His Hers Money

Yesterday I covered the first three ways in the “Six Simple Ways to Retire Rich”. Thanks to automatic 401(k) plans and one-stop investing options, saving for retirement is a cinch. Editor’s note: This article is adapted from Kiplinger’s Retirement Planning 2008 guide.

I promised to cover the last three ways today so here they are!

Simple Way #4 Consider a Roth

I mentioned this quickly in the last Simple way but they give it an entire section in this article. While your 401k gives you your tax benefits up front, the Roth IRA gives you your tax benefits on the other end at withdrawal side. The new Roth 401k also offers tax-free income at retirement. The Roth IRA has contribution limits of $5000 in 2008 and does have some income limitations so a little additional research is warranted but whomever you set your account up with should be able to help you determine your eligibility and limits.

I personally max mine out each year in twelve handy little payments. Most plans will allow you to make monthly contributions directly taken out of your checking account or whatever account is most convenient for you. Again, the younger you are when you start funding this type of account the more you will benefit from the advantage of time.

Simple Way #5 Don’t Cash Out

I personally was kind of shocked by this one. Not shocked by the advice but shocked by the related statistic that they mention that nearly have of all workers cash out their 401ks when the leave their job rather then rolling it over or even just maintaining it there. If you cash the account out you get hit with both taxes and penalties and forget the whole advantage of time, you just started that clock all over!

I have rolled a 401k or two (or even more) in my time. I can’t tell you how easy they make it for you to do it. I have to believe that it actually requires more work to cash it out these days that is does to roll it over. I recently heard a commercial on the radio about a guy who rolled his old 401k over in the same about of time that his friend ate a sandwich at lunch, it really is that easy.

One benefit that I enjoy as a result of rolling all of my 401ks over into one account is that the value of that account is obviously greater that the individual accounts were so I now qualify for a higher level of service from the company who holds my money. Some of the perks are free checks, a special phone service number, fee waived accounts, etc.

Simple Way #6 Sell Company Stock

Many people have a portion of their 401k tied up in their company’s stock. While it’s great to be confited and supportive of your company, it’s not always a great strategy to put all or even half of your eggs in one basket. After the whole Enron scandal and the Pension Protection Act of 2006, employers must now allow workers to cash out their company stock within three years to diversify their 401(k) investments, and many employers now allow their employees to transfer out at any time.

It’s always best to diversify your holdings. This also something you need to look at if you have your savings and investments spread among numerous accounts. If you choose not to roll your old 401ks into one account make sure you look at the overall balance of your accounts as a whole not individually. If you do have a personal advisor than they can do this for you, if not, make sure you bring up any additional investments you have when speaking to the folks at the individual companies.

As always, I’m not a financial advisor, just an ordinary person trying to make the right choices, just like you so please do seek professional advice. I hope my comments and observations help you know what the right questions to ask are and help you make the right choices for your particular situation.

As you had read before, we had set up a Smartypig account recently. I like the idea of it. I think the extra money from retail stores is really great for when you already have a specific item already in mind. However, if you change your mind or an emergency comes up, then you are stuck as the funds are not liquid.

Smartypig has stated that at some point they are going to allow you to EFT the funds back into the account from which you originally funded from. This was not the case when I went to close my account on 15 May. I was planning on getting Amazon gift cards as there is a speaker set that I’ve been saving for there. The process was easy and I was notified that any extra funds left over from the gift card purchase (they only allowed $25 increments) would be funded into an electronic Smartypig gift card that I could put towards my other savings goal.  That’s a nice feature.

My big complaint is that it supposedly will take 7-10 business days to get me a gift card! If they are indeed partnered with these companies, it should only take 1-2 business days to get the card in the mail to me. As of now I have not received the card. Now granted, we moved and the mail is forwarding so I will check the postmark when it comes but it’s disappointing.

