Retirement Planning Fundamentals
Catch-up retirement savings options for those who got a late start
Entering your 40s or 50s and behind in your retirement planning goals? Don’t fret. You’ve still got time to get your financial plan back on track.
Strategies for investment success
You can potentially reduce your investment risk and increase your chances of meeting your investment goals by strategically allocating your investments among each of the major asset classes based on your unique financial goals, risk tolerance, and time horizon.
Rebalancing and reevaluating your retirement goals
Conducting an annual review of your retirement goals and strategy is a great way to help ensure that your plans for your financial future remain realistic and on track.
Stock Investment Basics
Stock represents ownership of a company. If a company is privately held, then its stock may be owned by only a few individuals and is not available for purchase by the public. If a company is publicly held, then its stock can be purchased through stockbrokers by individual investors and institutions alike. Corporations can issue different types of stock, but the most typical is common stock.
By investing in stock, you stake a claim in the future of that company and all the potential investment return that it may bring. With potential reward, however, you also have all the risks associated with owning a company. If a company is forced to liquidate, it is first obligated to pay its creditors, bondholders and those who hold preferred stock (a limited issue stock that does not hold voting rights), before those who own common stock.
As a shareholder of common stock, you have voting rights on issues such as election of a board of directors and other important issues affecting the direction of the company.
Shareholders may also receive dividends, which are paid to shareholders from the company’s earnings. The amount of the dividend is decided by the board of directors, and is based on what portion of earnings needs to be reinvested in the growth of the company and what portion can be distributed to shareholders.
Stocks carry higher investment risks than bonds or money market investments, but they also have historically realized higher rates of return over longer holding periods (see chart). While past performance doesn’t guarantee future results, the higher return potential of stocks can make them suitable investments for long-term investors seeking to build the value of their portfolios or to stay ahead of inflation. Both of these objectives are critical to investors with specific long-term goals in mind, such as saving for retirement.
Ways of Categorizing Stock Investments
Size of Company
Stocks of companies that are forecasted to increase earnings by 15% or more per year. Of course, there is no guarantee that this objective will be met.
Stocks of companies that are priced near their asset value (with no growth in earnings assumed) are called value stocks. They may or may not be bargains, however, depending on whether their prices subsequently recover.
Stocks of companies headquartered outside the United States in industrialized countries.
Stocks of companies headquartered in underdeveloped, fast-growing countries
Type of industry, such as technology, energy, or cyclicals.
Average Annual Rates Of Return
After years of saving and investing, you are finally getting ready to enjoy the benefit of your planning and hard work. But there are still decisions that need to be made.
Saving For Education:
Your child’s education may be one of the most meaningful investments you’ll ever make. As with any investment, starting early and planning carefully can really pay off. 529 Plans For College
Will I be penalized if the money in my 529 plan isn’t used for college expenses?
If you use the money for any other purpose, the earnings portion of the distribution will be taxable on your federal (and possibly state) income tax return in the year of the distribution. Also, you generally must pay a 10% federal penalty on the earnings portion of your distribution. There are a couple of exceptions. The penalty is usually not charged if you terminate the account because your beneficiary has died or become disabled, or if you withdraw funds not needed for college because your beneficiary has received a scholarship.
Bear in mind that the “distributee” is the one subject to tax. (The distributee is the person who actually receives the money from the 529 plan.) In most situations, this will be the account owner. So, if you fund a college savings plan for your son, for example, and withdraw the money three years later (before he reaches college age), you will be the one taxed and penalized. However, some plans specify who the distributee is, while others allow the account owner to determine the recipient of a nonqualified withdrawal.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.