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Investing for seniors

Investing for seniors

Written by R. A. Stewart

 

Your age is a crucial factor in establishing your savings and investing strategy. Your 20s, 30s, 40s, and 50s are your savings years. It is these years when you build up your assets. 

Your 60s and 70s can be considered your spending years. It is when you tick off items on your bucket list while you are able to.

That does not mean that you do not have to work, a lot of older people are taking this option, not because they cannot make ends meet on their pension, but because they enjoy what they are doing.

In New Zealand, retirees will have access to their kiwisaver account once they reach the age of 65. Money invested in kiwisaver will be in growth, balanced, or conservative funds. Most people during their working life opt for growth or balanced funds.

It is time to decide whether to stay with the status quo or invest in more conservative funds. 

Your age and your health are the two most important factors in deciding which fund to invest your money in. 

Older people do not have time on their side to overcome financial setbacks such share market falls and so forth, therefore if you are 60+ it is a good idea to lean toward more conservative investments but still retain some exposure to risk.

It is worth mentioning at this point that New Zealand financial advisor and writer Frances Cook has a formula for calculating how much exposure you should have based on your age, and it is this…

Subtract your age from 100.

If for example you are aged 60 then only 40% of your portfolio should be invested in the share market.

I do not necessarily agree with this formula and my exposure to the share market is more than her formula suggests I have.

However, that is a personal choice; one that I do not necessarily recommend to you because your circumstances will be different as they are for different people.

If you are connected to the internet and you have a lot of spare cash in your account then I suggest that you place most of your money into an account that is not connected to internet banking. This is to reduce your chances of becoming a victim of internet scammers. 

With internet banking being the norm, this could be difficult in the future though.

In any case I still believe that it will pay to arrange your finances so that if you fall victim to a scammer then not all of your money will be lost. 

Don’t leave all of your money in the one account for goodness sake as some victims of scammers have.

If you are traveling then make sure you don’t have access to your life savings because if you do then so will be a scammer if they manage to get hold of your login details.

Scammers have all kinds of ways to trick people into handing over their login details.

Anyone can be a victim so don’t be proud by saying “I am not that stupid.”

As you get older you will have to invest more conservatively; that does not necessarily mean transferring from growth to conservative funds but investing some of your current savings into low risk accounts. The deciding factor is your timeline. How soon you need the money and funds which are going to be used within 12 months are best invested conservatively.

 

www.robertastewart.com

 

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American retirement schem

I have often talked about the New Zealand retirement scheme called KIwisaver. Here is an article on the  American Version which I have obtained PLR rights to. As with New Zealand’s Kiwisaver it is imperative that you join your country’s retirement scheme which is called 401k.

A 401(k) plan is an employer sponsored plan. The employer makes direct contributions to the account that are deducted from the employee’s paycheck. Most companies will match the paycheck contribution up to a certain percentage. In general, the contributions are before tax dollars and grow tax deferred until they are withdrawn. After-tax contributions are also allowed.

You should contribute as much as you can to your 401(k). Don’t overextend yourself, but you don’t want to waste the opportunity to deposit tax free, tax deferred money and have it matched. The amount the company matches you for is free money. Don’t let it go.

In 2005, the maximum before tax annual contribution that an employee can make is $14,000. If the employee is over 50 years of age, he or she can contribute $16,000. The limit is set to increase by $1,000 in 2006.

Your 401(k) is simply an account; you chose the investments within the account. There is usually an array of mutual funds presented to you, but you must decide the allocations. There is no one to advice you when it comes to role fees and expenses that will affect your overall returns.

First, decide how much risk you are willing to assume. How much volatility within the portfolio can you stand?

If you are in your 20’s and early 30’s you have the time to be aggressive with your investments. The time factor allows you to recover from slumps in the stock market. As you age, your investments should become more conservative to protect your earnings.

Many 401(k) plans have tools, such as online calculators and worksheets, which help you in determining how much risk you should accept. The best tool is often to seek the advice of a competent financial planner. It is worth it to hire a planner to evaluate your assets and earning ability if the end result is a comfortable retirement.

If you find that you are in need of money, most plans will allow you to borrow up to 50% of your vested balance, but not over $50,000. You usually have to repay the money with interest within five years. The interest payments go into your account, so you are paying yourself the interest. There are downsides, though.

The money you have withdrawn as a loan isn’t appreciating. The original contributions were made with pre-tax dollars, but the money you payback is after-tax. If you don’t pay back the money it will be considered a normal distribution, and taxed and penalized.

If you leave the company, in most cases you will want to take your 401(k) with you. You can role it over into another company’s 401(k) plan program or into your own IRA at a brokerage. With an IRA, you will have more control over your account, and better investment options.

Whatever you do with your IRA, make sure that you follow all procedures to the point. You don’t want to accidentally withdraw your money and have to pay the taxes and penalties. This is a very costly mistake.

If you are an entrepreneur, you can open an individual 401(k). This gives you the option of investing thousands of dollars more than in other kinds of self-employment retirement accounts. An individual, or solo, 401(k) is available to businesses that only have the owner and spouse as employees. This means that if you work for someone else and have a business on the side, you can open an individual 401(k).

www.robertastewart.com