SEC and FINRA Report on National Senior Investor Initiative

By Patricia Uceda, Spring 2015 Graduate Research Assistant

As we’ve discussed, senior investors are highly susceptible to investment fraud due to their accumulated wealth and the fact that some may suffer from diminished capacity. This issue is of growing concern to securities regulators given that approximately 10,000 Americans will turn 65 every day for the next 15 years. Continue reading

Saving For Retirement: Diversify Your Portfolio

By Patricia Uceda, Spring 2015 Graduate Research Assistant

In order to get the most out of your retirement savings account, you want to be capturing the average growth of the stock market each year. This is best done by making sure that your portfolio is diversified. Your reasonable investment strategy should include a mix of stocks, bonds, and cash, with the level of risk that is most appropriate for your personal risk tolerance.

Saving For Retirement: Select Low-Cost Investments

By Patricia Uceda, Spring 2015 Graduate Research Assistant

A lot of investments, such as mutual funds, have expense fees that can cut into your investment returns. While you may be getting a 7% annual return on your investment, fees and expenses could be chipping away 0.5 to 1.5% of this each year.

This may not seem like much, but it can add up. For example, if you make a 401(k) contribution of about $7,795 per year for 35 years, you will end up with about $1 million, assuming a 7% annual return and fees and expenses of 0.5%. However, if your fees are 1% higher, or 1.5%, you will need to save $9,690 per year to become a millionaire over 35 years, or about $1,895 extra per year to make up for the higher fees.

Therefore it is very important to always look closely look at the expense ratios of whatever investments you are considering.

Saving For Retirement: Get a Match

By Patricia Uceda, Spring 2015 Graduate Research Assistant

If your employer has a 401(k) matching program, be sure to take advantage of this. If you get an annual $1,500 401(k) match from your employer, you can save $1 million by contributing just $5,475 annually to a 401(k) plan for 35 years, assuming a 7% annual return after fees, versus $6,975 annually without the match.

However, make sure to ask about your employer’s vesting schedule for the retirement plan. Some employers do not allow you to keep employer contributions to your retirement account until you are fully invested in the plan. In other cases, you may need to remain with an employer for a certain amount of time, such as 5 or 6 years, until you can keep your 401(k) match.

Saving For Retirement: Inflation

By Patricia Uceda, Spring 2015 Graduate Research Assistant

Because of inflation, the cost of retirement will likely go up every year. $50,000 won’t buy as much in your retirement as it will now because the cost of living will have gone up. Social Security benefits are automatically adjusted for inflation, however your estimates of how much income you need each year, and how much you’ll need to save to provide that income, must also be adjusted for inflation.

The annual inflation rate is currently 2.1%, however it can vary drastically over time. The annual inflation rate has been as low as 1.6% and as high as 13.5% in the past forty years. When planning for your retirement it is always safer to assume a higher, rather than a lower, rate and have your money buy more than you previously thought.

As we discussed earlier, you can use FINRA’s Retirement Calculator to calculate how much you need to save annually to meet your annual retirement income goal, and it takes inflation into account.

Saving For Retirement: Budget Your Savings

By Patricia Uceda, Spring 2015 Graduate Research Assistant

Once you know how much you generally should be saving per month for retirement and where you will be putting that money, it’s time to do the hard part: Save! One way to make this easier is by setting a budget for yourself. Be aware of where your money is going and assess what areas you can cut back on, whether it’s giving up that Starbucks cappuccino every morning or eating out less. You’d be surprised how fast those little purchases add up. Continue reading

Saving For Retirement: Roth IRAs

By Patricia Uceda, Spring 2015 Graduate Research Assistant

Roth IRAs are nearly identical to IRAs, although the money contributed is after-tax income similar to Roth 401(k)s. The earnings on this type of account are tax-free, and you can leave your money in the account for as long as you want. However, Roth IRA contributions are not tax deductible, and you must meet certain income requirements in order to make contributions.

One benefit of Roth IRAs is that you may withdraw your contributions penalty-free at any time. You will only be charged the 10% penalty if you withdraw the earnings on your investment before age 59 ½.