7 Secrets Of Success

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I hope you had a wonderful weekend! Today kicks off the celebration of the Week of the Young Child. It is also my wife’s birthday today. Happy birthday Sue!

LRPC’s Monday Morning Minute for this week, “7 Secrets Of Success” (presented below) comes to you courtesy of Brian Tracy. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

We all need inspiration every now and then. Each month I like to share some words that I feel are uplifting. Who doesn’t want to be more successful? Hopefully one of the suggestions below will resonant with you.

Have a wonderful week!

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7 Secrets Of Success

By Brian Tracy

There are certain secret habits practiced every day by all the highest paid salespeople. The regular pursuit of these habits is virtually guaranteed to move you to the top of your field. Here are 7 simple secrets for achieving your career goals:

1. Get serious

Make a decision to go all the way to the top of your field. Make a decision right now to join the top 10 percent. There is no one and nothing that can hold you back from being the best and achieving your career goals — except you.

2. Determine your weakness

Identify your weakest single skill and vow to become absolutely excellent in that area. Ask yourself “What one skill, if mastered, would have the greatest positive impact on my career?” Write down the answer, set a deadline, make a plan and work on it every single day. This one decision can change your entire career.

3. Get around the right people

Get around successful people who have a positive attitude. Associate with people who are pursuing their own goals. Remove yourself from those who are negative, critical or complaining. They will drag you down, tire you out, distract and discourage you. You don’t need that.

4. Take care of your physical health

You need high energy levels to work effectively and bounce back when things don’t work out. Be sure to eat the right foods, exercise and get plenty of rest. And find time for recreation. If you spend every last moment working, you’ll quickly burn out.

5. Visualize yourself at the top

Imagine yourself performing at your best all day long. Imagine how it would feel to achieve your career goals. Feed your subconscious mind with vivid pictures of yourself as positive, confident and competent. Program your subconscious with these clear mental pictures.

6. Practice positive self-talk

Take control of your inner dialogue. Notice if you have a tendency to berate yourself. Try to talk to yourself as you would to a good friend or someone you care deeply about. Be gentle with yourself.

7. Take daily steps toward your career goals

Be proactive; grab the bull by the horns. If you’re not happy with your income, get out there and do something about it. Whatever it is that dissatisfies you, accept responsibility for it and make a change.

Successful people are intensely action-oriented. They have a sense of urgency about accomplishing their goals. They have a bias for action. They are in control of their own destinies, and as a result, easily take their places at the top. And there is absolutely no reason you can’t join them there.

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About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Are 401k Plan Loans Double Taxed?

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Are 401k plan loans double taxed? As outlined in the example below, it appears that the principal amounts of 401k loans that are distributed at retirement are taxed at a rate that is more than double that of a participant’s incremental tax rate.

Assumptions

  • 401k plan loan amount of $10,000.
  • Payroll deduction is the only way to pay back this loan.
  • The participant is in the 25% federal tax bracket while working and when retired.
  • No state taxes.
  • To eliminate the impact of interest, assume the interest rate on this 401k plan loan is 0%.
  • To simplify the example, assume only one payroll deduction payment for $10,000 to pay back the loan.

Example

Loan origination: $10,000, no tax impact

Loan payback: One $10,000 payroll-deducted after-tax payment. $13,333 in gross earnings needed to realize the $10,000 after-tax payment resulting in $3,333 in taxes attributable to the payment.

Distribution of this $10,000 at retirement: $10,000 taxed at 25% resulting in $2,500 in taxes.

The total taxes paid on the $10,000 used for the 401k plan loan and then distributed at retirement are $5,833 (58%), more than double the amount of $2,500 (25%) that would be paid on a $10,000 distribution at retirement.

Same as any other loan?

