Archive for July, 2015

“Mad Money” Minute Monday: Retirement Readiness According to Jim Cramer

Monday, July 13th, 2015

Retirement ReadinessToday’s blog is going to be brief, simply because the ever-brilliant Jim Cramer, the host of “Mad Money”, has managed to sum-up all of what I wanted to say on this topic. In the video below titled “The Ugly Truth About your 401k” Camer goes over helping individuals take control of their retirement, and reveals the power of a self-directed IRA and compounding in your 401k.

The article on CNBC breaks down the video like this:

“Lots of people say it’s smart to max out your 401(k) plan. Jim Cramer isn’t one of them.
It’s something the “Mad Money” host has talked about from time to time over the years, but the issue again landed front and center after a viewer sent Cramer a Tweet asking “should I max out my 401(k) or cut it back and do more in the stock market separate from my 401(k)?”

“As much as I like the tax-favored status of 401(k) plans… they can be a real mixed bag, with a couple of really great features, and a lot of bad ones, too,” Cramer replied.
And those bad features are why Cramer thinks there are better places for your retirement money.
“401(k) plans often carry fees that will eat away at your returns, year after year. Sometimes those fees are almost totally hidden from you.”

On top of that, Cramer takes issue with the number of choices offered by most 401(k) plans; they’re limited and, typically, you have little if any control over them.

Therefore, Jim Cramer believes an IRA is a better tool for retirement planning.
That’s because in an IRA you can actively manage your money by picking stocks, and Cramer believes individual investors can outperform their professional counterparts by putting money to work in five to ten stocks of companies that are well managed, leaders in their industry with solid fundadmentals and a good balance sheet.
That’s the path to prosperity that Cramer advocates so enthusiastically on “Mad Money.”

However, before you turn your back on the company 401(k) plan all together – Cramer said there is a caveat And that is, If your employer matches your contribution up to a percentage of income, then he says a 401(k) deserves your attention.
Largely that’s because the return on investment is 100% – and that’s before any return that the fund generates.

“I’m a big believer in not turning down free money,” he said.
But only put as much money into the 401(k) as your employer will match. “Then, the rest of your retirement investing should happen in your IRA,” said Cramer.”

Advantages to Investing Your Self-Directed IRA in Real Estate

Thursday, July 9th, 2015

Investing IRABefore we dive into the benefits of using your self-directed IRA to invest in real estate, we have to stress that the rules that the Internal Revenue Service has set must be followed; the tax-deferred status of your IRA account depends on it. Failure to comply with IRS rules could lead to disqualification of your IRA, and severe tax consequences.

With all of that in mind, let’s get to it!

Options

With a self-directed IRA, you can purchase:

  • Apartments, duplexes, commercial real estate, and land
  • Investment homes (single family)
  • Deeds of trust, mortgages, promissory notes

Not only are your options in what type of property, but you also have an abundance of options in finances. Real estate in an IRA can be purchased without being 100% funded through your IRA. Partnering with others and using undivided interest are popular options for funding.

Your self-directed IRA can also purchase the real estate mentioned above using financing, so long as the loan is non-recourse. If you choose to use financing, unrelated business income tax, UBIT, will apply.

Expenses

All expenses related to the property owned through your IRA must come directly out of your IRA. So improvements, property taxes, condo association fees, maintenance, general bills, all fall under expenses, so no costs concerning this real estate are paid out of pocket.

Diversification

True portfolio diversification can only be achieved if the self-directed IRA holder is wanting full financial control, and is also only really appeal to those that are willing to do a little risk-taking. This is one of the main reasons why self-directed IRA’s aren’t for everyone. However, the benefits oftentimes outweigh any drawbacks, as we talk about below.

Returns

In an article by Market Watch, they talk about specific situations and experiences that individuals have had with their own self-directed IRA. One example talks about a man named Dick Eschleman, a 73-year-old semiretired investor in Sonoma, California. “… A decade ago, he got fed up with Wall Street and dumped all of the mutual funds in his IRA. Instead, he began using the funds to make subprime loans on prefabricated houses. The switch, Eschleman says, enabled him to turn the $200,000 he started with in the account into nearly $1 million. Eschleman says his returns now average 15 % a year—even after accounting for some loans that inevitably go bad.”

