Search results matching tag 'IRA'

9 ways to save money in the next hour

Karen Datko — Thu, 23 Apr 2009 14:00:00 GMT

This post comes from Trent Hamm at partner blog The Simple Dollar.

As you read this, you're likely sitting at a computer with Internet access, or perhaps using a mobile device of some type. You have a little slice of free time, so you're seeking out some thoughts on money management or on life.

Instead, why not use this lazy hour to do something at your desk that can directly put money in your pocket? Here are nine great suggestions for doing just that:

Find a better primary bank -- and sign up. I'm often shocked to find that most people seem to be very unhappy with their primary bank. They're charged unnecessary fees, don't earn much interest, and are greatly inconvenienced by the customer service or the ATM network. These factors are not only an annoyance, they cost you real money that adds up to large sums over time.

It doesn't have to be that way. There are many banks out there with great customer service, large fee-free ATM networks, no ridiculous fees to simply maintain a checking account, and interest on even basic checking accounts. I use ING Direct's Electric Orange checking, for example, after having abandoned checking and savings accounts with a particular large national bank, and that switch has saved me $50 a month per month in the years since the switch.

Shop around for a new bank. There are a lot of options besides ING. HSBC Direct, Everbank, FNBO Direct and E-Trade all have good customer service, keep the fees from draining your money, and offer interest on checking. Don't base your decision solely on interest rates, though, as those vary quite a bit over time. Instead, find reviews of all the banks and keep an eye out for customer-service comments.

Many banks allow you to sign up for both checking and savings services online, so if you decide to go the full nine yards, you can actually begin the process of transitioning to a new bank right at your computer.

Set up an automatic savings plan. While it's a great idea to have a full-service bank for your primary checking, for many people it's good to have a savings account set aside for emergency funds or other specific savings goals. While I typically use a savings account at my primary bank for my emergency fund (because it's easier to access), I usually hunt primarily for the best rate when I'm saving for a specific goal (like an appliance replacement).

One good place to do just that is with SmartyPig. Not only do they offer a good interest rate if you set up an automatic savings plan with them, they also toss in discounts from specific retailers if you meet your savings goal. If you need to replace a washing machine in the next several months, set that up as a goal with SmartyPig, earn a good interest rate as you save, and get a discount on the item when you reach the goal. I'm using SmartyPig to save up for a replacement television by socking away just a few bucks a week.

A great way to find a high-interest savings account to set some cash aside is Bankrate.com's savings account yield rate listing. It allows you to see the highest rates available nationwide for savings accounts. Because customer service and ATM access and other factors aren't as much of a concern with a simple savings account, it can be a good idea to simply seek out the highest rate. (That can change over time. You should compare rates every once in a while.)

Read your grocery store's flier and prepare a meal plan and shopping list. It's so easy to set up a meal plan and make a shopping list, yet many people skip it and head to the grocery store cold. Just a few minutes of prep work can save you quite a bit of money and also make your shopping trip shorter -- and there's no easier place to do it than right in front of your computer.

Visit the Web site of your grocery store of choice and download the weekly flier. Identify a few interesting items that are on sale, use those items as the backbone of the meals for the upcoming week, and make a list of the meals. If you need help, use a recipe database like RecipeSource to fill in the blanks. Then, from that list of meals, make a grocery list that includes all the items you need. You can create both the meal plan and the grocery list on your computer's text editor or at Google Docs.

When you're satisfied, print off the list and head to the grocery store. Shopping by grocery list is not only faster than wandering the aisles, it's also cheaper. Your eyes are on the list and scanning the shelves for specific items, which means you're much less likely to be tempted by impulse buys. That saves you time and money in the store.

Research an upcoming major purchase. Whenever you make a significant purchase -- and I view significant as being anything over $20 or so -- you owe it to yourself to do a bit of research on that purchase, whether it's merely to make sure you're buying exactly what you want or getting the right price. Doing this, though, can be a bit time-consuming. Here are a few tips to get you started.

ConsumerReports.org is worth it (for me). I use Consumer Reports as the starting point for many of my major purchases (and a lot of my minor purchases, too). Their data are a good indicator of the relative quality of a given item compared with the competition. You can sign up for the service for just $2.16 a month.
Hit Twitter Search and Technorati for specific comments from real users. Both reveal what real people are saying about specific items and companies.
Send some e-mails. Contact your friends and see if they have any recommendations on specific items and item categories.

