Checks and Balances TV: July 2011

Thursday, July 21, 2011

Sink or Swim

Yesterday’s show was entitled, “Sink or Swim: Are you drowning in 401(k) loans, or staying afloat of the economic challenges?”

A company sponsored 401(k) plan is an excellent way for employees to save for their financial future. When retirement does finally come, you’ll be glad that you saved as much as possible during your working years. However, more and more Americans are dipping into their 401(k) to pay for monthly bills and expenses, and destroying the compounding benefits of their plan.

Here is what’s happening:

One out of seven employees took loans out on their 401(k) plans last year, says a recent report from the human resources firm Aon Hewitt. Approximately 30% of active 401(k) participants have outstanding loans on their account, the highest level in recent history.

According to the survey, of those that took a hardship withdrawal, more than half stated the reason for taking out a hardship withdrawal was to avoid a home eviction or foreclosure, 13% said they used the money for education expenses or medical bills. The Internal Revenue Service allows “hardship” withdrawals, but In order to qualify for it, there must be a specific reason for needing to take out the loan, such as threat of foreclosure, tuition payments or loans, or unreimbursed medical costs. Individual companies can impose even tougher rules on hardship withdrawals.

There is never a “good” time to take money out of your retirement savings plan before retirement, but there are a number of different reasons why Americans have decided to raid their own retirement savings anyway. Most of the reasons can be attributed to economic conditions. Foreclosures and unemployment rates have continued to remain high, and borrowing money from banks and obtaining credit has become increasingly difficult for individuals and families in need of money. Many families have looked towards their “inner-bank”, their 401(k), as a source for quick cash to get them through whatever financial difficulties they find themselves in.

However, these loans come with a number of strings attached, and defaulting on a 401(k) loan may hurt you for years to come. Your retirement savings withdrawal will not only deplete the current value, but the future value of a defaulted loan can be significant. Many people do not realize the devastating long- term impact of taking out a loan on their 401(k).

So, what’s the bottom line here? Simply this – try as hard as you can to leave your 401(k) alone during your working years. Work two or three jobs if you need extra money to pay your bills, sell stuff you really don’t need, downsize your home or car, do whatever it takes to preserve and protect your financial security in retirement. Your future self will be very glad you did!

Until next week – Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

- Matt

Thursday, July 14, 2011

Don't Stop Believing!

This week’s CBTV show is entitled, “Does your 401(k) plan got you down? Don’t stop believing or putting money into it!” If you have a 401(k) plan with your employer, I think you’ll find the following information interesting.

In 2008, at the height of the recession, many employers discontinued their 401(k) matching contributions as a means to trim costs without having to lay off any of their workforce. According to the Profit Sharing/401(k) Counsel of America, about 20% of U.S. employers with a 401(k) or profit sharing plan either reduced or suspended their contributions to the plan during 2008 through 2010. Major employers such as Federal Express, MGM Resorts and GM are a few of the corporations that put their 401(k) matching contributions on hold. Now, it appears these temporary cuts are coming to an end for many of these employers; however, while they’re reintroducing their 401(k) matching programs, they are coming back with some modifications to the former plan.

Prior to the recession, the typical 401(k) benefit had employers matching 50 cents of every dollar their employees set aside in their retirement accounts, up to 6% of the employee’s annual salary. Now, most reinstated matching plans have a yearly cap. MGM Resorts, for example, stopped matching contributions to employee 401(k) accounts in 2009 and 2010, but has since, reinstated their matching program with a maximum of only $500 for the year. UPS reestablished their matching program, but set a cap of only 2% of the employee’s annual pay.

So, what does this all mean to you? Very simply this – You can’t depend on your employer to help you secure a comfortable retirement in the future. It’s up to you! You remember the 8 great words of life: “If it’s to be, it’s up to me!”

So, become more determined than ever to spend LESS and save MORE now, so you can secure a financially independent future. Increase your monthly contributions into your 401(k), IRA or any other retirement plan you may have. Build up your commitment to saving to 10% to 15% of your net take home pay. Your future “self,” will be glad you did!

- Matt

Thursday, July 7, 2011

Red vs. Blue?

Yesterday’s CBTV show was entitled, “Financial Independence: How to Protect Your Nest Egg from Unforeseen Expenses.”

However, the financial headline I started with read as follows:

Americans celebrated Independence Day two days ago, but the state of our nation’s financial independence is nothing to celebrate. Our national debt has become a major issue, and the debate over raising the nation’s debt ceiling is coming down to the wire. Congressional democrats want to raise the debt ceiling, but want only minor cuts in spending of some federal programs. Congressional republicans, on the other hand, want to see a drastic reduction in deficit spending and an action plan for reducing the massive federal debt, before agreeing to raise the debt limit. Healthcare and restructuring Medicare have center stage in this debate.

It’ s a sad reality to know that the elected officials, we all put into office, care more about getting re-elected and supporting their party’s ideology, than healing our country’s financial problems.

In the future, I believe we should stop voting for someone based on whether they’re a blue candidate or a red candidate, and vote for the best man or woman who TRULY wants to serve our country and see it continue as a great nation. Whether they are a republican or democrat means nothing to me. I want to see congressmen and women, as well as our future presidents, shroud themselves in honesty, humility, integrity and have a servant’s heart for the country they will one day leave behind.

Be sure to watch our show to learn about the 5 commonly overlooked expenses in retirement that could take a bite out of your nest egg.

But in the meantime, I’d like to hear your thoughts on how we can change the course of our country by electing the right people to serve us in Washington. It’s never too late to start grass roots movement.

Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!

- Matt