Retirement

Not very many people have a good solid system for organizing there important documents and financial papers. With it being tax season I thought it would be a good time to discuss some of the how’s and why’s of document organization.

Why Should you organize your documents:

The biggest reason to organize your documents is so they are easily found in the event of you die unexpectedly. Your loved ones are going to have enough to worry about in the aftermath of your death, they don’t need to be searching through piles of crap to find the documents they need.
The taxman cometh, and he don’t mess around. Having everything organized will make surviving an IRS Audit that much easier. Make sure you maintain your tax documents for at least 6 years, which according to the IRS, is the maximum length of time they have to audit your records.
If it isn’t organized you don’t really know what you have, or what it is worth.

How I do it:

I use hanging folders organized into: Tax documents, Household Accounts, Banking Accounts, Insurance, Retirement, Investments, Will, Business, and Liabilities.
Within each folder I have regular folders with the account name which holds the detailed documents, so for instance my tax folder has individual folders for 2002-2008 taxes which each contain a copy of my return and all supporting documentation.

You should make sure that you have accounted for all of your major accounts and streams of income, put your statements and other documents into the folders. The most important thing you can do is to make sure everyone who needs to know, knows where the documents are located. It doesn’t help to have a great system of organization if no one else will know how to find it. Do yourself and your family a favor and get organized.

Photo (aliwest44)

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With the epic downturns in the economy I have wondered what this really means for my 401k. I know everyone says how “You are in it for the long haul”, “Don’t Worry you are buying cheap” etc. etc. etc.. Are they telling the truth or are they full of Poo? I ran some numbers of my own, just to see, and I was surprised by the results. First lets look at a younger investor who is currently 25 who had $40,000 invested prior to the downturn in the economy and continues to invest $10,000 per year. If you use a standard retirement planner’s number of 8% yearly return over 42 years he would have $4,056,000. If you throw in one -42% year followed by one -5% year at ages 25 and 26 that same person ends up with $3,493,000. That is a difference of over $500,000.

upfrontdownyears
This really doesn’t look that bad, it is half a million but it isn’t that bad. Lets look at the same individual but lets place those two down years at years 20 and 21 instead of 1 and 2. He is going to end up coming out with around $2,230,000, that is $1,825,000 less than the 8% estimation. They don’t show you that graph before you sign up to max out your 401k.

In both scenarios the average gain is 6.5% but as you can see there is a large difference between the ending cash value. When retirement planners and investment professionals pitch you these market averages, they don’t explain the massive negative impact losses can have on your investment if they come even mid way through your investment period.

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