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"SPECIALIZING
IN
Home Loans,
Reverse Mortgages,
Home Equity Savings, Home Equity Management for Executives,
Business Owners, and Business Professionals."
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Specializing
in:
Home Loans for Executives,
Home Loans for Business Owners, and
Home Loans for Business Professionals
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| Definition
of a Home Loan:
a loan secured by the borrower's home. |
|
| Definition
of a Reverse Mortgage:
a mortgage in which a homeowner, usually 62 years or older,
borrows money against the equity of the home without having
to make any payments. |
|
| Definition
of a Home Equity Management:
repositioning home equity to create a new earning asset.
|
|
| Definition
of a Home Equity Savings:
simply restructuring the payment schedule on your existing
loan, so that you don't pay as much interest thereby significantly
reducing the number of payments to be made. |
|
| Definition
of a Home Equity Line of Credit: a
revolving line of credit in which your home serves as
collateral.
|
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| Definition
of a Home Purchase Loan: a loan
for purchasing a new or used home.
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LINKS
HomeLoanOrangeCountyCA.com
MYBLACKJACKET.COM
HomeEquityManagementCA.com
HomeEquitySavingsCA.com
ReverseMortgagesLoansCA.com
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MYBLACKJACKET.COM
- ARTICLE 2007:
5
Mistakes To Avoid with your 401-K Plan
Mistake
1: Not participating in your 401(k)
If you're like a lot of workers you won't
have a defined benefit pension coming to
you in retirement, and living on Social
Security alone means you'll be cutting it
pretty close to the bone.
So, unless you're angling to live like Mother
Theresa minus the selflessness and international
acclaim, you should take advantage of your
401(k), which offers you free money, tax
breaks and a very convenient way to build
your nest egg.
Any contributions you make will reduce your
taxable income for the year and will grow
tax-deferred until retirement. Plus, many
employers will match a portion of your savings.
And that extra dollop of money is tax-free
to you.
The sooner you start, the better, since
you won't have to save nearly as much of
your salary to reach your goals if you start
young than if you start in your 40s or 50s.
(Not that all is lost if you get started
late, it just takes a lot more discipline,
as Walter Updegrave explains.)
Remedy:
Call your benefits office to find out how
to sign up for your 401(k).
The task may soon be made easier for employees
as more companies are adding an auto enrollment
feature. Here's how it works: as soon as
you are eligible to participate in the company's
401(k), a small percentage of your pay is
automatically deducted and put in a 401(k)
account. You are free, however, to change
your contribution level and investments.
Mistake
2: Not contributing enough
How
your investments perform is a big factor
in whether you'll have enough money to
retire. But the biggest factor is how
much you actively save.
As Money Magazine's Penelope Wang points
out, suppose you started work in 1990
with a $40,000 salary. You saved just
2 percent of your pay and invested in
the top-returning funds every year. You
would have finished 2005 with nearly $50,000.
By contrast, if you picked mediocre funds
every year but were frugal enough to save
a full 6 percent of your salary, you'd
end up with nearly $120,000.
There's another reason to contribute more
than a paltry 2 percent. You want to contribute
enough to get the full match offered by
your employer. If you have no problem
turning down free money, you might want
spend a few bucks to ask a therapist why.
Remedy:
Fidelity has a calculator
that will show how your contributions
will affect your take-home pay.
If you can't afford to max out your contributions,
at least contribute enough to get the
full match from your employer. (So if
the boss offers to kick in 50 cents on
the dollar up to 6 percent of your pay,
contribute at least 6 percent of your
pay.) Then boost your annual contributions
by one to two percentage points every
year. A little goes a long way.
Mistake
3: Not investing for growth
According to the latest data from the
Investment Company Institute and the Employee
Benefit Research Institute, nearly 19
percent of workers in their 20s are not
investing any of their 401(k) money in
stocks, while another 16 percent have
less than 60 percent in stocks.
The allocation for those in their 30s
isn't much better. Thirteen percent had
none of their 401(k) balances in stocks
while 17.5 percent had less than 60 percent.
Being too conservative in your investments,
especially at a young age, is a very costly
decision.
Take a 25-year-old making $40,000 a year
with $5,000 saved. And say she now invests
$500 a month. By age 65, she'll have $1.4
million if she invests only 20 percent
of her money in stocks and the rest in
bonds and cash, according to Fidelity's
new retirement planner. But if she puts
85 percent of her money in stocks, she'd
have close to $2 million. That assumes
average market performance.
Remedy:
Try Fidelity's easy 5-question myPlan
calculator to see what a difference
it will make to your nest egg if you increase
your risk tolerance and/or boost your
monthly savings. When filling in how much
you save a month, don't forget to add
in the amount of money you get in matching
contributions from your employer.
And for a quick sense of the best allocation
for you given your time horizon and risk
tolerance, use CNNMoney.com's "Fix Your
Mix" calculator to the right.
If you're not interested in allocating
your own portfolio, consider investing
in a target-date retirement fund, which
allocates your money for you in accordance
with your time horizon until retirement.
(Learn more about these
funds.)
If you really can't stomach risk, then
you'll need to significantly increase
your savings to get the same result.
Mistake
4: Borrowing from your 401(k)
Borrowing from your 401(k) should be a
last-resort measure for important expenses
such as medical bills or, in some instances,
to help buy a home if that makes financial
sense.
You shouldn't tap your 401(k) for expenses
such as cars, vacations, weddings or other
big-ticket items that are all about diminishing
returns.
Here's why: You will be on the hook to
pay yourself back with interest, and by
taking a chunk of your retirement money
out for some period of time, you forfeit
the growth that could have occurred on
that money plus the money left in the
account. A larger balance can compound
faster than a smaller one.
Plus, if you leave your company while
the loan is outstanding, you may be asked
to pay it back as soon as you leave or
soon after. Otherwise, the money will
be treated as a distribution, subject
to income tax and possibly a 10 percent
early withdrawal penalty.
Remedy:
If you really need money, you first should
try to find a competitive rate on a personal
loan or home equity line of credit before
considering your 401(k) as an option.
(See
how a 401(k) loan might stack up against
a home equity line of credit.)
If you need to tap your 401(k) for a critical
expense and have no other option, budget
for the smaller paycheck you'll receive
since your employer will automatically
deduct the loan payments from your check.
The last thing you'll need is to incur
any further debt by spending more than
you take home.
Mistake
5: Cashing out your 401(k)
You want to keep your 401(k) money invested
at all times, even when you change jobs.
Telling yourself you'll take the money with
you and will reinvest it later is a recipe
for big bills.
As the graphic at right shows, cashing out
your 401(k) will suck a lot out of your
hard-earned savings. Your money will be
taxed as income the year you withdraw it.
You may be subject to a 10 percent early-withdrawal
penalty. And you'll lose out on a lot of
growth that could have occurred if you hadn't
cashed out.
Remedy:
When you leave a company you typically have
three options:
- Roll
your 401(k) balance into a retirement
plan at your new employer, assuming
the new employer has agreed to accept
the money into its plan
- Roll
your 401(k) balance into an IRA if you
want access to a broader universe of
investments than your employers' retirement
plans offer.
- Leave
the money in your old employer's 401(k)
plan (unless your balance is under $5,000)
If
you choose to roll the money over, the smartest
and easiest way to do so is what's known
as a direct rollover or trustee-to-trustee
transfer. That means you never handle the
money. Rather you tell your 401(k) provider
to send the check to the company housing
your new IRA or 401(k).
To
arrange a mortgage planning consultation
on strategies discussed in this article,
please call MYBLACKJACKET.COM
at (949) 481-9026
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