Dave Hageman » Self Directed IRA's

Can We Save Social Security?

davehageman — Mon, 22 Mar 2010 11:41:29 +0000

I get a little update in the mail every year that tells me how much I should expect to see from Social Security… it gets me thinking… do people actually rely upon this “ponzi -scheme” or are they taking control of how they live in their retirement years…

With Social Security predicted to reach insolvency within 30 years from today, lawmakers agree that something needs to be done…. and fast. They even agree on the broad outlines of a solution.

Unfortunately, non of the proposals currently under consideration is likely to be poplar to the masses. “Congress is going to have to tell people things they don’t want to hear.” says David John of the Heritage Foundation, aconservative think tank.

A big part of the problem is that the population is getting older. As a result, there are fewer people of working age to support each retiree. Here are the most likely options for Social Security reform:

1. Increase Taxes

Right now, employees pay a 6.2% Social Security tax on income up to $106,800 (the “income cap”). To generate more revenue, Congress could increase the rate at which income is taxed, raise the income cap, or add a new tax on income above $250,000. President Obama proposed this last idea during his Presidential campaign, but conservative economists say it would not dent the Social Securit defiicit.

More likely is a modest increase in either the payroll tax rate (from it’s current rate of 6.2% ) or the income cap (from $106,800). Raising the cap is popular among Social Security reformers but would increase the tax burden on the middle class, since more of their income would be subject to the tax. Raising the payroll tax rate would disproportionately affect lower-income workers.

2. Change future benefits

Altering the way benefits are calculated could be a powerful tonic for Social Security’s fiscal mishaps. “Financing current benefits isn’t such a big problem.” says Rudolph G Penner of the left leaning Urban Institute. “The problem is financing our promise of ever-increasing benefits.”

The current system ties benefits to wages: As people’s salaries increase, Social Security benefits grow.

Under a popular idea called “price indexing,” consumer prices would be factored in, too. Benefits would increase more slowly, since prices tend to rise at a lower rate than wages. The idea may sound innocuous, but critics have said it would change the very nature of Social Security and result in significant benefit decreases for people entering the system in the future.

3. Raise the Retirement Age

Of all the proposals under consideration, pushing back the retirement age seems the most likely to happen. People are staying in the workforce longer anyway, and the retirement age is already rising gradually — from 65 to 67 by 2027. Proposals are circulating to accelerate the jump to 67 by 2020. Requiring people to work longer before collecting Social Security doesn’t generate quite the ideological division tax increases do and doesn’t tamper with future benefits as price indexing would.

Like mentioned before, the population is getting older and the ratio of workers to social security beneficiaries has dramatically decreased since 1960 and will continue to do so over the next couple of decades as referenced in the graph to the right.

So with “Reform” the name of the game these days and any Social Security reform package is likely to contain some or all of the above ideas. And it had better happen soon. Experts agree the longer we wait, the more difficult it will be to solve the system’s financial ills.

David M Certner of the AARP believes that talk of a Social Security crisis is overblown. Still, he agress that changes to the system are inevitable and says they should come sooner rather than later. “The sooner you make them,” he said, “the more modest the changes that are needed.”

Are you relying solely on Social Security as your retirement game plan? Do you have a game plan? Have you learned the benefits of a self directed retirement plan? Contact me for more details on how to utilize a self directed ira or a self directed 401k for your business or enterprise.

Why It’s Time to Retire the 401(k) ~ Part 3

davehageman — Tue, 09 Mar 2010 03:30:10 +0000

Where 401(k)s Go Wrong

In theory, 401(k)s should provide much more of a retirement cushion than they do. A 2007 study from the National Bureau of Economic Research (NBER) estimated that, on the basis of historical returns, by 2040 the average 401(k) of a near retiree would grow to an inflation-adjusted $451,944. That money, spread over 30 years, could replace at least 50% of the average retiree’s income. Add Social Security and even highly paid workers will probably earn more than 80% of their preretirement income. “The only reason these accounts haven’t lived up to their potential is that they haven’t gotten enough time,” says James Poterba, president of the NBER, who co-authored the study.