Sign up for a swapping service. I enjoy watching movies and I especially enjoy reading books. Sure, I can use the library for these things, but I have to remember to return them and I can't make my own markings on the books if I want to. I prefer to have a copy of my own to hold on to if I find long-term value in it, but I also like to have the flexibility to get rid of the item if I don't want to keep it over the long haul.

So what do I do? I use PaperBackSwap to trade books by mail and SwapADVD to do the same thing with DVDs. It's easy: Just sign up, indicate 10 books or DVDs that you're willing to send to other people, and you receive two credits that you can use to request that books (or DVDs) be sent to you. (They cost one credit each.) When someone requests one of your books, wrap it up, send it out (it costs about $2), and you'll get another credit. The end result is that you can swap DVDs and books you don't want for DVDs and books you do want for about $2 a pop, which is a lot cheaper than buying them.

I've been using both services for years and I've had nothing but success with them. When I want to watch or read something new, those sites are my first stop. There's nothing better than clicking a few times and getting the book or movie you want in the mail without paying a cent.

Set up a deal-monitoring page. I wrote about a clever trick I use for automatically finding Amazon deals on my Google home page. That's just the start. You can use the Google home page to automatically find all sorts of deals you might be interested in, using the same FeedSifter + iGoogle trick described in that article. Also:

Follow certain Twitter search terms. Go to Twitter Search, type in the search terms you want, do the search, then note the "Feed for this query" link over on the right. You can put that link into iGoogle and automatically see those results on your iGoogle home page.
Follow certain deal blogs. You can simply follow the feeds of good deal blogs as well, like MoneySavingMom, or filter their postings using the feed-filtering trick I described above.
Keep a list of links to deal sites. Other deal sites like FatWallet do not offer a feed that you can track, so you may want to make a list of these bargain sites and include them on that page.

Doing all of these things enables you to see tons of bargains and deals at one glance when you open your web browser. It takes some time to set up, but once it's working, you can see tons of deals very quickly anytime you want.

Start a deal blog. If you want to carry that deal-monitoring idea a bit further, why not set up a deal blog? You can easily start such a blog at Blogger to share the best deals you find with others. Just share the deals that seem to appeal to you the most, along with a bit of commentary, and you've started something that others might want to follow. Plus you're quite likely to discover tons of new deals via comments and people connecting with you. Put up an ad or two, and you'll earn a bit of money in the process.

A blog is a great way to share the things you discover with others, meet new people, and earn a few cents. Combining it with deal tracking is a great way to combine a money-saving hobby with a money-earning one.

Set up a Roth IRA. Many people think they should be saving for retirement, but it seems like a huge obstacle. How does one even get started on something like that? The truth is you can actually get started right at your desk. Many investment houses have Roth IRA plans that are easy to sign up for. All you need is a web browser. From there, you can set up a small automatic contribution from your checking account into that Roth IRA. This is exactly how I signed up for my Roth IRA through Vanguard.

The first step is to make sure a Roth IRA is right for you. Are you eligible for a retirement plan through your work and, if so, do they provide matching contributions into that plan? If that's the case, it's worth signing up for their plan just to get the match. Is your income under the limits for a Roth IRA? If you earn less than $100,000, you're fine, but if not, you'll want to check the eligibility rules. Also, are you earning significantly more than you expect to bring in in retirement? If so, then the Roth IRA might not help you in terms of taxes. Look for a traditional IRA for your savings.

Who should you invest with? There are a lot of different investing houses that offer Roth IRAs. Do some research and read the opinions of others. I use Vanguard for mine and I couldn't be happier.

What should you invest in? For most people, a simple target retirement index fund is the best choice. It automatically balances your retirement savings for you, keeping you aggressively in stocks when you're young and moving you to more stable bonds and cash as you grow closer to retirement. Most investment houses offer target retirement options.

Once you've made up your mind, signing up for a Roth IRA is actually quite easy. Just fill out the online forms, set up an automatic deduction from your checking account, and watch your retirement savings begin to build up.

Dig into your community calendar. Bored? Don't know what to do this weekend? It's likely that your community has quite a few free events going on this weekend, some of which might be of interest to you. Visit your town's Web site and the Web sites of towns near yours, and see what's on the community calendar. Free concerts, free community festivals, cheap meals, and countless other things might be in the offing right under your nose. It's well worth a few minutes to find them.

Related reading at The Simple Dollar:

Time, frugality and values

Is your local warehouse store worth your while?

Lessons in fuel-efficient driving

Should she keep the IRA or punt?

Karen Datko — Mon, 23 Mar 2009 23:15:00 GMT

This guest post comes from "vh" at Funny about Money.

