Month: October 2010

Many investors fail to take advantage of the opportunity to make catch-up contributions to retirement accounts -which may not be a good idea, as they can make a significant difference in retirement wealth.

Investors age 50 or older as of year-end can make catch-up contributions to 401(k), 403(b) and 457 plans as well as traditional and Roth IRAs.

Maximum catch-up contributions for the 2010 tax year are $5,500 for 401(k), 403(b) and 457 plans and $1,000 for IRAs.

How much extra could you accumulate by making catch-up contributions? Quite a bit.

Let’s say you turn 50 in 2010 and contribute an extra $5,500 to your 401(k) plan for 2010 and the next 15 years, until you reach age 65. At a 4% annual return, you’d end up with an extra $120,000.

At a 6% annual return, you’d end up with an extra $141,000. And with an 8% annual return, you’d end up with an extra $167,000, according to The Wall Street Journal.

Additionally, let’s say you turn 50 in 2010 and contribute an extra $1,000 to your IRA for 2010 and the next 15 years, until you reach age 65. At a 4% annual return, you’d end up with an extra $22,000.

At a 6% annual return, you’d end up with an extra $26,000. And with an 8% annual return, you’d end up with an extra $30,000, also according to The Wall Street Journal.

Married? If your spouse can make catch-up contributions as well, you could potentially double the amounts shown here as a couple.

As you can see, making catch-up contributions can potentially add up by the time you reach retirement age – so they’re worth considering.

Of course, these examples are hypothetical and are not intended to represent any particular product. Contact your financial advisor to determine how much you could accumulate with catch-up contributions.

Bondholders may have seen their portfolios come through the recent market turmoil in fairly good shape; however, they may not want to assume that performance will continue, due to the prospects for inflation and interest rate increases.

The U.S. government reacted to the financial crisis of 2008 and 2009 by pumping an unprecedented amount of money into the economy – two packages of fiscal stimulus totaling more than $1 trillion, according to Stimulus.org. That stimulus could cause inflation to rise.

The government has also kept interest rates near all-time lows in order to stimulate consumer spending. But many economists think rates are poised to increase, and that, along with a rise in inflation, will dampen bond prices.

While the threat isn’t immediate, it’s not too early to consider how you might try to protect your bond portfolio from these threats. There are a number of ways to do so. For example, you might consider moving your bond investments to mutual funds that invest in floating-rate loans or foreign bonds, both of which have become more affordable as Europe’s debt crisis has sparked a shift back to sectors viewed as so-called safe havens. Intermediate-term bond funds may also be an option for a rising-interest-rate environment because shorter-term bond prices tend to fall less sharply than longer-term bond prices when interest rates rise.

Your financial advisor can help you determine if any of these investments are appropriate for you.