In practice, 401(k)s haven’t been nearly so rewarding. When Boston College’s Munnell looked at the returns 401(k)s have actually produced compared with the projections, the difference was sobering. The average 55-to-64-year-old should have a 401(k) balance of $320,000. In fact, at the end of 2007, the average 401(k) of a near retiree held just $78,000 — and that was before the market meltdown.

Why don’t these accounts amount to much? Munnell found a number of reasons. Some people don’t contribute as much as they should — essentially ignoring free money from company matches and tax relief. And, as the original engineers of the 401(k) suspected, the less you earn, the less you are likely or able to contribute. For most employees, the maximum contribution to a 401(k) is $16,000 annually. She found that just 5% of people earning $80,000 to $100,000 maxed out, compared with 30% of those making $100,000 or more.

Additionally, to get the hypothetical higher returns over time and avoid investing disasters, you have to hold a diversified portfolio of stocks and bonds. Many of us don’t. Munnell found that 14% of workers held no stocks at all, leading to weaker-than-average returns. On the opposite end, more than a quarter of all 401(k)s were 100% stocks, exposing those accounts to big losses when the market dropped.

Earlier this year, mutual-fund company T. Rowe Price tried to determine the optimum retiree portfolio — the mix of stocks and bonds that would produce the highest returns without the risk of the nest egg running out. To do this, the analysts ran something called a Monte Carlo simulation, which mimics the real-life ups and downs of the market. Most of the time, the market goes up slightly. But some years — ka-pow! — stocks and bonds do spectacularly poorly. What T. Rowe Price found should frustrate anyone who has spent time wondering if 25% of a portfolio should be in international bonds or small-cap stocks. No portfolio is 100% safe from disaster.

Trying to boost returns by adding stocks can make matters worse. Even if you withdraw a mere 4% a year from your 401(k) and have an ultraconservative portfolio of 80% bonds and 20% stocks, you still have a chance of outliving your retirement account. Swap the bonds for stocks, and the chance of outliving your money actually rises. In reality, most of us don’t have nearly enough in our 401(k) to live off just 4%. At a 6% withdrawal rate, hypothetical retirees in more than a third of the Monte Carlo simulations crapped out.

Saving more, another common prescription for fixing the 401(k), has its downside too. That’s because of another unpleasant quirk of the 401(k), which was mentioned earlier: the older you are, the riskier a 401(k) gets. That’s because contributions make up a very big part of the account’s growth in the early years. Later on, once the account has grown, it is much more sensitive to market drops.

Imagine a worker who earns $100,000 a year for 30 years. Each year she puts 5% of her income into her 401(k). Through most of her working life, the market does pretty well, boosting her diversified portfolio 5% a year on average. When she retires, our worker will have $332,194 in her account. Now imagine a second, thriftier worker contributing 7.5% of his salary, or $2,500 more a year, to his 401(k). But in this scenario, the market does a 2008 in the last year before he retires, and his account drops 30%. Result? Even after saving 50% more a year for 30 years, worker No. 2 ends up with a balance of $327,194 — $5,000 less than the first worker.

The 401(k) Alternative
So what can be done to fix our retirement-savings mess? Most of the proposed fixes to our retirement plans have to do with getting people to save more or invest better. The most popular solution is the so-called automatic 401(k). Under that plan, all workers would be enrolled in 401(k)s when they’re eligible. Companies would establish default settings to boost returns and make the portfolios safer as workers near retirement. People who worked for companies that didn’t offer 401(k)s would be automatically enrolled in savings accounts. In other words, make inertia work for employees, not against them. However, a number of economists and policy experts think that while those changes would help, upgrading the 401(k) alone won’t save the nation’s retirement-savings problem.