In the future I’ll be forgoing Smartypig and just creating sub-accounts with ING. It will be slightly less return but it’s worth it for less headaches in using my money.

I (HERS) unfortunately have to find a new financial advisor. I have been with the same guy since 2002 and I have really enjoyed working with him. Unfortunately he has received a promotion up to a leadership position within his company and won’t be directly working with clients any more. Great for him, not so great for me.

The whole thing really came as a shock to me and I really wasn’t prepared to make such a change. I am not looking to change firms at this point but I do need to find a new advisor within the company. I got an email and voicemail from the assigned replacement saying hello and introducing himself but I really wasn’t getting a great feeling from him. FIrst of all it sounded like it was just a given that I wanted him to manage my retirement without any questions asked. The last thing I want in a financial advisor is to feel like I’m talking to a used car salesman!

So, I emailed him back and said I would be more than happy to interview him and consider him as a candidate but I would also be interviewing others as well. I said he could come to my office to speak with me if he was interested. It’s amazing how his attitude changed! So, he will be coming to my office to speak with me on Thursday morning.

I’ll let everyone know how it goes!

Apparently SmartyPig is taking the time to listen to its’ customers and the blogging community. Their marketing team and even their co-founder are participating in discussions on various blogs on how to improve their service. Apparently the latest build of their website will include the ability to withdraw funds through ACH. This is great news and was the only real drawback to the site that I could see.

That allows users to save for bigger and better things. Say a newlywed couple want to start saving for a house down payment? Well instead of doing the traditional registration for household items, they could just refer friends and family to deposit into their SmartyPig account in order to help them reach their goal!

For myself, I’ll probably take advantage of the extra 5% that you receive for withdrawing to a store gift card since I’m saving for gifts anyway. The links below are generated directly from SmartyPig to give you an idea on what it looks like to show others your savings progress.

Everyone knows that automating your savings is definitely the way to go. Right now I feel like I have my savings so disjointed because I have accounts all over the place. I took advantage of the Suze - TD Ameritrade offer where you deposit at least $50 a month for 12 months into a savings type account and they will deposit an extra $100 in at the end of the 12 months. I don’t remember what the rate is but it’s better than I’m getting at ING right now. The promotion code was 701 so you might try it and see if it still works.

I also have an ING account that I send $200 a month to and a savings account with my credit union that gets another $200 a month. So that’s $450 a month in savings. My goal is to have $15,000 in emergency funds . I was aiming towards $10,000 but my financial advisor bumped that up to $15,000 during my yearly financial check up.

I also have some retirement based investments. I fund my Roth IRA in full every year ($5000 for 2008) and my 401k in full every year ($15,500). This all adds up to a whopping $25,500 in deposits in a single year!

So we all know that it’s smart to have an emergency account. And it seems that most people recommend to have 3 to 6 months of your salary set aside. For those of us in debt it can be a delicate balance between saving and paying down debt. Do you save, do you put all your extra money towards debt, or do you try and do both at the same time? The third choice is the one that I have made.

I am putting money into savings at the same time as I am using the snowflake method of paying down my debt. Is that the best approach in a purely monetary sense? No. However, it gives me the self-satisfaction of seeing my savings grow and debts paid down to zero.

Another reason for my method is that besides the mental aspect, there is also the specter of small unexpected expenses. Just yesterday I did not have much change with me to park on the street for an appointment that was scheduled for 1:30pm. Needless to say, I was still waiting until almost 2 before I even got into the office. By that time my meter had run out and since I happened to be parked within a 1/2 block of the courthouse and police station, of COURSE I GOT A TICKET! The expense is not large. I can afford the $25 fine. But I don’t want to pay it and of course if I had a tight budget it is possible that it could create a problem.

Moral of the story? Besides taking enough change to pay for parking? Don’t focus entirely on your debt. The last thing you want to do is pay extra on say your credit card only to be forced to take a cash advance on the same card the following week. Give yourself a little breathing room.