Entrust New Direction Blog

The Employee Benefits Research Institutes's 2009 Retirement Confidence Survey could be called the 2009 Retirement Crippling Fear Survey.  Those surveyed who voiced confidence in a comfortable retirement dropped to 13%, the lowest in 16 years of surveys.  72% of people plan to work after retirement, which is essentially not retiring.  32% think Social Security will save them.

Scary.

We don't need a survey to tell us that the stock market, along with the value of most Americans' 401(k)s, has dropped like the New Year's Eve ball in Times Square. We know this.  We also know that many employers are no longer matching 401(k) funds, further devaluing a 401(k) and demotivating the 401(k) holder.  We can safely assume that the federal government is not prepared to support us in retirement.  None of this is new information, but nothing seems to change.

Entrust New Direction, of course, has a horse in the retirement investment race.  We want more people to open self-directed IRAs for many reasons, obvious and not.  But if millions of Americans are not financially ready for retirement, all the rest of us will be adversely affected as well, whether by higher taxes or stress on the public safety net or some as-yet-unknown factor.   So it's in your best interest and mine that as many Americans as possible are financially comfortable in retirement. 

Now to motivate these millions of un-confident eventual retirees.  Is fear the best motivator?  This is, of course, a nebulous question. 

If the fear is immediately apparent (a drooling bear moving rapidly toward you), it's the best motivator.  But how many of us think about retirement savings while working full-time or overtime, raising a family, practicing hobbies, enjoying friends - basically, while living a full life?  If the fear of a destitute retirement doesn't spur you every day/week/month to save and plan, then it's not the best motivator.

Most people fear the unknown.  EBRI reports that 44% don't know how much they'll need for retirement.  Not very confident numbers.  The numbers indicate, however, that ignorance may not be bliss.  If we Americans don't know how much to save and we don't have confidence in the amount we're saving, we must not fear the unknown, or we must not be adequately motivated by that fear.

We may be motivated by a different kind of fear.  From a different point of view, the unknown may be contributing to our collective dilemma.  Most people don't know about self-directed retirement accounts, and many of those who do know about it think they won't be able to successfully grow their retirement account on their own.  They may not know what to invest in, or how to do so.

We talked about the fear of retiring without sufficient funds.  This is a distant fear, certainly not viceral, not real to most of us.  What is real to most of us is the fear of losing our money.  What is real is watching the numbers fall every quarter, knowing that money you earned and saved is now gone, due to some individual or some company's bad decisions or bad luck.

But, as we've heard over and over during this recession, people with 401(k)s don't look at their statement.  They're too scared to see more losses.  But if they're not looking at their statements, they won't close their 401(k) and start investing in a Roth, they won't even shift to a safer less-volatile sanctioned and commissioned investment. They're paralyzed.

Many financial "experts" talk about waiting out the storm.  They say that the stock market will come back within a decade or two.  Maybe so.  No one really knows.  Even if the stock market does come back, there is no guarantee we won't go through a similar recession again. 

If you're reading this, you likely already hold a self-directed IRA or you are considering one.  Maybe you were able to shake off the retirement paralysis, look at your statement, and do something to change the status quo.  Good for you. 

Now for your sake and mine, spread the word.  Tell your story, I'll tell mine, and maybe together we can shake enough Americans out of their retirement investment paralysis so they can start controlling their own destiny. Maybe together we can inspire people to look at their 401(k) statements and stop the bleeding.

Nebula photo courtesy of koolkao. 

Bear photo courtesy of 顔なし.

Locavore, the Oxford American Dictionary word of the year, 2007, and now in Webster's Dictionary, is defined as "one who eats foods grown locally whenever possible."  You, dear self-directed IRA holder, could become a locavestor, i.e. "one who invests retirement funds locally whenever possible".

Of course, a locavore's ideal location is amongst agriculture, while the locavestor would have more options in an urban evironment, but even New York City has farmer's markets, and even Idaho has investment opportunities.

Some ideas for locavesting:

1) Loan money locally                                                                           Your IRA can lend money to your church, your kid's soccer coach, your next-door neighbor.  Many people are paying 15-30% or more for credit card debt.  Your IRA could swoop in, earn 10% interest and save someone you know thousands of dollars.  Don't know anyone in need?  You could put an ad in the local paper.  Plus, the money your lender saves will likely be spent locally, further strengthening your town or city.

2) Buy shares in a local private company.                                                            

While this may not be the best time to start a company, many people who were laid off are doing just that.  They need start-up cash, and your IRA could contribute now, and look forward to a bug payout later.   There are likely local established companies which aren't ready to go public, and they may be looking for a cash infusion to help them along until the economy steadies.  Your IRA could buy into the next Microsoft or McDonald's, before they grow gargantuan. 

3) Buy a foreclosed home in your neighborhood.

Your IRA can vastly improve the neighborhood if you buy a foreclosed home and rent it.  Your IRA gets fat with rental income, and the neighborhood's home values improve.  Or if you don't want to deal with renters, your IRA could buy and hold the home, until the local real estate market improves. 

