Today’s article is written by Ricky at Qwoter.com. You may know Qwoter as a great source for stock news and stock spam reports. Enjoy today’s articles about creating an early retirement plan.

Discovering how to invest for retirement early in your career will help you save enough money for an affluent and well-to-do retirement. It’s important to remember though that the best method for early retirement planning and investment selection is not the same for every person. If you have the funds, exercise diligence when considering your investing options. This will help you acquire the most beneficial investments based on your short-term as well as long-term goals.

When looking for the best avenues for your money, you should first understand the significance of administering funds and assets based on your appetite for risk. In addition, consider the rules and regulations as well as the interest rates of your chosen investments. You should also keep yourself updated on the latest news and investing methods available.

Top Investment Options

1. Employer-Sponsored Retirement Plan – In reality, retirement accounts not only endow long-term investing, but they grant a wide range of tax advantages as well. When investors choose an employer-sponsored 401(k) plan, the company that they work for may opt to match the employee’s investment. The money is contributed into the account without the owner incurring taxes. Since the funds stay in the plan, you benefit from compounding interest and growth until you make a withdrawal. Though, you will have to pay taxes at that point.
2. IRA or Individual Retirement Account – If your employer does not furnish 401(k) accounts, you will want to learn how to invest for retirement through an IRA. There are different types to choose from; each made to meet specific needs. This type of retirement account offers you similar tax advantages that you enjoy from an employer-sponsored plan. A Roth Individual Retirement Account will permit you to make contributions with after-tax money. The money in the account compounds tax-free over time without additional taxes levied at the time of distribution. The traditional IRA on the other hand consents pre-tax money to be placed in the account, with taxes levied only at the time when the funds are withdrawn. Before investing into an IRA, make sure to check for the best IRA rates that are currently available to help you maximize your returns.
3. Stocks – A stock or share is a part of ownership in a company or an enterprise. When the company performs well in the market, the stock will increase in price. Note that the stock market is not the best place to house your money into, particularly if you will need access to your account almost immediately. A skilled stock broker can help you select the best types of stocks.
4. Bonds – Bonds are another good asset to place your money into. These are loans that are reimbursed by the government or business over a period of time. As an investor, you will receive interest payments, about twice a year. Bonds are also known as more secure and stable assets than stocks.

Becoming skilled at how to invest for retirement will also let you learn about investing in Certificates of Deposit (CDs), U.S. Treasury Notes, 529 investment accounts, as well as savings accounts. Before you invest in any of these, you need to set your financial objectives initially. This will ensure that you can prepare for your retirement with the right investments.

In America, Welcome to the Poorhouse, Jane White sounds a strong warning to the nation’s citizens that change is needed in order to retire with enough in the bank. White uses this book in order to promote specific political changes and bills that she is sponsoring in Congress.

While other financial planning books address what we as individuals need to do in order to retire comfortably, White approaches the issue by placing the fault and needed change at Congress’, corporations’, and wealthy tax payers’ doorstep. She firmly believes that political reform creating a USA that mirrors other nations is what we need in order to climb out of the retirement poor nation we currently live in. While I do not disagree with the need for reform, I disagree with certain tenets of White’s argument as well as the bill that she is sponsoring in Congress right now.

About the Author

From the book, “Jane White is Founder and President of Retirement Solutions, LLC, which promotes 401(k) reform and provides investment education. In 2007, at the U.S. Department of Labor’s invitation, White presented recommended 401(k) contribution rates to the ERISA Advisory Council…A Congressionally appointed delegate to the 2002 National Summit on Reitrement Savings, White first observed the 401(k) savings crisis in 1993 as associate editor of Standard & Poor’s Your Financial Future. A former syndicated personal finance columnist for Gannett News Service, White first observed the housing bubble and the risk of adjustable rate mortgages in her 1991 book, The Cost Conscious Homebuyer’s Guide. Her articles have appeared in The New York Times, Barron’s, and Employee Benefit News.”

Tenets of the Book

The book is divided into five tenets or sections.

