At the beginning of 2009, due to the decline in the market, many people were beginning to wonder if their 401(k) was really a 201(k).  Now that 2009 is over and the market has somewhat recovered from one of the most bearish markets we have seen in decades, our 401(k) statements are a bit more tolerable to look at.  But the question remains, did we learn anything these past years about using our 401(k) plans to save for the ultimate goal of our working life, retirement? 

While there is much debate circling the news and government offices these days about whether or not the 401(k) is the best vehicle for folks to build their retirement nest eggs in, over 56% of individuals who have access to a 401(k) plan still plan to participate.   So until such a time comes when a change is made to our current system, if ever, more than half of working adults feel that the 401(k), if offered by their employer, is still the best way to save for their impending retirement – with some minor adjustments of course.

Saving for retirement in any kind of savings vehicle can be a stumbling block for some people, whether it is a 401(k) or an IRA. It is human nature to procrastinate and in order for your retirement savings to work, you must put money into it – you must save.  Up until the past few years, many Americans spent money instead of saving it. At one point in late 2006 early 2007, we actually hit a negative savings rate, which we had not seen in America since the Great Depression.  Fast forward a couple years, throw in an economic crisis the likes of which a good majority of our working population has not seen before, and now we are back to saving again, at a clip of about 5-6% annually. 

Now that we know we need to save more, how do we use the retirement plans available to us to do so?  Unless you can spend the time watching the markets and analyzing stocks, bonds and mutual funds, and more importantly, you enjoy doing that sort of thing, it can be difficult for the average person to know what to invest in, whether it is your 401(k) or an IRA.  Therefore, it becomes extremely important to use the tools and resources available to you either through your plan’s website, or through the use of an advisor, in order to create the right investment mix that is going to get your hard earned retirement savings to work for you – & that means to grow. 

Diversification among stocks, bonds and money markets is still the key to a successful retirement plan, a balanced portfolio (50% stocks and 50% bonds) has produced 10.4% in annualized returns from 1972 through 2008 – & yes, I did said “through” 2008!  Therefore, creating the diversified portfolio that is appropriate for you and your specific situation and risk tolerance is still important.  Just as important is monitoring and adjusting your portfolio over time, especially as you get closer to your expected retirement years. 

In short, if you do not have access to the retirement assessment tools on your plan’s website, or found within the pages of your enrollment booklet, seek out a professional, you know, those who actually enjoy monitoring the market, for some help in evaluating your current situation.  You also need to make sure that you are reviewing your portfolio’s plan annually to see if you really are saving enough and are properly diversified in order to make those golden years truly golden.
 

To learn more about the retirement process and to get started planning your future, click here.

Brokerage services provided by Arvest Asset Management, member FINRA/SIPC and a subsidiary of Arvest Bank. Securities, mutual funds, and insurance products are:

Did you know that many people spend more time planning their vacation than planning for retirement?  Although there are many ways to save for your retirement, if you are like most people, you aren’t taking full advantage of them.  For example, do you understand the basics of a Roth IRA?  If not, here’s a little Roth IRA 101.  

Right now, you may be wondering why you should invest in a Roth IRA if you currently have a retirement plan with your employer.  The Roth IRA has many benefits that other retirement plans don’t have, and chief among them is the fact that any investment earnings may accumulate tax-free. In other words, your Roth IRA has the opportunity to grow without incurring any taxes and can be distributed to you tax free, if certain conditions are met.

While there are advantages to owning a Roth IRA, there are also some rules to think about before you decide this is the account for you.  First, not everyone can take advantage of a Roth IRA.  You or your spouse must have earned income or compensation – this includes wages, tips or salary. However, be aware that earned income or compensation does not include rental, interest, dividend, pension annuity or deferred compensation income. Second, your modified adjusted gross income cannot exceed certain limits. For single people, your modified adjusted gross income must be less than $114,000 and $166,000 for married couples filing jointly.