This month's statement from Fidelity shows another $10,000 loss in my big IRA, despite my financial advisers' having moved as much as possible into conservative investments, gold and cash.

At the age of 63 -- damn! soon to be 64! -- I'm watching my retirement investments melt away. That IRA has dropped in value from a high of $326,000 to $193,000. Total savings have dropped from more than $600,000 to less than $420,000. Meanwhile, we owe $100,000 more than the investment house is presently worth, and I took out a second on my own house to renovate said investment.

I'm wondering if it's time to do something completely, utterly, totally contrarian. Hang on to your hats, folks, because this is one scary idea:

Maybe I should cash out that big IRA before it's all gone. I have enough set aside in savings to pay off the small second mortgage on my house; if instead I combined that with the amount remaining in the IRA, I could use the money to pay off the loan on the investment house. My son could then continue to pay me the amount he's been paying toward the mortgage as a variety of "rent."

I would repay him his share of our combined investment in the house so far. This would provide him enough to go back to school, which he would like to do.

If he decides to go to the University of Arizona, which has a better graduate program in public administration than the Great Desert University's, I could either rent his house, providing a nice bit of cash flow, or I could rent mine for even more, move into his, use the rental on my house to cherry out the little house downtown, and collect a ton of money.

Because I no longer have enough in savings to support me in old age, I'm going to have to work until I drop. When the deans physically throw me out of the place (assuming I haven't died before then), I would have the rental income from one house, Social Security, and income from taking out a reverse mortgage on whichever house I'm living in.

Hmm. I wonder what that would look like?

Let's assume a miracle happens and the Obamaites succeed in turning the economy around. Let's assume that starts to happen in, say, three months, during which I continue to lose at the rate of 10 grand a month.

Several options present themselves:

Stay the course. Change nothing in the investment strategy.
Pay off the house; have my son pay the amount he's been paying, only to me.
Pay off the house; my son goes to school elsewhere and I rent his house.
Pay off the house; my son leaves for graduate school; I move into his place and rent my house.

I ran some figures in Excel. My math is not very good, so these prognostications may be out in left field. But if I'm right, it looks like I would be better off to pay the mortgage and have M'hijito pay me a monthly "rental" in the amount that he's now paying the mortgage company. I'd still have enough to refund him his investment in the house, which would pay a big chunk of his graduate school tuition, or at least revive his Roth IRA.

I posited three mortgage-payoff scenarios and estimated my net income if I retired at age 66 (which ain't gunna happen) or at age 70 (the earliest I can imagine being able to afford retirement). I assumed equity investments would continue to drop 10% a month for the next three months and then begin to rise at about 3% a year from now forward. In Scenario One, M'hijito stays in the house and pays me rent of $600 a month. In Scenario Two, he goes to graduate school in Tucson and I rent his house for $950 a month. In Scenario Three, he goes to Tucson, I move into his house, and I rent my house for $1,000 a month.

I listed all the bottom lines in Excel and then sorted to show the numbers ranging from least income to most income.

Compared with staying the course (leaving my investments where they are and continuing to pay the mortgage), all three pay-off-the-mortgage scenarios seem to look better, unless M'hijito stays in the house and I'm forced to retire or am laid off at age 66.

The big unknown is whether I will keep my job. If I'm canned before I reach age 70, we lose a very big bet. But if I can hang on until age 70 and I'm not purely raped by the taxman, then I end up with a net income fairly close to my present net.

On the other hand, if I'm canned, we're screwed anyway.

My son would get back the money he put into the down payment. He could continue to live in the house as long as he pleased, but he would no longer be chained to the thing: He would be free to go to school or take a better job elsewhere.

If I moved to his house, when I really get desperate for money (which will inevitably happen as my health starts to fail and medical care costs soar), I could take out a reverse mortgage on the place. M'hijito would then lose that house after I die, unless he wanted to pay off the reverse mortgage, but he would inherit my paid-off house, which by then would be making a nice rental income for him, or (with some fix-up) would be a good place for him to live.

Whaddaya think? Crazy? Or not crazy?

Related reading at Funny about Money:

Doesn't anyone hear that alarm going off?

The worst financial mistake you didn't make

What's that light at the end of the tunnel?

IRAs: Roth and the other kind

Karen Datko — Mon, 02 Mar 2009 23:08:00 GMT

This guest post comes from Frank Curmudgeon at Bad Money Advice.

