Janice is 63 and scared. She is frustrated about the possibility of Social Security changing. Having terrible experiences with the returns of the retail investments in her employer’s 401(k) retirement plan, Janice now sees even more potential trouble ahead for her retirement lifestyle.
Retiring in 2007, Janice depended completely on her 401(k) investments for her retirement income, but the mutual funds her 401(k) plan offered never rebounded after the 2008 crash.
Janice worked twenty-seven years for a large attorney firm, and depended on her bosses and co-workers to show her how she should invest. Sadly, the attorney firm had no global Free Market investment knowledge. Her 401(k) had minimal diversification and high hidden costs. Her retirement plan failed to deliver the market returns Janice needed for her future, because the mutual funds expenses were just too high. Her “emergency money,” as she previously called her Social Security check, has turned into her “mandatory money.” Janice now depends on her Social Security check to supplement her 401(k) retirement income, just to maintain her lifestyle. She might have to go back to work.
Ladies, take control of your future. Do not plan on Social Security! Yes, it might be there, but to be financially independent, you need to control your own retirement income, and not depend on the government. After all, who can depend on something that has appreciated less than 1% since it was founded?
The ROTH has great benefits. First, it grows tax-free forever, and amounts you leave behind go to your heirs income tax free. Another benefit is that early withdrawals are allowed for higher education tuition and first home purchases.
Take these important steps as early as possible in your career, so you never need to worry about Social Security:
Step #1: Invest the maximum into your globally diversified Free Market ROTH IRA, every year you or your spouse earns a paycheck. Start your Roth the very first year you earn any money. The ROTH is Uncle Sam’s best-kept secret, and it’s time to take this secret out of the retirement plan closet. Everyone, no matter what age, who has earned income below $112,000 for singles and $178,000 for married couples, can contribute to a ROTH. For 2013, the current maximum contribution for investors 49 years old and younger is $5,500/$6,500 for investors 50 and older. Invest in a Roth whether you have an employer plan at work or not.
Step #2: If you have a retirement plan at work with a match (free money), invest at least the amount to qualify for the greatest amount of match. Ask your investment advisor to do a Free Market Investment Analysis on your employer’s retirement plan investment options, to help you invest in the plan’s options that are most global and dissimilar. Once your employer offers the Roth 403(b) or 401(k) switch from the traditional tax-deferred plan and start converting your pre-tax monies to the after-tax Roth 403(b) or 401(k). The 401(k)’s employer’s match most likely will be invested in the traditional tax deferred 401(k). The best way to convert is a little at a time, as the conversion creates taxes.
Step #3: Talk to your advisor about completing the conversion of all your tax-deferred retirement plans into your ROTH before your seventieth birthday. You may want to pay your tax now, so one hundred percent of the appreciation is yours, forever. It’s called “short-term pain” (pay your taxes now on the income) “for long-term gain” (never pay tax again). The sooner you convert the better. Money converted also eliminates future IRA Required Minimum Distributions.
Step #4: How you invest matters! Retail mutual funds’ high and hidden expenses need to be avoided. Market returns come from consistently owning the whole market. Invest in at least sixteen globally diversified asset class mutual funds which have lower costs than index funds, each holds only one level of asset class risk, and also invests in the stocks and bonds of small and large companies throughout more than forty countries.
Please share this life lesson with your loved ones.
Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, free market wealth and stewardship coaches, co-authored the book Stress-Free Investing, available at Amazon.com. Maria is the president of Wordhouse Wealth Coaching and may be reached at 616-460-6518 or at [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com. © Wordhouse Kuitula 2013. Photo: stock.xchng