Paul Ferraresi

From 1974 to 2004, the percentage of Americans covered by an active defined-benefit pension plan shrank from 44% of the workforce to 17%. Today, more that 60% of workers are employed by companies that offer new hires only a 401(k) plan, a savings scheme originally intended to complement traditional pensions, not replace them.

Nobody reminds you that what matters most isn’t the stock market’s quarterly report card, but whether your account is on target to provide adequate retirement income.

The custodian that manages your money is not required to note that, if you’re not covered by a defined-benefit plan, your 401(k) should equal at least 10 times your salary right before retirement. If you’re earning $100,000 at age 65, a $1 million nest egg isn’t a windfall; it’s a necessity. Even more improbably, a 65-year-old making $40,000 a year ought to have accumulated $400,000.

By any reasonable reckoning, fewer than 20% of Americans working today in the private sector will be able to retire comfortably. The average head of household aged 62 to 65 has only about $110,000 in combined 401(k) account and rollover IRA balances – not even twice the median salary around $61,000 for that age group. Adding to the pain of near-empty nest eggs is the fact that the income taxes on the portion of salary contributed are postponed until retirement – when folks can least afford to pay them.

The 2006 Pension Protection Act allows employers to automatically enroll new hires at a 3% contribution rate, regardless of their age – a rate that’s less than one-third of what they need to save at age 25, assuming a typical employer matching contribution rate of 3% of pay.

Waiting until age 35 to start retirement savings increases the required contribution rate to more than 17% of pay; waiting until age 40 boosts the needed savings rate to more that 23%. A worker who starts saving at age 50 ought to be putting away nearly half his paycheck. Such contribution rates exceed the legal maximums for tax-deferred saving; besides, they are simply impossible for just about everybody. Keep in mind there are non qualified alternatives that have no contribution limits and produce 50% more net spendable income than 401K plans.

Of course, there’s lots of shame to go around. While the Pension Protection Act of 2006 made it clearer that 401(k) fund advisers can advise participants on which funds to invest in, it didn’t require anyone to provide advice on what contribution rate would be prudent.

Workers and employers must create a bipartisan dialogue on retirement. The pension paternalism favored by the Democrats has failed because pension regulations make the requirements so onerous that few companies want to start or continue a defined-benefit plan. On the other hand, the Republicans’ tax-break approach to retirement savings has failed because people haven’t responded to savings incentives. But… it is not the fault of either party, rather, most Americans have their heads in the sand in setting aside money for retirement. Then, when the crisis comes these same people demand of the government to bail them out.

Oh dear…. discipline or regret!

It is a known fact that the majority of Americans (97%) are not on track to reach financial independence. Confusing opinions from the TV “talking heads” on how to invest leaves one feeling helpless.

Have you made the best choices in your 401K plans and other investments? I found a site that will provide basic information on retirement planning. In addition, it provides a simple approach to calculating your retirement path. Take a look at it… it may put your mind at ease, or, create more sleepless nights…

www.CountOnYourRetirement.com

There are people that get into financial trouble due to outside circumstances. Medical emergencies, loss of job or a family crisis are some reasons. The majority of financial trouble stems from simple over spending.

Spenders who need outside help may benefit from the support of a more frugal friend who would be willing to act as a money mentor or spending coach. If you recommend to a friend Debtors Anonymous, don’t be surprised to hear a quick “no.”

Some people are too ashamed to admit that they may be damaged in this way. You may have to think of other solutions, such as a financial recovery counselor. (Karen McCall and her associates at www.financialrecovery.com and Bari Tessler’s group at www.consciousbookkeeping.com are two valuable resources.)

Two more tips: Once you’ve developed guidelines for an overspending friend, or yourself, take care not to call it a budget – a word that free-living boomers mentally translate as “ball and chain.” Refer to it instead as a spending plan, or a spending, saving, and investing plan, or even a financial growth plan.

Those of you who may be in denial about this I ask you to describe three scenarios: (1) what happens if all your dreams come true; (2) what happens if outcomes are just so-so; and (3) what happens if you have made mistakes that force you to change your lifestyle. What will your life be like? How will you feel? What will your friends and relatives say about you?

I suspect that when you reach scenario # 3 the last question may unleash shame, regret and many pent up feelings. Find out the reasons for overspending. Just like people who over eat, over indulge in alcohol or drugs the actions are symptoms of inner turmoil.

Everyone should have a sideline business. It should be started while you are working, not after you lose your job or quit.

A full time business start up usually takes 5 years to reach breakeven. Obviously, starting a side business part time may take longer than 5 years to get into the black.

Why should you set up a side business? It provides a safety net for you and your family. It can provide additional monies to fund your retirement. Finally, it can provide an avenue of exit if you “hate” your J.O.B.

There are numerous tax benefits in owning your own business. One major benefit is to set up your own small business 401K plan.