Poke around the blogosphere and personal-finance punditocracy and you will find lots of positive references to Roth IRAs and virtually no nice things said about its dull older brother, the traditional IRA. If you didn't know any better (and why would you?) you might assume that the younger and hipper Roth IRA was the way to go. After all, it is the cool new thing and the latest in retirement savings technology.

Here's a rundown of the differences and why you are likely to want to go with the unhip kind after all.

IRAs come in two basic flavors. There is the traditional old-style IRA, in which you put pretax money, i.e., your contributions are tax-deductible, and then later in life you pay taxes on your withdrawals as if they were income. And there is the relatively newer type, a Roth IRA, in which contributions are post-tax, i.e., not deductible, but withdrawals are tax-free.

Which is for you? Obviously, you want the one that will wind up making you more money. To tee that up, consider the following:

Tom Traditional and Robbie Roth have identical incomes, and so pay identical tax rates, and they both have $3,000 a year of that income that they wish to put in an IRA. Obviously, each picks the type that matches their name, so Tom puts in the full $3,000 each year and Robbie puts in $2,250 after paying taxes of 25%. The years pass, and they make identical investment decisions until they retire on the same day. Tom's account is, of course, larger but he needs to pay 25% taxes on anything he takes out, while Robbie can withdraw tax-free.

Here's the big question: After Tom pays taxes on his withdrawals, who has more money to spend?

The answer, which seems to surprise a lot of people, is that they have exactly the same amount of money. Assuming the tax rate going into the Roth is the same as the one coming out of the traditional, the financial benefit of the accounts is exactly the same. Fire up Excel and run the numbers yourself if you don't believe me.

So why do the advocates of saving seem to universally prefer Roths? It's not about numbers, it's about conceptual appeal. Saving is about sacrificing now for a benefit in the far-off future. With a Roth, you pay taxes now so you cannot pay taxes later, and that has a big attraction to the savings crowd.

Symbolism aside, there are good reasons to choose one type of IRA over the other. Primarily, which one is better depends on the tax rate you pay now and the one you will pay when you are retired. Tom and Robbie came out equal because they always paid 25%. If the tax rate had been 25% when working but only 15% during retirement, then Tom would have wound up ahead because he would avoid the 25% and pay only 15%. Conversely, if the rates were 25% while working and 35% when retired, then Robbie would be better off.

Occasionally you see the pro-Roth argument that given the fiscal problems the government has now and is likely to have in the future, tax rates will inevitably rise. That sounds perfectly reasonable, but it is worth reflecting that the same thing could have been said for the past 30 years and so far it's been wrong. Predictions of what Congress will do in future decades are hardly a sound basis for your retirement planning.

On the other hand, predictions of how much money you will be making in retirement, and so which tax bracket you will be in, are more practical. If you have a Roth, you are betting that your income, and your tax rate, will be higher in retirement than it is now. That's some bet. (You do understand that in retirement you won't have a job, don't you?) Furthermore, choosing a Roth over a traditional is doubling down the bet on your own future prosperity. If you wind up being a rich retiree, you'll be happy you have a Roth because you won't pay high taxes on the withdrawals. But if you wind up a poor oldster, you'll wish you'd picked traditional, because you'd have more money, even after paying the (lower) income taxes on what you take out.

There are other factors to consider when choosing between the two types of IRAs. (There's a nice rundown here and here.) But they are all secondary to the tax-rate issue and some of them are pretty esoteric. In the big picture, what matters are tax rates now and when retired. And for many, if not most, people that means that an old-school traditional IRA is a better choice, even if it lacks hipness and the frugal appeal of paying more now for a benefit far in the future.

Related reading at Bad Money Advice:

House prices: The long view

What to expect from the stock market

Why you should convert your traditional IRA to a Roth

Retirement for stay-at-home parents

Karen Datko — Thu, 22 Jan 2009 14:16:00 GMT

This post comes from Debbie Dragon at partner blog Wise Bread.

Many families make a sacrifice by having one parent stay at home to raise their children. If the stay-at-home parent remains at home and unemployed for the majority of his or her working years, what happens when the stay-at-home parent reaches retirement age?

Without employment, a stay-at-home parent isn't going to have an employer-sponsored retirement plan to help him or her out during the golden years. To open an individual retirement account, the IRS requires that you earn an income, so that's out, too. Even if you're not generating an income, you need to establish retirement savings, but with the limitations on IRAs, what are your options?

