MarketWatch:

1. Inflation
There’s no doubt about it: Inflation is a big risk for would-be retirees and current retirees. From 1980 to 2007, the annual inflation in the U.S. for all goods and services ranged from 1.1% to 8.9%, but averaged 3.5%, according to SOA. That means an item that cost $1 in 1980 would cost $2.82 in 2007.

But for retirees, the rate of inflation can be even worse – especially for expenditures that represent a big and growing portion of their budget.

Take health care expenses, which tend to rise much more rapidly than general inflation. The cost of medical care has risen nearly four-fold in the 26 years since December 1982, according to the Bureau of Labor Statistics’ little-known Consumer Price Index-Experimental (CPI-E) that tracks the rate of inflation for Americans 62 and older. The CPI-E was first introduced in 1982.

Health care that cost $100 in 1983 cost $387 in April 2008, according to the CPI-E. That might not be so bad if health-care expenses as a percentage of a retiree’s budget remained the same over the course of a 20-year retirement. But health care represents about 5% of expenditures before retirement, 10% during the first half of retirement (ages 65 to 74) and 15% during second half of retirement (ages 75 and older), according to some studies.

That means health care would not just cost $387, representing 10% of expenses, but it might cost $580, representing inflation and 15% of expenses, given its cost as a percentage of expenditures. Viewed another way, increases in Medicare Part B premiums are far greater than benefit increases in Social Security, according to SOA. And Social Security is the only inflation-indexed benefit that most retirees have.

So what can be done to manage the risk of inflation? According to the SOA, retirees and would-be retirees should consider investing in equities, a home and other assets, such as Treasury Inflation-Protected Securities (TIPS) and annuity products with a cost-of-living adjustment. In addition, the SOA recommends would-be retirees “stage a semi-retirement to delay tapping retirement assets.”

2. Outliving one’s assets
For today’s 65-year-olds, average life expectancy for American men and women is 17 and 20 years, respectively, says the SOA. But 30% of all women and 20% of all men age 65 can expect to reach 90 years old, making retirement a 25-year affair.

To be sure, it’s hard to predict whether one will be among those who live to 90 or among those who die before 70. But there are ways to manage the risk of outliving one’s assets. The SOA recommends strategies that preserve principal, including investing in joint-and-survivor annuities and deferred annuities that commence at high ages, such as 75 or 80. “Longevity remains a key risk, and the under-appreciation of longevity risk continues to be important,” the SOA said in its report.

A report worth reading on the subject is “Longevity: The Underlying Driver of Retirement Risk.” See the report (PDF).

Also of interest: A number of research papers available from the “Living to 100: Survival to Advanced Ages” symposium. See the Web site.

Read Robert Powell’s full article.

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U.S. News & World Report:

Running a small business can be a life-consuming process, so sometimes small-business owners miss the forest for the trees. Maybe that’s why only about 16 percent of businesses with fewer than 50 employees in the United States have 401(k) plans. Small-business owners are so focused on developing their businesses that some do not realize that those assets can grow at a much faster rate for their retirement under the right plan. An October survey by ING DIRECT’s ShareBuilder401k, which designs 401(k) plans for small businesses, found that “not enough employees” was the top reason cited by small-business owners as to why they do not have a 401(k) plan. That’s despite the fact that even sole proprietorships with no other employees can have 401(k)’s.

Of course, that’s not to say that small-business owners can’t use other retirement plans like IRAs. But there are some unique benefits to 401(k)’s. In 2001, Congress changed the laws in a way that allowed self-employed people to put more money into their 401(k)’s. Today, a business owner under 50 with a 401(k) can invest up to $46,000 a year into the account, with up to $15,500 ($20,500 if over 50) coming from his or her own income, and then up to 25 percent of the business’s profits under the “profit sharing” provision. Regardless of the size of the profits, the total amount cannot exceed $46,000 (or $51,000 if you’re over 50), but that can make a huge difference. That $46,000 “can drop you a tax bracket,” says Stuart Robertson, general manager of Sharebuilder401k. “That is a great tax shelter for these folks.”