Contributions you make to the account are not tax deductible but may be withdrawn any time without tax or penalty. Before taking withdrawals from your Roth IRA you need to determine if you are receiving a “qualified distribution.” Any withdrawal that is not a “qualified distribution” can result in income taxes and IRS penalties.  For example, any earnings on your principal will be subject to income taxes should you decide to withdraw them prior to the five-year holding period or before age 59 ½ (contact your state department for state taxation rules). In addition, these earnings are also generally subject to a 10% IRS penalty.

Tax and penalty free withdrawal of your Roth IRA earnings for “qualified distributions” can be made once a five-year holding period is satisfied and one of the following applies: you have reached age 59 ½, you have become disabled, the funds are used for a first-time home purchase (subject to a $10,000 lifetime limit) or the funds are distributed to a beneficiary after your death.

After thinking over the rules, if you are eligible for a Roth IRA you may be wondering how much you can contribute. For 2008, you may make regular contributions that do not exceed $5,000. If you are 50 or older, you can also make “catch-up” contributions of up to $1,000 per year for a total contribution of $6,000. 

A couple of other important items worth noting – contributions to your employer’s retirement plan do not exclude you from making contributions to a Roth IRA, and owning a traditional IRA does not prevent you from setting up a Roth IRA either (although contributing to a traditional IRA for the same year will limit the amount you can contribute to a Roth IRA).

Whether or not you decide a Roth IRA is the right retirement account for you, it’s always smart to plan ahead and save money for the future. Never underestimate the importance of saving for retirement and using a variety of investment vehicles to achieve your goals.

Arvest does not provide offer tax advice, please consult your tax specialist.  Brokerage services provided by Arvest Asset Management, member FINRA/SIPC and a subsidiary of Arvest Bank. Securities, mutual funds, and insurance products are:

The days when an employee would spend his or her entire career with the same company appear to be all but gone.  Nowadays, beyond simply changing jobs over the course of a career, many workers even take on an entirely new career before they finally reach retirement.  When you make a job change, one of the biggest challenges you may face could be deciding what to do with the assets you’ve built up in your former employer’s retirement plan. 

Unfortunately, many people look at these funds as a free gift when they change employers, and they choose to take a cash payment and spend it.  Keep in mind one of the most important sources of your retirement income is the payments you receive from company retirement plans.  By taking the money out in cash, you eat away at this valuable source of retirement income.

Instead of taking the cash, you may want to consider rolling the money from your company-sponsored plan into an IRA.  A direct rollover, where the funds from your company plan go directly into an IRA, is a simple way to allow these assets the opportunity to continue to grow tax-deferred, and will help you avoid the temptation to spend these important funds on other things. 

Moving from job to job may not be the only change you’re considering.  IRA rollovers can also prove useful if you decide that instead of just changing jobs, you want to retire.  If you’re younger than 59½ and would like to take withdrawals from a retirement account, you may be able to avoid the IRS 10% early withdrawal penalty as long as the withdrawals qualify for certain exceptions.  Let’s take a look at an example to help illustrate the options.

John is 58 years old, and would like to retire early to join his wife Carol, 57, who retired two years ago.  Currently, their modified adjusted gross income (MAGI) is $98,000, but if John retires that figure will drop to $48,000.  This should still be enough to cover all their expenses, except their mortgage payments.  John has a 401(k) balance of $300,000 and an investment portfolio worth another $125,000, while Carol has an IRA with a current value of $25,000.  They are considering taking $100,000 out of their retirement nest egg to pay off their mortgage, but if they’re not careful, doing so could require them to pay both income taxes and the IRS 10% early withdrawal penalty on the amount they withdraw.

One option that may help would be to take a $100,000 withdrawal from John’s 401(k) to pay off the mortgage.  This would result in taxable income, but since he would be older than age 55 at retirement, John would qualify for a special “55 or over” exception, meaning he would not face the early withdrawal penalty.  The remainder of his 401(k) balance could still be rolled into an IRA.

As another alternative, John could roll the money from his 401(k) into an IRA first.  He could then use one of three IRS-approved withdrawal methods to take “substantially equal periodic payments” from the IRA without an IRS penalty, and use that money to make their monthly mortgage payments.  While these withdrawals would be taxable, this strategy could still allow for greater tax deferral because the entire 401(k) distribution could be rolled over. 

