In the world of financial management there are several phases. This article examines the part called wealth accumulation. The phase of wealth accumulation is the part that if it is not accomplished will mean that there is no retirement. Additional resources are contained at the end of this article.

Free Retirement Plan Wealth Accumulation

This is the phase that everyone wants to talk about but few do anything about. The news and popular media talk about wealth and the trappings that go along with it. Popular culture, movies and entertainment tout the benefits of large houses, cars and expensive toys. Rarely do they talk about true wealth and how to accumulate it.

Getting Started .

Let’s get to the nitty gritty of it all. There are a few steps that you need to take before you even get started:

1. Write down every dollar that you spend over the next month. Examine why you have each expenditure, and is it necessary? Could you do without it?
2. Examine your debt. What can be reduced? Put your debt in two lists. Sort one list by size and the other by interest rate. Payoff the small debts first. Create some small successes. As you pay some smaller debts off, look to also eliminate some of the higher interest loans.
3. Make sure and pay your biggest fan first, YOU!! You should save at least 10% of your salary with the goal of taking that to 20%
4. Set a goal of giving 10% of your earning to the charity of your choice. For many that may mean donating your time in the beginning. Use your earnings per hour in your career as a guide.
5. Take advantage of all three of the savings buckets available: Tax deductible savings – Employer sponsored plans. Tax deferred savings – Life insurance, ROTH IRA’s. Taxable savings – These are plans like passbook savings accounts, CD’s and money market accounts. Used for emergency savings.

This is the most important phase that most overlook. You will want to have a liquid account with a value that equals 6 months of your necessary expenses. This is in the event of a job loss, illness, natural disaster etc. so that you household could maintain itself for that period.

The other goals that you will want to accomplish, is to have paid off all your debts that are attached to major purchases over the period of 18 to 36 months. The only debt that should remain is for housing. The goal would be to have housing debt paid off within 48 to 60 months. You would then want to stretch the life of these purchases to 10 to 15 years.

Once you have accomplished all of the goals, except housing, you can move that cash flow towards retirement savings with a vengeance. When housing is paid off, then that should represent a quantum leap in your retirement savings. A key element is to avoid the temptation of “keeping up with the Joneses”. This can mean doing things a little different than others. An example would be cooking your own meals rather than eating in restaurants the majority of the time. Take the difference and apply it to your retirement plan, saving or debt reduction. Spending money on self-improvement is more productive than spending money on entertainment. Each expenditure should be examined and the decision made it this more important than meeting our risk based or retirement needs.

These are decisions that should be continually reviewed. As income increases and / or debt and expenses are decreased you must reallocate your net income.

What is my chosen career?

When making a career choice, keep in mind this is what you are going to do for the next 35 to 40 years of your life. It is important that you make a choice that you will be able to stay with and not lose your sanity. There are many assessments that will help you best determine a career that suits who you are. It is better to chose something that works toward your natural strengths.

Trial and error may come into play. You may have to try a number of jobs before you find the career that will be the right one for you. Career selection is a highly personal choice. For some being able to work outdoors and not be confined to an office is desirable. These jobs become less desirable as a person ages. Usually these careers pay more in the early years, relative to office jobs. This career path requires a level of physical fitness and somewhat less mental fitness. Over time the physical activity becomes harder to maintain and even harder to increase. On the other hand, an office career usually starts out relatively lower in pay. However, over time it becomes easier to increase one’s mental capacity instead of rather than physical ability. This however also comes with a price. A sedentary life style has negative effects on one’s physical health. It may be desirable to schedule exercise as a part of your off time.

Post high school education will not guarantee you a higher salary, but it will help. Either trade or vocational schools or colleges and universities will improve your opportunity to earn more over time. Both of these will require a financial commitment. For an initial period even after your education is complete you may not make as much as those with less education or training. This will be offset over time. The important thing is to get education in an area that you feel you will be able to work in throughout your working career. The next thing to remember is to be prepared to change directions later in life.

