We hear a lot about the importance of starting retirement savings early, but for those that are late coming to the ‘retirement savings’ dance, what do they need to do differently? Someone asked me that very question just yesterday. The answer for the most part is nothing. Whether you start early or late the desired results are the same…dignity during retirement. Unless you are going to inherit a retirement account (or you play the lottery), dignity means saving/earning enough money so that you can retire.

I receive Dave Ramsey’s “Investing Minute” newsletter. This month, Dave dealt with this very topic. The following three points are from Dave Ramsey, not me…although I agree with them 100%.

Delay retirement for two more years.
The more you work, the more you save. According to the Center for Retirement Research at Boston College, most people who work two extra years after qualifying for retirement can lower the amount of savings they need by about 25%. Plus, the extra income will be an added bonus!

Get serious about investing.
Don’t give up. It’s time to put all you can towards your retirement. Even if you’re 40 or 50 and don’t have a retirement account, it’s never too late to start. If you are 40 and save just $2,000 a year in a 12% mutual fund, you will have nearly $334,000 by age 65—or more than $425,000 if you wait until 67 to retire! While you won’t have the most luxurious retirement, you can draw a decent yearly income—about $48,000—from the interest by leaving that money alone.

Stay out of debt!
Think of all the extra money you could be putting toward retirement if you didn’t have those car payments, student loans, and ridiculous credit cards! The average car payment is $464 a month. You could be using that $464 to build wealth for the future, rather than putting it toward a vehicle that declines in worth every day. If you’re not “gazelle intense” about paying off your debt, now is the time to get started.

So where are you? Are you starting your retirement savings early in your career? Maybe you did start early, but the downturn in the economy has taken a chunk out of your nest egg. What are you doing to correct the situation? Remember, personal finance is your responsibility. The government cannot take care of everyone. Decide today to increase your retirement savings. If you haven’t started yet, then commit to getting out of debt, fully funding an emergency fund, and then start putting away money for your retirement future.

The stock market was down a little today but over the last few months the trend has been upward. As a matter of fact, from its low on March 9, the market is up over 2000 points (not bad for three months). I don’t want to get into the reasons why in this post, but needless to say, most people are pretty happy to see the bullish movement. I can’t say for sure where the market is going over the next six months, but I can tell you what I am planning on doing.

I am going t keep doing the same thing – contributing each month whether the market is trending up or down. I have talked before about the benefits of buying in a down market, so I am going to remain consistent with that advice. The one thing that will change is the amount I am contributing into my 401k. Recently, my company decided to stop supporting the pension plan benefit, so the money that was being put into the pension plan will be redirected into my 401k simply to take advantage of the company match.

Overall, we are still maxing out our two Roth IRAs, we are still contributing to the 529′s for our children, and I will now be putting in 6% of my gross pay into a 401k. The reason I can be so calm with this situation is because I still have time on my side. I am still several years away from retirement age, and I know that the market always comes back (or at least has always has). If you are close to retirement age, then you may not be quite so comfortable. What would I do in your shoes? I would contact an professional and get some who is looking out for your best interest to give me some advice. The only person I want making decision for me is me, but I want to be armed with all of the advice that I can get my hands on before making the decision.

What about you? Where is your money going right now? Debt repayment? Saving for college or retirement? Under your mattress? In the cookie jar?

Your doctor wants to see you at least once a year just to make sure everything is in order and nothing has gotten out of balance. He (or she) will want to run some tests, analyze the results and then determine if there are any changes you need to make to your routine. If everything looks good, you will schedule another appointment, and unless something major happens, you should be good for another year.

You should apply the same “annual checkup” to your 401(k) and IRA. This has never been more true than this year. I think we can all agree that 2008 could be considered something major. If you ignore your retirement accounts at this time, and something needs to be changed, a bad situation will only be made worse. So sit down, get comfortable and review the damage that 2008 has caused.

How to evaluate the situation

Dave Kansas at WallStreeJournal.com offers 4 suggestions that will help you perform your retirement fund checkup.

1. Stay diversified – if you were heavy in stocks before 2008, you understand how a lack of diversification can hurt you. While the stock market was losing over 30% last year, most bonds actually returned a gain for the year. A good mix would have help lessen your losses.
2. Don’t double down – if you are getting matching money from your company, make sure your match isn’t in company stock. If your company goes under (think Enron) not only do you lose your paycheck, but you also lose a large percentage of your retirement account.
3. Avoid inertia – with things going south, you don’t want to let things keep going. Revisit your investment strategy and make sure your account is structure to meet your objectives. With huge losses in the stock market, you may want to restructure your balances to get things back inline with your strategy.
4. Watch your costs – When the market gives way to the Bear, every penny sucked up by fees, makes your return look even worse. Make sure you are working with your broker to minimize fees in your IRA.

Set your appointment today!

The longer you put off your annual checkup the more likely you are to find things that need immediate attention. Agree now to set aside some time this weekend, with a cup of coffee and a quite room and evaluate where you are, and where you want to be. You very likely will need to make some changes here and there, but like your doctor will tell you, you health is one of the most important things you have. Take care of it.

We teach a lot about personal finances at our church. Mainly because we know that when people have their finances under control, the other areas of their lives start falling into place. The stress at home seems to go away, the fighting over little things disappears, and kids get a lot more quality time with their parents. The whole family structure is just better when there are fewer concerns over the bank account

What the Bible says about Personal Finance

In the New Testament, Jesus spoke more about money, possessions and stewardship than any other topic. It isn’t because money is the most important thing in our lives, He spoke so much about it, because He wanted us to understand that if we could learn how to handle the pressure that money brings to the family, and channel that pressure into helping others we could be successful.

Jesus understood the dangers of materialism. Today we are bombarded on a daily basis to get more stuff. Even during this roller coaster economy, we are tempted to spend more than we make. This ‘I want it now’ lifestyle was exactly what Jesus was trying to teach us to stay away from.

Biblical Financial Principles

I am going to start a series on seven Biblical Principles that will change the way you think about money. If you take time to read these posts I know they will help you better understand who God is and how He wants you to live your financial life. I always like to credit people when I borrow ideas or material from them, so I will give credit to Russ Carroll, Lead Financial Counselor for The Lampo Group, Inc. for the following:

1. Understand God’s Ownership (Psalms 24:1)
   “The earth is the Lord’s, and all its fullness, The world and those who dwell therein.”
2. Learn to Save Money (Proverbs 21:20)
   “There is desirable treasure, And oil in the dwelling of the wise, But a foolish man squanders it.”
3. You Must Live on Less Than You Make (I Timothy 6:7-8)
   “For we brought nothing into this world, and it is certain we can carry nothing out. ⁸ And having food and clothing, with these we shall be content.”
4. There is Life After Debt (Proverbs 22:7)
   “The rich rules over the poor, And the borrower is servant to the lender.”
5. Establish an “On-Purpose” Cash Flow Plan (Luke 14:28-30)
   “For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it – ²⁹ lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, ³⁰ saying, ‘This man began to build and was not able to finish.’ ”
6. Prioritize Your Plan Around the Four Walls (I Timothy 5:8)
   “But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.”
7. Giving is the Goal to Financial Freedom (II Corinthians 9:7)
   “So let each one give as he purposes in his heart, not grudgingly or of necessity; for God loves a cheerful giver.”

Check back tomorrow as we breakdown who really owns everything you call yours.

“Pay yourself first” is a common phrase around the personal finance water cooler. The idea behind the phrase is that you must be putting away some money for savings and investing, before the entire check is allocated to other areas of your budget. Part of being able to save and invest is learning to live on less than you make. By becoming organized and living on a budget you will find the disposable income that is required for you to start putting money away for the future. I want to take a few minutes and look as some of the benefits and drawbacks to one of the best retirement options, the Roth IRA.

Benefits of the Roth IRA

There are several benefits of contributing to a Roth IRA. The greatest one is that all growth is completely tax free. If you contribute to a Roth IRA that grows to $1 million, the entire account is tax free. Another benefit is the ability to withdraw the contribution portion, but not the growth, with no penalty. The other major benefit is that there is no age requirement that specifies when you have to begin taking withdraws from the account. Unfortunately, there are also some drawbacks to the Roth.

Roth IRA Contribution and Income Restrictions

One disadvantage with the Roth IRA is that not everyone can enjoy the tax free growth. The Roth IRA has income restrictions that you cannot exceed and still be able to contribute. Below are the income restrictions for 2008 and 2009. I decided to include the 2008 numbers, because if you haven’t maxed out your 2008 Roth IRA, you can still contribute until you file your 2008 income taxes.

If you find that you meet the income guidelines for the Roth IRA, the other drawback to the Roth is the amount you can contribute each year. For 2008 and 2009, if you are under 50 you can contribute up to $5,000 in a Roth IRA. If you have a spouse you can contribute up to $5,000 each. If you are over 50 years old, you can contribute up to $6,000.

Even with the contribution limitations, the Roth IRA is still one of the best long-term investment options for almost everyone. The tax free growth is just too good to pass up. We recommend that you first invest up to the matching amount in your 401(k), but then do everything possible to max out the Roth. In just a few years, using mutual funds with a good track record, you will begin to see huge benefits of the Roth IRA.

With the downturn in the economy, a lot of companies, and not just small companies, are having to rethink the benefits they offer their employees. One of the benefits on the chopping block is 401(k) employer matching. Walter Updegrave, Money Magazine senior editor says:

As a way to reduce expenses in the face of this economic slump, a number of companies, including FedEx, GM and Motorola, have either eliminated or reduced matching contributions to their 401(k) plans recently.

If you find yourself in this situation what should you do? First, let’s review the benefits of some of the different retirement opportunities.

Retirement opportunities

1. 401(k) – Offered through your employer and usually comes with some sort of match. Often the number of options in which to invest is very limited, but the match is free money. Combined with the fact that your contributions are pre-tax, which lowers your overall tax liability, you have a pretty good investment tool.
2. Traditional IRA - Also, comes with the benefit of pre-tax contributions, but is done outside of your employer so there is no match. The upside is you can usually select from about 6,000 different mutual funds in which to invest, so you have no excuse for not feeling ‘in control’ of your money. Like the 401(k), the entire fund is tax deferred so you will be responsible for all of the taxes when you start making withdraws.
3. Roth IRA - The most restrictive of the retirement opportunities. Unlike the 401(k) and Traditional IRA, the Roth IRA uses after tax contributions. This means that you will use money that you have brought home, but the benefit is there is no taxes on any of the growth. Another difference between the Roth and the Traditional IRA is that you can withdraw the principle contributions with no penalty. However, there are income restrictions for the Roth IRA, and the contribution amount is much smaller than either the 401(k) or the Traditional IRA.

So what should you do?

If your employer stops matching your 401(k) contribution then there is really no reason to continue investing your money there. You should leave the money you have in your 401(k) right where it is, but unless you need tax deferred income, I recommend contributing to the Roth IRA up to the maximum amount. The tax free growth is just too good to pass up. You will have to be a little more disciplined because the money is actually going to be coming out of your pocket, instead of your paycheck. I would encourage you to set up an electronic payment into your Roth IRA as part of your monthly budget, that way you aren’t tempted to spend your retirement money today.

One other thing that you may want to consider is converting your 401(k) or Traditional IRA over to a Roth. The benefit is the tax free growth. The downside is you have to pay the taxes on the converted amount now. The whole conversion process is somewhat complicated so check with an investment professional if you are thinking about converting to a Roth.