But if, like many small-business owners, you’re not very familiar with 401(k)’s, what do you need to know before you get your own plan started? Read on…

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Work.com:

Investing green with a piece of your retirement, business assets, or general investment portfolio not only sends an important message, but has a long term ability to profit as the world goes greener. Hardcore DIYers may want to take more risk by investing in individual stocks, but I would not recommend it. If you’re interested in it anyway, here’s a good place to start. I recommend spreading your risk amongst a combination of ETFs (exchange traded funds) and mutual funds, and it’s always best to understand your time horizon and not look at your investments every day. Green energy in particular can be volatile, so don’t be scared when the markets are choppy.

So the questions is: where to start? Well, shameless self promotion has never come so easy – you can start at my blog, Smugly Green, for some basic information. But here are some steps you can take to invest greener or more responsibly:

1. If you don’t do it yourself, get a financial adviser. Find someone local, someone you can trust, and always understand that there is a conflict of interest when someone is paid on commission. If you’re a DIYer, I recommend online brokerages like AmeriTrade, optionsXpress, or eTrade – they tend to be cheaper than any brokerage house, and if you’re comfortable managing your portfolio, they’re definitely worth it.

2. Allocate a % of your overall portfolio to green. This is a personal choice – it is always good to have your risk spread among many different industries, many different countries, and many different asset types. Green is just a part of the puzzle. For me, it’s the whole puzzle, but I’m willing to take that risk. How much makes sense to you? 20%? 10%? 5%? When you make the decision, understand that green has to be a long term investment, at least 5 year horizon, and probably longer. Green can also be risky and volatile, like any stock.

3. Start investing with the old guard of green. There are some green funds that have been around for a long time, it makes sense to start with them. They have long, proven track records, and more importantly, have shown a long term dedication to green investing. Read more.

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Forbes.com:

1. Tax credits make it easy to get started: Businesses with fewer than 100 employees, but at least one besides the owner, qualify for a $500 tax credit to offset the administrative costs of the plan for each of the first three years, providing a cumulative savings of more than $1,500 to each business.

2. A tax shelter of $15,500, plus any matching: This amount is three times greater than what can be expected from a traditional IRA and also allows for a catch-up of an additional $5,000 for individuals 50 and older. Businesses that choose to match their employee’s contributions also gain additional tax-deferred savings on those amounts and can deduct matching from their company’s taxes.

3. Self-employed workers can shelter up to $46,000 annually: The Solo 401(k) is a great option for one-person businesses as it allows participants to: contribute $15,500 to their plan, and make additional employer contributions that defer up to $46,000 based on the amount they earn.

4. Profit-sharing that provides flexibility: A 401(k) can make it easier for employers to share their success with employees when they have good years and to a lesser degree or not at all during the lean ones. As an added benefit, profit-sharing is typically tax deductible up to 25% of the amount each business contributes.

5. New Roth 401(k) feature allows for after-tax contributions: That’s right. New regulations now enable small businesses to make after-tax contributions with no income level restrictions–unlike the popular Roth IRAs that have income limits that restrict eligibility. This means that employees with a Roth 401(k) will have the advantage of tax-free withdrawals, earnings and all, when they use these funds in retirement. Employers can choose to put all, part or none of their personal contributions into their Roth. The caveat here is that any company match you do must be made on a tax-deferred basis and not into your Roth.

Don’t let 2008 deadlines sneak up on you. To ensure maximum tax benefits in the year ahead, it pays to get started sooner than later. With that in mind, there are a couple important 401(k) deadlines to be aware of.

If you have employees and are willing to provide matching contributions, the “Safe Harbor” deadline is Sept. 15. A safe harbor match provides the best of both worlds: the ability to contribute the maximum allowed to your individual account and to avoid the time and hassles of government plan testing. Businesses not interested in matching or those that are self employed have until December to get set up.

While worrying about money is a year-round experience for most small-business owners, this time of year provides the perfect opportunity to alleviate some of the stress associated with taxes. Before businesses close their books on another tax season, they should take a look at some proactive ways to be better prepared for next April 15. A 401(k) is one way they can put their money to work for them. It’s a small investment in time that can pay big dividends now and when they retire.

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New York Times:

Bill Neugent, an engineer in McLean, Va., is doing his bit to ease the looming generational financial squeeze as the nation’s 75 million baby boomers begin to retire. He’s working longer.