Here’s why: Remember, the biggest factor in whether the 401(k) works as designed has to do with when you retire. If the market rises that year, you’re fine. If you retired last year, you’re toast. And the chances of your becoming a victim of this huge flaw in the 401(k) plan are pretty high. The market fell in four of the nine years since the beginning of the decade. That means anyone retiring this decade had a nearly 50% chance of leaving work in a down market. In fact, your chances of retiring into a down market are even greater than that: forced retirements spike in recessions just as the stock market is tanking.

The solution: a new type of insurance. Retirement savings, it turns out, are exactly the type of asset we need insurance for. We need insurance to protect against risks we can’t predict (when the market collapses) and can’t afford to recover from on our own. “People tend to meld savings and insurance in their mind, but they are not substitutes,” says Nancy Altman, a former Harvard professor and the author of The Battle for Social Security. “It’s fine to have a savings plan as a supplement but not as the main retirement protection for everyone.” She says the best way to guarantee a replacement for people’s wages in retirement is by pooling risk, and the way to do that is through insurance.

Other solutions: Invest in what you know and trust. You can utilize a self directed IRA and Self Directed 401k to invest in the non traditional invests you desire to invest in.

Real Estate, Land Acquistion, Tax Liens, Partnerships, Oil and Gas and other non traditional investment options are available to investors that want an out of the box strategy for their retirement plan savings.

Many vehciles are out there for you but which will be most benefical…. the one that you are in control of.

To get control of your retirement plans, visit our Informational site and get educated on the benefits of Self Directed Investing, go to: http://www.retirementconceptsblog.com

Why It’s Time to Retire the 401(k) – Part 2

davehageman — Tue, 09 Mar 2010 03:25:21 +0000

A Brief History of the 401(k)

Congress was trying to close a loophole on executive bonuses when it created the 401(k). Most companies intended 401(k)s — which were originally called salary-reduction plans but then renamed for the portion of the tax code that makes them possible — to be a perk for highly paid executives, not a pension replacement. That’s because lower-paid employees probably could not afford to defer a portion of their paychecks. So companies held on to their pension systems even as they added 401(k)s, which by law they had to make available to all employees. When the market took off in the 1980s, the rank and file clamored to get in.

With a 401(k), contributions came out of your pay but were not taxed, and you had control of them. Contributions could be added or suspended. Best of all, when you left your company, your 401(k) traveled with you, removing a penalty for switching jobs that had been built into the pension system. On the corporate end, a change in accounting rules made the growing cost of pensions more apparent to shareholders. Cutting the pension was a guaranteed way to improve the bottom line. The rise of the 401(k) began.

Around the same time, Occidental was having problems. In the late 1960s the company bought Hooker Chemical Co. in a effort to diversify. But in the 1970s, allegations surfaced that toxic waste that Hooker dumped into the ground during the 1940s and early ’50s was causing severe health problems in Niagara’s Love Canal neighborhood. Oxy Pete needed cash to shore up this and other problems, and its CEO, Armand Hammer — flamboyant, powerful and ultimately corrupt — came up with a solution: raid the retirement kitty. Amazingly, this was legal at the time, and Hammer wasn’t alone in doing it.

High interest rates in the inflationary 1970s produced solid returns for Oxy’s bond-heavy pension fund — so much so that Oxy’s accountants figured the plan was overfunded by $600 million. For Oxy to get at that cash, pension laws required it to close its fund and start again. It did so with a far cheaper option: the employee-funded 401(k). The company made it clear that with the high interest rates at the time, Oxy employees could see their 401(k) account balances soar with little risk. Few doubted it — Oxy, like most other big companies of that era, had always taken care of its own.

At first, Occidental’s union workers were not allowed into the plan. So when Ernie Lucantonio was offered a supervisor job in the fire-retardant division at Occidental, part of the reason he took it was to get into the 401(k). “The 401(k) forced you to save money, because you couldn’t touch it,” says Lucantonio. “I was making good money, but I wasn’t saving anything. I had three kids going to college. So the 401(k) forced me to save, which I needed.”

