Retirement Account contributing

debo_2006

17 years ago

I posted this on the Retirement forum, but it's not too active there.

With the economy the way it is, and all the money lost in retirement accounts (I've lost 1/2), is it wise to continuing to contribute right now? I'm almost 50, own a small business and can put the max into my SEP IRA by April 15 based on 2008 earnings. I'm hesitant to do so. My accountant says to continue contributing, but I'm afraid to loose any newly contributed money as it's safe right now sitting in an ING savings account.

I know the market has been up for several weeks now, but frankly, I'm afraid to take a chance to contribute anything until things are stable.

What are you hearing from the pros about this, especially if you are in my age range. Wait it out or keep it going????? Thanks.

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Comments (9)

Chemocurl zn5b/6a Indiana
17 years ago
Are there not different investment options within the SEP?

I would think there would be something like a money market account at least, if you felt the need to be safe and was happy with whatever interest it paid.

You might ask at The Household Finance Forum

hth.

Sue
monica_pa Grieves
17 years ago
Yes, you should always put money away for retirement, at least up to the limit that the IRS allows for lowering your income for tax purposes.

The big question is not "Should I", It's "Where to put it". In these times, the game is to not to get the highest return on your savings/investments...it's to keep what you already have, even if it means getting lower returns.
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Hi Deb, Heck, you're young, yet, girl - I'm much older, and thankful to be enjoying good health. Do you like to get products that you're buying on sale? Do you feel happy to get a product at not just an artificial "sale" reduction of 40%, but a real, verifiable 40% reduction? Stocks are on sale, these days, many quality companies being available at 40% off earlier prices (which were, in a number of cases, overpriced). They may be on fire sale, later - no one knows now whether that may happen, whether the market may drop substantially more before it moves on a mainly upward path again. Maybe not. Do you plan to retire within 3 or 4 years, maybe 5? You're planning to be leaving that retirement account alone, to just sit there and grow, for several more years, aren't you? I'm pretty sure that in about five years you'll be pleased with the results produced by a number of the equity investments that you make now. With the huge debts that the U.S. is carrying ... plus the massive current deficits to finance the bottomless pit called "Iraq" ... and not only the bailouts to date ... but almost certainly more later ... the U.S. must depend on foreign financial suppliers. Did you note the Chairman of China worrying to Hillary a week ago about whether the U.S. is managing their money well? If the main banker of the U.S., the gov't. of China, doesn't want to lend more money without major inducements ... the U.S. will have to offer higher interest rates, so many are expecting inflation here. Especially since the U.S. is printing money at a great rate. Do you figure to retire right soon, i.e., within three years or so ... maybe within five? If so, you may want to invest mainly in guaranteed-dollar assets - but even then, I'd say only related to money that you plan to need within the first few years of your retirement. For money in there that you don't plan to withdraw for five years after retirement, or maybe up till 10, there's a good possibility that they'll grow better over those years in equities rather than in guaranteed-dollar assets. Guaranteed dollars in the bank, bond, etc. apart from the rent that they produce on the money, not only don't grow ... in an inflationary environment, they lose value every year! Plus - when interest rates rise ... the sale price of bonds issued earlier goes down. I've been investing for almost 50 years, and worked as a personal financial advisor for 25 years recently - sold mutual funds initially for about a year, but didn't sell enough to suit my sponsoring broker, so didn't stay. Since then, offered advice only, sold no financial products: no conflict of interest. Now, at 80, I have some of my assets in equity mutual funds, all bought prior to about 18 years ago: very few of the managers produce better growth rates than the parallel market averages, and they charge a fee for their management "expertise" every year. If they're as smart as they claim ... how come the stuff that they manage doesn't grow faster than the market averages? I also have bought several individual stocks, periodically, as I had money available ... so that about 80% of my assets are in those equity-based situations. I've lived in 22 locations, so have never owned a home, which many expect to increase in value, largely due to inflation. I'm fortunate that, living frugally, I don't burn up all of my income from my three pensions, so don't need to draw on my equities. They'd lost something about 30% of their value, at the bottom of the market, but that didn't trouble me substantially - not as much as I'd thought that it might. In fact, I've been buying some more within the past two or three years ... and have seen them go down, as well ... ... but I expect that they'll recover, given time ... and now, they're paying a higher rate of dividend than earlier, when their prices were higher: Canadian banks are paying 5.5% - 8.5% dividend rates, these days ... and at very low tax rate (but interest attracts tax at top rate, outside of tax-deferred retirement accounts). Some Canadian oil and gas, commercial, real estate, transportation, etc. companies that have agreed to pay out most of their profit in order to avoid tax have been paying 10 - 15 - 20% (with some risk of reduction, as earnings reduce). One rents out water heaters, so has fairly stable cash flow ... and pays 18%. They must all become regular corporations within a couple of years. Good wishes for taking the long view - yes, you may die tomorrow ... but the possibilities are good that you'll live till 85, at least. When we buy life insurance ... we bet that we're going to die (early) ... and the life insurance companies bet that we're going to live ... and they're the ones with the actuaries! In this situation, you have the opportunity to choose an investment that will pay you while you're still alive ... and no longer working ... not wait till you're dead to pay! ole joyful
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itsmesuzq
17 years ago
This is the question of the century! I can only say what I would do. I would continue. It will lower your taxable income and you would be buying when stocks are low..."buy low, sell high". I am 63 and going to retire in July. I am still contributing and intend on doing so even after I retire. I am hoping that I will be able to recoup some of my losses before I will need to withdraw them in about 5-7 years.

