Baby Boomers Worried About Retirement

Less than 1 out of 5 workers felt very confident about having enough money for a comfortable retirement, according to the April 2008, EBRI Retirement Confidence Survey. Many Baby Boomers are staring at retirement like a deer caught on oncoming headlights. "They are not sure what to do or what else to do. They're worried that whatever they have saved just might not be enough. And with good reasons, given that inflation is zooming and asset prices are flagging", says Lamaute of Lamaute Capital (InvestSafe.com) an investment firm that specializes in retirement plans.

By far the biggest assets of the Baby Boomers are the equity in their house and the balance in their retirement plan. Both of those have been going down lately. The median house price is already down 13% from last year and some analysts think that prices could fall by 30%, wiping out the equity for million of homeowners.

Meanwhile employees are growing more skeptical that their 401(k) will even keep up with inflation. According the Financial Times, between March 10, 2000 and January 31, 2008, the average annual return from the S&P 500 was 1.52%. That's nearly eight years of diminutive return on stocks - so much for the hypothetical 8% average projected stockmarket return widely used by financial planners.

Will the economy recover in short order No one knows, because several aspects of this slowdown are unique in historical context, fueling uncertainty. While the economy will find a new equilibrium and stabilize eventually, for Baby boomers the timing of the recovery and duration of this slowdown are critical to their ultimate financial well being.

There are several steps Baby Boomers can take to protect their financial standing. One of those is to save more another is to reduce their debt, especially debt from high interest rate credit cards. Many cards charge anywhere from 20% to 30% interest on credit balances. That means that an item can end up costing more to finance than to purchase.

For example, a homeowner charges $5,000 to his credit card to replace a leaky roof. By paying $100/mo at 21% interest it will take 119 months to pay off that debt, for a total cost for the repair of $11,900, ($5,000 to the contractor and $6,900 in interest expense).

It is better to pay with cash if available, or to use credit with lower interest. Unfortunately, with declining home prices it's getting harder to obtain low interest rate equity loans. Another source of credit could be a 401(k) loan (http://www.investsafe.com.financing.html), because with a 401(k) loan:

-    There are no taxes and penalty on early withdrawal as long as the loan is repaid on time according to the loan terms.

-    The 401(k) loan is set as low as prime rate, recently at 5 ¼%, is fixed for the 5 year normal term of a 401(k) loan.

-    The interest paid on a 401(k) loan is credited to the 401(k) account - so borrowers pay interest to themselves, not to a bank or other lender.

Employees should ask their employer if their 401(k) plan allows loans. Those who are self-employed, such as independent contractors and individuals with their own business can set up their own Solo 401k (http://www.investsafe.com) with a loan feature.

One can transfer funds from IRAs, 401k from a previous employer, SEP plan or other qualified retirement funds to a Solo 401k. Loans can be up to a maximum of $50,000 or 50% of the account balance, whichever is less. Defaults on 401(k) loans are subject to taxes and a possible 10 percent early withdrawal penalty on any outstanding 401(k) loan balance.

Lamaute Capital, Inc., (www.InvestSafe.com). Lamaute Capital is an investment firm that specializes in setting up retirement plans for small business owners and non-profit organizations.




Baby Boomers Worried About Retirement



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