If you're married, you can open a spousal IRA. The spousal IRA is designed for nonworking spouses to save for retirement with funds from the working spouse's income. The 2008 maximum contribution is $5,000 in a spousal IRA (or $6,000 if you're 50 or older). You can open a spousal IRA as a Roth or traditional IRA.

With a spousal Roth IRA, if you invest $4,000 a year for 20 years with an average return of 8% per year, you will end up with almost $200,000 that you won't owe taxes on. Uncle Sam already got his share from the money you invested -- which is the primary advantage of Roth IRAs. With most other types of retirement accounts, the original investment isn't taxed but withdrawals are.

The other benefit of a spousal Roth IRA is that you could withdraw your investment anytime, without penalty. The earnings of your contributions must remain in the account for a minimum of five years and until you're at least 59 or else you'll pay big in taxes and penalties. However, the amount you contribute can be withdrawn and it won't cost you anything. Ideally, you would leave your money in the IRA for as long as possible, but it's always nice to know you have access to your money in case of an emergency.

If you're not married, or otherwise don't meet the requirements for a spousal IRA, you could always look at other interest-earning deposit accounts for establishing a retirement fund. Many high-interest savings accounts, checking accounts, fixed-rate IRAs, certificates of deposit and money market accounts can be opened with as little as $1 -- and are virtually risk-free, meaning you aren't gambling with the money you set aside.

The earlier you start and the more consistent you are with saving money, the better off you'll be when you reach your retirement years.

Related reading at Wise Bread:

5 tips for eating in restaurants and sticking to a budget

Entertain yourself by starting a frugal club

Daily roundup of best deals from Wise Bread

Get free advice to jump-start your retirement plans

Karen Datko — Wed, 07 Jan 2009 22:25:00 GMT

On two days this month, you can get free answers to your retirement questions from people who normally charge $150 to $300 an hour.

This wonderful opportunity -- called Jump-Start Your Retirement Plan Days -- is sponsored by Kiplinger's Personal Finance magazine and the National Association of Personal Financial Advisors -- an organization of fee-only advisers.

If you're nearing the end of your career or just starting out, you're probably worried about your dwindling retirement accounts, so this advice couldn't come at a better time. Here are the details:

Help is available between 9 a.m. and 6 p.m. EST on Jan. 13 and Jan. 30.
Call (888) 919-2345 (that's a toll-free number) or log on to www.kiplinger.com/links/jumpstart/.

If you want professional financial advice from someone who is interested in your welfare and isn't trying to sell you anything, a fee-only adviser is the way to go. These people really know their stuff.

Last year during Jump-Start Days, about 4,100 people took advantage of this free service.

"These are frightening times for investors," Kiplinger's Personal Finance editor Janet Bodnar said in a press release. "But it's important to take a long-term view and to make decisions based on facts, not just emotions. These Jump-Start Days are a great way for consumers to evaluate whether their retirement goals are on track."

Related reading:

Can you trust your financial adviser?

Make your money last in retirement; 5 keys

Plan for your retirement

How much will your retirement cost?

Why I didn't spend a dime of my windfall

Donna Freedman — Wed, 19 Nov 2008 16:58:00 GMT

Two thousand dollars fell into my lap recently. A publisher that five years ago used one of my articles in a high school literature book wanted to renegotiate the contract because the textbook is being updated.

I was shocked, and delighted. And conflicted: What should I do with the money?

Should I put it in a short-term CD? Dump it all into savings? Deposit it in the retirement account I started last year? Or maybe, since it was found money, I should lend it to a family member who's struggling with debt -- two grand makes a mighty big snowflake.

This was a surprisingly difficult decision, even though in retrospect it seems like a no-brainer. For me, it came down to this: How do I balance the need to feel financially secure right now with the reality of retirement?

My first step toward security came last fall, when I got out of debt. Second on the list was creating an emergency fund, so I started socking away every dollar I could. The EF was fully funded and then some by the sale of a few pieces of art earlier this year. I keep some of the fund in a traditional bank for easy access in a true emergency, but most of it's in an online bank account.

So I'm doing all right -- for now. But like many other Americans I don't think my traditional retirement sources will be enough for later.

Cobbling it together
The newspaper I worked for between 1984 and 2001 didn't offer a 401(k) until 1990, so I was able to fund it for only 11 years. For this reason, the account is not particularly large. (And it's getting smaller thanks to the current economic turmoil.)

The company started a pension plan at the same time as the 401(k). I'll get about $540 a month from it unless something happens to that fund, too. I also own 14 certificates of deposit that my ex-husband and I opened up back in the 1980s, but we rarely contributed to them after those initial opening deposits.

