Retirement Is A Scary Proposition If You're Without A Plan, And Running Out Of Time

Of the 75 million baby boomers nearing retirement today, many are:

• Debt Ridden
• Severely unprepared for retirement
• Under Funded
• Without a Strategy

This is a very serious problem in a country that we can all remember used to assure most people of a retirement where you are taken care of financially.

We all know that social security alone is not the answer to this problem. Many baby boomers are on the cusp of retirement without the ability to pay their basic living expenses with the money they will have coming in after retirement.

This means most will be looking for jobs to compensate, or they will be looking for extensions of their current jobs past the time they had hoped to retire and enjoy their lives comfortably.

Out of embarrassment, many people answer their friends by saying they wouldn’t know what to do with themselves in retirement to justify why they are still working to make ends meet past retirement age.

If you are in the situation above or can picture that situation in the next 10 years, there is something you can do to change that financial prognosis.

First, look at your 401k. Calculate what you could expect at retirement if you could actively manage it up to 8% more in yearly compounded return.

Depending on when retirement is supposed to happen for you, what kind of nest egg does that leave you as opposed to depending on the return you are seeing now?

A very simple but powerful 401k strategy that works with any 401k plan involves two things.

1. Awareness
2. Use of an index fund

By awareness, I mean tracking the value of your 401k holdings on a weekly basis if possible. With this level of awareness you can easily spot a portfolio decline. If it approaches a predetermined amount (5% to no more than 10% suggested) you should switch into a money market. Or if you are well informed and have the ability to do so, switch into an index fund that is designed to profit from a decline (a Bear Fund).

The biggest advantage you will gain is NOT letting your account value sink to such dismal levels where a 40%, 50% or greater gain is required just to get back to even.

This alone could significantly increase the size of your 401k over time.

Is this the only strategy that can safely increase your return rate on your 401k?

Not at all. You just need to know what most people won’t tell you. I have written a book on the subject called “Scientific Wealth Strategies.” You can find it at http://wealthscientist.com

I also have some more retirement strategies and resources located here: http://wwww.retirementinfo4u.com

Whatever your situation is right now, how much time you have left to make a change, and how much you calculate your need to be for a comfortable retirement, you cannot benefit from leaving things as they are.

Only education and strategic investment can net you the returns needed to have a safety net in place so that when you retire, you are not stuck in a constant monthly deficit spending cycle.

That’s not what retirement was supposed to be about. And it doesn’t have to be that way for you!

C.C. Collins is a Wealth Building Advisor and Author of “Scientific Wealth Strategies” at http://wealthscientist.com Find more information at www.retirementinfo4u.com

A SEP is a special type of IRA. Under a SEP plan the employer creates an IRA account for each eligible employee, hence the name SEP-IRA. A SEP is funded solely with employer contributions. Employees do not make contributions to their SEP-IRA retirement account. Any money that goes into a SEP automatically belongs to the employee. Thus, the employee has the right to take his SEP IRA account money with him whenever he stops working for the company.

Any size business can establish a SEP, but the SEP retirement plan is utilized mostly by the self-employed and the small business with few employees. The SEP IRA rules dictate that if the business contributes for one employee, (i.e., the owner), then the business must contribute proportionately for all of the employees. With few exceptions, anyone who works for the business must be included in the SEP. However, you can exclude from participating in the SEP plan anyone who:

1. Has not worked for the company during three out of the last five years.

2. Has not reached age 21 during the year for which contributions are made.

3. Received less than $450 in compensation (subject to cost-of-living adjustments) during the year.

SEP IRA contributions to each employee for 2004 cannot exceed the lesser of $41,000 or 25% of pay for W2 recipients (20% of income for sole proprietors). The SEP IRA contribution limit goes up to $42,000 for 2005, and is subject to cost-of-living adjustments for later years. SEP-IRA rules do not provide for additional catch-up contributions for those 50 years old or over.

A growing number of self-employed individuals with no employees are abandoning the SEP-IRA for a newer type of retirement plan called the Solo 401(k) or Self-Employed 401(k). The two main reasons for the switch are 1) they can generally contribute much more to a Solo 401(k) than they can under a SEP IRA, and 2) Loans are allowed under a Solo 401(k), whereas loans are prohibited under a SEP-IRA.

Example: Henry, age 52, a realtor received $60,000 in compensation from self-employment income in 2004. For 2004, he could contribute a maximum of $27,152 in a Solo 401(k) versus a maximum of $11,152 under a SEP IRA.

However, the Solo 401(k) does not work for businesses with employees. Thus, if your company plans to hire employees or has a handful of employees, the SEP IRA may be your best choice as a retirement plan that is inexpensive and simple to operate.