401(k) Plans

Written by Charles M. O'Melia


You have permission to this article either electronically or in print as long asrepparttar author bylines are included, with a live link, andrepparttar 112401 article is not changed in any way. Please provide a courtesy e-mail to charles@thestockopolyplan.com telling whererepparttar 112402 article was published. (967 word count)

401(k) Plans

I’ve been in and interested inrepparttar 112403 stock market so long (one year shy of forty years) I can remember whenrepparttar 112404 Mutual Fund pages in my home town paper were just one page! (The DOW was under 700.) Now it looks like there are more Mutual Funds then there are stocks listed onrepparttar 112405 New York stock exchange. I wonder how many billions of investor dollars are supporting these funds. How many investor dollars are supporting allrepparttar 112406 brokerage firms? How many times has 401(k) monies been given to a ‘financial expert’ to manage after retirement, then three years laterrepparttar 112407 $400,000 is down to $200.000 (Yet,repparttar 112408 financial expert is still driving around in a new Lexus). I could tell you stories fromrepparttar 112409 people I know, who have retired and aren’t so happy with these experts, but I bet you know some stories of your own. (Why, I bet I could even write a book onrepparttar 112410 subject!) Do you know what you’re going to do with your 401(k) money when you retire? If you are going to hand it over to a financial expert to manage, see if you can getrepparttar 112411 names of some of his/her clients. See if you can call some ofrepparttar 112412 expert’s clients, tell them what you’re planning to do and ask them if they’re satisfied withrepparttar 112413 expert’s performance. Or you could talk to those people you’ve once worked with, have retired, and went with a financial advisor or planner. Try to get some reference from a live body that has already been there, rather than just a bunch of statistics thrown at you byrepparttar 112414 expert.

Today’s 401(k) plans are excellent vehicles for saving money and here’s what I like about mine: I likerepparttar 112415 10 percent contribution being a tax write-off (some plans, sixteen percent). I can contribute up to 16 percent, but 6 percent would have to be after-taxed dollars.

I like thatrepparttar 112416 monies made in a 401(k) are tax-deferred.

I likerepparttar 112417 company’s 70 to 100 percent company match (it differs every year with my company) up to 6 percent of my contribution.

I likerepparttar 112418 option to move my money (every business day, if I wished) into my company’s stock or an Interest Income fund, Bond fund, Mutual fund or Index fund, at no cost.

I likerepparttar 112419 option to roll-over into an individual IRA account, twice a year, any after-tax and company matched dollars put into my 401(k), with no penalties or fees, even while I am still employed withrepparttar 112420 company. This allows me to select individual stocks and allowsrepparttar 112421 dividends from those stocks to be rolled-over automatically into more shares of each company, also at no cost. (However, there are commission fees forrepparttar 112422 purchases ofrepparttar 112423 stock. Dividend purchases only are commission-free. In my book 'The Stockopoly Plan' I explain how to purchase stocks commission free.)

Economic Survival in the 21st Century - the Three Key Questions to ask

Written by Henry To, CFA


In this “special report”, I want to pose a few important “philosophical questions” to my readers. Firstly -- our Federal Reserve Chairman, Alan Greenspan, addressedrepparttar effects and implications of our aging population on things such as Social Security again in a speech that he made last Friday. Readers may remember that I also briefly mentioned this issue in my June 24th commentary. I urge you to keep this worldwide phenomenon ofrepparttar 112400 aging population firmly onrepparttar 112401 back of your minds. If you are like most people, then you earn you living by producing a certain thing – such as a consumer good, or a service thatrepparttar 112402 masses want. Let’s face it – how many people really “struck it rich” by being pure traders or investment managers? The stock market and other financial markets are definitely very important to us investors/traders but this “super secular trend” ofrepparttar 112403 aging ofrepparttar 112404 worldwide population will impact every aspect of our lives, whether it is losing our relative competitiveness onrepparttar 112405 world arena, increasing pension and healthcare costs, or even a potential fundamental change of our political system.

The second question that I want my readers to think about isrepparttar 112406 potential end torepparttar 112407 era of cheap energy prices – an era which we have basically enjoyed forrepparttar 112408 last two decades without thinking ofrepparttar 112409 long-term repercussions. The United States, with less than five percent ofrepparttar 112410 world’s population, currently consume approximately 25% ofrepparttar 112411 world’s energy each year. Supply is maturing while demand continues to surge – as exemplified byrepparttar 112412 surging in demand from China and India. Inrepparttar 112413 meantime, spare energy-producing capacity and inventory levels have been at all-time lows – potential for a perfect storm?

Finally, I want to ask my readersrepparttar 112414 following question: What kind of investor are you? What investing style do you adopt and what investing style are you most comfortable with? Can you be a contrarian and buy whenrepparttar 112415 crowd is selling or are you merely a follower who is only comfortable if you fit in? These are straightforward questions – but these are questions that you really need to ask yourselves in order to truly make money in investing overrepparttar 112416 long run. If my readers takerepparttar 112417 time out to thinking about these three questions or issues – and ultimately have a firm grasp of even just one ofrepparttar 112418 issues – then you will be in a much better economic situation than most Americans five to ten years from now.