Then there's Social Security, but that's not exactly heavily funded either. From age 18 to 20 I worked irregularly, due to a less-than-ideal life situation. At age 21 I took a "permanent part-time" job, working 30 to 35 hours a week. It wasn't until age 26 that I got a full-time job, and by age 45 I was once again out of the workforce. I've been freelance ever since. When I won a full-ride university scholarship a couple of years ago I decided to remain freelance, in order to do justice to this opportunity.

Don't get me wrong: I'm lucky to have these resources. Some people have nothing at all. But I will almost certainly have to postpone retirement. I'm not alone: According to this article from Bankrate.com, one in five Americans expect they'll work until they die.

Does stability exist?
Generally speaking, women face a different set of challenges than men when it comes to saving for the golden years. For starters, they live longer; according to this MSN article, today's 20-something women will probably make it to their late 90s.

Women are paid less than men, and may drop out of the workforce for periods of time during childbearing years. Even if they do work, they tend to do more of the child care and home-related chores, which leaves less time/energy for contemplating investment strategies.

They're culturally conditioned to put themselves last, and thus are more apt to spend money on their children's college educations or to help their aging parents than fund their own retirements. One of my first thoughts about what to do with the two grand, as noted above, was to lend it to a family member.

As a kid, my idea of retirement was based on what I saw all around me. You worked for a factory or insurance company or auto shop or school system for 40 years. If you happened to like a particular line of work, so much the better -- but that wasn't why you worked. You worked to pay the bills and support yourself and/or your family. And when you were too old to work any longer you drew a pension.

Yet I also saw people lose their livelihoods when the glass factory closed. I saw people with little education and few skills move from job to job, hoping for a living wage. As a young adult, I saw instability everywhere: factory shutdowns, widespread layoffs, pension funds that couldn't keep pace with inflation.

Without much schooling myself, I was very lucky to land in a job that allowed me to do what I loved to do: Write. For 18 years, that's how I made my living. And then my life changed again. A combination of circumstance and choice put me in an unenviable situation: middle-aged, uneducated and broke.

Taking control, finally
That was my wake-up call. For the first time ever I looked closely at my life and my finances, and I didn't like what I saw. During those 18 years of employment I had drifted: no investments, no real financial planning. This was due in part to financial ignorance (mine and my then-husband's), and in part due to the fact that I was deeply depressed and incapable of making smart choices.

Now I have to play catch-up -- at the same time that I'm working toward a college degree and working only part-time while I do it. That goes a long way toward explaining frugality as a life choice.

One of my resolutions for 2009 is to visit a financial adviser and have him or her look over my patchwork of solutions. Chief among my concerns is what steps I must take to be able to support myself in my old age. Not only would I not want to rely on my daughter, I can't realistically do so because she is disabled.

That's the reason I wound up putting the entire $2,000 into the Roth IRA, bringing the year's total contributions up to $2,600. The other payment was my economic stimulus check. (I decided not to go shopping.)

That's also the reason I've decided to take $2,500 out of my EF/savings account to meet the maximum annual Roth contribution for 2008. It scares me, frankly, to take any money out of savings. But it just doesn't make sense to delay funding my retirement any longer.

Something that MSN Money personal-finance columnist Liz Pulliam Weston wrote recently has been nagging at me. She cited an AARP survey that indicated 20% of workers 45 or older had stopped contributing to their retirement funds.

"While the current market turmoil may mean a delayed retirement for many people … failing to fund your retirement accounts could mean no retirement at all," Weston wrote.

Point taken. To those of you who are also wondering if you can ever stop working: MSN Money's retirement page has articles to help. I'd encourage those who have little or no savings or pension to look for some way, even a small way, to build retirement into the budget.

I'm very sorry that I waited until my late 40s to start turning my life around. But better late than never.

How to cope with a lousy 401(k) plan

Karen Datko — Mon, 25 Aug 2008 13:46:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

"The Mole" is a certified financial planner and public accountant who, in his spare time, provides a behind-the-scenes view of the financial-planning industry for Money magazine. In a recent column, the Mole explained how to deal with a bad 401(k) plan.

"401(k) providers don't actually care how they make money," he writes, "just as long as they make a tidy profit." The providers can make money by:

Offering good choices to employees, but charging employers high administration fees.
Charging low administration fees, but offering high-cost investment options to participants.

