Three Reasons to NOT Save for Retirement

Most people are vastly under saving, but no matter where you are at with your retirement investments, it never really will hurt to save more. Life is spontaneous and will sometimes throw you in different directions, so there will likely be times when it is more important to allocate your money to other important costs rather than saving for your retirement. Here is a list of three reasons that you may NOT want to save for retirement at the time:

Silver CascadeCredit Card Debt

If you are in a significant amount of credit card debt it is probably a good idea to put a hold on your retirement investments. High interest rates on your credit card debt puts a drain on your finances and unless your investments are making more in interest than you are paying on your debts you are effectively losing money. It’s important to pay off, or at least minimize your credit card debt as a priority over retirement savings.

Have an Emergency Fund

Life can always go differently than you expect it to. By having an emergency fund you will be able to protect yourself financially if you suddenly lose your job or encounter any unexpected medical costs. It’s a good idea to have at least 6 months of living expenses saved up. Once your emergency fund is stocked you should then allocate those funds to your retirement savings.

Student Loans

If you are young, you likely have significant student loans. While you might think that it makes the most sense to direct some money to retirement investments and some to your loans. But if the interest rates on your loans are higher than the interest that you accumulate on your retirement investment, you are losing money. It’s wiser to pay off your debt as quickly as possible and then invest in your retirement.

An exception to this, however, is a low interest student loan where your interest rates are less than the interest that you make on your retirement investments. If this is the case it’s smart to allocate funds to both.

Retirement investments are important and should always be part of a healthy financial plan, but there will be times in your life where it makes more sense to prioritize other expenses over your retirement plan. If diverting money from your retirement investments can help you with current financial burdens, don’t be afraid to deviate from the plan. Finding a balance is important when allocating money to your expenses and to your savings.

 

The Story of Trust Deeds

A couple are looking into purchasing their first property together. One of them already has a nest egg ready to put into getting on to the housing ladder… and the other? Well, he or she has tried to scrimp and save but just can’t resist the lure of decent wines/holidays/nice clothes/Xbox credits. You get my point. Buying a house together might seem like the perfect way to cement a loving relationship but it is undoubtedly a financial risk if, like many relationships, the financial elements of the union are anything but equal. In this scenario, it can be wise to look at having trust deeds drawn up.

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Although not the most romantic concept, a trust deed can protect both parties when looking to purchase property. Commonly referred to as a ‘declaration of trust and cohabitation’ or ‘co-ownership agreement’, a trust deed is a legal agreement between two joint owners which can specify the amount of capital each party contributed to the purchase, the agreed shares of ownership and exactly what should happen if one of the parties dies. A depressing thought. However, assuming you have years of cohabitation ahead of you, a trust deed can also provide legal protection if one of the owners leaves the home or starts a dispute over such things as building extra rooms or adding a conservatory. Basically, a trust deed can cover any potential outcome and could prove invaluable in the event of changing circumstances.

If, like our couple, one of you has invested more money into climbing onto the housing ladder, you might each agree that it is fairer to have this reflected in your share of the property. Let’s say you put in 80% of the funds needed and your other half managed to scrimp together the remainder. Surely you would want this reflected in bricks and mortar? A trust deed will ensure this happens by apportioning your interest in the property accordingly meaning that, if you ever went your separate ways and the house had to be sold, you would get your fair share back.

Of course, you and your partner may well live together forever in harmony. However, it makes sound financial sense to consider distinctly unromantic elements before buying a house with a loved one. As anyone who has been burned by a greedy ex will tell you, a trust deed can ultimately negate a great deal of heartache.

In a Damaged Economy, Can I Lose My 401(k) if My Company Files Bankruptcy?

For quite some time now, the state of the economy has been a cause for concern on a variety of fronts, but one of the biggest concerns voiced was for the future of many individual’s 401(k) plans. After all, the vitality of these funds depends heavily upon the company’s performance that it is tied to, as well as the individuals association with that company—with so many being laid off, how could concern not flow freely?

