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My Employer is Eliminating 401(k) Matches

retirement Companies are responding aggressively to the bad economic news. Layoffs, hiring freezes, and salary freezes have been some of the most common actions so far.

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Now, more and more employers are looking at eliminating the matching of 401(k) contributions. According to a survey by Watson Wyatt, the global human resources and financial services firm, things are changing quickly. In October, 2% of firms said they had already cut back on these matches and 4% said they planned to. Two months later, in December, 3% had already made the cut and 7% said they intended to.

And these are large companies. Established brands that we all know. Motorola, FedEx, Kodak, and Starbucks just to name a few.

They’re usually using the word “suspend” rather than “eliminate” when they announce these cuts. But it raises a question:

If my employer stops matching my contribution to my
401(k), should I still keep making contributions myself?

It forces us to save

This is perhaps the biggest reason to keep making contributions. Financial planners have said for years that we should pay ourselves first. Investing it before we get it, as we do with our 401(k), is the best way to make sure that happens.

Most people report that they don’t really miss the money. It’s like the taxes that are deducted from our paychecks – the government knows most of us won’t miss the money if we don’t see it.

Of course, there are ways to set up an automatic deduction from our checking or savings account for investments outside of a 401(k). That’s really close to having it deducted from our paycheck, but it’s not quite the same. That little variation can make a bigg difference for some people. You have to judge that for yourself.

Higher limits

The next best option to a 401(k) for most people would be an IRA because contributions may also be deductible. You should check with your financial advisor about the specifics of your situation.

Because you invest before paying taxes, it’s as if the government is making part of the contribution for you. For example, if you made a $1,000 contribution to one of these retirement plans and you’re in the 25% tax bracket, you would pay $250 less in taxes. So, in essence, you’re only out of pocket $750.

With either plan, you don’t pay taxes on the money you earn on your investments until you pull it out. Deductible and deferred – that’s a pretty powerful combination.

Where the 401(k) gains favor is that it has higher maximum limits – your contributions to your 401(k) can total up to $16,500 in 2009 ($22,000 if you’re over 50). You can’t contribute more than $5,000 to an IRA in most cases.

If my employer cuts or eliminates my 401(k) match, are there
reasons to fund my retirement through another vehicle?

A lot of 401(k) plans offer fairly limited investment options and you may pay lower fees in a plan that’s not a 401(k). 

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The bigger issue

It’s not like we don’t already have a sense of it. But recent months have reinforced this paradigm. We can’t count on anyone or anything for any part of our financial future. We must take full control of our own finances. We have to build our own safety nets to make sure we are financially secure.

How much will you have at retirement?

It really boils down to three factors:

  • how much we invest
  • how much we earn on our investment (after all fees and taxes)
  • how long it is invested

From these three factors, we see that we have three options if we don’t want to retire on less money:

1st – We can try to earn more on the money we invest.
That involves taking more risk and we don’t have much appetite for that right now. So this probably isn’t going to fly with most of us.

2nd – We can postpone our retirement.
This buys us more time. People who are really close to retirement right now may not have much of a choice. They may have to do this. But if you still have some time on your side, there may be a better way.

3rd – We can increase our contributions.
Look at your budget and see if there is any way you can make up for the investment your company was making.

If your employer reinstates matching contributions, you can stop contributing at the increased rate and enjoy the extra money in your budget … or …

… you can keep making your higher contributions to give your retirement a kick!

To all our readers in Australia, happy Australia Day! And we hope our friends in India enjoy Republic Day!

And thank you so much for spending time with us today. Join us next time when we discuss extreme multi-tasking. Until then, here’s to your bigg success!

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Where Should I Stuff My Money?

mattress In days gone by, mattress stuffers hid all their money somewhere in or around their home – in the backyard, in cans, between the pages of books, in the walls, in a cookie jar, and even under a removable section of floorboards.

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A recent article in the Wall Street Journal talked about the new generation of mattress stuffers. People increasingly don’t trust anyone or anything, a response to falling home prices, crashing stock prices, bank troubles, and government ineptitude.

It’s something we don’t talk about much, but an increasing number of people are taking matters into their own hands to prepare for the next crash. Needless to say, these people aren’t optimists!

They’re pulling their money out of the stock market and stuffing their mattresses the 21st century way.

Stuffing money in treasuries

Instead of actually stuffing cash into their mattresses, they’re buying treasury bills, the safest of all investments. Most financial experts refer to these and other treasury securities as risk-free investments.

Stuffing money in gold

New generation mattress stuffers are also buying gold coins in record amounts. You may have noticed an increase in the number of ads on TV about gold. This flight to safety has been evident after just about every financial crisis, as people return to the gold standard.

Who is primarily driving this trend?