Post retirement

Technology will change things as you age. Things that were necessary to society and highly valued may become worthless as you grow older. Buggy manufacturers in the 1800’s were prized but today are very valued. Typewriters in the 1960’s and 1970’s were an important part of business, but today you can’t give them away. Continued study and willingness to adapt will serve you well throughout your career. As science continues to increase our productive lifespan, this may even become necessary.

In the early 20th century, the life expectancy for the entire world was 30 to 40 years. In 2008, the average life expectancy of the world is 66.12 years of age. The United States has a much higher average. The current average life expectancy for the United States is 78.06 years. This means since 1900 life expectancy has increased by 66%. In 1900 you were even expected to live to the current retirement age of 65. Many insurance companies are basing their insurance policies on an age of 120. If this were to happen, it would mean that savings of 35 to 40 years would have to support a life style that would last for 55 years past retirement. You will either have to choose a longer working career, a part-time career, a higher savings rate, or a lower standard of living after retirement or some combination.

Another factor to consider is inflation. Let’s assume you have a retirement income need of $5,000 per month. If we use an age of 65 and assume a life expectancy of 90 having an inflation rate of only 3% will increase that income need to $10,468 per month.

Health insurance is another often overlooked factor. Health insurance costs are rising faster than inflation. This means either you will have to make health insurance a part of your retirement package from your employer, plan for rising costs that will outpace your investment earnings or continue to work for insurance benefits. This along with the cost of home health care in the event of a chronic illness or injury could wipe out your entire retirement nest egg

Summary of How to Achieve Retirement Success

In summary, there are several things to take into account when preparing for retirement.

1. Take advantage of your most valuable asset, TIME! The earlier you get started the sooner compounding can help you.
2. Starting with a relatively more aggressive allocation in younger years and then gradually becoming more conservative as you get closer to retirement is an advisable strategy.
3. Eliminate debt as early as possible.
4. Create a systematic strategy towards eliminating debt and savings.
5. Pay yourself first.
6. Educate yourself.
7. Be flexible
8. Make decisions based a long term strategy.
9. Consistent returns are better than extreme highs and lows

You should always seek the advice of a financial professional prior to making changes in your financial plan. The examples contained in the above article may or may not match your personal situation.

Disclosure

Resources:

EHow

Investopedia

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For over 20 years, tax advisor Ed Slott, CPA, has been on a mission to educate Americans about protecting their retirement savings. With an estimated $16 trillion in tax-deferred savings, Americans need to have a plan in place to avoid being taxed as much as 90% on their investments. In his first public television special, STAY RICH FOREVER & EVER WITH ED SLOTT, the IRA expert shares strategies viewers can implement right now to safeguard more of their retirement savings—for themselves and their beneficiaries. Using personal stories to illustrate the impact the IRS can have on the distribution of tax-deferred savings, Slott outlines benefits in the tax code that people can cash in on, literally, to ensure their financial future.

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I have a 401k with Nordstrom. I was employed there over the summer. Now they told me I have 30 days to do something with my funds it or I would receive a distribution of the funds (I think). The reason they are doing this is because the amount is so little, it’s $175. So my question is should I just take the money and pay the penalties or should I do a rollover into a completely new account that I would set up and what sort of account would be recommended?
I have another account with the Teacher Retirement System of Texas. Again, I don’t have a lot of money invested here, but I do have some. Also, I am no longer employed with them and I am now working for a company with no retirement plan. I guess it’s more complicated than I thought.
Help?
Oh, one more thing, I have a mutual fund (Captial growth, I think) account with Franklin-Templeton with quite a bit of money invested here. Can I invest it in this? I spoke with them about setting up an IRA, but they mentioned yearly fees.

I normally tell people never take money out of a 401(k). However in your case if the total funds in the 401(k) is $175.00 I’d prob just pay the 10% penalty (not 20%) (assuming your under 59 1/2), and the full amount would be added to your income for the year in which it was taken out.

http://www.irs.gov/faqs/faq-kw7.html

If you roll it over into a Roth IRA, the ENTIRE amount would be subject to the same ordinary income and the 10% penalty. Roth IRA does not avoid the tax on the 401(k) money.