Mr. Neugent, 62, plans to work full time until he is 65 and then part time for the Mitre Corporation, a federal research contractor that encourages older workers to stay on.

There are, it seems, too few such workers and employers. The average retirement age for men now is 63 and for women 62. But the emphatic conclusion of recent research into retirement policy and labor markets is that working another two or three years would have a surprisingly powerful impact on the retirement living standards of millions of boomers and on the economy.

The economic gains, according to a report published this month by the McKinsey Global Institute, a research group, would include increased household savings, higher tax collections and a reduction of the fiscal strain on Social Security and Medicare; together, that would add an estimated $13 trillion to the economy by 2025, or about a year’s total output of goods and services today.

“It’s the only answer, but don’t count on the story turning out that way,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College and co-author, with Steven A. Sass, of the book “Working Longer: The Solution to the Retirement Income Challenge” (Brookings Institution Press). “It’s going to take a lot of education and changes in policy and attitudes.” More.

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American Entrepreneurship:

Tips from Brett Wilder:
Everything possible should be done to seek sufficient financial capital for business purposes from sources other than retirement savings. Using money from retirement plans to start a new or buy an existing business can be very costly and cause devastating financial hardship. Therefore, it should not be done without first knowing whether the risks can be offset by the rewards of owning a successful business which will hopefully end up producing a better return and accumulating a larger amount of money for retirement.

Moreover, lack of capital is one of the main reasons why new business ventures fail so a cash flow projection as part of a written comprehensive business plan must show that the amount taken from the retirement plan will adequately fund the business operation as well as get a better return.

When money is withdrawn from a retirement plan, the Federal, state, and local income tax consequences as well as an under age 59 ½ early distribution penalty (10%) will severely diminish the net amount of money available for funding the business.

However, there is a little-known way permitted by the IRS to fund a business using money already invested in a retirement plan without incurring onerous taxes and penalties, but which is tricky and should only be done with the guidance of a qualified financial advisor. Simplistically, this relatively complex process involves five basic steps:

1. Create a new, closely-held corporation
2. The new corporation establishes a tax-deferred trust and replacement plan
3. Funds are transferred from the existing retirement plan to the new trust plan account
4. The trust buys the new corporation stock
5. The business uses the cash to fund the business

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NewsReleaseWire:

The U.S. Bureau of Labor Statistics has projected that the number of Americans over the age of 65 will grow by 77.8 percent between the years 2010 and 2030. Meanwhile, survey data reported last month suggested that baby boomers fast-approaching retirement age might not leave the workforce in the large numbers anticipated by market observers. Retirement is in fact a prime time to consider entrepreneurship, said Susan Friedmann, CSP, the niche marketing expert who created her own niche as The Trade Show Coach and has now written “Riches in Niches: How to Make it BIG in a small Market” to share her insight on how entrepreneurs can find success in niches.

“The opportunities for retired workers who want to start their own business are just too many to ignore,” said Friedmann, CSP (Certified Speaking Professional). “Plus, advances in technology for communication and productivity have greatly lowered the barriers of entry to entrepreneurship. This bodes well for retirees, who in previous generations would have faced tremendous logistical obstacles to entrepreneurship that simply no longer exist. In this new environment, ‘Riches in Niches: How to Make it BIG in a small Market’ shows entrepreneurs how to start their own businesses in lucrative niches.”

Author of “Meeting and Event Planning for Dummies,” Friedmann, now The Nichepreneur™ Coach, has turned her expertise to niche marketing for entrepreneurs. In her new book, “Riches in Niches: How to Make it BIG in a small Market,” Friedmann shares the concepts that have enabled her to become a tradeshow marketing expert, a sought-after maven in her own niche who presents workshops at some of the most recognizable Fortune 500 corporations.

Examples such as the following, recently reported in the news, suggested that those well into retirement age are thriving as Nichepreneurs™, a term Friedmann uses to describe entrepreneurs in niche markets… continue reading.

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TheStreet:

Evolution in the global capital markets and in investment vehicles is changing how investors must construct their portfolios to get the greatest return for a successful retirement.

