Retirement 
8
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Saving for Retirement Is Cheap!

A few years ago, when the economy was great, most of the people who didn’t save for retirement usually didn’t think about it. It’s difficult to think of the far future on a regular day, it’s even tougher to think about it when it’s sunny, beautiful, and there isn’t a cloud in the sky. It’s toughest when the economy is rough, we’re all playing defense, and it doesn’t seem like we’ll even make it to tomorrow, let alone the next twenty or thirty years. It is, however, always important to think about saving for retirement and fortunately it’s not as expensive as you may think. You can afford to save for retirement, it will cost you very little, and I will explain why.

When you make contributions to an employer 401(k), you get an immediate tax deduction if it’s withdrawn from your paycheck. We’ll look at more examples below but if you contribute $100 a pay period and are in the 28% tax bracket, only $72 is deducted from your paycheck (you contribute $100 but get the deduction, so you pay $28 less in taxes). If your company offers a 401(k) and a company match, saving for retirement is even cheaper.

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 Investing 
10
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How Often Should I Rebalance My Investment Portfolio?

After writing this morning’s Betterment review and reading about their rebalancing feature, I started thinking about rebalancing. Betterment rebalances your portfolio after each quarter and if your actuals deviate from your allocation by more than 5%. In other words, they rebalance on a schedule and when the deviation exceeds a certain level (5%). When you read about rebalancing and when you should do it, many places often just point to a calendar date – rebalance every quarter, every six months, or once a year.

What is Rebalancing?

Rebalancing is the act of adjusting your actual investment allocation so that it meets you desired investment allocation. If you want to be 80% stocks and 20% bonds, you need to rebalance your investments periodically since both will likely perform differently over time. How often and when you rebalance is a matter of debate but as is the case with any type of investing (or gambling), it’s about the odds, your plan, and sticking with the plan as long as it’s worth sticking to!

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 Retirement 
29
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Start Retirement Savings Early

Nest EggsYou’ve probably heard that your most valuable asset is time. For new graduates, that line actually refers to two different ideas, both of which are critically important to understand. The first idea is that with few entanglements and draws on your time (mainly no kids), you can devote more of it to your career and engineer the largest advancements in your career.

The second refers to the power of compounding interest and that’s important to understand with regards to your retirement in forty+ years.
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 Retirement 
52
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What is a Highly Compensated Employee?

Are you a highly compensated employee? No matter what you make, you probably don’t feel like a highly compensated employee (what’s that old saying – happiness is making a dollar more than you’re wife’s sister’s husband? :) ), but you might just be one. Whether or not you’re a highly compensated employee has an impact on your employer’s retirement benefits package. The retirement program has to prove that there is no bias towards highly compensated employees or it could lose the tax breaks it gets for having a retirement package.

A highly compensated employee is someone who owns more than a 5% interest in your business at any time during the year. Or, they could be considered highly compensated if they, in the preceding year, received compensation in excess of a specified amount (see the list below) and, if you choose to add this criteria, be in the top 20% of employees when ranked by compensation.

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 Retirement 
23
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Best Investments for Retirement Accounts

Nest EggsWhen I started working after college, it was a bit of a stretch to contribute to both my 401(k), to get my employer match, fully fund my Roth IRA, and build up a small cash cushion (I would later learn these are called emergency funds). I pushed to do it because my parents drilled this lesson into my brain as a young adult – save money today because you never know what will happen tomorrow. (I thought I dodged a bullet by avoiding the dot com boom and bust but I was later rewarded for my diligence with the largest recession since the Great Depression!)

So… what do I do with the money in my Roth IRA or my 401(k)? You will never be able to predict the future with certainty so you will never know beforehand which investments will perform the best. You will, however, know the cost of owning those investments and the cost of taxes if you pick correctly. The best we can do is have a good plan, execute that plan, and pick investments that provide the most value for the price that you pay in fees and taxes.

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 NEWS 
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Working Americans Have Almost No Retirement Savings

CNN Money reported last week that 43% of Americans have less than $10,000 in retirement savings, which is a statistic provided by the Employee Benefit Research Institute in their Retirement Confidence Survey (2010 results). If that figure isn’t scary enough, it appears that 27% of workers have less than $1,000. Both figures are increases from 2009, when 39% had less than $10,000 and 20% had less than $1,000 a year ago.

While the statistics are sobering, it does show how much the recession has hurt a lot of people. If you lose your job, the first thing to go after your emergency fund is probably going to be your retirement savings. Keeping a roof over your head and food in your stomach is going to take precedence over retirement tomorrow.

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 Retirement 
9
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Get 401(k) Rollover Checks Mailed Directly to IRA

A couple weeks ago I received a letter from my former employer’s 401(k) benefits company notifying me that I had $0.83 in my 401(k) account. Despite my best efforts avoid dividends and distributions on funds, I must have missed one in the process. I was told that since my vested account balance was less than $1,000, I’d have to roll it over or take a distribution, which would be taxed and penalized.

I was in a quandary. At such a small dollar amount, it certainly wasn’t worth the time to roll it over. If it appreciated at an average rate of 7% a year for forty years, it’s would be worth a mere $12.43. That’ll be enough to buy me a pack of bubble gum after taxes in 2049.

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 Personal Finance 
22
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Four Money Mistakes You Might Not Realize You’re Making

Blind SpotsOne of the biggest challenges in almost anything you do is knowing where your blind spots are. In simpler terms, you don’t know what you don’t know. :)

So today, I’ll point out four money mistakes you might be making that you don’t even realize you’re making! Hopefully, you’re making none of them. If you are making one of these, don’t beat yourself over it. Now you know you’re making it and you can take steps to fix it.

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