Many baby boomers have taken a huge hit to their portfolios just as they near retirement. They are the driving force behind this trend because they don’t have time to recover from the recent stock market losses before they retire.

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What if you’re not ready to retire?

If you’re not close to retiring, it’s crucial to think clearly about this new mattress stuffing strategy. There are definitely some pros and cons.

Pro: We should own a well-diversified portfolio.
Experts tell us to diversify, diversify, diversify. Typically, the more diversified we are, the better. A diversified portfolio might include stocks, bonds including treasuries, real estate, and perhaps some commodities like gold. Diversification generally delivers the best return given the overall risk.

Pro: Treasuries should be part of most diversified portfolios.
Until recently, a lot of people found treasuries kind of boring because they didn’t deliver enough return. That’s because they aren’t considered risky at all, which is also why they are an essential component of a fully diversified portfolio.

Pro: Gold may also be a wise investment as a small part of a diversified portfolio.
Gold and other tangible assets usually perform best in times of high inflation. So gold can serve as “insurance” against such times. The reason that people often flock to gold in times like these is that, historically, it has been an acceptable way to pay for things.

Con: If you put all of your assets in treasuries, your returns will be much lower.
This lower return is not unjustified. After all, you’re investing in an asset that’s considered to be risk-free. The problem with this strategy is that you may not end up with as much money as you need for your retirement.

Con: It’s dangerous to put a significant percentage of your assets into gold coins.
If experts recommend gold at all (and many more are these days) as part of your portfolio, most suggest keeping it to around five percent of your total assets. Unlike treasuries, gold carries risk – its price goes up and down. One other tidbit – gold has underperformed most other assets historically.

Con: There’s no cash flow with gold.
Treasuries pay interest at regular intervals. You don’t earn any money on a gold bar or a gold coin. The only way to make money by holding gold is to sell it at a price higher than what you paid for it.

Next time, we’ll take this discussion a step further. We’ll apply some real world numbers to help you with your diversification decisions.

We are so thankful that you took the time to read our post today. Until next time, here’s to your bigg success!

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Don’t Fear the Banker!

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.

This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!

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Our bigg quote today is by the great Stephen Covey:

“Seek first to understand, then to be understood.”

Understand your banker’s needs so you stand to get your money needs. 

Next time, we’ll discuss how to offer criticism without being critical. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Related posts 

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(Image by svilen001)

Don't Fear the Banker!

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.

This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!

Click on our Comment link below to share your thoughts on today's post
Click on the Share This button below to Digg, Stumble, Mixx more

Our bigg quote today is by the great Stephen Covey:

“Seek first to understand, then to be understood.”

Understand your banker’s needs so you stand to get your money needs. 

Next time, we’ll discuss how to offer criticism without being critical. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Related posts 

How To Become A Millionaire

Good Debt vs. Bad Debt

How To Get Your Customers To Finance Your Business

5 Places to Find Cash for Your Business Today

I Have An Idea For A Business! Now What?

Lessons Learned From A Bankrupt Business Owner

(Image by svilen001)

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Get a Good Job and Live Longer

By Bigg Success Staff
06-11-08

Life Changes

businessman

A study by the United Kingdom’s Office for National Statistics shows that men with good jobs live longer. Specifically, the research shows that men in “routine” jobs are nearly three times as likely to die before the age of 64 as men with higher managerial jobs.

You might think this is because managers earn more money than regular workers. While there may be a correlation with income, this research classifies occupations by characteristics. Two characteristics of the managerial jobs are control and security.

So if you want to live longer, get a good job. Get a job that gives you a higher degree of control over your own life and provides you with more security.

Do the two go hand-in-hand?

Hear today's lesson and laugh on The Bigg Success Show. 

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Two Common Themes for the Jobs of the Future

ByWynn Bigg
Bigg Success Contributor
05-30-08  

Wynn Bigg Today

people 

As developed countries continue to develop, more and more outsourcing to less developed countries is occurring. Some see this as a great evil. I see it as a natural evolution. Businesses will continue to seek the lowest cost for the goods and services they buy.

So you have a choice to make:

  • You can complain about it and do nothing else.
  • You can position yourself for the future – a future that spells opportunity for people who get on board quickly enough.

If you choose the latter, there are two things to consider as you think about your own career – two factors that spell opportunity for the careers of the future in developed countries.

On site

Careers that require you to be on site will be full of opportunity in developed countries. If it can’t be done in some other area of the world, your job is much more secure. Your job requires you to be on the premises – of your employer or your employer’s customers – in order to perform your duties. For example, there will be more opportunities in jobs that require you to physically inspect the work that has been done.

In person
Careers that require face-to-face communication will also thrive in the coming years in developed countries. If you have to see the person, or they have to see you, it can’t be done somewhere else. Your job calls for the richest form of communication – in person – in order to be done properly. As an example, any job that requires a hands-on demonstration of a product will be full of possibilities.