1. 401(k) Reform
2. Mortgage Industry Reform
3. College Grants and Loans Reform
4. Credit Card and Other Borrowing Reform
5. Creating a Citizen’s Lobby

Each section aptly describes the current situation in America and how we arrived here. At the end of each section, White prescribes her solution to each problem.

The Interview

I had the opportunity to ask Ms. White several questions. I selected the most salient responses.

RabbitFunds: You advocate in your book that employers and financial institutions should be required to recommend the amount of money that consumers should be saving in order to have sufficient funds upon retirement. How do you plan to address the legal ramifications of employers, who are not licensed, acting as certified financial planners?

Jane White: Actually CFP’s know absolutely nothing about saving for retirement. Incredibly, they are not obliged to learn the ten times final pay formula from pension actuaries nor the savings rate needed to achieve it. That’s why the editor of Investment News, a publication that circulates to 65,000 financial planners, asked me to write an op-ed about it. Pretty incredible, huh? Employers would hire pension actuaries to calculate the formulas and personalize them based on individual savers’ current assets and investment time horizon.

RF: Typically, 401K or defined benefit plans are offered as a benefit above and beyond the normal salary or wage. As benefits, they are a mechanism for employers to attract superior employees as well as show additional appreciation. Why do you believe that employers should be required by law to fund an employee’s retirement?

White: There is no other country in the advanced world–that I know of–where neither the government nor the employer is obliged to provide deferred compensation. It’s called a social contract. The same thing is true with health care coverage–it’s utterly unconscionable that 15% of the U.S. population has no health care. The U.S. was able to muddle along until the 1980s because we were a “fortress economy” where everything consumed here was made here so that employers offered benefits as a way of competing for employees. So we’re not used to social contracts and if the right-wing gonzoes in Congress gets their way we won’t have any.

RF: Is not the employee responsible for funding his or her own retirement through prudent planning and living?

White: Please see above. What’s more, if it is our responsibility we should be told that. What’s unconscionable is that when employers dumped defined benefit plans and replaced them with 401(k) plans, they didn’t disclose that nobody could retire from a 401(k) plan. What’s more, all the Democrats will do is to automatically enroll people in an inadequate plan and then “automatically annuitize” an inadequate balance.

RF: If your retirement act were to pass, have you estimated the economic impact of imposing the equivalent of a 9% payroll tax on all employers with more than 10 employees? If so, what is that financial impact?

White: Not a single Australian employer went out of business as a result of having to adopt Superannuation. As I mentioned, if we are still facing recessionary times, we can do a phase-in: start with 4% and gradually raise it to 9%. On the other hand, any company that’s paying out obscene executive bonuses and executive pensions and health benefits and/or repaying TARP money less than a year after they took the loan is not facing any recessionary times.

RF: How will companies with slim margins still be profitable?

White: Here’s the deal.  A company that’s facing financial stress should address that stress by reducing the workforce, not keeping the workforce on the job and then screwing them. As I mentioned, this immoral behavior pretty much started in the 1980s when the notion of “right-sizing” took over from down sizing. Employers decided that laying off people and then training new hires was more expensive than keeping them on the job and getting rid of their benefits and taking away raises.

RF: For employers with fewer than 10 employees, you believe that a government fund or entity should pay the 9% 401K contribution. What is the estimated tax burden to taxpayers to adequately fund this initiative?

White: I’m rethinking this one. Small employers aren’t necessarily cash-strapped employers–think of medical practices or law firms or accounting firms. I’m considering instead saying that companies who have been in business for less than five years don’t have to offer the plan but they must disclose to employees that they don’t offer coverage.  I chose the five years because half of all startups go out of business within first five years of startup. So there would be no taxpayer burden.

RF: Under the 9% contribution system, does Social Security dissolve after paying out to current retirees and everyone over the age of, for example, 50?

White: Most people still need Social Security. A defined benefit plan only covers 30 to 50 percent of final pay and the goal is to replace 70% of final pay so most people except the truly wealthy will need a supplement. As I mentioned in the book, in a logical world, investors would be told that they can’t time or beat the market and the vast majority of businesses in that oxymoron known as the financial services industry would go out of business–from TD Ameritrade to Fidelity.