Though that’s only one example of someone’s success in real estate, the brilliant thing about self-directed IRA’s is that the investment possibilities are almost endless. Making your money work for you is everyone’s end-game, and being a little creative and smart with what’s available to you will take you a long way.

Hard-Hitters: Four Tough Retirement Questions Answered

Tuesday, July 7th, 2015

adjustedretirementdate-thumb-510x349Whether you recently graduated college, or you’re just joining AARP, we all have those questions that are always at the back of our minds about retirement. No one can evade the inevitable, so why not face it square on? Retirement doesn’t have to be daunting, it’s supposed to be enjoyable, and a reward for all your hard work.
Our aim is to ease the stress you might be feeling through the power of education. These are just 4 questions that get asked the most, so let’s jump right in.

What Will The Economy Look Like When I Retire, and How Does that Affect My 401k?

The reality is that it’s nearly impossible not to stress out about the economy almost on a day-to-day basis. Regardless of the Dow Jones Industrial Average and the S&P 500 Index breaking record highs earlier this year, everyday life for Americans hasn’t appeared to reflect those high numbers.
What’s important to keep in mind is that 401k’s are long-term investments, so the economy’s health can have a multitude of effects. Since 401k accounts aren’t just made up of stocks, with the help of asset diversification, the value fluctuates, but it’s designed to stabilize your investments if the stock market takes a sudden turn for the worse.
As far as the economic forecast, and what it will look like when you hit retirement age, that’s a little more difficult to predict. But, one thing we can tell you is that according to Forbes personal finance columnist Cheryl Lock, in the next 30 years, things are looking particularly sunny for the U.S economy in that jobs are coming back to the U.S, they’re moving inland, and we’re going to be top producers in oil and agriculture once again.

How Much is Ideal, and What are the Milestones I Should be Hitting?

It’s pretty standard advice to have 10-15% of your yearly income saved every year before you retire, but what does that mean exactly? Let’s get down to the brass tax.
First of all, if you’re using an online calculator and your eyes just melted out of your head at the amount of money that you’ll need, don’t panic. One thing that that little calculator doesn’t take into account is that your income might increase as you progress in your career, or you might have opportunities down the road that allow you to boost your saving rate, like a bonus or inheritance.
There are goals that everyone, ideally those 22+ should be hitting.
Really breaking it down, some financial economists say another rule of thumb to follow is to have 1x your annual salary saved away in your 401k by the time you’re 35, including company contributions. By age 45, you should have 3x your salary saved. So say you make $100,000/yr, by 35, you should have $100,000 saved up. So by 45, that’s $300,000.

What am I Looking at for my Return on Investments?

Congruent with the previous paragraph, it’s now time to go over your rate of return on investments. Bare bones, if someone is contributing a good average of 14% of their annual income to their 401k, the average annual return is 5%, and the same rules apply for a self-directed 401k. And of course, the percentage of employer contribution ranges from 3-5% annually.
Another point we’d like to make is that not to cash out when changing jobs, because there are clearly stated penalties for early withdrawal, so you may be subject to a 10% Federal tax penalty. What should always be done is a transfer to your new company’s 401k program.

Where Should I Settle Down?

This is a big question. One obvious, and a little cliche choice is definitely Florida. Why, you ask? No state income tax, inheritance or estate tax combined with the warm weather and the low cost of living, it’s understandable that Florida has always been a favorite. While we won’t argue that Florida is an attractive option, there are also arguments to be made for places even more south-of-the-border.
According to InternationalLiving.com, places like Ecuador and Columbia are number 1 and number 2 in 2015. International Living says that even though real estate prices have risen some in Ecuador in the last few years, you’ll still get the most bang for your buck than almost anywhere else. Ecuador’s government, in a smart attempt to become more appealing to retirees, has rolled out a very generous array of benefits including 50% off entry to sporting events and movies, discounts on public transport, and discount flights originating in Ecuador.

By this point, all of your hard-hitting questions should be answered, so now, all you have to do is figure out what kind of cake will be served at your retirement party.