Many financial experts believe that 401k loans are not double taxed. They say that the overall tax treatment of the individual is the same whether he/she takes a 401k plan loan or a loan from somewhere else. An equivalent amount of taxes would be required to pay back a loan from any other lender. I agree. However, that does not change the fact that a participant appears to experience a tax on the principal portion of 401k loans that is more than double his/her incremental tax rate.

401k loans are bad

I believe that taking 401k loans is a bad financial decision, for many reasons. One reason is that the loan interest is not tax deductible (like a home equity loan). Also, the lender (the plan) is required to lend to a borrower (the participant) regardless of whether the participant is creditworthy. So 401k plans often become the lender of last resort for many participants who have no business taking on additional debt. Many of these participants end up defaulting on their loans if they lose their jobs or leave for new jobs because participant loans become immediately due in most plans when a participant separates from service.

In addition, most participants who take 401k loans end up reducing or stopping their contributions while making loan payments. As a result, they often lose company matching contributions since they no longer contribute up to the maximum matched percentage.

What do you think, are 401k loans double taxed? Is taking a 401k plan loan a bad financial decision?

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About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

The 7 Most Important Financial Planning Tips

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I hope you had a wonderful weekend! I am guessing that you, like me, have waited all year for Blah, Blah, Blah Day. Well, it’s here! Today is indeed Blah, Blah, Blah Day!

LRPC’s Monday Morning Minute for this week, “The 7 Most Important Financial Planning Tips” (presented below) comes to you courtesy of The Sense. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

We all should make sure we address some basic financial planning issues. The post below lays out some of the most important.

Have a wonderful week!

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The 7 Most Important Financial Planning Tips

By The Sense

Many of us have responsibilities for both growing children and aging parents. It’s no wonder that the majority of us haven’t saved much for retirement and lack some important financial basics such as an emergency fund or insurance.

It’s tough, but we need to start making our financial lives, and particularly saving for retirement, a priority. Here’s a list of a few priorities. Like all big projects, we recommend breaking this punch list into parts and tackling one every few months or so. While retirement planning is a focus you’ll note that there are a few priorities you must tackle even before planning your retirement, especially if you have a family that depends on you.

1. Create a backup plan for your family

You owe it to your family to make sure that they are properly cared for if something happens to you so it’s time to get life insurance and an estate plan. You’ll never forgive yourself for not having enough insurance if the worst happens and you didn’t have insurance, particularly since term insurance is relatively inexpensive. If you don’t have enough insurance to replace your income during your working years in which you are responsible for loved ones, it should be your number one priority before even saving for retirement.

An estate plan is the other vital piece of your family backup plan as it sets out the instructions as to your wishes of how funds should be used to provide for your family and nominates guardians to care for them. While the plan is likely to cost a few thousand dollars, allocating resources to put this plan in place should, like insurance, come before saving for retirement or even thinking about something lower on your priority list like a vacation.

2. Create an emergency fund

Unexpected emergencies arise and you want to cover them without going into credit card debt or relying on family. If you think your home equity line of credit is your emergency fund, think again as many lenders froze lines during the recession given dropping home values. You will want to set aside 20% of your after-tax income until you have built up enough cash reserves to cover three to six months of expenses.

It’s only after you have built up your emergency fund that you should reallocate savings towards retirement. If you don’t think it’s possible to save 20% of your take home pay for financial priorities such as creating your emergency fund, you need to take a closer look at how you prioritize where you spend your money.

3. Keep bad debt in check

While saving for retirement is vital, paying off credit card debt makes more financial sense and can even save you money by improving your credit. Twenty percent of your take home pay should be allocated towards financial priorities such as saving and paying down debt but if you have credit card debt the entire 20% should be used to pay down your highest interest rate card first then pay off cards charging lower interest rates. Once your cards are paid off, only charge what you are able to afford to pay off each month which shouldn’t be a problem as long as you stick to your budget.

4. Saving for your retirement must come before wants

It’s tempting to want to buy a bigger home, especially as your salary increases but the more you ramp up your lifestyle without ramping up your savings, the less likely you are to be able to maintain the lifestyle to which you became accustomed.