Retirement

Photo by Tax Credits on Flickr

One of the best cures for concern, fear, and every emotion of its kind, though, is knowledge. The best thing that you can do to protect yourself, as well as your 401(k), is to be prepared and to know your options.

In order to assist in this endeavor, below is a list of commonly asked questions about this concern for you to consider, with answers you can add to your knowledge-base. If you want to find out more about how you may be affected, you can check out the Suncorp superannuation calculator.

Q: What happens to my 401(k) if my employer goes bankrupt?
A:
The answer to this question largely depends upon what kind of bankruptcy your employer has filed; it will either be a Chapter 11 or a Chapter 7 bankruptcy. Both will render different results.

Q: What happens as a result of a Chapter 11 bankruptcy?
A:
When this bankruptcy is filed, your employer intends to restructure all of their assets in order to overcome their financial depression. During this restructuring, 401(k) plans may continue on; however, if part of the restructuring is to cut back on benefits, you may lose any matching contributions the company may have made if you’re outside of your company’s designated vesting period.

Q: What happens as a result of a Chapter 7 bankruptcy?
A:
When this bankruptcy is filed, you employer intends to liquidate; when this happens, your 401(k) plan has a high probability of being terminated.

Q: Is there any kind of protection for my 401(k), should a Chapter 7 occur?
A:
Yes; under the Employee Retirement Income Security Act (ERISA) of 1974, the funds held within your 401(k) account must be held separate from company assets and must be protected from creditors; typically, they’re held within a trust or insurance account for safekeeping.

It’s important to keep in mind, however, that any payroll deductions your employer hasn’t yet sent over to the 401(k) will not be recovered.

Q: How often does my employer transfer deductions to my 401(k)?
A:
Your employer is required to transfer all payroll deductions into their individual 401(k) accounts no later than 15 business days past the end of the month within which they were drawn.

Matching contributions that your employer may have been making sometimes occur less frequently (i.e. quarterly, semi-annually, or annually) and therefore might not make the transfer before the bankruptcy occurs.

It’s a good idea to regularly check your 401(k) account statements to monitor this activity, but if your 401(k) comes up a bit short due to bankruptcy, you’ll probably find that the deductions from your most recent paycheck never made it through.

Q: What happens if my 401(k) funds are distributed to me before I reach the age of 59.5 due to company bankruptcy? Am I required to pay taxes on the funds in the account?
A:
If you decide to keep the funds, yes, you will have to pay the same taxes and penalties that you would have paid had you withdrawn your 401(k) before the designated retirement age. You can avoid this, however, by simply rolling the funds from the account over into a new account with a new employer, continuing your 401(k) plan with little, to no, financial interruption.

Some Simple Ways to Learn About Investments

It’s important to get professional advice when it comes to your investments, but you also need to know enough to be able to realize when you are receiving quality advice and when you are not. Learning about investing your money, enough to understand the basics, is important for every retiree.

Savings Account

Photo by jonathansin

Subscribe to Financial Magazines

When choosing a financial magazine pick one that gives sound and solid advice. Read every single issue, front to back, for the duration of your subscription.At first there may be some things that you do not understand completely and maybe some words that are new to you, and that’s okay! Take the time to research the things that you don’t understand with a simple Google search!

Learn about investments by taking a course either in person or online

There are a lot of community colleges that offer these. They provide courses with professors that will teach you many things about investments from how to budget your money, to investing for your retirement to buying the right insurance.

Online investment courses are also available. These usually involve clicking through a complete lesson once or twice a week. Learning this way is very friendly to your schedule since you don’t have to invest a lot of time and will help you to feel more confident next time you make a financial decision.

Read a book or two

There are so many books about the topics that surround investments that can help you to reach your specific goals and to understand your investment options. To pick out a book you should look at what needs you have then check out some titles and reviews. You may want to get a book that is more readable when starting out. Something that uses less technical words will be more beneficial to a beginner.