If you really want to tax defer the $175.00, then you will have to open a "Standard Rollover IRA." If there are any fees on the account, it just wouldn’t justify the move.

I would open a Roth IRA, and contribute after tax cash, then invest your other funds or better yet, have an S&P 500 Index fund for a long term investment strategy.

http://en.wikipedia.org/wiki/S&P_500

Look for a no fee IRA or Roth IRA account for your other monies.

Here is one:

http://personal.fidelity.com/products/retirement/getstart/open_nofee_ira.shtml.cvsr

401k withdrawals

401k withdrawals

401K withdrawals explained

http://www.cakefinancial.com

401K withdrawals can be a tricky proposition.

Generally speaking, you can start taking distributions from your 401(k) plan when you reach age 59 1/2;but what if you want to take withdrawals earlier?

Uncle Sam is waiting to tax your money, and when he does, your nest egg may not be quite so plump. Twenty percent of your savings will be withheld immediately to pay federal income taxes, and you will have to pay any remaining federal taxes, as well as state and local taxes, when you file your taxes return. If you are under age 591/2 and still working, you may also be subject to a 10 percent early-withdrawal penalty. This is why 401K withdrawals can be tricky.

Sometimes, however, you may have an emergency and need some extra cash. To help you in these times, 401(k) regulations allow for early withdrawals in a number of ways.

First, if your plan allows it, you can take a loan from your 401(k) account. There are limits as to how much you can borrow and how long you have to pay back the money, and you still have to pay interest,but at least you pay interest to yourself, not to a bank.

Second, you may be able to take what is called a hardship withdrawal from your 401(k) plan, depending on your plan rules. Hardship means you need the money due to an immediate and severe financial need, to pay medical expenses, for example, or prevent foreclosure on your home. The bad news is, hardship withdrawals can be costly. At minimum, you will have to pay taxes on the withdrawal at your current income tax rate. In some cases, you may also have to pay an additional 10 percent penalty. Taking premature 401k withdrawals should be a last resort. There are better options than taking 401k withdrawals.

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Take the time to understand the ramifications of 401k withdrawals.

401K withdrawals

my husband filed our 2008 tax return,,i had just received my 1099r form for a loan i had taken from my retirement plan,,,what should i do??,,,the amount shown on the form is 1007.11,,how much would we have to pay,,and can we file this separately now that we had already filed our taxes,,please help

If you just took a loan and are paying it back on schedule, then you shouldn’t have gotten a 1099-R. But if it ended up being a withdrawal because it’s not being paid back on schedule, then you’ll have to file an amended 2008 return, you can’t just file it separately. You’ll owe income tax at whatever your rate is, plus a 10% penalty for early withdrawal if you are under 59-1/2. So you’ll probably owe $250 or so, or more if your tax bracket is over 15%

I’m 40 years old and have a 401K. I have read I can avoid paying the 10% penalty by doing regular, lifetime distributions from the plan. Is this true and am I missing any gotcha’s? (I’ll be leaving the USA and regular withdrawls will finance very early retirement)

This is not true. You have to roll over your 401K to a Roth IRA and cannot start distributions before 59 1/2.

I am 30 years old and I have $18,000 or so in credit card debt. I started a small law practice a year ago and it’s going well, but I am scraping by. One major reason I am scraping by is because the interest rates on the $18,000 in debt went from 0% (when times were great) to now between 15% and 25%. My student loans total $145,000 and are eligible for a long-term, fairly low interest-rate payment plan. Only 1 group is currently in repayment and the remaining groups will be in repayment starting 12/15/09. HOWEVER, I also have $35,000 in a Roth IRA (down from only $40,000.00 at its peak). I am told I can take a distribution up to the total amount of principal without paying a tax on it and without a penalty. The principal amount is $23,000.00. My questions are 1) should I withdrawal enough funds to pay off my credit card debt from the Roth IRA? and 2) if I get into trouble paying off the student loan next spring, shoud I dip into the Roth IRA for that too? My thinking is that I’m paying OUT way more in interest on the debt I’m carrying than I’m MAKING on the money in my Roth IRA, I’m young and have plenty of time to rebuilt it prior to retirement, and the lack of debt will improve my credit score and thus my ability to obtain mroe favorable car loan terms, student loan consolidation terms, mortgage, etc. Please HELP me decide what to do here. Thanks

