My annual conference is now over, I made roughly $4k and one of my upcoming new pre-order the DVD/manual HERE and save 50% offstudents made $9,800 during the live trading day, but you can
Another great guest post from one very ambitiousstudent:
I saw this post by Robert Klein at Marketwatch and had to repost it. So many people think that simply contributing to your basic retirement plan will be more than enough to get you through your years of retired life. Think again.
Take all of this into account when you think Tim and other gurus are crazy for trying to make a living by trading in the stock market. They will have more than enough saved up to live in the years after they are trading, and you probably won’t.
Here is the article, with some additional commentary from me:
The good news-Whether it’s a 401(k) plan, 403(b) plan, traditional IRA, Roth IRA, SEP-IRA, etc., these plans allow employers, employees, and, in some cases, employees’ spouses, to set aside funds earmarked for retirement. And while there are different eligibility rules, contribution limits, income tax incentives, and compliance requirements associated with each type of plan, all of them provide us with a tax-favored way to accumulate funds for retirement that we might not do otherwise.
The bad news-Retirement plans generally aren’t sufficient to meet most individual’s financial needs for the duration of their retirement years. Projected longer life expectancies don’t make this situation any easier. While Social Security helps soften the blow, it doesn’t solve the problem in most cases.
This should make you ask, why aren’t they enough? Shouldn’t “retirement plans” be able to let us live somewhat comfortably during retirement?
These are the 10 reasons Klein gives us:
1. Most plans aren’t designed to provide sustainable retirement income. There’s a major disconnect when it comes to IRS-blessed retirement plan choices and our retirement funding needs. During our working years, we pay our expenses from employment income. When we retire, we still require a dependable, sustainable source of income to cover our expenses. Unfortunately, with the exception of one type of plan, that is, a defined benefit plan, the majority of retirement plan types today aren’t designed to provide us with lifetime income.
2. Unable to count on a specific amount of income. No matter how many times you add it up …
given the fact that fewer and fewer individuals are participants in defined-benefit plans, it’s become the norm that most people are unable to count on a specific amount of income they will receive from their retirement plans.
As a retirement income planner, I can run income projections for a client’s 401(k) plan until I’m blue in the face; however, the fact of the matter is that the resulting amounts are projections, and not actual amounts, of income that my client will receive. There are too many variables that will affect the future value of a 401(k) plan and the associated amount of sustainable income that my client will ultimately receive from his/her plan. These variables include continued employment, annual salary and bonuses, IRS-defined annual contribution limits, employee contribution percentages or amounts, employer matching contributions, investment choices, investment performance, loans, loan repayments, and potential transfers from other 401(k) and IRA plans. That’s a lot of stuff to take into account!
3. Lack of uniform contribution amounts. Assuming that you’re a participant in a defined contribution plan, there’s no uniform allowable annual contribution amount. The amount of contribution that your employer or you may make to your plan is dependent upon the type of plan.
4. Limited allowable contribution amounts. In addition to lack of uniformity, your ability to fund your retirement solely with defined contribution plans is further constrained by the contribution limits of the type of plan(s) in which you participate. If you’re not self-employed or if your employer doesn’t offer a 401(k), 403(b), 457, or SIMPLE plan, your default retirement plan choice is a traditional IRA unless your income is less than specified levels ($112,000 if single or $178,000 if married filing joint), then you may choose instead to contribute to a Roth IRA. Even if you make maximum contributions to a retirement plan year after year, it can be difficult to accumulate a sufficient nest egg to cover your retirement needs. With current contribution limits of $5,500 or $6,500 if age 50 or older for both traditional and Roth IRA’s, you will be challenged to accumulate sufficient funds to match your expense needs for the duration of your retirement if this is your only retirement plan option during your working years.
5. Real value of retirement plans is insufficient to cover retirement expenses. When doing retirement income planning, you need to calculate the real value of your projected assets. This is especially important when it comes to retirement plans. The real value of an asset is its nominal or stated value, reduced by income taxes and inflation. The best way to illustrate this concept is with an example. Let’s assume that your employer doesn’t offer a 401(k) plan. You decide to invest in a traditional IRA. In a best-case scenario, assuming that you’re 25 years old today, you make maximum allowable contributions on Jan. 1 each year until age 65, contribution limits increase by $500 every five years, and your IRA earns 4% each year, it will be worth approximately $700,000 at age 65. Assuming a 20% combined federal and state tax bracket, which is on the low side, the after-tax value of your IRA would be $560,000. Factor in 3% annual inflation and the after-tax value of your IRA in today’s dollars shrinks to a real value of approximately $167,000. How far will this plus Social Security take you? Unless you live in the middle of nowhere, not very.
6. Most people don’t contribute enough. Despite the fact that savings in qualified accounts likely won’t be enough to cover retirement even with maximum allowable contributions — most people don’t contribute enough in any event.
7. Most people don’t start early enough. Retirement planning isn’t a priority for most people in their 20s and 30s. This is the time when other financial goals take precedence, including buying a first house and saving for children’s education. Consequently, even when 401(k) plans are offered, many younger employees make minimal contributions or choose not to participate. This is common despite the tax deduction available for non-Roth 401(k) plan contributions.
8. Number of funding vs. retirement years. Many individuals are going to be spending as many, if not more, years in retirement than the number of years that they will contribute to retirement plans. Given the fact that retirement may last 30 or more years, there’s a good possibility that the number of years you spend in retirement will equal or exceed the number of years that you fund your retirement.
9. Retirement plan investing is disrupted in down markets. As is well-known and well-documented, our emotions override logic when it comes to investing. People get scared in down markets and do the opposite of what they should be doing. Retirement plan investing is no exception. Even though the stock market is on sale in a bear market, it isn’t unusual for investors to do two things that disrupt their retirement planning. The first thing is reducing or suspending retirement plan contributions. The second thing many retirement plan investors do in down markets is changing their standard investment allocation by transferring funds and/or changing future allocations from equities to fixed income and money-market funds.
10. Premature withdrawals. Retirement plan funds are sacred. With their tax-deferred or tax-free status in the case of Roth IRA’s, they’re generally, although not always, the last source of funds that should be tapped. Any time that funds are withdrawn from retirement plans when there are other assets available is a potential lost opportunity to further grow those assets on a tax-deferred or tax-free basis. This is true unless the withdrawal must be made as is the case with a required minimum distribution, or “RMD,” or if the withdrawal can be made without incurring any, or minimal, income tax liability.