President-elect Barack Obama has promised to bring change to the country, offering hope to millions of Americans who are currently suffering from the effects of the economic crisis.
His proposed plan includes tax cuts, tax credits, 401(k) restructuring, Social Security reform, home foreclosure moratoriums, more affordable healthcare, and more, all in an effort to improve the current economy.
Provided all things remain consistent in one’s personal financial matters, including steady employment and the ability to meet monthly liabilities, guidelines for surviving the effects of the recent economic melt-down and sustaining until the economy is back on track include:
? Determine your risk tolerance. Younger investors have the time to ride the stock market, but those approaching or already in retirement should not have more than they can afford to lose in the markets.
Be sure your investment strategy matches your investment objectives; if the money is earmarked for retirement and your future financial safety, then be sure the funds are safely and wisely invested.
? Forgo making non-essential purchases with your credit card. With fluctuating interest rates, a purchase can cost as much as 125% of the retail price, or more, if the balance of a credit card in its entirety is not paid off immediately. A few ‘little? items can quickly add up.
? Cut costs where you can and save. If we’ve learned anything from the last year, the only thing constant in life is change. Saving for the unexpected, at least six months of living expenses in an emergency fund, is the only way to protect yourself from what may lie ahead.
The president-elect, along with many members of Congress, has proposed several options for consideration in an effort to help Americans save for and have more in retirement.
While the government will work through ways to best motivate Americans to save and implement strategies to protect their retirement savings, it is still up to each and every person to protect their own financial future.
The government funded Social Security program was never intended to be a sole source for retirement income, but rather a subsidy to personal retirement savings.
The government is proposing penalty-free hardship withdrawals from IRAs and 401(k)s from now through 2009. If passed, legislation would allow withdrawals of 15 percent, up to $10,000, from individual retirement accounts without penalty, although subject to standard income taxes.
While tempting, through triple compounding interest, interest earned on principal, interest on untaxed dollars, and interest on interest, a $10,000 withdrawal today could be worth a substantial amount more, come time of retirement.
Perhaps many do not have a choice, but it is always wise to pay yourself first by investing in your future.
Comparatively, the government has proposed to allow retirees to temporarily delay RMDs from 401(k)s and IRAs, avoiding requiring plan holders to ‘lock in? their losses, and allowing time for investments within the retirement accounts to rebound.
Under this plan, retirees who need RMDs for living expenses will be exempt from taxes on any withdrawal made, up to the required minimum distribution amount.
If concerned about rising tax brackets or upcoming RMDs, keep in mind that as of now, the government is allowing for Roth IRA conversions in 2010, no matter an individual’s gross income.
For conversions in 2010, taxpayers can spread the tax due over a two-year period, and benefit from tax-free future withdrawals as well as no future RMDs.
Looking Forward
The person who is going to care most for you and your personal situation is you. Don’t bank on immediate changes to the economy, retirement savings or taxes ? take charge of your personal finances and allow the gifts from the government to be just that, added cushion for your financial future and not the only cushion.
Obama doesn’t take office until Jan. 20, and even then, it will take an act of Congress to turn proposals into policies. Be patient and confident, while gaining control of your own financial future.
David Boike is president and founder of Retirement Resources consulting practice, 20 W. Washington, Suite 6B, 877-732-5751.