How to Survive the Financial Crisis... with Your 401k and Your Sanity Intact

What a mess. Who ever thought we would see the financial world brought to its knees like we have the past two weeks? Just think, household names like Bear Stearns, Merrill Lynch, Wachovia and WAMU are now a thing of the past while insurance giants like AIG have gotten by with the skin of their teeth thanks to billions from Uncle Sam. Fannie Mae and Freddy Mac are now officially directed by the government, the same government that is now poised to inject billions into the frozen banking system. And while terms like sub-prime mortgages and credit default swaps have become a part of our every day jargon, we the tax payers are billed to keep the whole ship afloat. Is it any wonder that the stock market has been on a roller coaster ride like we haven't seen since the Great Depression?

As if $4 gallon gas, rising oil prices, plummeting home values and rising unemployment weren't enough. What's next? A new president?

Has Your 401(k) Become a 201(k)?

While politicians and financiers try to sort the "crisis" out, your 401k or IRA has probably taken a huge hit right along with the Dow Jones and NASDAQ averages - both off their highs by almost 40%. Wow, that really hurts and there's no way to sugar coat a blow to the head like that. So if you feel like you've been taken for a ride, it's because you have. If you're money is predominantly in stocks, then you've likely taken at least a 20% hit or more even if your advisor's done an excellent job of protecting you from the downside. And you've probably lost a lot more than that.

But before you go out and sell off your investments and bury the cash underneath the bedroom mattress, know this one simple fact: markets have always fallen and markets have always risen. And this too shall pass.

Although there are no shortage of prognosticators forecasting when this roller coaster ride will come to an end, the truth is that no one really knows. So don't believe the hype. The previous market downturns in the long gone era of the 30s, in 1974, in 1987, the technology bubble bust in 2000 and the days and months following 9/11 were all unique animals made of their own day and time. Today's crisis is entirely different and magnified by the far reaching effects of globalization while public panic is fed by today's overwhelming 24x7 media coverage as never seen before. Nevertheless, history does teach us this, that markets do recover lost ground and then head higher. Eventually. So what do you do in the meantime?

1) Save in the good times. Save in the bad times. But always save. Don't stop now! Continue to save and invest in your retirement plan on a regular basis. Doing this helps guard against short-term market volatility and risk by spreading one's investment over time. This is known as dollar-cost averaging.

2) Don't put all your eggs in one basket. You've heard it before and you're going to hear it again. You need to properly diversify your retirement savings among different funds and fund types. Determining how to do this is not difficult and is based on your investment time horizon and individual risk tolerance. For those that would rather go on auto-pilot, there are new funds called Life Cycle Funds that automatically shift your mix of investments to a more conservative mix as you approach a particular year called the "target date" (typically your near-retirement date). As a result, these are often called Target Date Funds as well. Regardless of how you do it, be sure to diversify and allocate your investments accordingly.

These suggestions are straight from the first page of Investing 101, but they are still the most important principals for investing and saving for retirement. For those who have realized losses in recent weeks, remember that saving for retirement is a long-term process. So turn off the TV and get back to the work of doing your thing and letting Father Time do his. And if you're not sure if you're doing it right, consult with an experienced advisor.

The Million Dollar Question

So when will the financial crisis clear up? Some of the best and brightest feel that we may be in for a long couple of years, but only time will tell. As one panelist at a recent conference said, "Eventually, people will get bored with being afraid." And business will go on as usual.

Until then, just keep your cool. Remember that planning for your retirement is like a cross country flight in a jumbo jet. As winds and weather push the plane off course, the pilots (aided by sophisticated guidance technology) make regular adjustments to the plane's speed, course and altitude to make sure your flight keeps on track, stays as comfortable as possible, and gets you safely to your final destination. So if economic turbulence seems to have thrown your retirement plans off course, make the necessary adjustments and you too will meet your financial goals and arrive comfortably at your destination in retirement.

Keep Your Hands Out of the Retirement Plan Cookie Jar

The need for self-control and the propensity to give in are something we all must grapple with on a daily basis. But the now well known adage to "Just Say No" applies to much more than just resisting the urge to smoke, drink too much, or indulge in other unhealthy lifestyles. For many, this includes the urge to dip into their retirement savings when things get tight.

