Posts Tagged ‘Retirement savings’

Roth IRA’s: The Millionaire Nurse Way!

Tuesday, March 2nd, 2010

Everyone knows what a Roth IRA is, don’t they?  No, even if you think you do, you probably  don’t-so let’s have a little ROTH IRA school.

Roth IRA’s got their name from  the late Senator Roth from Delaware.

The difference between Roth IRA’s and Traditional IRA’s:

  • You pay taxes on the money as it is deposited into a Roth IRA-with a traditional IRA, you take an income tax deduction at your current federal rate on the deposit.
  • The government  taxes withdrawals, and also tells you when you start to take money out of the traditional IRA.  Money taken out of a Roth is not taxed, and you can remove it when you want to-after 59 1/2.  (With some restrictions.)

Similarities:

  • They both allow investment in many different types of securities, stocks, bonds, and even real estate.
  • They both are limited in the amount you can deposit, based on age and income requirements.

So how do you decide what retirement vehicle to use? 401-K, Roth, or traditional IRA….

If you company matches- deposit up to the matching amount in your 401-K.  For most middle income folks, the next decision is the hardest-if you can afford to pay the taxes, I would deposit the next part of retirement savings in a Roth IRA.  When that was maxed, I would  save the rest in a traditional IRA.  (Until you reach at least 15% of your income.)

So what does this mean in the real world-lets say you are a married nurse, and your spouse makes the same 40,000bucks/ year for a gross income of $80,000 for you as a couple.  If your company matches 3% of your income in their 401-K then,  put $1200 in that account-(3%).   Now you can put up to $5,0000 in your Roth, if you are under 45-so let’s put your remaining $4800 in your Roth-which gets you to 15%.  With the company match, that gives you $7,200 in your retirement savings for the year.

Now remember, you have to pay taxes on the $4,800 you put in your Roth, at whatever your income tax rate is, both state and local.  However, when you remove that money, the balance and the growth from your investments can then be withdrawn tax free. WHEN YOU WANT TO-after retirement-not on the governments schedule, as a traditional IRA requires.

Now keep in mind, the example above includes estimates and generalizations, so to make your own decision you need to have your tax information handy.  And if you really want to dig into this further for all the exceptions/explanations, then check out Wikipedia’s Roth IRA section here.

“Dr Dean, Now that my head is spinning, what do I do?”  Well if you want to open a Roth IRA, then you need to talk to a discount, or  full-service broker and open an account. The brokers usually require a minimum investment,.  Many savers are successful having the money electronically deposited into the IRA, so they aren’t tempted to spend it.

So go get started on having a secure retirement.  You want to be eating steak, or asparagus during your retirement, not canned soup.  You want to travel the world, not your one bedroom apartment……

Let me know if you have questions.  That is what I am here for.

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Posted in Personal Finance 101, Retirement savings | No Comments »

401-K Class 101-For Millionaire Nurses-Continued!

Tuesday, February 2nd, 2010

This is the third edition of 401-K class for nurses, (and whoever else may be snooping-thanks for snooping!).  Now I know you would rather read about fun stuff-you would rather watch American Idol, Dancing with the Stars, or whatever your favorite program is, than read about boring 401-K stuff-but let me ask you a couple of questions:

  • Do you think Simon Cowell is going to be there for you when you want to retire???
  • Do you think NBC or CBS and their advertisers care whether you spend your retirement time watching a 52 inch HDTV, in your paid for house with no debts,  or watching the 12 inch tv with rabbbit ears down at the homeless shelter????
  • Do you think your kids are going to spring for your world travels when you retire from 40 years working the night shift in the ER????

No, I didn’t think so, so keep reading-or go continue to be stupid, and not pay attention to this till it is too late-YOU HAVE A CHOICE!!!!!

I want to discuss ACTIVELY managed mutual funds this week, after discussing index funds in our last class.

Actively managed funds, are just as described, they are managed by a person or group that makes investment decisions on which stocks to purchase.

One of the most famous fund managers/ funds, when you read about this in investing books,  is Peter Lynch, a past manager of Magellan-a Fidelity Mutual Fund.This fund had stellar returns during his management-that some would say has suffered since his retirement.  This has become the “poster child” for avoiding single manager funds.

