Have you contributed to your Roth, lately?

I was reading an article yesterday by a financial advisor for financial advisors.  The author, Evan Cooper, mentioned a recent teleconference he had hosted in which he reminded his 1,000+ listeners of something I had always known, but which came across as frightening when he described it…

He succinctly defined the changing state of retirement plans in America:  Institutionally-managed defined benefit plans (like the golden parachutes the Big 3 car companies in Detroit seem to have been roped into supplying for all of their employees) are going the way of the Dodo bird, and Americans are now banking their retirement on the performance of their defined contribution plans, like 401(k)’s and IRA’s.  The problem is, that EXPERTS are no longer managing the money, WE are managing our money.  And many regular Americans have NO IDEA how to go about this.  They have not been trained or educated to build their wealth through their retirement plan, and they don’t seem to recognize the necessity – the gravity – of getting this taken care of now.

That’s the part that scared me.  There are a bunch of us out there who are banking our future wealth and lifestyle as retirees on something we may not be good at doing.

We Don’t Know What We’re Doing, And Our Future Depends On It

The statistics clearly show that we, as a country, are pretty poor at delaying gratification for future benefit. 

We don’t exercise as much as we should.  We eat things that are bad for us.  We don’t floss regularly or go to the dentist every six months.  We don’t save money… heck, we’re learning that one the hard way at the moment as our national economic crisis proves.

The problem is, just as we are suffering as a nation from over-use of credit, we’ll soon be suffering from under-use of savings and investment plans.  As the number of retirees with defined benefit retirement programs decreases and employees who’ve been depending on defined contribution plans begin retiring, we may see a massive shift in the income level of retired seniors.

The point of Evan Cooper’s article, which I mentioned above, was to alert financial planners to the tremendous opportunity that lies before them. 

Now that workers are solely responsible for their own retirement plans, many may need the services of a financial planner more than ever to help them navigate the world of IRAs, 401(k)’s, Roth IRA’s and related investment opportunities.

Does this apply to you?

The proof is in the pudding – have you been managing your retirement assets correctly?  Do you know you’re on track for your own retirement?  If not – take heed – learn how to change your behavior or hire someone to help you change – otherwise the price will be dire as your earned income tapers off in your retirement years.

Can you find a good financial planner, yourself?

Even if you’ve decided to go with a professional, hiring a financial planner is no easy task. 

The field is muddled considerably by salesmen who get paid every time you buy something, be it a stock, mutual fund, annuity or insurance policy and whose own best interest (selling their products and creating trading activity) are often in direct conflict with your best interest (buying the best, low-cost products and holding on to them for long periods of time). 

As you search for a place to invest, you may also find a number of fund managers who will manage your money for a percentage of your portfolio’s value.  This can be a good business model, but often the "hot" managers one year are stone cold the next, so look for funds and investments that have a long track record of performance.

Don’t be afraid to ask potential advisors how they get paid.  If you just need a little advise or a financial check-up, I would talk to a flat-fee (charge by the hour) financial advisor who can objectively review your portfolio and does not have an incentive to steer you in a certain direction (toward products he sells).

Personally, rather than trying to "beat" the market, I try to "own" the market and invest through Vanguard.com’s low-cost mutual funds.  I highly recommend starting your investment plan with them.  They are low cost, low-minimums, fully online and have a great web site with a lot of informative articles to help you understand the basics of putting together an investment strategy.

The Important Thing is To Do Something

At the end of the day, you just need to make sure that you’re addressing the issue of preparing for your retirement, rather than burying your head in the sand when it comes to looking at your personal finances.  When it comes to retirement planning, TIME is an equal or greater tool than EARNINGS, so even if you don’t earn much now and can’t save a lot, it’s still a good idea to save something to put away for your future.  My best advice: Start NOW.

Contributing money to an IRA – Roth or Traditional – is a great place to start.  I like the ROTH for younger people and those who expect to be in a higher tax bracket when they retire than they are now.  If you need help running the numbers on which retirement program to choose, drop me a line and I’ll see if I can help.

Maxing out your Roth IRA each year is a good goal to shoot for.  I wouldn’t necessarily suggest that your ROTH be your only retirement vehicle, but if you can’t save much to start with, it’s probably one of the best place to set aside money to put into investments.  (The other best place is your 401(k) at work, if you get an employer match).  The nice thing about a ROTH, rather than a 401(k) is that you have complete discretion about where to invest your Roth, and usually the investment choices through your employer’s plan are more limited.

It All Comes Down To You

At the end of the day, planning for a successful retirement comes down to you and your commitment to doing something now to take care of yourself (and your family/spouse) down the line.  You can learn about it, read about it, hire someone to tell you about it, but you have to make a change and set up a regular savings and investment program in order to start seeing results.   Let the historically low stock market prices we’re seeing today be an incentive – a motivation – to get into the market at a great time and prepare for some great returns down the road.

So – how ARE you doing?

Let me know how you’re doing with your investments… are you falling behind with your retirement savings due to the slackening in the economy?  Are you building up your cash reserves to insure against job loss?  Are you BUYING MORE right now since stock is ON SALE CHEAP?

Tell me how these economic times are affecting your retirement plans and let me know how I can help you refine your strategy to meet your goals!

Yours In Prosperity!

Emily

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