According to a recent report in the Wall Street Journal, more Americans are now dipping into their retirement funds than ever before. And recent economic conditions make it easy to justify doing so. Part of the problem is that liquidating or borrowing even a few thousand dollars in one's 401(k) doesn't seem too harmful, particularly when families are scrambling to pay bills in the face of unemployment or unexpected medical bills. But it is harmful and even reducing one's retirement account by "just" a few thousdan dollars can have a huge impact on one's future retirement income.

Can a few thousand dollars really make that big of a difference? The answer is Yes. And the answer is even more Yes when considering that future resources for retirement income are drying up.

With pensions going the way of the dodo bird, most Americans will have to rely on their personal and retirement savings more than ever. This on top of the fact that studies show 4 out of 5 Americans aren't saving enough for retirement to begin with. Then add in rising medical care, increased longevity and the "i" word (inflation), and you're talking about adding real insult to your retirement injury!

The good news is that you can Just Say No to borrowing or spending down your retirement savings. It might require a little fiscal dieting, but the long-term prognosis for your future will be much healthier.

Income Replacement Funds - A Good Idea Finally Come Of Age

Back in the day, one of the most common problems for many who had saved well for retirement was having "too much MONEY at the end of one's life" - and thus an entire industry matured in serving the needs for estate planning, charitable giving and more. Although the need for these services is now greater than ever, an even larger problem now looming on the horizon is having "too much LIFE at the end of one's money!"

Increasing longevity is one of the major reasons that insurance and mutual fund companies are now developing new products and solutions to help provide an aging America much needed income solutions. And one of these new solutions is the income replacement fund.

As the name implies, this solution at its heart is a mutual fund and like any other, it comes in a variety of flavors. Although mutual funds are typically accumulation solutions (and the most popular investment vehicle for IRAs and K plans), income replacement funds are just the opposite - they are "decumulation" solutions. So what makes these funds unique is their feature to pay out over a specified length of time. Many of these funds now offer payout terms ranging from 7 years to 25 years or longer. The termed payout is the feature that gives these funds their name and is a new way to help one strategically spend down a portion of their retirement assets.

ADVANTAGES: The primary advantage of these funds is their simple and systematic approach in spending down or "decumulating" retirement assets. Since these are mutual funds, they are liquid and have no surrender schedule or fees. Furthermore one may turn the income feature on or off as desired unlike money that has been annuitized.

DISADVANTAGES: The disadvantages of the income replacement funds are the same as all other mutual funds. Since these are securities products that participate in the market, their values may fluctuate and there is no guarantee of principal. As a result, the payout is tied to annual investment performance, so there is no guaranteed stream of income. Depending on investment performance and account balance, payout may even be accelerated to payout the account balance by the end of the selected term.

Income replacement funds are another excellent solution now available to those nearing or already in retirement and may be used in a variety of retirement strategies. Many have found these funds to be an excellent compliment to existing annuity investments as a hybrid income solution providing the best features of both worlds including:

• Variable income (IRF) and guaranteed income (immediate annuity)
• Market participation and principal protection (available through variable annuity living benefits)
• Liquidity (IRF & partial liquidity through annuity surrender schedule)
• Insurance protection (annuity)
• Diversification & asset allocation (IRF and variable annuities)
• Laddered strategies for growth as a hedge against inflation

How to Stay On Budget & On Target with Geezeo

REVIEW: Geezeo.com - A funny name, but a seriously valuable service. Get your Geezeo on now!

On the Internet, there's often very little left to the imagination these days and even less of value to be found without a price, so finding a service that's both practical and free is always something worth writing about. For those who are religious about tracking their finances and sticking to a budget, or know they need to, Geezeo is a great place to help make educated financial decisions through a simple web-based interface.

In short, Geezeo is a money management platform designed to help individuals track their finances and budgets including income, expenses, debt, investments and more. Budget creation, tracking and reporting features help you visualize how well you are meeting your goals. And for those inclined to share their experiences, Web 2.0 community support features allow you to share your successes and your disappointments with others. And when you really commit a financial faux pas, feel free to ease your conscience in the Money Confessions message board!

