By The Courier-Post
Stanley Molotsky has been in the financial advising business since 1958, well before the invention of things like 401(k) plans, and before corporate pension plans became an endangered species and banks became too big to fail.
With that much experience behind him, he knows one thing is certain: You never know what's going to happen next.
"It's going to be much harder for this generation - 25 to 50 - to get to (retirement) because of the economy," said Molotsky, president and CEO of SHM Financial Group with offices in Collingswood, Voorhees and Lakehurst. "It's going to get more complex."
But take heart. While every person's situation is different, Molotsky explained, there are a few useful guidelines and rules of thumb.
Careful financial management can set you on the right path toward a comfortable retirement.
1. Start saving right now. "The problem most people have is there is no plan," said Molotsky. "The sooner you can start with a plan, the better off you're going to be."
Pay yourself before you pay anyone else. Take a percentage of what you make and put it away. If you think you can't afford it, think again.
"You have to, have to, have to do that," Molotsky said. "It's critical, especially with changes coming to Social Security and all the different non-retirement benefits that people don't have anymore."
If you already have a portion of your pay diverted into a 401(k) plan, be sure to save even more for an emergency fund, in case of unemployment or a health crisis.
Some guidelines suggest keeping three to four months' salary within easy reach; or perhaps even up to a year's salary. Look for the highest interest rate you can find for a savings account or a certificate of deposit. Though the interest rates are low, it's better than turning to a credit card when an emergency strikes.
2. Delay retirement as long as you can. Expect less help from Social Security in the future, and plan accordingly.
"People are living longer and are going to have to work longer in order to have that pile of money," Molotsky explained.
3. Do your homework, and find out what investment vehicles are available. A financial adviser can help sort through the possibilities.
"You have to educate yourself as much as possible," Molotsky said. "For us in this business, we've never been busier, because people are concerned, confused, and it's understandably so."
4. Read the fine print. Your company's 401(k) plan might not be delivering the best available returns on your investments, especially if it's a smaller employer.
If your company doesn't match your contributions to its 401(k) plan, consider saving that cash in your own Individual Retirement Account (or IRA), said Molotsky. That is, "if you should even take the deduction, based on your tax bracket."
When it comes time for retirement, many people are taxed at higher rates as they start to withdraw their savings.
Young income-earners in moderate or low tax brackets may want to pay taxes on that money now, and consider a Roth IRA. The principal won't be taxed when they withdraw it, and after five years, the interest accumulated on those savings can also be withdrawn tax-free.
Worried about looming tax hikes? Some people may want to withdraw part of their IRAs and take the tax hit now, and divert that money into a Roth IRA, where it can continue to grow without pushing a future retiree into a higher tax bracket.
5. Be aware of your credit score. You're entitled to a free report from each credit reporting agency each year, so ask for a report from a different agency every three months to four months. (This way, you can also quickly catch and clear up any mistakes on your report.)
The higher the credit score, the lower your interest rate will be when you need to take out a mortgage or refinance.
Keep your bills paid on time and lower your debt. Spend less than you can afford, and have the discipline to pay off your credit card bill each month so you avoid paying those high interest rates.
6. Be very careful when you borrow or cosign for a loan.
Student loans aren't canceled out if a graduate declares bankruptcy, and if parents or grandparents co-signed for that loan, they'll be on the hook for it.
When grandparents ask how they can help pay for college, Molotsky suggests giving the money directly to the school instead of cosigning for a loan. There is no gift tax on the payment, it doesn't hurt a parent's ability to borrow and grandparents avoid problems down the road.
"It makes so much more sense," he said.
7. Diversify your investments, so you can spread out the risk.
How to know what's best? Well, said Molotsky, that's a crapshoot. But here's a basic guideline. Subtract your age from 110, and that's the percentage you can invest in stock-related vehicles. Put the balance in less risky things like bonds.
8. Know who you're dealing with, and what fees you're paying.
If you're working with a broker, it's critical to know how long the person has been a broker and how the person gets compensated.
If you're putting money into a mutual fund, choose no-load funds, so you don't have to pay the management fees.
If you have a 401(k) plan, know what fees are being charged and consider other options. If you're not happy with the fees, ask your human resource department if you can make an "in-service withdrawal."
"If it does, seriously consider withdrawing 90 percent of the 401(k) plan and rolling it over into a self-directed IRA plan," said Molotsky. Then, every year or so, scoop out the money accumulating in your 401(k) plan and roll it into your IRA plan.
Because every little bit counts.