After 34 years, he left Oxy in 2005. Lucantonio, 61, is proud of what he has been able to afford in retirement. He and his wife bought a cabin in New York’s hilly Southern Tier. “It’s even got ceramic tile in the kitchen,” he says. He would like to spend more time there, but like many other former Occidental employees we talked to, he’s had to unretire into a new job. He is a real estate agent.

If Occidental had stuck with its pension plan, Lucantonio might not have to work. When he retired, he had a salary of nearly $80,000. That means he would have received a pension check of about $3,100 a month. It would be nice if 401(k)s could produce a guaranteed check as pensions do. But most 401(k)s don’t generate enough income, and Lucantonio’s is no different. He retired from Occidental with $350,000 in his 401(k). That’s a hefty sum, but he can withdraw just 4% of it annually, or about $1,200 a month, to limit the chances of outliving his money. That’s 60% less than what the traditional pension would have paid him.

Dennis O’Neil plays the part of a former HR executive well. You can find O’Neil, who left Oxy on disability a few years ago, on a golf course, clad in picture-perfect golden-years attire: a black Izod shirt with white shorts, faux-alligator-skin cleats, Ray-Bans, a gold shamrock hanging from a gold chain on his neck and a black baseball cap. But O’Neil’s retirement outlook is growing darker every day. He once made a six-figure salary, but the 63-year-old is fairly certain that his savings won’t be able to sustain him for very much longer. He has some $500,000 left in his 401(k) and spends about $75,000 a year. At this rate, he worries he will tap out his retirement savings within the next decade.
(See 10 things to buy during the recession.)

Unless, as O’Neil’s thinking goes, he can make something happen in the stock market. So he spends much of his day watching CNBC. “Right now, I want to know which area of the economy is going to recover first. Will it be retail? Commodities? Energy?” says O’Neil. Playing the market is probably the wrong thing to do, but he got divorced eight years ago, depleting a good portion of his savings, and his medical bills are likely to go up soon. O’Neil is going blind from histoplasmosis. These days he has to golf with a friend. He would like to buy a house in Florida before he loses his eyesight completely, but he just can’t afford it.

Under Occidental’s old pension plan, he would have gotten a monthly check of about $2,200. More important, he wouldn’t have to spend much of his remaining eyesight squinting at CNBC, wondering how he will afford the rest of his life. The pension check would have been guaranteed until he died. “I’m a pretty optimistic guy, but I’m still worried,” says O’Neil. “Ten years from now, where am I going to be after I burn through the cash?”

To see Part 3, click here: http://davehageman.com/investment-solutions/why-its-time-to-retire-the-401k-part-3

For more information from this story, please reference,

http://www.time.com/time/business/article/0,8599,1929119-3,00.html

Why It’s Time to Retire the 401(k) – Part 1

davehageman — Sun, 14 Feb 2010 17:16:19 +0000

Retiree Robert Shively spends his days on the golf course. For many, that would be a dream come true, but not quite in the way Shively does it. The 68-year-old is the cart mechanic at the Niagara Falls Country Club.

Two and a half decades ago, his then employer, Occidental Petroleum Corp., cut its traditional defined pension plan in favor of a 401(k)-type system. So instead of getting a guaranteed pension check of $1,308 a month for his 36 years as a full-time, salaried employee, the former chemical-factory worker receives $225 a month from his 13 years as an hourly employee, plus $180.16 a month from a profit-sharing plan Oxy had for salaried employees until 1994. He also has $70,000 left of the money he saved from his tax-deferred 401(k). On the days he works, Shively rises at 5 a.m. to get to the golf course. He mostly enjoys the job. But on tournament mornings, he has to be at the course at 4 a.m. A few years ago the country club switched from gas to electric carts, some of which have four 84-lb. batteries each. Every year, Shively and another worker have to lift out all the batteries and store them for winter. “Your body aches all over,” he says.

This isn’t how retirement was supposed to be.

If you have even peeked at your account statements in the past year, it’s painfully obvious that something is wrong with the way we save. The tax-deferred 401(k) plan, and others like it, such as the 403(b) and the IRA, have become our nation’s go-to retirement piggy bank. Invented nearly 30 years ago as an executive perk — one more way to dodge Uncle Sam — the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation’s retirement system. But propelled by a combination of companies looking to cut costs and consumers who wanted control of their retirement destiny, that’s exactly what happened.

The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves. In the past two years, that has become all too clear. From the end of 2007 to the end of March 2009, the average 401(k) balance fell 31%, according to Fidelity. The accounts have rebounded, along with the rest of the market, but that’s little help for those who retired — or were forced to — during the recession. In a system in which one year’s gains build on the next, the disaster of 2008 will dent retirement savings long after the recession ends.

In what must seem like a cruel joke to many, the accounts proved the most dangerous for those closest to retirement. During the market downturn, the 401(k)s of 55-to-65-year-olds lost a quarter more than those of their 35-to-45-year-old colleagues. That’s because in your early years, your 401(k)’s growth is driven mostly by contributions. You control your own destiny. But the longer you hold a 401(k), the more market-exposed it becomes. It’s a twist that breaks the most basic rule of financial planning.

The Society of Professional Asset-Managers and Record Keepers says nearly 73 million Americans, or just under 50% of our working population, now have a 401(k). And collectively we pour more than $200 billion into these accounts each year. But retire rich? Don’t bet on it. The average 401(k) has a balance of $45,519. That’s not retirement. That’s two years of college. Even worse, 46% of all 401(k) accounts have less than $10,000. Today, just 21% of all U.S. workers are covered by traditional pensions, and the number shrinks every year. “The time may have come to consider returning 401(k) plans to their original position as a third tier of retirement planning, behind pensions and Social Security,” says Alicia Munnell, who heads the Center for Retirement Research at Boston College. “They should not be the thing we rely on for retirement security.” And the government seems to agree. This summer, the Government Accountability Office concluded, “If no action is taken, a considerable number of Americans face the prospect of a reduced standard of living in retirement.” That’s what is known as an understatement.

The 401(k)’s defenders say bad markets don’t make the accounts a bad idea — and that it’s still too soon to tell whether they work. Many companies adopted them less than 20 years ago. Even then, most firms (including the author sited from Time) still provided pension plans to their workers. So boomers retiring now were never focused on piling money into 401(k)s. In order for the plans to succeed, workers have to stash savings regularly for about 30 years. Most accounts haven’t been around that long.

See Part 2 by clicking here, : http://davehageman.com/uncategorized/why-its-time-to-retire-the-401k-part-2

To source original article from Time Magazine, see attached link

http://www.time.com/time/business/article/0,8599,1929119-2,00.html

How do I get my Money out of Wall St and Invest in other opportunities?

davehageman — Fri, 29 Jan 2010 16:30:02 +0000

Are you new to the idea of being in control of your retirement investments?

A self-directed IRA is technically no different than any other IRA (or 401k). It follows the same function for tax deferral investing, asset protection, and it requires the use of a custodian to oversee the general administration of the funds. The difference with the Self-Directed IRA is that it provides an array of additional investment options, which are directly controlled by the investor. Most IRA custodians only allow approved stocks, bonds, mutual funds and CD’s; a Self-Directed IRA custodian allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more – even including the funding of a business. As the investor, YOU (not the fund custodian) have the discretion on where to invest the money.

If you are looking to take control of your investments in 2010 and find out how to leverage your existing capital then join us for our self-directed IRA webinar.

■Learn the basics of self-directed IRAs.
■Learn what you can invest in
■Learn about prohibited parties and prohibited transactions
■Understand the do’s and don’ts of Self Directed Investing
■Discover what we mean by our ‘full-service approach’ and all the benefits that means for you!

It all happens next Tuesday evening! February 2nd 2010

TIME : 7 – 8 pm EST ~ 6-7 pm CST ~ 5-6 pm MST ~ 4-5 pm PST

Reserve your Webinar seat now at:

https://www1.gotomeeting.com/register/190239448

System Requirements
PC-based attendees
Required: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.4 (Tiger®) or newer

Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/190239448

Happy Investing in 2010!

Self Directed IRA Investing? Can you control your future

davehageman — Tue, 12 Jan 2010 20:43:43 +0000

The economy and recent events have devastated savings and retirement accounts.

People are frantically searching for investment options that may over time help recoup some of their losses. The stock market is too risky and fragile.

Bank savings and CD rates are at their lowest. The bright investment light that continues to shine is real estate. This is the way to go.

Your key to success with real estate is to have your money in an account that is self directed. You call all the plays here. You determine where and when your investment dollars will be used.

Of course, you should always seek good counsel from community professionals. An attorney, tax professional, real estate broker, contractor can provide you with valuable information with which to make informed decisions.

What is the alternative?

Place your money in some other account and let someone else determine how to invest your dollars.

Do you think that those individuals invest your money with your best interests at heart?

If you go the self directed way, be aware of the IRS rules regarding real estate investments. One such rule states you cannot invest in property for personal use.

Read, ask, and learn what you have to. Profits are available here.

The combination of a self directed account and real estate property investments can really assist with offsetting some of those previous losses.

If you are interested in implementing a Self Directed IRA, please email me for more details:

dhageman@securitytrustcompany.com

Happy Investing,

Dave Hageman

How do I Invest my Retirement Funds into Non-Traditional Assets?

davehageman — Mon, 04 Jan 2010 18:45:01 +0000

Are you new to the idea of being in control of your retirement investments? A self-directed IRA is technically no different than any other IRA (or 401k). It follows the same function for tax deferral investing, asset protection, and it requires the use of a custodian to oversee the general administration of the funds. The difference with the Self-Directed IRA is that it provides an array of additional investment options, which are directly controlled by the investor. Most IRA custodians only allow approved stocks, bonds, mutual funds and CD’s; a Self-Directed IRA custodian allows those types of investments in addition to real estate, notes, private placements, tax lien certificates and much more – even including the funding of a business. As the investor, YOU (not the fund custodian) have the discretion on where to invest the money.

If you are looking to take control of your investments in 2010 and find out how to leverage your existing capital then join us for our self-directed IRA webinar.

Learn the basics of self-directed IRAs.
Learn what you can invest in
Learn about prohibited parties and prohibited transactions
Understand the do’s and don’ts of Self Directed Investing
Discover what we mean by our ‘full-service approach’ and all the benefits that means for you!

It all happens this Tuesday evening! January 5th 2010

TIME : 7 – 8 pm EST ~ 6-7 pm CST ~ 5-6 pm MST ~ 4-5 pm PST

Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/809301361

System Requirements
PC-based attendees
Required: Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.4 (Tiger®) or newer

Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/809301361

Happy Investing in 2010!

Good news for California Investors (FINALLY)…

davehageman — Thu, 31 Dec 2009 15:29:21 +0000

For the first time in more than 30 years, California has announced that it will be re-assessing the property values to account for properties that have experienced deflated values (see California to Use Deflation in Assessing Property Taxes).
I think we can hear the communal sigh of relief even all the way over here in Denver!

Finally, some good news for California residents and investors! In the last couple years I have worked with many clients pursue real estate investments in the Golden State, regardless of high LLC taxes, sliding property values and devastating forest fires. In fact, California is one of the top states in which we have clients.

We are always happy to hear that governments and other municipalities are taking into consideration the state of the economy. But, this resonates with us even more. I am proud of our California clients and their boldness to purchase a Real Estate IRA – it’s time they received a break!

Go boldly, California investors. The tide may be turning!