One of the most important things we can do to stay healthy, as we get older, is to control our weight. Most of us know that, but most of us also fall victim to “middle-age creep”, as the pounds creep on a pound or two every year, after we reach middle age.

Now a recent study from the University of Pittsburgh says that walking can go a long way in helping to control that extra weight. Researchers studied 3 groups of people. The first group was given general guidelines for exercise, which included moderate daily activity for 30 minutes a day. The second group was told to be active for about 30 minutes a day, plus they were given weekly classes on the importance of exercising. The third group was told to exercise 45 to 60 minutes a day, and they were given behavior modifications classes.

All of the study participants were told to eat a healthy diet but not to restrict the number of calories they ate. About 75% of all the participants chose to use walking for their exercise.

The results after 18 months? Averaged over the 3 groups, 40% of the folks in the study gained weight, about 7 pounds on average. These were primarily those people who did not exercise regularly. 60% lost weight, once again about 7 pounds. These were exclusively those who engaged in physical activity for about 40 minutes 5 to 7 days a week. That’s a 14 pound difference between the two groups, almost all attributable to exercise, primarily walking.

In another study, researchers at the University of North Carolina analyzed data on about 5,000 young adults over 15 years. They found that those who walked at least 2 hours each week gained about 9 pounds less than those who did not.

The results of these two studies are very clear. Time spent walking, or any other aerobic physical activity, is a very good retirement investment. It’s also a good investment of our time before we retirement so that we can stay healthy going into the retirement years.

exercise

healthy diet

importance of exercising

investing for retirement

investing money

investment plan

physical activity

retirement investing

retirement investment plan

Retirement Living

retirement investment

walking

5. As the old saying goes “some restrictions apply.” Our friends in Congress and the IRS don’t want this to be too good a deal, even if it’s our own money. After all, Congress thinks they did us a really big favor with 401k accounts by making it easier to save for retirement. Maybe they did, but like many good deals, this one comes with strings attached. First there’s the $50,000 limit. Even if your have $200,000 in your 401k account, and the general rule is you can borrow up to 50% of your 401k account balance, you are limited to borrowing $50,000 at any one time. In addition most plans usually limit the number of loans you can have at any one time to 1 or 2. For example, if you borrow 50% of your 401k account balance of $50,000 on a 5 year loan, and the $25,000 left in your account triples over the next 3 years from savings and increases in the value of the investment to $75,000, you cannot borrow another $37,500. First you are limited to a total outstanding balance of $50,000. Second, if your plan restricts you to 1 loan at a time, you will not be about the borrow 50% of the new value in your account until the first loan is paid off. Even if your plan allows for 2 loans at a time, most plans have another restriction that says the amount you can borrow on the second loan will be reduced by the highest outstanding balance on the first loan during the previous 12 months.

6. If you switch to a new company, you may have to pay off your loan immediately. In many cases, this can be avoided by rolling over your 401k account, but if you can’t do that, the outstanding balance of your loan will be considered an “early distribution” from you retirement savings account and will be deducted from what you have available. You won’t have to pay the money back, but you will have to pay taxes on the balance of the loan as ordinary income. And if you’re less than 59 ½ yeas old, you will also have to pay a 10% early withdrawal penalty.

Thinking about paying extra taxes is stressful, so we’ll end here today. Tomorrow, I’ll post 2 other reasons to think twice about borrowing against your retirement account.

401k

advice for retirement investing

borrowing from your 401k

early distribution

investing for retirement

loan

ordinary income

personal retirement account

retirement investing

retirement investment plan

retirement investments

Retirement Living

retirement savings account

Tax Deferred Plans

Most of us have our 401k account or IRA in a plan that allows us to borrow a portion of the money. This can be a great idea and a ready source of money, but there are positives and negatives to borrowing from your retirement savings account. Here’s a list of 8 things to consider before taking out a loan from your retirement account. Since the list is long, I’ll post it over 4 days. Let’s start with 4 good reasons:

1. Most plans allow you to borrow up to 50% of the vested balance in your account, up to $50,000.

2. Interest rates are usually competitive and are often lower than your could get from a bank on a signature loan. Borrowing your own money is not technically a signature loan, because you are pledging the money in the account to back up the loan, but because it’s so quick and simple, it’s more like getting a signature loan on a note at the bank than the longer process of pledging assets for a loan guarantee.

3. Because your are borrowing your own money, you don’t have to “qualify” for a loan, like you would for a signature or other loan from a bank, so you don’t have to worry about your credit rating.

4. Since you’re borrowing your own money, the interest you pay on the loan goes back into your own pocket and not the banker’s, since it goes into your account. If your 401k account is primarily invested in your company stock or even in a mutual fund that has a low or falling rate of return at the moment, you might actually earn more money from the interest you pay on your loan, even if it’s only 5 or 6%.

So – 4 good reasons to consider borrowing from your retirement account when you need some extra money. Tomorrow, we’ll look at 2 reasons you might want to reconsider.

401k

financial planning for retirement

individual retirement account

investing for retirement

IRA

personal retirement account

retirement account

retirement investing

retirement investment plan

Retirement Living

retirement savings account

retirement savings plan

tax deferred investment program

Tax Deferred Plans

Back in 1850, when the average life expectancy was just 38 years, there really was no such thing as retirement as we know it now. The rich could continue to get an income from their investments as long as they lived. Everyone else, mostly still living on farms, worked as long as they were physically able. Quite often the illness that stopped a person from being able to work was the illness that would also kill them.

Even by 1900, when many people had moved into town and had gotten factory or service jobs, most folks still worked as long as they were physically able. If what stopped you from working did not kill you, you moved in with you children, if you weren’t living in a multi-generation household already. The retirement program then for almost everyone was for your children to take care of you in your old age. This usually was the only arrangement needed since life expectancy was still only about Age 50.

The idea of retirement as a lifestyle after working evolved along with Social Security. But even when Social Security began in 1935, average life expectancy was still just Age 63. Since most folks did not live past Age 65, it didn’t take too much money to fund Social Security payments to those who lived to Age 65 to begin collecting benefits. There weren’t that many of them for those who were still paying into the fund.

Now people are living longer, and politicians and pundits talk about the Social Security funding gap. Maybe, just for a moment, we can see the bright side of this. If most of us were still only going to live to Age 63 to 65, there wouldn’t be much of a Social Security “crisis” because there wouldn’t be that many folks living longer to collect money past Age 65.

So…let’s resolve to be happy, just for today at least, that we have the luxury to need to think about retirement investing. If we were just going to work on and on until we suffered some fatal illness, we wouldn’t need a retirement plan. But we are living longer and healthier lives, and that’s a good thing.

Here’s a thought on retirement investing and retirement planning that has stood the test of time, written by the wisest man who ever lived:

“Go to the ant, O sluggard, observe her ways and be wise, which, having no chief, officer, or ruler, prepares her food in the summer and gathers her provisions in the harvest season.”

Prov 6:6

Let’s resolve to be diligent and consistent with our retirement investing so we will have our provisions stashed away when the Fall and Winter come.

advice for retirement investing

investing for retirement

personal retirement account

retirement income need

retirement income plan

retirement investing

retirement investment plan

Retirement Living

retirement planning advice

social security

Step 5 - Adjust for Social Security. You’ll notice I left a discussion of Social Security to last. Much has been written recently and much has been said recently, especially by politicians, about the future of Social Security. If you’re within a few years of retirement age, Social Security may be as close as it gets to guaranteed for you. If you’re in your 20’s or early 30’s, it’s anyone’s guess. That makes it a purely personal decision whether to take Social Security into consideration when making your retirement investment plans. Regardless, the math is simple. If you haven’t received a statement from Social Security recently showing your projected payments at retirement, you can call 800-722-1213, you can visit your local Social Security Office to submit a request, or you can go to www.ssa.gov/mystatement.

Let’s say that your payments are estimated to be $1,100 per month. Because of tax savings, that might be worth $1,300 per month of ordinary income. So if your calculations show you need $5,000 a month in income, you could reduce that to $3,700 per month or $44,400 per year. From Step 4, if your pension plan is going to cover $30,960, that means you have to save to make up the $13,440 difference. Once again that’s $13,440/8 x 100 = $168,000 as your savings goal. From the FinAid.org calculator, that would require saving $175 per month. Now this is beginning to sound very doable.

Finally, what about inflation? It does reduce the buying power of your dollars in the future. We already adjusted for inflation in using only an 8% real return after inflation rather than the 13% you often hear quoted for the gain in stocks over the last 50 years, which does include inflation. Still if your pension plan payments are fixed once you retire, the value of your payments will be less each year. So to be conservative for inflation, you can reduce the value of your pension plan payments by 30% when you do your calculations.

There are 2 other simple ways to do address inflation. First, the calculations in the steps above are based on building up money in a 401(k) plan or other tax deferred investment program. The calculations shown in the example are also based on drawing out interest and leaving the principal alone. 401(k) plan rules require that you begin drawing out money by the time you’re 72, if you haven’t begun already. Withdrawing some principal will help cover some of the cost of inflation.

Second, you can always adjust for inflation by using a lower rate of return than the 8% we used in our example for your own retirement savings plan calculations. It’s not an exact science. No one can predict the rate of inflation for the next 10 or 20 years with any degree of certainty. We can only predict trends for the future based on the past. So use prudent judgment and adjust the assumptions for how conservative you want to be.

Finally, what do you do if your calculations show you need to save say $500 a month, and you can only save $200 a month? What you do next is critical! Don’t put off getting started until you can afford to save the entire $500 a month! If you put off saving until you can afford it some time in the future, that time may never come, but retirement will eventually come. So - whatever amount you can put aside, get started today!

I hope this brief series has been helpful. Any comments or thoughts you have are certainly welcome and will be appreciated.

401(k) plan

inflation

investing for retirement

pension plan

retirement

retirement investing

retirement investment plan

retirement lifestyles

Retirement Living

retirement planning

retirement savings

retirement savings plan calculation

social security

tax deferred investment program