It’s also tempting to put your children’s wants before your needs and use your savings or neglect saving in order to put your children through college, but remember they can get loans or a part-time job but you can’t get a loan to pay your expenses in retirement.

You have to automate savings and think of it as a non-negotiable future bill. If you crunch the numbers and determine your retirement savings are on track go ahead and explore other goals such as helping your children pay for college or upgrading your home.

5. Understand what it takes to retire

Now is the time to estimate whether your savings plan will produce a large enough nest egg to combine with Social Security to cover your living expenses in retirement. If you do as most people do and wait until you are near retirement to crunch some numbers your only choice might be to learn to live a less expensive lifestyle in retirement.

You may be on track to living comfortably in retirement if you have consistently saved 10-15% of your paycheck over the years. You can roughly estimate if you are on track to be able to maintain your current lifestyle by looking at how much you have already saved for retirement. By age 40, to live a lifestyle similar to what your after-tax salary affords you, you should have roughly saved two times your current after-tax income towards retirement and three times your current after-tax income by age 45.

The Great Recession has made retirement saving difficult but it’s not too late to get on track. Your first step is to crunch some numbers. This will let you know whether you need to make some choices to create more savings to get you on track but generally, you should find a way to save 15% – 20% of your paycheck towards retirement. If you don’t think it’s possible to save this amount of your take-home pay for retirement, you need to take a closer look at how you prioritize where you spend your money.

6. Aligning your resources to your priorities

To align your resources to your goals (saving for retirement, saving for college, saving for a second home, etc.), you need to know where your money goes each month. You might be surprised how much you’re spending on items that really don’t mean much to you and how with some small changes you can align your spending to your goals.

To get started, begin tracking your expenses over time. Mint.com is a popular budgeting website that categorizes your spending on credit cards or you can track as you spend by noting daily spending on the notes function of your smartphone or consider a popular app such as Ace Budget to track and categorize expenses.

Once you know where your money goes, you should make sure that 20% of your after tax income is allocated towards meeting your financial priorities. We recommend breaking up your income into three categories with 50% allocated to needs (housing, transportation, food), 30% allocated to wants (cable, vacations and dinners out) and 20% allocated to meeting your financial priorities (saving for retirement, paying down debt, creating an emergency fund). You choose what you spend within each bucket but the key is to spend only what you have allocated to each bucket.

7. Know how and where to invest your retirement funds

Many of us treat our retirement savings like a Crockpot meal – set it and forget it – but you can’t just set and forget your retirement plan and expect to get a great result. You might have many options as to where to save your funds for retirement (401k, IRA, small business plan, etc.). You should also know how to evaluate your investment performance and determine whether your asset allocation fits your risk tolerance.

Consider putting some of these important financial planning tips into practice soon!

____________________________

About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Women And Money: Are You In Control Of Your Finances?

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I hope you had a wonderful weekend! Today is “Encourage a Young Writer Day”.

LRPC’s Monday Morning Minute for this week, “Women And Money: Are You In Control Of Your Finances?” (presented below) comes to you courtesy of Charles Schwab & Co. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

As the father of three daughters, I am probably more attuned to women’s issues than most men. However, all of us have a mother, sister or daughter. Think about sharing this Monday Morning Minute with the women in your life who might benefit from some financial guidance.

Have a wonderful week!

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Women And Money: Are You In Control Of Your Finances?

By Carrie Schwab-Pomerantz, Charles Schwab & Co.

Key points

  • For women who haven’t been actively engaged in their finances, it’s time to take action.
  • From retirement planning to investing to developing a comprehensive financial plan, working with an advisor is one of the best ways to get started and stay motivated.
  • By taking charge of your finances, you’re also taking charge of your life.

It’s interesting how a milestone like turning 40 can bring with it new realizations. (For me, turning 50 was a pivotal time!) But whether it’s a new decade, a new job, or a new life stage, realizing that you need to take control of your finances is important for anyone at any age.