Small-business 401(k) plans might provide the opportunity you need. These plans are also known as Solo 401(k), Solo(k), and Individual K. These investment vehicles are mostly used by small-business owners and entrepreneurs. Small-business 401(k) plans are perfectly designed to accommodate rollovers from employer-managed 401(k) plans, and they can be opened with the intent of funding them solely with future annual contributions (though that is rarely done).

The advantages of a small-business 401(k) are significant. They offer greater control of funds than does an employer-managed 401(k) or a SEP-IRA. They offer higher contribution limits than Roth accounts ($15,500 plus $5,000 for age 50 and over). And they are easy to manage and administer.

These plans offer you a broader range of investments to choose from instead of the limited number of options found in traditional plans.

Here is a general overview of the most widely used categories.

Alternative Investments in a Small-Business 401(k)

Small-business 401(k) plans can invest in the following assets, though the most common investments are real estate-related. Investments can include income-producing assets through the use of non-recourse loans. Unlike a self-directed IRA, a small-business 401(K) is not subject to Unrelated Debt Financed Income Tax on income-producing property.

• Start a business or buy a franchise
• Buy part of a business
• Buy a partnership interest or form limited partnerships
• Fund limited liability companies or corporations
• Purchase startup company stock or member shares
• Private placements (private company stock investment or loans)
• Private party mortgages and notes backed by real estate
• Purchase residential rental properties, multi-unit buildings, commercial property, storage facilities, boat slips, marinas, and parking spaces
• Bare land parcels, lots, acreage, timberland, RV parks, mobile home parks, and other income-producing land
• Tenants in common for real estate investments
• Tax lien certificates
• Tax deeds
• Lease options
• Royalty rights
• Franchise rights
• Commodities and futures
• Commercial paper
• Equipment leases
• Joint ventures
• Stocks, bonds, mutual funds, CDs
• Prohibited: Collectibles

Here is a GREAT article by one of my mentors… Chris Widener. I hope you will put it to use…

A Little Equation that Creates Big Results by Chris Widener

“The purpose of man is in action not thought” – Thomas Carlyle

Often people will ask me how I get so much done in my life. They wonder at how I am able to accomplish so many things. The answer is found not in what a great person I am, but in an equation I came up with a few years ago and remind myself of on almost a daily basis. And when I live this equation out, it produces big results. What people don’t seem to grasp is that this equation will work for anybody! Anyone can see results in their life if they will live it out!

This little equation, when it is understood, and acted upon, is perhaps the most powerful equation there is in regard to long-term achievement and accomplishment. Yet, this is not a complex equation. In fact, it is rather simple. So what is it?

Your short-term actions multiplied by time equals your long-term accomplishments.

If you want to see change in your life, see big results, the first thing you must do is change your current actions. Otherwise the old saying becomes a reality: “If you always do what you’ve always done, you’ll always get what you always got!” But if we change our actions, we will see different results!

Most people want to accomplish a lot in their lives. Yet very few actually do. Why is this? It is because what they believe will equal their long-term accomplishments are wrong. Here are some of the things that people believe will create great accomplishments for them:

Beliefs
Vision
Big dreams
Ideas
Ideals
Values
Desire

The truth is that while these things are very important, they are not enough in and of themselves. We need to have the above underlying all that we do, but we need to actually do something! And this is where most people stop. We need to take action on our dreams and beliefs every day.

Here are some examples of how this works.

Who loses weight? The one who knows all about the benefits of exercise or the one who walks 3 miles a day?

Who retires early? The one who dreams of a house on the beach, or the one who invests $300 a month?

Who writes books? The one who desires to become a best-selling author, or the one who gets up early and writes for half an hour a day?

Who has the best marital relationship? The one who knows how much spending time with their spouse can improve their relationship, or the one who sits down and talks with their spouse every night?

Who makes the most sales? The one who believes they can become a great salesperson, or the one who makes 10 sales calls a day?

I think you get the point. When it all comes down to it, we must act upon our vision, beliefs, and ideals or we won’t see them come to fruition. I see too many people who know what is right, but don’t ever do anything about it. Imagine what a difference we could make in our own lives and the lives of others if we would simply begin to act upon on our beliefs!

When I get to the end of my life, I want to know that I have done all that I can to make this world a better place and to enhance the lives of those around me. I want to know that I gave it my best shot. And I am sure that you do to. I remember reading an interview with an author who has written numerous books that have sold in the tens of millions. They asked him how he did it. His answer was that he got up every morning before anyone else in his family and wrote, long hand, with a pencil, for an hour. Then he quit and went about his day. But his short-term actions piled up. 7 hours a week. 30 hours a month. 365 hours a year. After a while, he had lots of books!

Some questions as we leave:

What long-term accomplishments do you want to see come to pass?
What short-term actions will you need to do over time to see them come to pass?
What will you do today to begin seeing your dreams come true?
What will you do this week to see them come true?

You can have an awesome future, filled with great achievements and results if you begin today to take action and make it a reality!

One more time, so you can plug it in, memorize it, and live it.

Your short-term actions multiplied by time equals your long-term accomplishments.