Budgets: In addition to aggregating data from financial institutions, budgeting tools can automatically track individual checking and credit card transactions to create monthly budgeting reports. In a very simple and visual way, spending targets report whether you are meeting your budget (green) or are over your budget (red). This budgeting feature is perhaps the most valuable part of the service providing a one page summary view of how you are doing with your monthly expenses.

Goals: We are all encouraged to write down our goals, whether they are personal, professional, or financial. Geezeo gives you a place to write down your financial goals and tie these to actual accounts. Whether you are paying off a school loan, saving for a vacation, or investing for your retirement, now you have a place to hard code your goals and see how well you are meeting them.

Setting Up Your Account: Setting up your free Geezeo account veryis simple. Never the less, setting up all of your accounts, tagging checking and credit card transactions, and setting up budgets is likely to take at least a couple of hours. But once you have invested the time to set up your account, Geezeo runs pretty much on auto-pilot. Not only can you review automatically updated account balances and budgets at any time - you can even access the information via text messaging on your phone. Where else can you view all this data in one place at the literal touch of a button? For free? Exactly.

Shortcomings: As many good features as there are, Geezeo still has plenty of room for improvement. There have been reported problems in setting up accounts and for many, some of the transaction information is published in a counter-intuitive way. In some instances, functionality is entirely missing. And with all the work involved in listing financial assets and loan information, another nice feature would include corresponding assets so that a Balance Sheet could be generated as well.

Although some of the feature sets in Geezeo are not quite ready for prime-time, Geezeo is still a great tool for helping set and manage personal budgets. If you're tired of creating and managing your own spreadsheets, or if importing and managing data in Quicken or MS Money has become too cumbersome, then this may provide a simpler way to keep an eye on the traffic in and out of your wallet. Best of all, Geezeo will help you manage your budgets and finances all for a very nominal charge - for FREE!

If you have questions about the security of your personal financial information at Geezeo, be sure to CLICK HERE to read an interview with Geezeo Co-Founder, Peter Glyman who addresses this typical concern and provides some insight into how the service works behind the scenes. 

With a recent investment by TheStreet.com, you can look forward to seeing further development at Geezeo with expanded features and new services. Of course, competition is already on the way and in one case it comes in a Mint flavor! Come back soon for a review of another up-and-coming online money management service that promises to heat up the competition.

Bad Agents Selling Bad Products Giving Annuities a Bad Name

A response to Dateline NBC's program entitled "Tricks of the Trade"

On Sunday, April 13, 2008, Dateline NBC aired a show entitled "Tricks of the Trade" that exposed many of the unethical and misleading tactics some salespeople use to persuade seniors to buy equity-indexed annuities. Although anyone taking advantage of the aged should rightly be exposed, the Dateline program did little more than paint the entire annuity marketplace with a broad and unfavorable brushstroke. Instead of focusing only on the real problem - rogue insurance agents selling inappropriate investments that were unsuitable for their senior clients - the program unfairly pigeon-holed all annuities and those who sell them into the same negative category.

The problem with the program's format is that it would lead many to believe that all annuities have extremely long surrender terms, little or no liquidity and truly excessive surrender charges - all of which are untrue. Many annuities feature surrender terms as short as three years and most allow for annual withdrawals without penalty  - an advantage that most annuities have over their more conservative counterparts the CD.

Furthermore, the program would also lead many to believe that annuities are always an unsuitable investment for seniors - also untrue. Although it would be unwise for a senior to invest their entire life savings in a long-term annuity (or any long-term illiquid investment for that matter), many seniors today successfully diversify their portfolios by investing a portion of their assets into annuities many of which now offer valuable living benefits not available through more traditional investments. Other seniors find immediate annuities an attractive solution in providing lifetime income they cannot outlive. And still others somewhere in between incorporate laddered annuity strategies that provide a combination of both growth and income.

Although annuities are not the solution for everyone, they continue to serve as a popular investment option because of their tax-deferred growth, tax-free transfer privileges, guaranteed death benefits for beneficiaries and options for a guaranteed lifetime income. And as mentioned before, new living benefits make many variable annuities particularly attractive for those who want to participate in equity markets while protecting investment principal.

Despite the misleading and dishonest practices of some in the industry who are only seeking a big commission and a quick buck, reports like these also serve as a valuable opportunity to explain how basic investment principals and sound guidance will never go out of style.