You need to examine the allocation of your retirement portfolio now, if you haven’t already. Ensuring that you get the best return takes some rearranging from time to time, and you’ll want to take advantage of investment products that are available now that can help maximize your efforts.

This past weekend, Barron’s reiterated this thesis with a suggested portfolio put forth by Mohamed El-Erian from Pimco. Let’s use this portfolio as a starting point for our discussion now on how to get the most return on your retirement portfolio. In case you missed it, here is what El-Erian suggested for allocations:

* domestic equities: 15%

* foreign developed equities: 15%

* emerging-market equities: 12%

* private equity

* domestic bonds: 5%

* foreign bonds: 9%

* real estate: 6%

* commodities: 11%

* inflation protected bonds: 5%

* infrastructure: 5%

* special opportunities: 8%

One quick note: The percentages given in Barron’s add up to only 98%. Obviously, anyone actually taking El-Erian’s suggestions could allocate the 2% elsewhere, or hold it in cash or, keeping consistent with the diversification, foreign currency.

Read full article.

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U.S. Department of Labor:

Know Your Retirement Needs – Retirement is expensive. Experts estimate that you’ll need about 70% of your preretirement income – lower earners, 90% or more – to maintain your standard of living when you stop working. Take charge of your financial future. Start by requesting Savings Fitness: A Guide to Your Money and Your Financial Future.

Find Out About Your Social Security Benefits – Social Security pays the average retiree about 40 percent of preretirement earnings. Call the Social Security Administration at 1.800.772.1213 for a free Social Security Statement and find out more about your benefits at www.socialsecurity.gov.

Learn About Your Employer’s Pension Or Profit Sharing Plan – If your employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefit statement if you request one. Before you change jobs, find out what will happen to your pension. Learn what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse’s plan. For a free booklet about protecting your pension, request What You Should Know about Your Retirement Plan.

Contribute To A Tax-Sheltered Savings Plan – If your employer offers a tax-sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.

Ask Your Employer To Start A Plan – If your employer doesn’t offer a retirement plan, suggest that it start one. Simplified plans can be set up by certain employers. For information on simplified employment pensions, order Internal Revenue Service Publication 590 by calling 1.800.829.3676. Or you can view a copy on the IRS Web site. You may also want to request a copy of Choosing a Retirement Solution for Your Small Business.

Put Your Money Into An Individual Retirement Account… continue reading.

Also read: How To Save $200,000 In 6 Months.

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Increasing your net worth and decreasing your taxes–Those are 2 top priorities among most Americans. They are especially important for small business owners since they are taxed like individuals even though they are a business. CnnMoney.com introduces us to Bob Johnson, the CEO and Founder of Johnson Insurance and Financial in McKinney, Texas. The report tells us that Johnson was looking for large tax breaks when he stumbled across some from the unlikely source of traditional defined-benefit pension plans. In fact–the tax breaks he found amounted to over $200,000 in a three year period. Read these excerpts from the report and see if there is anything in it that will help you–

“Johnson, 65, has been running a thriving financial services business for 35 years, generating net income of about $500,000 a year. He faithfully maxed out annual contributions to his SEP retirement plan, but three years ago he looked at his tax bill and wondered if there wasn’t a better way.

Whatever formula you choose, a defined-benefit plan can leave you with more and the taxman with less.”

This is clearly good news for any small business owner who is looking for ways to trim his tax bill in April each year. These defined-benefit pension plans are only going to increase in popularity as more people hear about them and as more financial advisers begin marketing them. But you can get in on the ground floor by checking with your financial adviser and starting one today.

As with any other financial instrument of investment, there are pros and cons for this kind of retirement program. Here are some important links for you to check if you want to find out more about these financial products–

http://ebpaqc.aicpa.org/Resources/Defined+Benefit+Pension+Plans/

http://retireplan.about.com/cs/retirement/a/aa_defined_a5.htm

http://www.dol.gov/dol/topic/retirement/typesofplans.htm

http://www.newyorklife.com/cda/0,3254,11545,00.html

http://www.investopedia.com/terms/d/definedbenefitpensionplan.asp

http://www.irs.gov/retirement/article/0,,id=108950,00.html

http://www.pensionconsultant.com/definedbenefitplan/dbtips.htm

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