RF: Your book compares the % of federal budget spent on education in America to that of other nations. Using a percentage can be very misleading when we are talking about vastly different GDPs and population sizes between countries. Have you calculated a more meaningful and insightful statistic such as the $ spend per capita? And if so, how does America rank?

White: So far as I can tell the OECD is the only organization that measures spending so I have to rely on them. On the other hand, I think it’s safe to say that if you were to measure our country’s wealth by median wage or household assets: savings, home equity, etc., we would rank at the top or near the top of OECD countries. What’s more, if we were to measure the median income of say, the top 5% of the population compared to these countries we would definitely rank near the top, if not number one.

RF: You wrote, “Why should we expect our citizens to foot most or all of the bill’s cost for higher education…” I ask, why wouldn’t we? What entitles an individual to something for nothing?

White: As I point out in the book, we don’t expect people to foot the bill for elementary or secondary school, why should we do so for college? As I also pointed out, before Reagan took office, Pell Grants accounted for the bulk of college expenses, as opposed to loans.

RF: You refer to ARMs and Introductory Promo Rates on credit cards as bait and switch schemes. However, the documents that accompany both accounts contain all of the information about the pending change in the interest rate. Why is the individual not responsible for understanding something as important as a mortgage or innocent when he or she spends too much on a credit card and is then hit with high interests that were fully disclosed when the account was opened?

White: For the same reason that we’re not expected to assume that cars shouldn’t blow up on this when we buy them, thanks to Ralph Nader. You can sue a merchant if they sell you a damaged good or a doctor if he or she damages you when they operate on you. It’s the concept of assignee liability.

Read my review

For a review of the book and my analysis of Ms. White’s argument, please see REVIEW: “America, Welcome to the Poorhouse” by Jane White.

Are you aware that your investment strategy can end up with a social disorder? Do you currently need to put your investments on Ritalin? Here’s your fiscal check-up. Open wide…

Is your investment strategy ADHD?

Let’s begin the discussion with a great definition of what it means to be ADHD (from Wikipedia): “Attention-deficit hyperactivity disorder (ADHD) is a neurobehavioral developmental disorder. ADHD is primarily characterized by ‘the co-existence of attentional problems and hyperactivity, with each behavior occurring infrequently alone.’ While symptoms may appear to be innocent and merely annoying nuisances to observers, ‘if left untreated, the persistent and pervasive effects of ADHD symptoms can insidiously and severely interfere with one’s ability to get the most out of education, fulfill one’s potential in the workplace, establish and maintain interpersonal relationships, and maintain a generally positive sense of self.’ (emphasis added)”

So how can your investment strategy end up with a social disorder? Let’s evaluate each underlined section above.

1. Each behavior occurring infrequently alone – This is for those of you who don’t really have an investment strategy. You buy whatever “hot investment” your buddy tells you about while golfing. Or you sporadically contribute to your retirement accounts. In order to retire with enough money in savings, you need (1) a defined investment plan with frequent, planned contributions and then (2) you need to stick to your plan only making occasional improvements or thought out modifications.
2. Symptoms may appear to be innocent – So you like to play with part of your investments. I know individuals that find an adrenaline rush in short term investments. Have you ever calculated the amount of money you are losing to transaction fees and taxes? Have you seen the studies that show that frequent investment changes lead to lower returns? Or maybe you don’t play the market but you don’t think too much of skipping contributions to purchase something that you really don’t need. Or maybe you just don’t see a convincing reason to have a strategy. Don’t fall into these traps. Responsible adults make plans.
3. The persistent and pervasive effects of ADHD symptoms can insidiously and severely interfere with one’s ability – I’m not sure if I can say that any plainer. Though, let me give you an example. Let’s say that you decide to contribute $500 a month to your retirement accounts. However, you skip your contribution every December (have to buy all those presents). At the end of 30 years (invested at 12%), you will have $1,609,695 in the bank. If you had not skipped those contributions, then you would have $1,747,482 in the bank. A difference of $137,786 even though you only contributed $15,000 less! See my point? Having an ADHD investment strategy will insidiously and severely interfere with your ability to reach your goals!

Stop right now and think about your investing style? Do you need to put your investments on Ritalin?

Let’s read a bedtime story from Aesop.