You have this all wrong. You are stealing from retirement to pay current lifestyle. You are cashing in assets at a low. With all the debt you have you’re talking about taking on more with a car loan. You should be basic transportation that you can pay cash for. You say you are young and have plenty of time to save for your retirement. Which means you don’t understand the basic concept of compound interest. A dollar saved at 30 will accumulate into a much larger amount than a dollar saved at 40 or 50. It sounds like you would like to live for today and let tomorrow take care of itself. We have a nation of people who believe and are living that way. Very dangerous. You need to learn to live within your means, spend less than you earn. And add to your savings, don’t take away from them.

I am almost at the mandatory required age to take distribution from my 457 Deferred Compensation Plan (city government retirement plan) otherwise I have to pay a penalty. What is the best way to take it to preserve my asset and pass it down to my children after my death, and not create a tax problem (meaning Uncle Sam gets a big chunk instead of my children at my death). Thank you all.
Jimmy

Jimmy, go see a financial planner, lawyer, or CPA who specializes in estate planning. You need more information and expertise than you’re likely to find here. Besides, without knowing a lot of personal information that you shouldn’t disclose here, nobody here will be able to give you good, solid advice that you can trust and act upon.

http://www.cakefinancial.com

Most of us spend so much time putting money into a 401(k) plan we forget about the fun part—how you take money out of your 401(k) plan.

Generally speaking, you can start taking distributions from your 401(k) plan when you reach age 59?. You can take a little at a time, or all the money at once. Or, you can keep the money in the plan and let it grow.

When you reach age 70?, however, you have to start taking distributions. There is one exception: If you’re working at the same company that offers your 401(k) plan, you may be able to keep the money in the plan.

Now, let’s say you’re a big saver and you want to retire early, before age 59?. Provided that you’re no longer working, you can start taking distributions as early as age 55.

Finally, regardless of when you take distributions, they’re are subject to federal, state and local income taxes.

Keep in mind that these are the rules for regular distributions. If you take withdrawals earlier than allowed, the consequences can be serious.

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for "HOW LONG SHOULD IT TAKE AFTER ALL LEGAL ISSUES HAVE BEEN FINALIZED, FOR A PERSON TO RECEIVE A LUMP SUM DISTRIBUTION FROM A TERMINATED I.R.A. ACCOUNT.(After 5 yrs. of no contribution, activity, money and time repoted to the Union I used to belong to a person is eligible to apply for distribution, which must be approved by a Board of Trustees , all provisions of the plan were satisfied 2 yrs ago except for a Q.D.R.O. meeting definition of ERISA Sec.414(p) as amended by the Retirement Equity Act of 1984, Sec.204 (b) this was approved by attorney for the plan in April of this year 2007 the matter was heard and resolved at Orange County Superior Court on July 11, 2007 signed sealed and delivered to the Pension Representative a hard copy by July 13,2007 I personally spoke with the man on July 13, 2007 I asked him if there were any papers I would nedd to sign so this would not be delayed. He told me no everything was done I would have the money in 2 weeks. On that date I called him, the retirement group Company and have continued calling them 2 to 3 times a week since . The company would tell me they had all the relavent info on monday but by wednesday they were waiting for info , friday it will be done in 3 days this has gone on for 15 weeks. I have asked these people why someone has not contacted this incompetent representative. I have screamed at supervisors at both ends back and forth. Can someone tell me what the true performance time period is under the right communication process one would believe professionals should perform. please dont tell me this is because of red tape, i have talk to both partys to many times. So

Contact the Orange County Superior Court and let them know that the pension fund is not complying with the court order, and now you want the order modified to include a penalty of $100 a day for every day they are not in compliance.

The court probably won’t award you the penalty money, but they probably will hold a hearing to determine why you haven’t been paid after all this time.

Tel the court you want interest on the money they’ve been withholding.