Recs

7

Don't Lose Control of Your Money

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

In the good old days, many important financial decisions in your life were taken care of for you, and it generally worked out well for people. But those days are over. Today, you'll have to take control of your money to make sure that you'll reach all of your financial goals.

It's up to you
Decades ago, both career paths and personal finances were simpler than they are now. Many workers chose an employer for whom they worked their entire lives, with steadily increasing salaries and benefits that would seem extravagant to many by today's standards. Employers saved money from their own profits to fund pension plans that would pay for retirement benefits after you quit working, and they took care of investing all of that money so that you never had to worry about whether an ill-timed drop in the stock market would endanger your retirement.

Things have changed a lot since then. Workers now change jobs frequently, either because of employer personnel moves, or to seek their own advancement. As a result, the single-employer model of retirement planning no longer really applies, and the old-style pension is quickly becoming a thing of the past. In 2005, Verizon (NYSE: VZ  ) froze its pension plan for more than 50,000 of its managers. IBM's (NYSE: IBM  ) pension freeze took effect in 2008, affecting 117,000 current employees. Under the freezes, employees stop earning new benefits but are entitled to keep what they've earned to that point. New employees, however, are typically locked out of the pension going forward.

The health of pensions at the few remaining companies that have them remains in question. Alcoa (NYSE: AA  ) and Disney (NYSE: DIS  ) both have pension plans that are underfunded by 25% or more, which will require those companies to put aside billions of extra dollars to make up their shortfalls. Other companies, including UAL (Nasdaq: UAUA  ) and US Airways (NYSE: LCC  ) , have simply terminated past pension plans, leaving the government's Pension Benefit Guaranty Corporation to shoulder the burden of paying workers' benefits.

Even Social Security, the sole pension-like program left for many workers, is in financial peril. Especially for young workers, taking for granted that you'll get the benefits you've earned is a dangerous way to plan your finances.

Stuck with bad investments
As companies have backed away from taking care of your financial life, you've gotten tools to help you take care of yourself. But those tools aren't all they're cracked up to be.

401(k) plans, for instance, let you set aside substantial amounts of money toward retirement with great tax benefits. But with a 401(k), you're completely reliant on what your employer gives you. Because setting up and administering a 401(k) plan costs money, many employers don't have the incentive to establish plans with good investment options, leaving you with inferior choices that can make 401(k)s a lot less useful.

Similarly, 529 plans have become exceedingly popular as a tax-advantaged way of putting money aside for college expenses. Yet again, 529 plans give you only a select slate of investment choices. At least with 529 plans, you can choose among dozens of different plan programs -- but in some cases, you'll have to give up valuable state tax benefits if you want to go with a plan outside your home state.

Make the most of your choices
Even though you're stuck with a restrictive set of tools to help you with your finances, you've been given sole responsibility for making them work. That makes it all the more important to make the most of the areas in which you have complete control over your investing.

In particular, that means:

  • Use your IRA. An IRA has maximum flexibility to let you pick exactly the investments you want. Discount brokers and mutual fund companies make opening an IRA cheap and easy.
  • Consider a Coverdell. In the college savings arena, Coverdell ESAs fulfill the same function that IRAs do for retirement. You can only contribute $2,000 per year per child, but once you do, you again have latitude to invest in whatever you want.
  • Save outside of tax-favored accounts. Tax deferral is a valuable benefit of retirement accounts, but if you're a long-term investor, you can create your own tax deferral by avoiding frequent trading of the individual stocks you own. Tax planning takes some extra effort, but having money in a taxable account also means that you can do whatever you want with it without worrying about things like early IRA withdrawal penalties.

Now more than ever, you can't afford to lose control of your finances. By making the most of all the investing methods at your disposal, though, you can do what you need to do to make sure your finances work the way you want.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Taking control of your investing means looking for the best investments you can find. Let Jordan DiPietro point you toward three home-run stocks for the next decade.

Fool contributor Dan Caplinger is a money control-freak. He doesn't own shares of the companies mentioned in this article. Disney is a Motley Fool Inside Value selection and a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy was good in the good ol' days and is still good today.


Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1173975, ~/Articles/ArticleHandler.aspx, 8/27/2014 7:26:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated Moments ago Sponsored by:
DOW 17,122.01 15.31 0.09%
S&P 500 2,000.12 0.10 0.00%
NASD 4,569.62 -1.02 -0.02%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2014 4:02 PM
AA $16.71 Up +0.12 +0.72%
Alcoa, Inc. CAPS Rating: ****
DIS $90.37 Up +0.35 +0.39%
Walt Disney CAPS Rating: *****
IBM $192.25 Down -0.74 -0.38%
International Busi… CAPS Rating: ****
LCC $0.00 Down +0.00 +0.00%
US Airways Group,… CAPS Rating: *
UAUA.DL $0.00 Down +0.00 +0.00%
UAL Corp CAPS Rating: *
VZ $49.43 Up +0.18 +0.37%
Verizon Communicat… CAPS Rating: ***

Advertisement