The Mole notes that smaller employers can't afford to pay high administrative fees, so they may opt for something cheaper, not realizing that they're simply shifting the cost to their employees. If your company offers a lousy 401(k) plan, the first thing to do is talk about it with your employer. If that's not fruitful, the Mole recommends that you:

Always take the employer match. "I've seen some pretty pathetic 401(k) plans, but I've never seen one so bad where it made sense to pass on the (employer match)," he writes.
Look into IRAs. If your company's 401(k) plan doesn't offer good choices, make funding your IRA a priority. A Roth IRA is an excellent way to save for retirement.
Consider bonds. Bond funds tend to be less expensive than stock funds. If you have lousy 401(k) options, it may be a good place to hold the bond component of your portfolio.
Favor index funds. Index funds have lower expense ratios than managed mutual funds. If the other funds in your plan are expensive, try to find an index fund with low fees. (I'm a fan of index funds in the first place, and think they should be one of the first places you look regardless.)
Opt for a rollover. When you leave your employer, be sure to roll your 401(k) over into an IRA. "That's the only way to get out of these really lousy selections," writes the Mole.

I've never participated in a 401(k), but we have a similar retirement plan for the employees of my family's business. When we first set this up 13 years ago, the plan was managed by a large national brokerage. At that time, I never noticed that this company was providing us with lousy options. Fortunately, our bookkeeper knew more about investing and was willing to find out why our returns lagged way behind the market.

He discovered that our broker not only offered us lousy investment options, but also churned our account -- selling funds and buying new ones in order to generate transaction fees. He dumped the broker in a flash and has been managing the retirement accounts for the business ever since. Naturally, he has our money in low-cost index funds.

Most people don't have the option of seizing control of their retirement accounts the way we did. For them, it's best to follow the Mole's advice when faced with a bad 401(k) plan.

Other articles of interest at Get Rich Slowly:

How to start a Roth IRA and where to do it

Are index funds the best investment?

The four pillars of investing

Why it pays to ignore the financial news

Karen Datko — Mon, 23 Jun 2008 13:44:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

Financial news can be dangerous to the health of your investment portfolio.

I spent some time recently reading articles about the stock market. What I found was mostly hysterical hype ("Gasp! Dow Jones Industrials tumble 400 points!"). All the financial stories seemed to be written as if our investment horizons were days, not years. No wonder people panic when the stock market hits a rocky patch.

But do daily market movements -- even 400-point drops -- really matter? How important is up-to-date financial news to the average investor?

'Turn it on, but tune it out'

The May issue of the AAII Journal includes an article called "The stock market and the media: Turn it on, but tune it out," in which writer Dick Davis argues that daily market movement is often illogical. Except for obvious catalysts -- military coups, natural disasters -- nobody knows what makes the market move on any given day. Short-term changes appear to be random. Besides, they aren't really relevant if you have a long-term investment horizon (which is probably the case for most Get Rich Slowly readers).

To the long-term investor, daily market movements are mostly noise and filler. "What's important is repetition or the lack of it," Davis writes. A trend line is more useful than a data point.

I believe one of the worst things that can happen to a long-term investor is to be instantly and totally informed about his stock. In most cases, spot news fades into irrelevance over time. ... Big market moves may be inexplicable, but a long-term or dollar-cost averaging approach precludes the need for explanations.

You can watch the daily investment news, but don't let it sway your decisions. "Focus on the long term," Davis writes, "and you can ignore the media's distortions."

No news is good news

Davis isn't the only one to believe that no news is good news. Research backs him up. In "Why Smart People Make Big Money Mistakes and How to Correct Them," the authors cite a Harvard study of investment habits. The results?

Investors who received no news performed better than those who received a constant stream of information, good or bad. In fact, among investors who were trading (in a volatile stock), those who remained in the dark earned more than twice as much money as those whose trades were influenced by the media.

Though it may seem reckless to ignore financial news, the book argues that it's not: "Long-term investors need not concern themselves with yesterday's closing price or tomorrow's quarterly earnings reports." Make your decisions based on your personal financial goals and a predetermined investment strategy, not on whether the market jumped or dropped yesterday.

Other articles of interest at Get Rich Slowly:

'Why Smart People Make Big Money Mistakes and How to Correct Them'

Are index funds the best investment?

General investment tips

Outside the (cash) box: Savvy financial gifts for grads

Karen Datko — Mon, 09 Jun 2008 20:09:00 GMT

Cash is great, but consider other gifts to start the new graduate on a path to financial health that aren't so easy come, easy go.