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Should You Pay Off Your Mortgage Early?

By Bigg Success Staff
03-11-08

Bigg Success with Money

question_mark 

This is one of the most frequently-asked questions we get here at Bigg Success. The question comes in a variety of forms:

Should you make a payment every four weeks? Should you include a little extra with every payment? Or perhaps, you’ve had a windfall and wonder – should you pay it off in its entirety?

9 questions to determine if you should pay off your mortgage early

#1 – Do you have any other debt?
It’s highly likely that you pay less, after taxes, for your mortgage than you pay for any other debt. So pay that debt off before you start funneling additional money into your mortgage.

Look at it this way – you could put your money into an account that pays a guaranteed 20% after taxes or one that guarantees a 5% return after taxes. That’s an easy decision, isn’t it? You’re going to invest in the guaranteed 20%!

When you pay off debt, your return equals your after-tax interest cost. So pay off accounts that cost you the most first.

#2 – Do you have an emergency reserve?
Financial planners disagree on exactly how much you should have in reserve for emergencies. However, there seems to be a consensus of between three and twelve months of living expenses.

It depends somewhat on the source of your income. How secure is it? A stable job with a stable employer (is there such a thing these days?) means you need less of a reserve. For business owners and commissioned sales people, twelve months may serve you best.

#3 – How good is your credit rating?
Depending on how you do it, paying your mortgage off faster is great unless you end up with a month where you’re short on cash. Then you’ll hurt your credit rating. So consider building up money into a separate account that you use to pay your mortgage. As that account accumulates extra money, pay a little more on your mortgage.

At its essence, paying down your mortgage early is an investment in a very illiquid asset. If you don’t have good credit, you may be restricted in getting a home equity line-of-credit should the need arise. You’ll be better off building up your reserve account before you start paying down your mortgage.

#4 – How do you feel about debt?
Some people just can’t be happy as long as they have any debt. If you’re one of those people, and you’re satisfied with your answer to the previous three questions, by all means pay off your mortgage early.

If you have enough cash sitting around to pay it off in full, do it! If that’s not the case, start plowing any additional money you have into it. You’ll feel better just seeing your outstanding balance going down faster.

#5 – What’s your interest rate?
That last question considers your personal psychology. There’s no right or wrong – it’s solely your attitude.

If you can live with debt, then you look at this decision solely from the financial point-of-view – what’s your best financial move? Start by looking at your interest rate:

  • What’s the stated interest rate in your mortgage contract?
  • How much will you pay in income taxes on the next dollar you earn (i.e. your marginal tax rate)?

You’ll end up with the after-tax cost of your mortgage. Now you’re ready for the next three questions.

#6 – How disciplined are you?
How well do you do with extra money? If you tend to spend it, you’ll probably be better off paying off your mortgage early. That guarantees you the after-tax return you just calculated in the previous question.

However, if you’re a good money manager, your options are still open. Look at the next two questions.
 
#7 – When do you plan to retire?
Time is a wonderful thing. The longer your horizon, the higher your return will likely be on your portfolio if you invest correctly. That’s because you can invest in assets that may be more volatile in the short-run, but provide higher returns in the long-run.

In general, the longer it will be before you retire, the less likely it is that you should pay off your mortgage early. Now you’re ready for Question #8.

#8 – What could you earn if you didn’t pay off your mortgage early?
Most likely, you would invest in some combination of stocks and bonds (or mutual funds that invest in the stocks and bonds). In general, the longer it will be before you retire, the higher your stake can be in stocks.

Stocks tend to earn higher rates in the long run, but are more volatile in the near-term. Financial planners generally recommend that you should subtract your age from 120 (it used to be 100, but we’re living longer) to determine the ideal mix. Then look at historical returns on those assets as a barometer of your expected returns.

Now compare that to your answer from Question #5. It’s highly likely that your answer to Question #8 will be higher than your answer from Question #5. If that’s the case, you’re better off investing the money than paying off your mortgage.

#9 – Will your portfolio support your desired lifestyle?

Even if you’re better off investing, look at your current portfolio. Will it generate enough passive income to completely support your desired lifestyle costs? If so, why take any additional risk? Do the safe thing – get rid of your mortgage debt!

Once your mortgage is paid off, you can use that extra amount every month to build up your portfolio even more (if you want). Or you can just enjoy life – you’ve earned it because you’ve done a great job managing your money!

The advice we’ve given here is general. We recommend that you talk with a financial planner or CPA about your specific situation. Just be sure you find one that doesn’t have a stake in your decision. That way, you’ll know you’re getting the best advice for you, not them!

Pay them a reasonable fee for the advice they give you. It will be worth every penny!

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