To me, it’s particularly important for women — both single and married — for a lot of reasons. For one, statistically, we live longer than men so we need to plan for our money to last longer. Not only that, according to a 2015 Census Bureau study, we’re paid just 80 percent of what men are paid. This means we need to stretch our dollars even further when it comes to saving and investing. Plus, we’re still struggling against some cultural stereotypes that, whether we like it or not, affect how many of us relate to money.

There’s been a lot written about why women don’t engage more directly with their finances: we underestimate our financial ability; we’ve historically relied on men; and, for the most part, we haven’t had strong female financial role models. But whatever the reason — and whatever provides the wakeup call — women need to be actively involved.

While the need for women to engage in their financial lives is urgent, to me, it’s also exciting and empowering. By taking charge of your finances, you’re taking charge of your life. The question, of course, is how.

Make retirement a top priority

Women often put the needs of others ahead of their own, but when it comes to retirement savings, you have to be a bit more selfish. Make sure you contribute to your 401(k) or other employer plans at least up to the company match, and more if possible. At 40, if you’re just starting to save, you really should be socking away a minimum of 25 percent of your annual salary.

That may sound like a whopping amount, but before you panic, do a quick estimate to determine how much you may need. Ideally, your Social Security benefits and any other guaranteed income plus a 4-5 percent annual draw from your portfolio should cover your expenses. The numbers may be sobering, but so are some recent statistics from the Department of Health and Human Services. According to the 2015 Profile of Older Americans, almost half of all women 75 and older live alone. We need to be prepared.

Don’t just save — invest

Part of that preparation is learning to make the most of your money, and that means investing. Studies have shown that women are more risk-averse than men when it comes to the stock market. Long-term, that can put us at a real disadvantage.

Especially for something with a long time horizon such as retirement, you ideally want a diversified stock portfolio that’s positioned for growth. Which translates into taking a bit more risk. While that can sound daunting, it doesn’t have to be because you don’t have to go it completely alone.

Team up with an advisor

When it comes to investing and managing your money, having a support team can be a great confidence booster. So even if you’re just starting out — and especially as your assets grow — consider working with an advisor. I think of a financial advisor sort of like a personal trainer, someone to guide you and keep you going when you might otherwise be tempted to call it quits.

An advisor can help you look at the big picture, focus on retirement planning and build a well-diversified portfolio. And working with an advisor who understands you and your goals can be a major source of peace of mind. So think about the type of person you’d be most comfortable with. A lot of women prefer to work with a female advisor. But gender aside, look for someone with whom you can communicate easily.

Of course, how much you want to work with your advisor is up to you. You might be satisfied with a one-time consultation or periodic check-ins. Or you could opt for full-time asset management. If you go this route, just make sure your advisor is fee-based (not paid on commission).

Consider a financial plan

To really get on top of your finances, you may want to work with a Certified Financial Planner® professional to develop a comprehensive financial plan. A recent Schwab study on women’s confidence levels in managing their finances indicated that women with a written financial plan were significantly more confident — and less likely to lose sleep over their finances — than women without a plan.

This backs up my own opinion. I’m a huge advocate of having a financial plan because it goes beyond saving and investing to look holistically at all the interrelated parts of your financial life. It reviews your income, expenses, investments, retirement planning, insurance coverage, income tax liability, estate planning needs and desires and — most importantly — how they all work together. Plus it gives you a roadmap to follow.

This can take a huge burden off you in the short term because you won’t have to sweat it on a daily basis. It can also be a great motivation to stay engaged for the long term because you have a plan of action.

Be an advocate

Female or male, single or married, all of us need to be actively involved in our financial lives. But many women especially need be encouraged to take greater charge. As you get on top of your own finances, share your experiences. Talk to other women. Expand the financial conversation. Together we can buck the stereotypes and become the CEOs of our own financial lives.

