Automatic Savings

If you take a step back and look at the big economic picture, there are concerns. Over the past few decades, large parts of the working population were baby boomers, who had their retirement savings on automatic. Most of the money went into equities, causing equity values to be somewhat inflated. As the population ages and money starts flowing out of the market to fund retirement, children’s college bills or their daughters’ weddings, stock values may decrease. PE ratios may shrink. Your investment approach will differ, depending on where you are in your life cycle. Young adults need to monitor this issue closely, to avoid having their retirement savings used to cash out the baby boomers, to their detriment.

Wider investment choices and inexpensive trading tools are needed to prevent mishaps from occurring, when assets are passed from one generation to another.

Early withdrawals on pretax IRAs are another issue for investors. If you need your money early, the government can take approximately half in taxes. Yes, that’s correct; one half! With these accounts the government has an informal, but real, fluctuating lien on your assets. Another way of looking at it is that the government has its hands in your retirement wallet. Early withdrawals carry excessive penalties, and the higher income can move you into higher federal and state tax brackets. Advance planning is required because early withdrawals are expensive.

Next review the regulations on: Contribution Limits.