Retirement Plan News

July 1, 2008

Answers You Are Looking For

  • Will the economy ruin your retirement?
  • Will you retire rich?
  • Will you sacrifice your future?
  • What’s the latest on Social Security?

With the information provided below, we hope to help you find answers to these questions.

When we think about what’s happened to the price of gas and food, housing foreclosures, the drop in housing prices, the decrease in lenders giving credit on credit cards or student loans, the drop in the stock market and low interest rates on fixed income investments (like C.D.’s), it’s no wonder people are expecting this economy will ruin them. If you make emotional retirement investment decisions based on current events, you may ruin your retirement by decreasing your potential retirement account balance.

Studies have shown that the individual investor’s return is about 2% lower than the performance of the average investment fund. (If your return was 6.5% instead of 8.5% on a $50,000 investment for 20 years, you would have $79,400 less.) Why does this happen? Predicting the short-term direction of the stock market is nearly impossible. For most people, money is an “emotional thing.” People are bombarded with information that affects their money, which triggers emotional financial decisions - for example, trying to time the market by moving into stock investments when things appear to be going up, or out of stock investments when things appear to be going down. In order not to ruin your retirement, you need to avoid this behavior. How? Don’t make emotional investment decisions. If necessary, stop paying attention to those financial advisors offering daily advice on what you should do now, or stop looking at your account balance on the internet weekly (or daily). If you are stressed by stock market decreases and lie awake worrying about it, you should stay away from stock investments permanently. To be successful in stock market investing, you’ll need to handle short-term pain for long-term gain.

On a final note about the current economy’s affect on your investments – the stock market hit a 2008 low on March 10 (down about 10%) but has since done much better as it appears the economy may not be as bad as originally predicted or is it (stocks lost 3% today)?

Will you retire rich? It depends on whether you are a “saver”. A saver will delay current gratification and plan for the future. They will spend less than they earn and invest the rest. They will cut out the lattes and either get their coffee from home or work. They will bring their lunch to work and avoid $10 restaurant sandwiches. They’ll find a way to drive more efficiently and they will take advantage of their employer’s 401(k) plan. They realize that long-term saving and investing will make them wealthy some day, and yes, they will retire rich. What would they do with their stimulus rebate check? I think the answer is invest it or pay down debt, not buy a flat panel TV. Save early for a wealthy retirement.

MONTHLY SAVINGS REQUIRED TO ATTAIN CAPITAL AT 6%
Desired amount at age 65 $200,000 $300,000 $500,000 $1 Million
25$102$153$254$508
30$142$212$353$706
35 $199 $299$498$995
40$287$430$717$1,433
45$428$642$1,069$2,138
50$676$1,014$1,689$3,378
55$1,193$1,790$2,983$5,965

Sacrifice the future? There is a limited opportunity to save for retirement during one’s working career through an employer’s 401(k) plan or IRA. Once started, you should continue to grow those monies until needed in retirement. Given the current economy, more plan participants have begun raiding their 401(k) accounts. For them, it seems to be a good idea to get cash through a loan or hardship from the plan. This should be done only if absolutely necessary to meet basic living requirements – but, it could have serious consequences on the quality of retirement. In a study by the Bureau of Labor Statistics from 1979-2005, baby boomers held an average of 10.5 jobs between ages 18-40. With a 401(k) plan, these job changes represented an opportunity to cash out their accounts. In one study, 45% did just that. That decision could have serious consequences in retirement. It is sound financial practice to keep these monies in a retirement account unless there is a critical need.

Social Security? The latest Social Security and Medicare Trustees Report was issued in March 2008. While the Social Security System will not run out of money until 2041, Medicare will be bankrupt by 2019. Given this news along with the average retirement account of 45-60 years olds is $141,000 (which could provide for a yearly annuity benefit of $12,000), it makes you wonder what will happen to retirees who do not plan for retirement?

Helping Out: Our job is to make sure you understand how to get the most out of your plan. We can help with your investment choices and answer your questions on how the plan works. Give us a call.

Remember - investment changes or current account values can be obtained through our website at www.gsb.com. If you would prefer to speak to an Employee Benefits Representative, please call 1-888-729-8787 during business hours. Also remember, if you want to make an investment change, there are TWO types of monies to change: future contributions and existing balances.

If you have any questions, please call Terry Richter (847) 832-0958 or Ed Morris (847) 832-0313. Or for investment insights call one of the "investment guys":