Ground Rule #2: Percents, Not Dollars!

We have covered the first question for plan participants: How much?  How much should you contribute, how much will keep you comfortable in retirement, how much can you afford today?   If you decide what you can afford and that’s your contribution, it’s a perfectly reasonable approach (but don’t forget this rule when deciding).  But once you have decided that a contribution of $5 or $50 or $500 per paycheck is the right amount, you have an important step to take.

Convert that dollar amount to a percentage.  If your gross pay in an average period is, say, $1000, then a contribution of $50 should be noted as 5%.  There is on the surface no difference, but what about when you get a raise or bonus? What if you work overtime? Your pay rises but your contribution does not, unless you use a percentage. The flip side is also true: if you earn less in a period, a percentage-based contribution will be smaller, so your net pay will not be reduced out of proportion.  But there is also a life issue that might not seem obvious.  You have a life to live, a job, family obligations; stuff to do.  Let’s face it: once you get your 401(k) or 403(b) set up, making changes will just not land very high up on your “to do” list.  Sometimes years can slip by before you get around to a review (that can be good).  But if your income grows and your contribution does not, you’ll fall behind in seeing your account grow to where you need it to be.  So set up your contribution as a percentage and you can get back to enjoying life.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Ground Rule #10: Start

Today I’ll start the countdown of my Ten Ground Rules for 401(k)/403(b) Success. These are common sense guidelines I have refined from nearly three decades of talking with clients and observing their results within employer-sponsored retirement plans.

The first rule seems so simple and obvious as to be unnecessary: Start.  Get started. Enroll in whatever plan your employer makes available.  It’s surprising how many people delay their participation in retirement plans. There are always reasons: you’re new on the job and not familiar with the plan, or you feel you can’t afford to, or you mean to get involved but just hadn’t gotten around to it.  Would you fail to sign up for your employer’s health insurance benefit? Would you not take any vacation because you hadn’t gotten around to understanding the time-off rules? Of course not.  Building your personal net worth is just as important, it’s just not as immediate.  So focus on your employer’s plan, ask for guidance if you need it, and enroll.

Some people get frustrated by articles stuffed with numbers showing how much money you need to save to retire.  That frustration can cause them to avoid participating altogether and make the goal even harder to reach.  Don’t worry about goals, not yet.  Just get in your plan and start contributing. Without a start, the rest of my rules won’t do you any good.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Employment Thoughts

As we navigate our current economic malaise it is important to recognize the state of the labor market in the United States.  According to the newest data out of the Bureau of Labor Statistics (BLS) we lost 125,000 jobs in June, though some losses were expected due to Census worker layoffs.  According to the data, however, we created 83,000 private sector jobs which seems like a step in the right direction.  As with all statistics, numbers can be misleading and government data always gets revised. 

So as we look at May’s private sector payrolls the numbers were revised down from 41,000 jobs created to 33,000, and when we combine the two months we have an unimpressive 116,000 jobs for the period. We need somewhere between 100,000 and 125,000 new jobs per month just to keep pace with population growth. 

Take the last two months. Using the birth/death (B/D) model, the BLS assumes that 362,000 jobs were created somewhere. That’s three times the number of jobs in the headlines we read. Those extra jobs were added into the total because that’s what the model told them to do. And over a complete business cycle, those numbers will average out to be pretty close to right. But as I said, they can also be misleading in the short term.  The B/D adjustments say that we added 65,000 construction jobs in the last two months, more than half the total number of jobs created. Really? US single-family homes set an all-time low sales number last week. Mortgage applications are way down. Home construction is off. Commercial real estate construction is down. Where are those construction jobs?

Much of this data has been interpreted to mean things are getting better here in the US labor market.  I would submit that things are getting less worse.  Once we have “turned the corner” and are creating the 100-125,000 jobs monthly, enough jobs to break even, I will be in the “getting better” camp. 

 Douglas Hendee

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).