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Saving needs to become a habit
February 06, 2014 Jerry Purvis   

Read more by Jerry Purvis
When planning for a comfortable retirement, people need to remember that saving should be a habit throughout life. But saving rates among Americans today are at an all time low.

One of those savings vehicles was enacted into law in 1978 – the 401K plan. The idea was developed by corporate executive Ted Benna, who thought it could be used to supplement traditional pension and retirement plans for those who work with big corporations. His own corporation turned it down, but later on it started to get some traction elsewhere.

Josh Curtis, registered representative with Ohio National Equity Sales Co., said saving has traditionally been a three-legged stool: pensions provided by the company, supplemented with personal savings and Social Security.

“That was a great model because you had guaranteed income in two different areas and your own savings,” Curtis said.

He said a solid savings plan will cover these questions: Do you think taxes in the future will go up or down? Do you think benefits like Social Security and Medicare will go up or down?

“I don’t think higher taxes and reduced benefits will be enough to fix the economy,” Curtis said. “When combined with inflation, that’s sure to cause instability in the market.”

Most people today put their retirement savings into 401K plans. But Curtis said those are subject to higher taxes, inflation and market volatility. Plus, the IRS effectively becomes your investment partner because of an unknown future tax rate that no one can plan for. And with more people living longer, retirement plans will need to cover those years.

He said the 401K isn’t a bad program, but it should be used as it was first designed. If your employer offers a match, take advantage of it. People should use the 401K as much as is matched, and invest the rest elsewhere.

“Corporations were happy to implement the 401K because they no longer had to manage employee investments like they did with pension,” Curtis said. “But it was a lost benefit of a pension for employees.”

Curtis offers what he calls “cash flow planning,” which isn’t budgeting or traditional financial planning products. “Large amounts of debt and not enough in savings are just symptoms of a larger problem,” he said. “I help people identify that portion of their money they have no idea where it’s going. That money needs to be redirected to where it does the most good. Most people have more money than they think. We’re all millionaires, but one paycheck at a time.”

Curtis said his best advice is to be invested in a wide variety of areas, both in and out of the market. Diversification is the best way to go.

“We have the freedom right now to be personally responsible for our own financial security which is under attack from the government,” he said. “When was the last time a piece of legislation was passed that promoted personal savings? A lot of their programs just take money out of people’s pockets that could be used toward retirement. But still, it’s our responsibility to save for that.”
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