401(k) Allocation Review

When the stock market takes a down turn, what should be done
with the allocations in my 401(k) to keep from loosing money?

By the time you receive the quarterly report showing the account
has lost money, it is probably too late to take any adjustments.

There are several steps that can be taken to reduce the loss in a
down market. The overall strategy is to buy low and sell high.
Changing allocations after the money has been lost will prevent
receiving the gain when the market turns around.

When you watch the evening news, make note of the Federal
Reserve prime interest rate, the change in the S&P 500, and the
trend of the stock market, up or down .

The prime interest rate shows what is going to happen short
term. Interest rates going up, stock market/bond market
going down, and economy slowing down.

This is the time to decide what action needs to be taken. The
closer you are to retirement will determine the action that needs
to be taken.

The investment company who is the fiduciary for you retirement
plan (401(k),403(b), 408 (a), or 457 Deferred Compensation will
change allocations per your instructions. Their income is made
managing the funds in the different variable accounts. It the
future retiree’s responsibility to keep track of the allocations
to minimize the loss in a down market.

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Retirement Day

The magic time has arrived. Your old enough to stop working and retire which is defined when you have time, money and health. The amount of benefit is hard to pin down. There are defined benefit plans(union plans, government pensions), 401 (k), ESOP, and 403 (b) just to name a few.

401 (k) retirement plan for profit making companies are a combination of your money and employer matching money which says you can have all the money usually after five years of employment. You should transfer the balance to your own IRA , either an annuity or mutual fund and make withdrawals as needed. All withdrawals are taxable.

(E) ployee (S)tock (O)ption (Trust) is a retirement plan based on length of employment, position, and profits of the company. Your balance of the trust is available when you stop working and should be rolled over into your own investment account. All withdrawals are taxable.

403 (b) retirement plan for non-profit companies which in most cases the contributions are made by the employee by payroll deduction but can have matching fund from the employer. The withdrawals are all taxable and are usually in the investment vehicle chosen by you and is fully vested from the beginning.

Define benefit plans are calculated by the pension plans to determined you monthly payment.The usual scenario is the human resources department or pension trustee will call you into the office and ask you what option you want to take? So you ask yourself, what is he/she talking about? (1) Life income option is the maximum amount and you will receive this amount for your life then it ends. (2) Life with 50% survivor which means you will receive a lessor amount but your spouse will receive half that amount for the spouse's life then is ends. (3)Life and 75% survivor which is a lessor amount now and 75% for spouse for life. These are the most common choices. Some of these plans have cost of living adjustments but usually only on governmental plans.

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2008 Economy Stimulus Package

The stimulus package has passed the Congress and has received President Bush's signature. It is estimated that $120 billion will be put in the hand of taxpayers with income below $75,000 for individuals -$600, $150,000 for couples-$1200, per child $300. For those seniors who did not file a tax return but have an income of $3000 or more (including social security, railroad retirement and certain veteran's benefits) $300. The later being dependent on how well the IRS Social Security, Railroad Retirement and Veteran Administration share information.

This tax rebate minus administrative overhead, fraud, and complexity will put about half of the $120 billion into the economy. The rest will be used to pay of personal debt. An additional $50 billion will be used to give incentives for business to purchase equipment.

The Laffer Curve shows what happens when taxes are to high, revenue declines. The politicians do not want to cut tax rates because they say it would reduce tax revenue and would take away some of their power. If this is a tax rebate being used to be an economy stimulus, would this not be the same as a tax rate reduction leaving money in the pockets of tax payers to stimulate the economy?

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Retirement Plan Account Fund Allocations

The Federal Reserve Bank has lower the prime interest rate from 4.25% to 3.5% in two steps to try and get head off a predicted recession. This will cause interest rates to reduce and will influence the upward movement of the stock market.

If you moved the balance of your account to money market when rates were increased, watch the market, indexes, and Dow Industrial Average to determined when to get back into the market.

In 401 (k) accounts your contribution is matched by the employer (example: by 50% up to 5% of your wages or salary). Not all employees have a 401 (k), but if you do sign up now. Where can you get a 50% return without risk. Thirty per cent of employees that have a 401 (k) do not participate. Your contribution is before income taxes but is subject to Social Security and Medicare taxes.

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