Will Your 401(k) Be Enough?

I came across this article today on Yahoo, and the title is enough to make anyone nervous.  "Retiring Boomers Find 401(k) Plans Fall Short".  The first graphic in the article shows that for the median household headed by a 60-62 year old person, they will ultimately fall short of their needed retirement income (85% of current income) by about $30K ($4K if you have a pension).  They ask a financial advisor in the article what his recommendations have been, and for some, it's go work a part time job into your 70's to make up the difference.  I'm only picking and choosing parts of the article to mention here.  I highly recommend reading this article.  But I challenge you to ask questions while you're reading the article.  I've listed just a few here that came to mind.

Why are so many people falling short?
Didn't financial advisors give them good advice?
What can I do with my money to make sure I won't wind up in the same place when I retire?
Is getting a part time job the best way to make money in retirement years?
If pension and 401(k) isn't enough, how else can I invest money to make money?

If anyone comes up with any more questions, please feel free to comment or send me an email with the questions.  I am planning to do a short series of posts here over the course of the next week or two outlining the different asset classes (investments) that exist and what some of the pro's and con's are.

Good Luck!
Jacob Short

What To Do With My Tax Return?

Well now that I've filed my tax return, the next logical step in my thought process is what should I do with the money I'm going to get back soon?  Buy a new TV, video games, maybe some furniture, do some remodeling, new wardrobe for the wife?  There are so many options out there when you're about to receive a large sum of money, and so many companies out there ready to take advantage of the weak-willed.  There are companies ready to give you a loan today based on your expected return, in case you can't wait the 2 weeks for the direct deposit or 3-4 weeks for the check to arrive.  Car dealerships start offering incentives to double your tax return if you put it towards a down payment on a new car.  The best piece of advise I can give you is to plan out what to do with the money you're going to receive from your tax return (if you're due a refund) BEFORE you actually file.  That way you will be less tempted (not completely free, we all have the little devil on our shoulder sometime) to watch that money go away.  In the game of retirement, controlling frivolous spending is as important, if not more important, than making good decisions about investments.  If you're someone that struggles with money discipline, like myself, then I challenge you to decide what to do with your tax refund before filing for your taxes, and sticking with that plan once you actually have the money in your hand.  If you can accomplish that goal, you're one step closer to achieving your financial dreams.

Good Luck!

Jacob

The Wonderful World of Taxes

So I just finished filing my 2010 Tax Return, and am due to get a significant return on my taxes.  There's not really anything I can do to reduce my tax liability during the year because in sales, your commissions are withheld at the highest tax rate.  I've never heard a sufficient answer from any company where I've worked as to why this must be the case, but I suppose it is one way that the IRS can use your money for up to a year until you file your return to get it back.

One of the main reasons why I'm trying to get out of the Rat Race and retire is so I don't have to pay as much taxes.  Percentage wise, the rich have a much smaller tax liability than the poor, and that's because they literally wrote the book on tax law.  I've included a link here to an article that compares 4 of the most common tax prep solutions available, so for those who haven't started filing their taxes and plan to do it themselves, it would be worth a look.

Good luck to everyone getting your hard earned money back from the IRS this tax season!  If you're one of the few that actually gets close to even on their tax return, or winds up owing less than $500, I tip my hat to you.

Jacob

What's Your Retirement Plan?

I speak with people all the time and everyone has different plans on how to retire.  However, the conventional wisdom has always stayed pretty much the same: Invest in a mutual fund or an IRA up to the max allowed for tax savings, and assuming a decent rate of return, you should have a sufficient nest egg to retire on once you've hit 65.

I don't know about you, but so many things in that one statement do not fit into what I would consider wisdom.  Now, even the financial planners that have been stating this for years are starting to doubt themselves.  I came across this article in the NY Times and it discusses how the financial calculators used to estimate what someone should be putting aside for retirement may be faulty.  You can read the entire article here. (Caution: It's a pretty lengthy article).

To summarize, most of these financial calculators are designed where in order to hit your target goal, your money has to double in the final 10 years of the trade.  Also, my biggest issue with these calculators is that they always calculate using an average rate of return over a prolonged period of time, but the financial markets are cyclical.  Also, for someone who has retired recently or is getting ready to retire, the past decade has not been kind to them.  There are other ways to take control of your retirement by educating yourself on alternative investment strategies and taking chances.  I believe that most people are afraid to take any kind of financial risk, and it's not necessarily failure, but lack of any great success that keeps them from reaching their financial goals.

Good Luck Everyone!
Jacob
"You miss 100% of the shots you don't take."
 - Wayne Gretzky

Investing in Financial Markets: Traders and Trends

Something that troubles me is how the majority of people in this country have very little control over their retirement.  Most people are inadequately funded for their retirement based on their age, and their money is typically invested in Mutual Funds of some kind.  I'm not denying that there aren't some benefits to these accounts.  However, with a little financial education, you can have much more control over your retirement and be able to take control of your retirement.

The article that I've linked to below discusses the different kinds of traders in financial markets as well as trends and why we care about trends in financial markets as individual investors.  You can read the article by clicking here.

If you have any questions please feel free to email me by clicking here.

Good luck everyone and enjoy the weekend!

Jacob Short

Investment Strategies: Wholesaling

I received an email from a newsletter that I subscribe to that talks about many different strategies that people can use to invest and work on getting out of the "rat race".  I strongly believe that it's not the strategy that decides whether people succeed or fail at investing.  It's when someone doesn't strictly follow the playbook.

The first article in the newsletter talks about a real estate strategy called wholesaling.  I won't go into all the details here, but I will post a link to the article.  In layman's terms, wholesaling is a straightforward strategy where instead of buying the property yourself, you are buying and selling contracts to other real estate investors.  You act as the middle man for the transaction.  It sounds simple, but like many other investment strategies, it's simple to learn, and takes time and effort to master.  I did a quick online search and found different courses teaching wholesaling strategies that range from less than $100 - over $5K.  I would recommend finding someone that currently invests in wholesaling and learning as much from them and asking them to recommend an education program as well.  For those interested in reading the full article about wholesaling, click here.      

Hopefully this will serve someone that reads this blog as their ticket out of the rat race.  Maybe it will even be my own.

Thanks for reading!
Jacob