When he or she retires, or is hired by another company for a huge raise, then where will your fund be?

Now, manager choice may  matter a lot when you are doing your own investing, but frequently in 401-K’s, the choice of funds available  are limited, in number and type,  to just a few funds.

So you may not be able to choose between a single or group manager. But I think it matters to at least know this information.

You can usually look this info up for free, by joining “Morningstar” or some other investment information site.  You give them info about yourself, to sign up, and then you are able to look up funds, and get other information-that for the most part is not slanted towards any one fund company.

You can also find out about the fund in your “prospectus”. This is the document that you get at least once a year in the mail from the fund company that you own in your 401-k.  It probably goes in the “circular file”-if you are like most nurses.  Next time you get one,think of me, and at least read the page that describes the type of fund, look at the list of stocks in their fund holdings, and read the paragraph or two from the fund manager about the past year’s results.

Now the next step, as mentioned above is finding the type  fund, you are currently investing.  The different types are numerous and somewhat complicated- mainly because the fund companies try to have a product for everyone’s needs.

They then end up with so many different funds-no one knows what is going on.  But here is a list of several common “actively managed” funds you may find in your 401-k and a little about them.

  • Growth funds-consists of companies expected to “grow” or increase in value faster than the market.
  • Value funds-consists of companies that the fund manager thinks are bargains-(cost less than the stock is worth).
  • Income funds-consists of stocks that pay dividends-this means they pay a percentage of the value of the stock quarterly to stock-holders instead of keeping profits in the company.  Some feel this results in less volatility (rapid rise and  fall in stock prices).
  • Balanced funds-funds that may hold growth and income stocks- (some balanced funds also hold bonds, we will discuss bonds and bond funds in another post).

I found this list of mutual fund terms on the Securities and Exchange Commission website.  * Glossary of Key Mutual Fund Terms.

So, we come to the end of another exciting version of 401-k class for “Millionaire Nurses“PS

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"PAD" Your Savings: It Should be "Planned, Automatic and Done!"

Monday, January 18th, 2010

Saving money, is not done just for the sake of saving.  To be most successful, develop a goal and plan.

In medicine we develop a treatment plan or guide.   If the diagnosis is heart failure  then doing a chest x-ray, blood gas, give diuretics and so on…..,

As circumstances and facts change, then adjust the treatment plan.

What happens in cases where there is no plan? Here is an example:

You have three doc’s consulting on the case, they all write conflicting orders, the nurses have no idea who is in charge.  At best, the remarkable being that made the human body comes through and the patient gets well anyway.  At worst, an injury or event occurs that slows down  progress-drug- drug interaction, allergy, or infection occurs. Frugal lawyers get involved….Makes me shudder to think about it.

So how does that compare to your personal finance and savings.  Those that have a plan, and direction will always win.  Doesn’t mean bumps in the road don’t occur, but you have plans in place to deal with them.

So what do I want you to do about the Savings part of your personal finances:

  1. Determine what your savings needs are-home down payment, car upgrade, new tires,  or retirement.
  2. Make sure your emergency fund is in place. See this post about my recommended Super-Duper Emergency Fund.
  3. Once you determine the need then decide on how fast you can meet the goal-10 bucks a week or 100 bucks a month.
  4. Make your savings automatic: your 401-k is usually painless, because it comes out without your thinking about it.  So do the same with all your savings-have the amounts you choose drafted right after you get paid, to the right accounts or sub accounts.
  5. Review every three months for adjustments.  If you gradually increase your savings rate, it is much easier to reach goals, without everyone in the family having a heart attack-”What do you mean, I can’t go to Old Navy this weekend?”

So go “PAD” your savings-”Planned, Automatic, and Done!”

Housekeeping:

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Posted in Retirement savings, goal setting | No Comments »

What are You Changing? Saving More in 2010!

Monday, January 4th, 2010

Happy New Year!  I hope everyone enjoyed the holiday safely.  Monday will bring back a full week of work for most of us.  And looks like global warming is slamming us here in the south with another record cold wave.

An interesting poll done by Putnam Investments was released a couple of weeks ago.  You can read an article about it at this link.

In this poll of 1000 investors online, they found the number one goal for the new year,wasn’t weight loss, but to SAVE MORE MONEY in 2010.