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About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures

Investing involves risk including loss of principal. Diversification, automatic investing and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value. The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC), offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.

The 10 Biggest 401k Plan Misperceptions

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By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Your 401k plan participants really believe some of the things outlined below!

Having worked as a 401k plan consultant for more than 30 years with some of the most prestigious companies in the world (e.g.; Apple, AT&T, IBM, John Deere, Northern Trust, Northwestern Mutual), I am always surprised by the simple but significant 401k misperceptions many plan participants have. Following are the most common and noteworthy 401k misperceptions:

401k Misperceptions

1. I only need to contribute up to the maximum company match

Many participants believe that their company is sending them a message on how much they should contribute. As a result, they will only contribute up to the maximum matched contribution percentage. In most plans that works out to be only 6% in employee contributions. Many studies have indicated that participants need to average at least 15% in contributions each year. To dispel the most common of all 401k misperceptions, and motivate participants to contribute something closer to what they should, plan sponsors should consider stretching their matching contribution.

2. It is OK to take a participant loan

I have had many participants tell me, “If this were a bad thing why would the company let me do it?” Account leakage via defaulted loans is one of the reasons why some participants never save enough for retirement. In addition, taking a participant loan is a horrible investment strategy. Plan participants should first explore taking a home equity loan, where the interest is tax deductible. Plan sponsors should consider curtailing or eliminating their loan provisions to eliminate one of the most misunderstood of all 401k misperceptions.

3. Rolling a 401k account into an IRA is a good idea

There are many investment advisors working hard to convince participants this is a good thing to do. However, higher fees, lack of free investment advice, use of higher cost investment options, lack of availability of stable value and guaranteed fund investment options and many other factors make this a bad idea for most participants.

4. My 401k account is a good way to save for college, a first home, etc.

When 401k plans were first rolled out to employees decades ago, human resources staff helped persuade skeptical employees to contribute by saying the plans could be used for saving for many different things. They shouldn’t be. It is a bad idea to use a 401k plan to save for an initial down payment on a home or to finance a home. Similarly, a 401k plan is not the best place to save for a child’s education — 529 plans work much better. Try to eliminate the language in your communication materials that promotes your 401k plan as a place to do anything other than save for retirement.

5. I should stop making 401k contributions when the stock market crashes

This is a more prevalent feeling among plan participants than you might think. I have had many participants say to me, “Bob, why should I invest my money in the stock market when it is going down. I’m just going to lose money!” These are the same individuals who will be rushing into the stock market at market tops. This logic is important to unravel with participants and an area that plan sponsors should emphasize in their employee education sessions.

6. Actively trading my 401k account will help me maximize my account balance

Trying to time the market, following newsletters or a trader’s advice, is rarely a winning strategy. Consistently adhering to an asset allocation strategy that is appropriate to a participant’s age and ability to bear risk is what plan sponsors should ensure is communicated through their employee education sessions.

7. Indexing is always superior to active management

Although index investing ensures a low-cost portfolio, it doesn’t guarantee superior performance or proper diversification. Access to commodity, real estate, multi-sector bond funds and many other diversifiers is sacrificed by many pure indexing strategies. A combination of active and passive investments often proves to be the best investment strategy for plan participants.

8. Target date funds are not good investments

Most experts who say that target date funds are not good investments are not comparing them to a participant’s allocations prior to investing in target date funds. Target date funds offer proper age-based diversification. Many participants, before investing in target date funds, may have invested in only one fund or a few funds that were inappropriate risk-wise for their age.

9. Money market funds are good investments

These funds have been guaranteed money losers for a number of years because they have not kept pace with inflation. Unless a participant is five years or less away from retirement or has difficulty taking on even a small amount of risk, these funds are below-average investments. As a result of the new money market fund rules, plan sponsors should offer guaranteed or stable value investment options instead.