As you can see from these examples, it’s important to know what your options are and you may need to consult with financial professionals — including your tax advisor — to sort them all out.  Whether it’s your first job change or your last, your retirement nest egg needs to be handled with care.  Consider your alternatives so you can make good decisions to keep your savings in line to meet your needs.

*Arvest Bank does not give tax or legal advice. Brokerage services provided by Arvest Asset Management, member FINRA/SIPC and a subsidiary of Arvest Bank. Securities, mutual funds, and insurance products are:

This a good question regarding retirement.  However, there are several variables that would impact the answer.  We would need some more specific information to give you a good answer.  Will you need access to this money immediately after retirement since retirement is only a few years away?  In other words, will your retirement sources of income be greater than your expenses in retirement?   Is this money being saved to support you in retirement or to make a purchase?  Everyone has a different definition of what a few years might mean.  Is it 2 or 3 years or 5 to 10 years?  How small is a small investment?

If the time frame is 2 or 3 years and you will need the money immediately, the simplistic answer is that it is best to keep it in short-term investments with maturities similar to your retirement time frame.  You can save for small dollar amounts in certificates of deposit (CD’s), money markets and short-term maturity mutual funds.  For larger dollar amounts and maturities in the 3 to 5 year range, you can invest in fixed income Unit Investment Trusts, fixed annuities that have a maturity and a given rate of interest, and short-term and intermediate-term mutual funds.

It is important to visit with a client advisor who can better understand your situation to help give you the best advice as to the investments that will meet your own individual needs.

Click here to contact a client advisor, learn more about planning for your future and download our free Retirement Planning guide.

It's never too late to rebuild your retirement. Get started today!

Brokerage services provided by Arvest Asset Management, member FINRA/SIPC and a subsidiary of Arvest Bank. Securities, mutual funds, and insurance products are:
 

Today, women are playing an ever-increasing role in making important financial decisions – whether for themselves or for their families.  While many of the basic rules of investing hold true for all investors, some life events will affect women differently than they will men, and these can also have an impact on investment decisions.  Following are a few areas of special consideration for women investors:

Longer life expectancy.  People in general are living longer these days, and conventional wisdom will tell you that women tend to outlive men.  Studies have, in fact, confirmed that this is the case.  According to CDC statistics from 2003, women outlive men by an average of more than five years.*  So women in particular often end up facing more years in retirement.  To be prepared for such a situation, women need to take special care to implement select strategies catered to their possible long-term needs.

Being on your own.  Statistics also show that women have a very high probability of being on their own at some point in their financial lives, not only as a result of a spouse’s death, but also because of divorce or simply remaining single.  Dropping from two incomes down to one would obviously require making some adjustments, so it’s important to think about alternatives and options in the event you should be faced with a similar situation.

Time spent out of the work force.  When caring for children — or even an elderly parent — women tend to spend more time away from work than men.  Some surveys have shown that, on average, women spend more than a decade out of the work force.  The implications for women with regards to investments are clear: they will have less time than their male counterparts to contribute to their retirement nest eggs.

While these are just some of the many important considerations for women investors, there are also several simple steps women can take to come up with an effective financial strategy.
For starters, you should look for ways to educate yourself about investments.  The financial press and financial web sites are loaded with information about investments and alternatives.  It’s important to remember that not every source is the most reliable, but the bottom line is that there is plenty of information out there.

You may also want to seek advice from a professional.  The act of enlisting a financial advisor to help with your investments does not take away from your ability to make the final decisions.  It does, however, provide you with someone you can turn to for guidance as you make those important decisions.

One of the most important things you can do is make a list of your financial goals and then develop strategies to meet those goals.  Taking the time to assess your current financial situation will help you get a clear picture of where you are, and then you can envision where you want to go.  Keeping in mind the special circumstances we mentioned earlier, you can chart a course of action that will enable you to meet any challenges that may arise in the future. 

*Information cited: CDC, NCHS,  Table 27.
 

Brokerage services provided by Arvest Asset Management, member FINRA/SIPC and a subsidiary of Arvest Bank. Securities, mutual funds, and insurance products are: