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Asset Allocation

Often financial "experts" make asset allocation difficult to understand. My goal in this series of articles is for you to understand asset allocation thoroughly, in an easy to understand format.

Mortgage

Home Equity

Auto

CDs & Investments

NATIONAL OVERNIGHT AVERAGES

TODAY

+/-

LAST WEEK

30 yr fixed mtg	5.38%	5.56%
15 yr fixed mtg	4.85%	4.97%
5/1 ARM	4.79%	4.70%
30 yr fixed jumbo mtg	6.50%	6.56%
5/1 jumbo ARM	5.24%	5.24%

About this index

Rates may include points

NATIONAL OVERNIGHT AVERAGES

TODAY

+/-

LAST WEEK

$30K HELOC	5.06%	5.04%
$50K HELOC	4.79%	4.78%
$30K home equity loan	8.37%	8.37%
$50K home equity loan	8.23%	8.23%
$75K home equity loan	8.22%	8.22%

About this index

Rates may include points

NATIONAL OVERNIGHT AVERAGES

TODAY

+/-

LAST WEEK

36 month new car loan	7.14%	7.17%
48 month new car loan	7.30%	7.32%
60 month new car loan	7.39%	7.41%
36 month used car loan	7.77%	7.79%

Rates may include points

NATIONAL OVERNIGHT AVERAGES

TODAY

+/-

LAST WEEK

6 month CD	1.38%	1.33%
1 yr CD	1.72%	1.76%
5 yr CD	2.59%	2.62%
1 yr IRA CD	1.54%	1.57%
5 yr IRA CD	2.50%	2.41%

About this index

Rates may include points

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401k Plans Made Simple

Colleen Mulder-Seward, MBA
Retirement Calculator, Inc.
retirement401k.com

401k Plans Made Simple

For those who are 50 years old or older and are planning for retirement, the amount of information available about your 401(k) plan can make your head spin. This article gives you the key items you need to know in a nutshell.

The current 401(k) contribution limits:

Pre-tax contribution

The maximum pre-tax amount you can contribute to your 401(k) plan account each year is determined by the IRS.

Catch-up contributions

If you will reach at least age 50 during the calendar year and are making the maximum Plan or IRS pretax contribution, you may make an additional "catch-up" contribution each pay period. The table below shows the current "catch-up" contribution limits imposed by the IRS.

Year	Contribution Limit	"Catch-up" Contribution Limit	50+ Total Contribution Limit
2005	$14,000	$4,000	$18,000
2006	$15,000	$5,000	$20,000
After 2006...	The maximum pre-tax contribution limit will be indexed for inflation, in $500 increments.	Limits will be increased in $500 increments, as dictated by cost of living adjustments (COLAs).

Minimum required distribution (MRD)

The Internal Revenue Code established these minimums to ensure that you actually use your Employer Sponsored Retirement Plan account balance for its intended purpose - retirement.

Unless an earlier date is specified by your plan, you must take your first withdrawal (MRD) according to the following table:

Age and Employment Status	First MRD Date	Second MRD Date	Subsequent Years MRD	Penalty for not following MRD
70 ½ and Retired	By April 1 of the year following the year in which you reach 70 1/2	If you defer your first MRD payment until April 1, then you must take your second MRD payment by December 31 of that same year.	Must be made on or before December 31	50% penalty tax on the amount that should have been withdrawn in each calendar year, in addition to regular income taxes.
70 ½ and Employed	By April 1 of the year following the year in which you retire.	If you defer your first MRD payment until April 1, then you must take your second MRD payment by December 31 of that same year.	Must be made on or before December 31	50% penalty tax on the amount that should have been withdrawn in each calendar year, in addition to regular income taxes.
70 ½ and 5% owner of your employer (regardless of employment status)	By April 1 following the year you reach age 70 1/2	If you defer your first MRD payment until April 1, then you must take your second MRD payment by December 31 of that same year.	Must be made on or before December 31	50% penalty tax on the amount that should have been withdrawn in each calendar year, in addition to regular income taxes.

The IRS issued final regulations relating to MRDs from retirement accounts (including 401(k) plan accounts, IRAs, and 403(b) plans) on April 17, 2002, with an effective date of January 1, 2003. The new rules resulted in new life expectancy tables with longer expectancy factors, which generally result in smaller required distribution amounts.

In General, your MRD is determined by dividing the adjusted market value of your tax-deferred retirement account as of December 31 of the prior year, by an applicable life expectancy factor taken from the Uniform Lifetime Table.

Uniform Lifetime
For Use by: Unmarried Owners, Married Owners Whose Spouses Are Not More Than 10 Years Younger, and Married Owners Whose Spouses Are Not the Sole Beneficiaries of their plan
Age	Distribution Period	Age	Distribution Period
70	27.4	93	9.6
71	26.5	94	9.1
72	25.6	95	8.6
73	24.7	96	8.1
74	23.8	97	7.6
75	22.9	98	7.1
76	22.0	99	6.7
77	21.2	100	6.3
78	20.3	101	5.9
79	19.5	102	5.5
80	18.7	103	5.2
81	17.9	104	4.9
82	17.1	105	4.5
83	16.3	106	4.2
84	15.5	107	3.9
85	14.8	108	3.7
86	14.1	109	3.4
87	13.4	110	3.1
88	12.7	111	2.9
89	12.0	112	2.6
90	11.4	113	2.4
91	10.8	114	2.1
92	10.2	115 and over	1.9
Note: If the sole beneficiary for the entire year is your spouse, whom is more than 10 years younger, then the Joint Life and Last Survivor Expectancy Table should be used, which could reduce the MRD even further. See IRS Publication 590 - Appendix C for more details. Source: IRS Publication 590 - Appendix C

Example:

Mary is a retired 401(k) participant who turned 70-1/2 on March 31. On December 31 of last year, the ending balance in her 401(k) was $100,000. To calculate her MRD for this year, divide $100,000 by her life expectancy factor of 26.5 years. Her distribution amount is $3773.59.

Account balance

Life expectancy factor = MRD

Thus,

$100,000
26.5

= $3773.59

If your plan's withdrawal provisions allow, you may elect to take more than your MRD from your retirement plan in a given year. This overage can not be applied toward your MRD for the subsequent year. MRDs are subject to federal income tax and may also be subject to state and local taxes. MRDs distributions can not be rolled over into an IRA or employer-sponsored retirement plan.

Distributions received before age 59 1/2 are subject to an additional early distribution penalty tax of 10%, unless an exception applies. Consult a tax professional before accessing money in your 401(k) plan.

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Analysis of the Economics of Early Social Security Withdrawal

Robert J. Phillips
Chief Retirement Consultant

Deciding whether or not to take the early withdrawal of social security at age 62 can be difficult. If you need this income at 62 to fund your retirement the decision is fairly straightforward. Take it early! On the other hand, if you have another source of revenue to fund your retirement your decision will be primarily based on lifestyle, health and investment preferences.

Several factors can affect your decision. First is your life expectancy. If you are in good health and have a family history of living beyond 90 then waiting for full benefits may be best. Two other factors impact this decision. First and most important is the value of money or your expected return from your investments. If you are using other investments instead of social security to fund your retirement you should use the rate of return of these investments as your value of money. There is another way to look at the value of money. If you do not require the social security money to live, you can invest the distributions for the future. The rate of return of this investment is your value of money. If your investments will make larger returns such as stocks this would favor taking the early withdrawal.

The last factor impacting your decision is inflation. Social security includes an annual adjustment based on inflation. You cannot control this variable but you should be aware of its impact. If future inflation is significant it will favor a later full distribution

FREE Social Security Calculator:

Find Out Your Breakeven Age

We developed a calculator to assist in analyzing the impact of taking early benefits at age 62 or waiting for full benefits at age 66 to 67 depending on the year you were born...If you were born in 1960 or later your full benefits will begin at age 67 and your reduction for early benefits at age 62 will be 30%. If you were born between 1946 and 1960 your full benefits begin as early as age 66. We have included a chart that summarizes information.

To use the calculator you need to input your year of birth. You also need to input a value of money up to 10% and a projected inflation adjustment. The calculator analyzes income generated over time from both the early and full benefit investments. It calculates the age at which full social security will catch up and breakeven with the early withdrawal. If you were born before 1960 your breakeven age will be impacted by the year you were born. An early breakeven age favors waiting for full benefits.

The social security calculator is not the final answer whether to take an early withdrawal but it does give you additional economic data to assist in that decision. Ultimately you must balance income, investments and lifestyle to optimize your enjoyment during your retirement years.