!

Let me help:

Reader Questions?

Do you think you will need Social Security when you retire, or will that be your vacation fund?

Do you think Social Security will still be around when you hit retirement age?

Do you want to have to think about where your small check will last the longest or live where you WANT to live?

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Posted in Retirement savings | 2 Comments »

Financial Risk: Do You Really Understand It?

Tuesday, June 15th, 2010

Risk

Risk, risk/reward ratio-we  think we know what risk is.

We hear about risk all the time-sometimes in oblique ways-”That  BB gun will put someone’s eye out!!” as Ralphie heard over and over in A Christmas Story.

Don’t drive too fast, wear your seat belt, don’t swim on a full stomach, are all common comments.  And these days, more and more are concerned about the risk of the stock market!

Your Biggest Risk-May Be Income Related-Not Stock Market Related!

There is an interesting article in the WSJ about Thinking Smarter About Risk by Professor Moshe Milevsky. He suggests thinking about what would happen to your earnings or paycheck if the stock market crashed 25 or even 50%.

He gives a good explanation of the term-Beta.  Beta, in stock market parlance, is the risk of a stock-as compared to the market as  a whole-if the stock has twice the market risk-then it has a Beta of 2.

If it has the same risk as the market then the Beta is 1, and if the stock has no correlation to the stock market-then the Beta is zero!  He points out that our jobs also have a Beta-our future income may be correlated to the stock market, or completely uncorrelated.

Most nurses would see very little change in their earnings capacity-with a stock drop-so their Beta may be closer to zero.  Their earnings risk may be tied to the health care bill, but not really the financial markets.

(Maybe we should come up with a risk variable on how our incomes are tied to congress and new laws and regulations-Alpha and Omega risk ratio, perhaps!)

But most in the financial world-bankers, brokers, and brokerages, and thousands of their support staff would be devastated by another severe, prolonged market correction. Not just in their investments, but the job itself, and it’s lifetime of  income!

Dr Milevsky’s point is that our financial risk is many times much more correlated to our career earnings and income, rather than our investments.   And we need to adjust our thinking to account for that risk.

What does this personal financial risk mean to you and me?

  • Keep an eye out for changes in the industry you are working  that may effect your future income.  If you are working in the insurance, medical device, or pharmaceutical industry-your risk of your companies’ financial health deteriorating may be increasing-so make adjustments in your savings-to be prepared for further layoffs or income shifts.
  • If you are working for a hospital, whose profits are being squeezed by decreased reimbursements-realize much deserved raises may just be a dream so adjust your spending-or find other ways to increase your income-or both.
  • If you are  at your pinnacle of pay-reached the glass ceiling-and are comfortable with that-you have savings built up-then you can take more risks with your investments-than someone just starting out.  Standard thinking is that as you get older, you decrease your risky investments-it may be time to consider increasing the risk slightly-as you can deal with the downside more.
  • Insurance-life and long-term disability insurance helps to decrease your income risk-for you and your family.  So insure your human capital!
  • Make sure your education investment risk-the huge amount of money and time required for your degree-is protected by a likely chance you can repay that investment.  (Don’t borrow tons of money-for a career with no possible chance of bringing in the income required to pay for the education!)

Financial Risk:

Think it over.  Do you have income or job risk, that you are not taking into account right now-if so, make adjustments.  Change your investments to something more conservative and liquid.

Think about what your steps would be if you lost your job or had a decrease in pay.

Don’t be caught  with your scrubs down around your knees.  Don’t spend  all your time worried about your investments-and not enough concern about your primary money factory:

YOU AND YOUR JOB!

Reader questions:  What are your thoughts about risk?  Do you think we balance our job risk and investment risks appropriately?

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Posted in Retirement savings, Wealth building | 2 Comments »

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