10. I can contribute less because I will make my investments will work harder

Many participants have said to me, “Bob, I don’t have to contribute as much as others because I am going to make my investments do more of the work.” Most participants feel that the majority of their final account balance will come from the earnings in their 401k account. However, studies have shown that the major determinant of how much participants end up with at retirement is the amount of contributions they make, not the amount of earnings. This is another misperception that plan sponsors should work hard to unwind in their employee education sessions.

Make sure you address all of these 401k misperceptions in your next employee education sessions.

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About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

How To Protect Your Finances In Uncertain Times

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I hope you had a wonderful weekend! Are you going to watch the NCAA championship basketball game tonight?

LRPC’s Monday Morning Minute for this week, “How To Protect Your Finances In Uncertain Times” (presented below) comes to you courtesy of Charles Schwab & Co. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

We always seem to be living in uncertain financial times. Take a look at the suggestions provided by the folks at Charles Schwab below to protect your finances.

Have a wonderful week!

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How To Protect Your Finances In Uncertain Times

By Carrie Schwab-Pomerantz, Charles Schwab & Co.

Key points

  • Apprehension about how political and economic changes may affect your wallet is understandable.
  • In times of uncertainty, you can prepare yourself by sticking to some time-tested basics of money management.
  • Here are some practical things you can do to not only protect your money but also to help it grow.

I’m getting a lot of questions from readers who are understandably apprehensive about what’s in store for their money in this year. So much is up in the air: taxes, interest rates, health care choices and costs, the future of Medicare and Social Security. All of these things have the potential to impact the economy, the financial markets — and our wallets.

But here’s some good news. Although we can’t predict or control the future, we can prepare ourselves by sticking to some time-tested basics of money management. After all, even though we may not be aware of it, we all live with uncertainty every day.  Always have, always will.

The best way I know to feel more in control is to take action. So here are some thoughts on things you can do to help ease your anxiety. Even as market forces change, these principles hold true. In fact, it’s in times of uncertainty that they’re probably the most valuable of all.

Don’t overreact

Regardless of what’s happening in government or politics, don’t panic. Think back to the dramatic market decline of 2008. It was an extraordinarily stressful time, but the investors who suffered long-term were those who panicked and sold at a low.

So don’t let your emotions lead you astray. Instead, let your situation, your personality, and your goals be your guide — and choose your investments accordingly. Money that you know you’ll need in the next three to five years shouldn’t be in the stock market. And if you’re close to retirement, make sure you have a healthy cash cushion.

Cover these basics

The unknown is always a little scary but there are some basic things you do have control over no matter where the political or economic winds blow. Here are three practical ways to protect yourself:

  • Beef up your emergency fund. Everyone should have an emergency fund to cover at least three to six months of necessary spending. But if you’re feeling uncertain about the future, and especially if you’re nearing retirement, you may want to increase your cash reserves even more.
  • Reduce your debt. An industry rule of thumb is that no more than 28 percent of your pretax income should go toward home mortgage debt, and no more than 36 percent should go toward all debt. However, in uncertain times, it may be wise to stay well below these levels. Certainly, if you’re carrying a credit card or other expensive, nondeductible debt month to month, make a plan to pay it off as soon as possible.
  • Be well insured. Insurance always seems like a colossal waste of money — until you need it. If you don’t have great health insurance, get it now. Ditto on auto, disability, and homeowner’s insurance, and possibly life or long-term-care insurance, depending on your situation. At the same time, be cautious about falling for sales pitches for products you don’t need (e.g., life insurance for a child).

Rebalance your portfolio

Periodic rebalancing is always important — but it’s probably even more crucial when markets adjust. This is because as “winning” investments gain in value and take up a larger portion of your portfolio, other investments shrink in comparison. This will change your asset allocation, potentially exposing you to increased risk.