But the best advice is do what you feel comfortable doing. If continuing will keep you awake nights, don't. You can always put that money in a high yield savings account or a CD.

Susan
sushipup1
17 years ago
A retirement account does not have to be invested in stocks. You can open a new account or contribute to an old one and out your money into CDs, high yield savings, Ginnie Mae, money market funds, whatever you want. All perfectly safe.

But yes, do make your contribution.

Check out a big company like Vanguard, call them and ask what you can put money into that will be safe. They won't try to sell you anything iffy.
azzalea
17 years ago
Go to your bank--you can open a regular bank account as your SEP.

I personally don't believe in the premise of save now, pay taxes later. Taxes never go down, but they DO go up--and right now they're going up A LOT. I firmly believe that by the time most of us get around to retrieving that money, it's going to be taxed at astronomical rates. Aside from that, are you aware that the Congress has SEVERAL times in the past decade discussed having people with independent retirement savings USE UP THAT MONEY before they'll be allowed to apply for SS? Hasn't passed, but you're only 50.... Lastest thing is the government is talking about nationalizing retirement accounts to 'protect' them--do you really think that's their motive? or to have them available to dip into?

Now all that being said, I do have a SEP, also--because of some rather large proceeds from a hobby some years back. It, too, has lost half it's value in the past year. BUT I haven't lost a penny. Why? Because I bought that SEP with money I'd have had to pay in taxes, had I not put it there. So it was play money to start with--and that's really the only money anyone should put into an account that they don't have 100% control of, IMO. Even if the fund goes belly up--I won't have lost anything, since I wouldn't have had that money in my pocket anyway.

Now, what you do is totally up to you. I prefer to pay taxes on what I earn, and then invest it as I see fit, moving it from here to there as needed. Granted, I haven't become rich yet--but on the other hand, I've been a SAHM/W for the past 28 years, and have amassed enough savings in my name (not our marital money, my 'pin' money) to buy our retirement home (a larger house than we have now, on a bigger property), and pay the mortgage on it for several years, as it's a second home for us at the moment. Not bad for a woman who hasn't worked fulltime in almost 3 decades. I'm not posting that to pat myself on the back, but to emphasize that ANYONE can care for and grow their money, if they want to.

I just think it's so important to retain and exercise control over all one's money--even keeping some money separate from their husband's. No one is going to care for and grow your money as effectively as you yourself will.
joyfulguy
17 years ago
Do you expect to retire right soon (within 5 - 7 years) ... and have a fairly small amount of dollar-denominated assets in your tax-deferred retirement account?

Do you expect to probably die before age 60 - 65 - 70?

That is - do you have a short-term time horizon for your retirement system to complete its business for you?

I figure that I should figure on financing my retirement till age 100 or so: prefer to run out of days before I run out of money rather than the other way around!

Does the idea of having the current value of your assets fluctuate somewhat set you to chewing fingernails/not sleeping well nights/being too crabby to live with?

Do you like to get a genuine bargain, e.g. a real discount of, say, 40%?

Stocks are on sale, lower price relatively now than for many years.

They may be on fire sale later, who knows which way the market will go over the short term? But over the long term, stocks have done about the best of any investment vehicle ... and you have, what ... a 30 year time horizon? 40 years? Even up to 50?

But I`ve been buying, periodically, and expect to continue to do so ... getting to the airport to see my flight pulling on to the tarmac (or taking off) isn't my idea of a good way to travel.

See my fuller suggestions over on the "Retirement" forum.

Good wishes for making current choices that'll please you in 10 years, that you'll be happy with, then.

ole joyful

P.S. Memo to Canadians ... most financial advisors say that *everyone* should have RRSPs.

I say that they may be useful in some situations ... but were I able to buy them now (at 80, I've not been able to for over 10 years: I'm required to remove certain minimum amounts annually now, with the percentage rising annually till 20% at age 90 and beyond), I'd be following a different path for all but dollar-denominated (i.e. guaranteed dollar) assets. On my death, they get all added into income in that year ... and taxed at top rate: no, thanks!

There are some substantial tax reductions and deferrals available when buying equities with after-tax money that one loses entirely if one puts them into an RRSP.

In low tax brackets back then ... I saved about 26% tax going in ... with higher income now, am paying about 37% now as I take the money out.

Again ... no, thanks! But I don't have an option!

Well, yes, I do - but I'm not sure that I want to follow it, big time.

o j
okwriter
17 years ago
What are you hearing from the pros about this...

I'm not sure I would trust the "pros" at this point. I don't think they know what's going to happen any more than you or I do. It's a guessing game---

Just my two cents.
Kathsgrdn
17 years ago
You haven't really lost any money unless you've taken it out. If you keep contributing you're buying it at a reduced price and when the market comes back up you will make a lot of money. I'm not an expert, though. If I wasn't saving for this upcoming trip and then getting the rest of the way out of debt I would be contributing to mine.
organic_donna
17 years ago
I think this is the best time to contribute! Stocks are on sale. I put 37% of my pay into a Roth 401K and 12% of my pay into a Roth IRA every year. I have lost about 50%. I have not changed my allocations. I have a fee only financial planner. A few months back I called and told him I couldn't take the market dropping any longer and I wanted out. He told me that would be a huge mistake. Selling in a down market and not contributing new money is not a good idea.
I'm sitting tight and waiting for the recovery.
Donna

Retirement Account contributing

Comments (9)

Chemocurl zn5b/6a Indiana

monica_pa Grieves

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