They also said their number one concern for the next year was job growth, followed by economic growth, not health care reform, or global warming.  And finally, only 38% felt the feds stimulus was likely to help them this year.

Now I think these are very realistic assessments.  The most important thing now, as we have stressed in other posts, is execution of these great sentiments.

So what do you do now?

  • Increase your savings from your paycheck automatically-study your planned spending and decide how much to automatically shift to a savings account, out of your paycheck each month.  Maybe it’s 10 dollars, or maybe its 100, but just do it.
  • Increase the amount deposited in your 401-k or IRA out of each check.   Again, set it up to happen automatically-you don’t want to have to remember to transfer the money yourself-temptation to spend is great.
  • If you think your job is in danger, increase your emergency savings fund, to allow you to get by while you look for new work, if you do get laid off.
  • Decrease your monthly expenses-study your bills and find ways to save.
  • If you get a raise, work overtime, or get other unexpected  earnings-have a plan to save either all or a set percentage.
  • If you screwed up, and put a lot of Christmas on a credit card, then start now, to save money to pay it off as quickly as possible.  Have a yard sell, take clothes to consignment, take extra hours at work.   Make a concentrated effort to knock it out now, before  you get used to seeing that balance on your card statement.

So, what are your plans and worries for 2010?  With better planning, you can get rid of the worries.

So stay warm, and if you get snowed/ iced in spend a little of your time, talking and planning with your spouse, studying your financial situation, and let’s make this a GREAT year!

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Posted in Planned spending aka budget, Uncategorized, goal setting | No Comments »

Retirement Account Balances: Like Watching Paint Dry!

Thursday, December 10th, 2009

Retirement Accounts-401-k, 403-b: Is your balance going up or down?

I don’t deliver babies any more.  Do I miss it? Occasionally.  I miss the joy and interaction with those patients who you connect with.  I don’t miss the malpractice worries, the babies having babies, and families who don’t appreciate the responsibility involved in raising a child.

Sleeping all night is a wonderful thing-although a certain nurse woke me up at 2:30 this morning…..

Fortunately, I don’t have to miss the Ob nurses-because our Gyn wing connects to the Ob wing, and we share the same nurses.  They do a great job.

And to get around to the title of this post,  as we often do, the nurses and I were talking money when I made rounds this morning.  One of the night nurses was lamenting that her account balance in her 403-b seemed to never go up, although she increased her amount every year, and the hospital was matching part of it.

This phenomenon is very common in retirement accounts recently.  As everyone is aware, the stock market has taken a huge hit in the last few years.  And though the market has averaged 12% growth or so over the last 50 years, it has seen almost nothing in the past decade.  And has been down 30-50 % in some aggressive accounts last year alone.

However, since March the growth has been over 25% depending on which index you use.

What do you do when your  403-b balance is stagnant?

So the secret is to keep on keeping on.  No one knows when the market takes off, and it has been proven time and time again, that those people who try to time the market by going into and out of stocks, usually miss the biggest up days.

So even though watching your balance is like watching paint dry-don’t stop funding the account. You would just spend that money on something inconsequential, wouldn’t you?????

Now does that mean that the market will go gang-busters the next 10 years?  I wish I knew. If I did I probably wouldn’t be treating bladder infections in the middle of the night!!!!!

But I do know that putting away small amounts of money over your working career is the only way to significant wealth for most people.  Having the results of  stock market and interest rate growth work on your money will result in a healthier retirement account than:

  • No retirement savings
  • Depending on Social Security
  • Depending on your kids to support you in your old age

The secret here is to continue to put as much as you can afford in your retirement account each year, and try to increase that amount- until you are saving 15% of your income in some sort of retirement vehicle.  (I will discuss the options such as Roth IRA’s in another post.)

Of course, to be able to do this, you must have your spending under control, and your debts knocked out-I know, easier said than done.

So let us hear your retirement account questions-and if you need “Emergency Money Resuscitation” then hit the link, don’t delay, hit the link.  If you don’t know what the link is, then hit the comment button, and ask, and I will post on how to hit a link in a blog…. If you do hit the link, you can sign up for my free e-book, and also receive my mini-course on personal finance delivered straight to your email box.  Free, you can’t beat free!

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Posted in Retirement savings, Wealth building | 2 Comments »