So says Money Smart Life. "The problem, as I remember it, is that cash is a hard thing to hold on to once you're out of school and thrust into the job hunt or working world," he writes in a post called "Gift ideas for college grads for a financial head start." We particularly liked his suggestion to set up an investment matching program.

Offer to match part or all of the money your grad puts into an investment account or Roth IRA. "My parents did this for me and I invested the maximum amount that they'd match," he says.

You can also set up an emergency fund. Money Smart Life explains how you can create an online savings account that rewards both you and the grad with a signup bonus.

Among his other ideas: Pay for the grad's short-term health insurance until she or he is eligible for a workplace plan. Give a gym membership, because good health is one of the foundations of financial security. "Plus, the gym is a great place to socialize," he says. "Maybe they'll meet their future spouse there. Two people paying rent makes housing much more affordable."

Another one we like is becoming a financial mentor, if you have good advice to share. He says, "You've already traveled the financial maze and have many of the answers they'll be looking for."

Making the move from spender to saver

Karen Datko — Mon, 02 Jun 2008 13:37:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

I pulled out my camera gear last night. It's been two years since I used it regularly. Before I started Get Rich Slowly, I seriously considered trying to become a professional photographer. But for a long time now, my camera stuff has been gathering dust in the corner of my office. I can't even remember the last time I used it.

It's fun to look at all my equipment again. It's fun to handle it, to imagine the possibilities. I'm eager to get outside and make some images.

As I sorted through my bodies and lenses, though, I had to shake my head.

I bought a lot of the gear on credit. For a time, I had the photo bug, and in a bad, bad way. I craved new lenses and bigger memory cards and fancy filters. I wanted to take expensive photography courses. There was always something bigger and better to buy.

When I was in debt, when I was living paycheck to paycheck, it was always like this. I knew I should save or pay down debt, but I spent my money on comic books and camera gear. I spent it on books and bikes. I got a perverse thrill from spending money I knew I could not afford to spend. In some ways it made me sick -- I felt guilty, it gnawed at my gut -- but in others, it gave me a sense of exhilaration. If I had cash in my bank account, I spent it.

But now that I'm out of debt, now that I'm building my savings, I find I've lost the urge to spend. Now I could actually afford to buy a better bicycle. I could afford that wide-angle lens that I used to covet. I could afford to buy all the comic books that once seemed out of my reach. I could afford all of these things and more, but I'd rather save my money.

Somewhere along the way -- perhaps the moment I got out of debt -- my mind-set moved from spender to saver. I once viewed money as something to spend. Now I see it as something to save. I still indulge myself now and then -- I just picked up Mario Kart Wii, for example -- but the urge to spend all of my money is gone. It has vanished. It doesn't give me a thrill anymore.

It wasn't easy for me to switch from spender to saver. If you're trying to make a similar transition, consider the following techniques:

Open an account at ING Direct (or another high-yield savings account), and make regular contributions to it. When you develop the saving habit, it becomes second nature.
Set a medium-term savings goal. Some goals, like retirement, are too far away to get excited about. Short-term goals aren't enough to build the savings habit. But consider saving for a trip to London or Hawaii next year. Or saving for a new car. I've found that saving for goals 18 months to five years in the future has been a great way for me to get excited about saving.
When you receive a windfall (like the tax rebate), don't think about how to spend it. Think about how to save it. Windfalls used to be fun money for me -- now I view them as a way to jump-start my savings.
Avoid situations that lead you to spend. One of the best ways to move from spender to saver is to remove yourself from temptation. Since I've stopped going to the comic book store so often, I buy fewer comics. One reason I haven't bought any new camera equipment is that I haven't looked to see what's available. Sometimes where spending is concerned, ignorance really is bliss.
Consider alternatives to buying new stuff. If I find myself in a mood where I have to shop, I make a trip to Goodwill. For $20, I can fill a basket with books and clothes, and I don't feel guilty. Better yet, take time to go through the things you already own.
Don't spend time looking for ways to spend your money. Instead, spend your time finding ways to save and invest it. Over the past few months, I've learned there are all sorts of things I'd rather do with my money than spend it. I want to max out my Roth IRA. I want to learn about rental properties.

I haven't completely shaken the urge to spend. After playing with my camera equipment last night, I was curious about what sorts of new gear are available. I spent 20 minutes online, drooling over the Nikon D300. I'm tempted -- but not much. I'd rather save that $1,800 for the future. I'm a saver now, not a spender.

Other articles of interest at Get Rich Slowly:

"When a saver and a spender say 'I do'"

"Personal currencies: New ways to look at money"

"Which online high-yield savings account is best?"