To begin, what arerepparttar 112419 potential implications ofrepparttar 112420 “aging population” phenomenon? Readers my recall that in my June 24th commentary, I stated: “Assuming thatrepparttar 112421 current level of benefits remain intorepparttar 112422 future and assumingrepparttar 112423 level of taxes is not raised, then public benefits to retirees would dramatically increase going forward. Onrepparttar 112424 extreme end, Japan and Spain will see a more than 100% increase in their outlays to retirees. Clearly, this is not sustainable. Either things such as defense or education spending will need to be cut, orrepparttar 112425 above countries will need to raise their taxes. Neither ofrepparttar 112426 two scenarios is optimal. Borrowing more of their funds is not a long-term solution. Cutting funding in defense and education will comprise a country’s future, and raising taxes will place a huge social and financial burden onrepparttar 112427 population ofrepparttar 112428 developed world – where taxes are already at a historically high level. Think about this: If you were a bright, young, French industrialist and you were forced to pay 60% of your income as taxes to supportrepparttar 112429 elderly, what would you do? Why, you would vote with your feet and relocate to another country that is more tax-friendly and business-friendly – and so will other great talent that may have been a great contribution torepparttar 112430 French economy. The governments ofrepparttar 112431 developed world recognize this – but there are no easy solutions.”

“This picture gets grimmer when one takes note of a study that was done byrepparttar 112432 Bank Credit Analyst. In that study,repparttar 112433 BCA predicts that byrepparttar 112434 year 2050,repparttar 112435 percentage share ofrepparttar 112436 developed countries ofrepparttar 112437 global population will drop from over 30% in 1950 to less than 14% -- or about equal torepparttar 112438 population ofrepparttar 112439 Islamic nations ofrepparttar 112440 world. Similarly, Yemen will be more populous than Germany in 2050; while Iraq will be 30% more populous than Italy (Iraq is less than 40%repparttar 112441 size of Italy today). Russia’s population is projected to continue to decrease – at a rate such thatrepparttar 112442 population of Iran will be even higher to that of Russia’s in 2050. India will berepparttar 112443 most populous nation inrepparttar 112444 world, and Pakistan will only lagrepparttar 112445 U.S. by approximately 50 million people. Ifrepparttar 112446 developed countries of today do not choose to work harder or become more efficient, then they will ultimately lose their comparative advantage, asrepparttar 112447 younger population ofrepparttar 112448 world is inherently more hard-working, energetic, innovative, and creative. In today’s globalized world, this will be a killer forrepparttar 112449 average worker inrepparttar 112450 developed countries –repparttar 112451 more so oncerepparttar 112452 language barrier is eliminated (the successful commercialization of universal language translators is projected to happen in ten to fifteen years). I am generally more optimistic, asrepparttar 112453 elimination ofrepparttar 112454 language barrier will greatly enhance business opportunities and efficiencies, but a person such asrepparttar 112455 average American worker will loss his or her comparative advantage inrepparttar 112456 global workforce. The availability of a huge supply of labor should also drive down wages inrepparttar 112457 global marketplace – and most probably increaserepparttar 112458 maldistribution of wealth in today’s developed countries.”

Like I have mentioned before, there are no easy solutions. Ifrepparttar 112459 average American sees an increase of 10 years in his or her life expectancy, can he or she reasonably or logically retire atrepparttar 112460 current normal retirement age of 65 (which was determined duringrepparttar 112461 Roosevelt administration duringrepparttar 112462 1930s) without placing an undue burden onrepparttar 112463 system? The answer is most probably “no.” Applyingrepparttar 112464 same working-years-to-retirement-years ratio to his or her new life expectancy, thenrepparttar 112465 average American should probably work around five to six years more – thus giving a revised normal retirement age of 70 or so. Moreover, all this analysis is based onrepparttar 112466 outdated population distribution inrepparttar 112467 form of a pyramid – whererepparttar 112468 younger and more able workers represent a majority ofrepparttar 112469 population (and whererepparttar 112470 elderly represents only a small minority ofrepparttar 112471 general population). The pyramid distribution has historically facilitated government support ofrepparttar 112472 elderly – asrepparttar 112473 monetary and social burdens have been shouldered by a relatively large younger population. The current experience of Europe and Japan suggests a more uniform distribution inrepparttar 112474 population of those countries going forward – asrepparttar 112475 birthrate in those countries are now dismally belowrepparttar 112476 replacement rate ofrepparttar 112477 population. The situation inrepparttar 112478 United States is not currently as drastic (given our relatively lax immigration policy) but we are heading towardsrepparttar 112479 same direction. Thus to maintainrepparttar 112480 current standard of living at retirement, my guess is thatrepparttar 112481 general population will not only have to work longer, but work longer hours inrepparttar 112482 present (and save more) as well.

Cont'd on page 2 ==>
 
ImproveHomeLife.com © 2005
Terms of Use