One way to compensate is to sell a percentage of the asset classes that have performed well and use that money to buy more of the asset classes that have done poorly. This way, you’re not only taking profits, you’re actually buying low and selling high. Alternatively, if you’re adding money to your portfolio, you can invest in categories that have underperformed. Sounds counter-intuitive — but rebalancing is a cornerstone of smart investing.

Make a plan

Numerous studies have shown that planners prevail. They set goals, establish priorities, and obtain more wealth. To me, this just makes sense. Managing your money is too important to leave to chance.

If you’ve never worked with a financial planner, this could be your year. A financial plan can be a great way to organize your finances and make sure all the pieces are working together. Or if you’re not ready to go the formalized route, at a minimum take a hard look at your goals (Retirement? A new home? College?), and then crunch the numbers to make sure you’re on the right path.

Change can be disconcerting but it can also mean new opportunities. Yes, there are unknowns ahead. But if you’re smart and diligent, you’ll not only be able to roll with the punches and protect your money, you’ll be able to help it grow.

____________________________

About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures

Rebalancing does not protect against losses or guarantee that an investor’s goal will be met. The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC), offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.

Seven Qualities Of The Most Productive People

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I hope you had a wonderful weekend! April is just around the corner!

LRPC’s Monday Morning Minute for this week, “Seven Qualities Of The Most Productive People” (presented below) comes to you courtesy of Jeff Haden. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

We all need inspiration every now and then. Each month I like to share some words that I feel are uplifting. All of us are likely striving to be more productive in everything that we do. Jeff Haden has some ideas below that I hope will help you.

Have a wonderful week!

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Seven Qualities Of The Most Productive People

By Jeff Haden

Some people get more done than others — a lot more. Sure, they work hard. And they work smart. But many possess the following qualities that make a major impact on their performance. [Read more…]

Should 401k Plans Offer Only Index Funds?

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By Robert C. Lawton, President, Lawton Retirement Plan Consultants, LLC

A number of retirement plan experts believe that 401k plan participants should only be allowed to invest in index funds. They say the additional cost that participants pay for actively managed mutual funds is not justified by better performance. Some 401k plan sponsors have agreed, offering only index funds in their fund lineups. Is that a good idea?

Arguments For Using Only Index Funds

[Read more…]

Should You Pay Off Your Mortgage Early?

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I hope you had a wonderful weekend! Welcome to March Madness!

LRPC’s Monday Morning Minute for this week, “Should You Pay Off Your Mortgage Early?” (presented below) comes to you courtesy of Charles Schwab & Co. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

Many of you may have thought about this issue and wondered about the right course of action. Schwab provides some helpful insights below.

Have a wonderful week!

_______________________________

Should You Pay Off Your Mortgage Early?

From Charles Schwab & Co.

Some people enjoy the peace of mind that comes with being debt-free in retirement. But warm and fuzzy feelings should be weighed against solid financial facts. Whether it makes sense to pay off your mortgage when — or before — you retire depends on your individual situation.

The interest rate on your mortgage may be the single biggest factor in this decision, according to Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research. “If the rate on the mortgage is low, an early mortgage payoff might not be the best option,” he says. “It may be better to maintain liquidity of your funds and diversify your assets.”

Should you pay or stay? Rande says you should consider these factors when deciding whether to retire your mortgage or keep it: [Read more…]

Seven Quick Tips To Set You Up For Financial Success

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I hope you had a wonderful weekend! Happy daylight savings time week!

LRPC’s Monday Morning Minute for this week, “Seven Quick Tips To Set You Up For Financial Success” (presented below) comes to you courtesy of Charles Schwab & Co. As an independent, objective Registered Investment Advisory firm, Lawton Retirement Plan Consultants, LLC has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.

This is a really short piece from Schwab on important items you should consider to make your financial life easier and more successful. I hope at least one of these ideas works for you.

Have a wonderful week!

_______________________________

Seven Quick Tips To Set You Up For Financial Success

By Carrie Schwab-Pomerantz, Charles Schwab & Co., