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Retirement Investing - Protecting Your Investments - What The Bible Says

November 12th, 2006 by Papabear

Today is Sunday, so let’s take a little time to talk about a different kind of strategy for retirement investing.  This post may seem like it’s just for Christians.  Maybe it is.  But the principle of doing all you can to protect your retirement investments applies for everyone.

Regardless of where you are investing and what type of retirement savings plan you have, you need to take steps to protect those investments.  This is especially important as we get older.  We could always write off a bad investment and start over when we were young.  It wasn’t a lot of fun to see an investment we had high hopes for go down the drain, but sometimes it happens.  When we’re older though, we know we have to be very careful where our money is invested, to try to minimize risk.

Christians have an advantage, however, when it comes to investments or at least to peace of mind.  The Bible says:

The thief does not come except to steal, and to kill, and to destroy. John 10:10

This post is too short to get into involved in a debate on whether God really wants His children to prosper financially as well as spiritually. I think he does.  Maybe we’ll look at that another time.   For now, most Christians accept that the Devil does not want Christians to prosper.  We can then can look at what the Bible says about protecting ourselves from the thief and how to stop him from stealing from us.

The Bible compares investing to planting a seed.  For example:

As long as the earth endures, seedtime and harvest, cold and heat, summer and winter, day and night will never cease.”  Gen. 8:22

When a farmer plants a crop, he does not just go away and leave the crop unprotected until it is time for harvest.  He watches his crop to make sure it gets adequate nutrients and enough water.  If insects attack the crop, he fights back before they can devourer the crop.  For Christians, the Bible says:

And I will rebuke the devourer for your sakes, So that he will not destroy the fruit of your ground, nor shall the vine fail to bear fruit for you in the field, says the Lord of hosts.  Malachi 3:11

The same principle applies here to protecting our financial crops.  Of course, God is our ultimate source – not a special set of financial investments we have made.  If all our investments were wiped out, God could find another way to supply our needs.

Bet let’s start with what we know best – the investments we have been involved in.  If you’re a Christian, you can accept and appropriate God’s protection on your crop (based on the promise in Malachi) and pray that the devourer (Satan) stays away from your crop (your investments).

I know this may be a little radical for some of you Christians out there.  But we are also told:
Bless the LORD, O my soul, and forget not all His benefits.  Ps. 103:2

The promise in Malachi 3:11 is a tremendous benefit, if we have the faith to receive it.  Let’s be bold enough to acknowledge that we have been given this promise and to accept it.

For you non-Christians and skeptics out there who are reading this, you probably won’t think today’s post fits in the usual practical advice on retirement investing and retirement savings accounts you see on this blog.  Feel free to post a comment or to just ignore today’s post.  It’s not really for you.  But for the Christians out there, this is one of most practical pieces of advice you’re likely to read on retirement investing.

Let us remember to “forget not His benefits”.

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    Retirement Investing - Which Self-Employed Plan Is Best For A Growing Business

    November 11th, 2006 by Papabear

    As I’ve said before, choosing the right retirement investing plan for yourself can be a pain in the neck, and a decision you probably shouldn’t make on your own, due to the tax implications as well as the need to determine what’s financially best for you in your situation.

    While choosing a retirement investment plan might be fairly easy if you have a sole proprietorship that brings in a limited amount of income, the more successful your small business is, the more choices become available and the more variables you must consider which will affect your decision.

    For example, you may have incorporated your business, you could have employees, or you could be making an awful lot of money (don’t we wish!). You could also have a job, in addition to your business, or be over 50. All these variables, plus more, can significantly affect what self-employed retirement investing plan is best for you.

    For the self-employed, Keogh plans are the equivalent of big time corporate retirement plans, like the pension plans our parents counted on. Keogh’s can be set up either as profit-sharing plans or defined benefit pension plans

    Annual contributions to a Keogh profit-sharing plan are based on a percentage of your self-employment income (or the salary you make as an employee of your own corporation) with a $44,000 cap on contributions.

    On the other hand, if you choose a defined benefit pension plan, your contributions are based on your targeted retirement benefit. For example, if your goal is to get a $50,000 a year pension, your contributions will be based on what it will take to achieve that goal, including your income, your age, and the assumed return on your investments. (You can have a Keogh set up to give you as much as $175,000 a year.)

    However, because you have a targeted goal, you have to contribute whatever it will take to achieve that goal. If you have a bad year, your contribution won’t decrease, no matter the effect on your income. The upside is that, if you haven’t done much retirement financial planning, are getting closer to retirement age, and are making really good money, the Keogh can be a way to catch up fast because it allows you to contribute so very much more to your retirement than any other retirement program.

    Do keep in mind, though, that should you choose a Keogh and have employees, you will have to make contributions for them as well, which may affect the amount you’ll be able to set aside for yourself. So make sure you get professional advice before making your retirement investment planning choice.

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    Retirement Investing - Which Self-Employed Retirement Plan Is Best For You

    November 10th, 2006 by Papabear

    When you’re self-employed, choosing the right retirement plan for yourself can be a real pain in the neck. You want to choose the retirement investing plan that brings you the best benefits with the least costs, both financial and in paperwork.

    People with small or significantly variable self-employment earnings may be better off looking at retirement investment plans that also allow them the flexibility of whether or not to make a contribution at any given time.

    For self-employed people in that situation, the best choices include SEPs and self-employed 401(k) plans.

    A SEP (Simplified Employee Pension) lets you contribute up to 20% of your self-employment income (and that percentage increases to 25% of your salary if you’re an employee of your own corporation), up to a current maximum of $44,000 a year.

    If you have employees, you can still have a SEP, and you can set up a SEP any time up to the time you file your taxes. In addition, you can vary the amount of contribution as needed since you are not locked into a specific contribution amount or percentage. This obviously can be a big plus if your income fluctuates

    However, if you make a contribution for yourself, you have to make it for all your employees. Also, be aware that you can’t take out loans against your SEP.

    On the other hand, a self-employed 401(k) plan - also called a solo and individual 401(k) - does allow loans to be taken out against it. Indeed, you can transfer your IRAs, regular 401(k), or any other pretax-retirement funds, whatever the amount, to your self-employed 401(k) account and then borrow from it.

    However, self-employed 401(k) plans are only available if you have no employees, although they can be used for multiple owners, as well as for spouses who are employees.

    Like the SEP, a self-employed 401(k) plan also allows annual contributions of up to $44,000. (By the way, maximum contributions for both SEP’s and self-employed 401(k)s can be affected by whether or not you participate in any other retirement plan. Check with your retirement investment planner or tax advisor before making your decision.)

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    Retirement Investing - Yes You Can Retire From Your Own Job

    November 9th, 2006 by Papabear

    A lot of times, people who are self-employed are so busy running a business, they don’t stop to think about retirement investing and financial planning. If they think about it at all, they may think the business will continue to bring them income after they retire. Or they think in terms of selling the business eventually and using that money to fund their retirement. Or perhaps their business is simply so dependent on what they themselves do, such as freelance writing, that retirement simply doesn’t seem to be an option, so they hardly think about retirement investing and their business at all.

    However, there are many tax-free self-employed retirement plan options available nowadays. For example:

    Simplified employee pensions (SEP) let you contribute…and deduct…up to 20% of your self-employment earnings (25% if you’re an employee of your own corporation), up to $44,000 a year.

    Keogh plans are a lot more elaborate, and can be either profit sharing or defined benefit pension plans. Keogh’s also allow tax-free contributions up to $44,000 a year for the profit-sharing option. Defined pension plan contributions have to be determined by an actuary and depend on your income, your target benefit (which can be up to $175,000 a year!), the number of years until your retirement and the anticipated investment returns. Obviously Keogh’s are more expensive to administer than other options.

    An individual 401(k) plan lets you contribute up to 100% of the first $15,000 of your annual self-employment earnings/income (up $20,000 if you’ll be 50+ by the end of the year). In addition, you can also contribute and deduct another 25% of your salary (if you’re an employee of your own corporation) or 20% of your self-employment income.

    And…if you want to put aside a little bit more and are willing to pay taxes now, rather than later, there’s always the Roth IRA in addition to whatever tax-free or tax deferred plan you’ve decided on. You’ll have to pay taxes on your Roth contributions, but your earnings will be tax-free! And, yes, you’ll only be able to contribute up to $4,000 a year ($8,000 if you’re married or $5,000/$9,000 if you’re 50+), but a Roth allows you to add to your retirement investing, and you’ll be able to withdraw all that Roth money when you retire and won’t have to pay a cent in taxes.

    Not preparing for retirement when you’re self-employed is like not planning to pay the bills for your business. Sure, you can do it. But why? Think of all the trouble you’ll make for yourself. And just like all the other things you know you need to do for your business, the key is to get started as soon as possible.

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    Retirement Investing - Borrowing From Your 401k - Part 3

    November 2nd, 2006 by Papabear

    So far we’ve discussed 4 reasons borrowing from your 401k account might be a good idea and 2 reasons to reconsider. Today we’ll finish out the 8 things to consider with 2 more reasons you might not want to borrow:

    7. A home equity loan may be a better solution from your particular situation. Most states, with the notable exception of Texas, where I live, have made setting up a home equity line of credit simple. If you have enough equity in your house, and you have a good credit rating, you should consider a home equity loan. Unlike a loan from your retirement account, the interest you pay on a home equity loan is usually tax deductible.

    8. There may also be special deals available that are better than a loan from your 401k account or a home equity loan. For example, at the time this is being written, several car companies are offering 0% financing for up to 60 months. If you qualify, this is a much better way to finance a new car that borrowing from your 401k account or using a home equity line of credit to buy a new car.

    In conclusion, everyone’s situation is a little different. When you’re talking about $1,000’s of dollars and the impact of tax laws, it’s always best to get professional advice from an accountant or tax attorney. It may cost you $100 to $200 for a simple consultation, but it will be money well spent to find out what’s right for you and your situation.

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