4)Buy the farm.                                                                                       To combine the best of eating and investing locally, you could find a small agricultural operation and your IRA could become a partner.  Not only could your IRA grow like the rutabagas, your retirement investment could contribute to the health of your community, literally.

If you see my new bumper sticker: "Think Globally, Invest Locally", please wave.  I'll wave back. 

The small benefit to being unemployed, the green fields after the flood, so-to-speak, is that your retirement account can become a self-directed IRA, exploding your investment options wide open. This is also a small benefit to a job in which your employer does not offer a retirement plan - retirement plan freedom.

If you're fortunate enough to have a job right now, and that job offers a retirement plan, you may feel that you have little control over how you can invest your retirement money. You're probably right. You probably only have the option of investing in stocks through your employer's chosen fund(s). But, you may be saying to yourself, at least I can choose between aggressive and conservative stock market investing.

Maybe not.

The Wall Street Journal reports that the Pension Protection Act of 2006 allows employers to automaticaly enroll you in their 401(k) plan and automatically set you to the default investment option.

That's right. Not only can your employer decide that it's best for you to be in their 401(k) plan, but they can also decide how you should invest within your limited options.

Maybe you don't know anyone in your HR department. This should change. Try to discover which nice HR person has some control over your retirement plan and invite them to lunch.

Explain to them that there is a retirement plan option out there called a self-directed IRA, which allows freedom-loving Americans to invest however they choose, almost.

You can sell it to them as a way to differentiate themselves from competitors. New potential hires frequently ask in an interview, "Do you have a 401(k) plan?" Now, HR can answer, not only do we have a 401(k), we have a self-directed retirement plan, and you can choose to invest in real estate, gold, private stock OR public stocks and bonds and mutual funds."

You could tell them that allowing self-direction as a retirement option will improve morale, retain employees and help the general economy. These benfits may not be directly measurable, but they're real.

Many companies are no longer matching funds in their 401(k) plan. Even the organization formerly known as the American Association of Retired People, AARP, is no longer matching employee retirement contributions. Tell HR, if they're not matching, the least they can do is give employees freedom to invest.

If your HR person doesn't see the light, and especially if they're not matching your contributions, you can always open a self-directed IRA. If you want to stop contributing to your handcuffed 401(k), you can open a Traditional or Roth IRA. If you want to keep contributing to your 401(k), you could open a self-directed Roth as well.

With the Roth, your contribution is not tax-deductible, but the earnings are tax-free when you're ready to retire. And if you can wait until 2010 to open a Roth, you can derive many benefits.

Worse case, you got to know your HR person better. Best case, you're the hero of your company because you freed the jailed retirement plans.

photo courtesy of h.koppdelaney 

Healthcare costs rise every year for all Americans - employer, employee, self-employed, and their families.  The US government is working on this, but their track record on reform is not so good (or fast).  Meanwhile, Americans pay more and more for basic health care, at a time when many mortgages are going up and many people are unemployed or underemployed.

One solution that has worked for more and more families each year is the Health Savings Account.  10 reasons to consider an HSA:

1) HSA premiums are vastly cheaper than other healthcare plans.

You are immediately saving money.  The renewal costs are also much cheaper than an HMO, PPO or other plans.

2) HSA will cover peripheral medical costs.

With many HMOs or PPOs, dental care, eye glasses, and eye surgery are not covered.  HSAs can be used for this, and also acupuncture, psychiatric treatment,fertility treatment and more.  See IRS Publication 502.

3) You control your medical care with an HSA.  

There is no network. No one will force you to choose from a list of doctors or hospitals.  With an HSA, you play an active role in every healthcare decision. Even the best doctor may benefit from having to explain his or her recommendations when you ask the right questions about your healthcare.

4) HSAs are tax-deductible.

All the money you deposit into your HSA is tax-deferred.  Even if you spend it all on approved medical expenses, the money is still deductible. 

5) Money saved in an HSA never expires.

Unlike a flexible spending account, the money in your HSA can grow for years until you need it.

6) HSAs can be filled from an IRA.

You can pay for your health care from your retirement account - one time.  If you're short on cash, you can take a bit from your retirement and transfer to your HSA without a penalty.

7) With a self-directed HSA, your health care dollars can be an investment. 

Your HSA money can join with your self-directed retirement funds and invest in real estate, gold, private stock, or a loan. 

8) HSA investment earnings are tax-deferred.

If you make a good investment and earn thousands, that money will stay in your HSA until you need it, tax-deferred. 

9) HSA money earns interest when you're not using it.

If you can't find a good investment, or between investments, the money in your HSA earns tax-deferred interest. 

10) Contrary to common sense and popular belief, health care costs are not tax deductible for most Americans.

Healthcare costs must be 7.5% of your income to be tax deductible.  Most Americans do not qualify for this, even in a bad health year.  

For more information on HSA, see our Learning Center or ask a question.

Photo credit Brooks Elliot