There once was a speedy hare who bragged about how fast he could run. Tired of hearing him boast, Slow and Steady, the tortoise, challenged him to a race. All the animals in the forest gathered to watch. Hare ran down the road for a while and then paused to rest. He looked back at Slow and Steady and cried out, “How do you expect to win this race when you are walking along at your slow, slow pace?” Hare stretched himself out alongside the road and fell asleep, thinking, “There is plenty of time to relax.”

Slow and Steady walked and walked. He never, ever stopped until he came to the finish line. The animals who were watching cheered so loudly for Tortoise, they woke up Hare. Hare stretched and yawned and began to run again, but it was too late. Tortoise was over the line. The moral of the story is that “Slow and Steady won the race!”

So what does this have to do with your investment strategy? Well, Aesop is prescribing financial Ritalin. Again from Wikipedia, Ritalin “works by increasing the activity of the central nervous system. It produces such effects as increasing or maintaining alertness, combating fatigue, and improving attention. (emphasis added)” Outlined below is what I think Aesop would have us do with our investments.

1. Central nervous system – The tortoise was able to win the race because he maintained one objective in sight and had an unfailing winner’s attitude. We also need to go straight to the core. Write down what you expect your life to be like when you retire. Describe your relationships, financial status, living conditions, location, etc. That list is your one objective and you must have an unfailing winner’s attitude. The old adage, “Keep your eye on the ball,” will have more impact on your financial resolve than most any other approach.
2. Increasing or maintaining alertness – The hare decided that he wearied from his efforts and could therefore take a nap. You can’t take a financial nap! Keeping to your budget every month moves you one step closer to financial freedom. Making monthly contributions to your investment accounts moves you one step closer to retirement. In the words of Winston Churchill, “Never, never, never give up!”
3. Combating fatigue – Don’t try to run. Everything has its time and place. Establish a plan that outlines when you intend to retire, how much you need to retire, how much you need to invest monthly, and which investment vehicles and types will help you reach your goals. Then slowly but surely follow your plan. Just keep walking, don’t try to run and do everything at once. You just can’t do everything right now and don’t beat yourself up for it.
4. Improving attention – In many accounts of Aesop’s tale, the hare focuses on the fame and attention of the crowd. Conversely, the tortoise ignored the crowd and stuck to his plan. Don’t be sidetracked by the latest trends, need for huge returns, infomercials, pop star financial gurus, or anything else for that matter. Once you have a plan, stick to it.

Conclusion

Does your investment strategy need to be on Ritalin? Well, ask yourself, “Do I have a set contribution amount and schedule? Do I have a defined plan? Do I invest in hot investments? Do I day trade? Am I focused on the short term? Am I tackling too many financial goals at once that are confusing me?” Depending on how you answer those questions, you may need to start taking financial Ritalin by (1) focusing on your reasons for smart investing, (2) adhering to your plan, (3) taking one month at a time, and (4) ignoring the crowd.

P.S. I recognize the irony of me criticizing the hare and my blog is called RabbitFunds. Maybe I should have named it TortoiseFunds.

I like marketing. I market my website. I market myself to potential employers. I marketed myself to my wife and she fortunately bought. I believe marketing helps us gain knowledge of products, services, and opportunities that we might not have otherwise known about.

I believe marketers spend everyday trying to open our heads and rewire us to buy their stuff. I’m not cynical and I don’t think they are evil or bad people. However, as consumers we need to understand that they want our money and that it is Us vs. Them. My six reasons.

1) Discount pricing is a marketing ploy

I spent some time working at a major, national retailer. I’m not interested in pointing fingers, so let’s just call it Brand X. While working at Brand X, I was involved in many pricing conversations and observed the pricing process. We all know that stores use discount pricing as a means to incentivize you to buy now. I didn’t understand how deep that really runs though. For example, if a shirt or sweater costs the company $10 and they know from historical reports that consumers typically will only buy it at a price of $20, then they price it at $40. That way, they can discount it at 50% (oh my gosh! oh my gosh! oh my gosh!) and it will sell at the expected price of $20. Meaning, they don’t even expect you to pay $40! If you do buy it at $40, then you just lost. If you purchase at $20, not because you need the item but because you can’t pass up that great price, then you just lost.

2) They make us ask permission to buy from them

I’m borrowing this reason from Dave Ramsey and don’t take the credit myself. Banks, car dealerships, etc need us to buy from them in order for them to make money. And yet, we find ourselves asking them, and almost pleading at times, to take our business. They tell us that we’ve been “approved” so that we feel part of the club. “Honey, great news! The bank approved of us.” They put on a great dog and pony show to make us anxious that we might not get the “deal.” Stop and realize what is really being sold. Often, what’s being sold is enslaving amounts of debt. Liabilities, like cars, that masquerade as assets don’t make you happy. Money in the bank and peace of mind make you happy. Walk away next time someone tries to get you to say, “Please, can I have your stuff? Please, can I buy some debt?”

3) Research, research, research

Marketers spend a considerable amount of time learning their trade and then studying consumers’ behavior. Any good professional would. They track and analyze your buying and browsing behaviors, study psychology, and attempt to gain an intimate understanding of you. This is a double-edged sword. For example, Zappos.com is very customer centric. They are almost obsessively customer centric. They use an intimate knowledge of customers to better meet customers’ needs. But at the same time, these marketing departments use this knowledge to optimize the entire buying process to get you to buy. So what am I saying? Simply that marketers are constantly gaining new information about us and using that information to create extremely enticing advertisements. Just to put this effort into perspective, advertisers are expected to spend $242 BILLION on ads in 2009 alone. They have to recoup that investment and they expect to have us, the consumers, foot the bill. Don’t buy just because of the shiny ad.

4) They use fancy or technical names that confuse the issue

As the title suggests, a rowing machine is now a “1205 Precision Rower,” which sounds much cooler. Another example is the 12b-1 fee charged by some mutual fund companies. Rule 12b-1 was adopted by the Securities and Exchange Commission (SEC) in 1980 and allows fund companies to pay for sales and marketing activities by charging you a fee. This is in addition to the normal or stated expense ratio. It bothers me that fund companies charge consumers a marketing fee but don’t call it that. I understand that the name is derived from the SEC rule, but it is misleading to novice investors who are just starting out. Just call it a marketing fee so we can decide if we want to pay it.

5) “Where’s the pain?”

Another double-edged sword. A good marketer asks and answers the question, “Where’s the pain?” If a marketer can understand the problem a consumer faces, then he or she can develop a campaign or product that addresses that problem. Target pharmacy bottles are an excellent example of a marketer adding value to a product. Several years ago, Target redesigned its pharmacy bottle to make it easier to open, identify the prescription, and know to which family member the prescription belongs using color coded cap rings. The added convenience is worthwhile. On the other end of the spectrum, think about all of those late night infomercials. They offer solutions to common problems via their products. But stop and think to yourself, “Yes the Magic Bullet makes life a little easier for me, but my blender works just fine. So I don’t really need it even though it is newer, nicer, faster, etc.” In other words, they may be offering something that solves a problem, but you just may not really need the problem solved (at least not at the expense of your retirement). So next time you go to buy a product that you really don’t need, decide to put the money into your retirement account instead.

6) Illegitimate or illegal marketing schemes

I don’t want to dwell much on this topic since my purpose with this post is to address legitimate marketing efforts. However, there are a lot of marketers of ill repute out there attempting to bypass the law and cause you to lose your money. If you suspect that an offer is too good or just doesn’t seem right, please avoid it. Also, you can check sites such as Scam.com, ScamBusters.org, Snopes.com, or the Better Business Bureau to see if others have reported the offer as a scam.

Conclusion

Let me reiterate an important point – I have nothing against marketers. I know a lot of them. They have families, homes, dogs, and probably some consumer debt themselves. But buyer beware. Every institution, firm, corporation, etc must maintain a healthy revenue stream and that revenue has to come from someone. See it as a game. You are allotted X number of dollars each month to support yourself and your lifestyle. Marketers setup storefronts where you can choose to spend your dollars. At the end of the game, the person or store with the most dollars wins. The more you keep to yourself, the greater your odds are of winning.

Let me know in the comments if you agree or disagree.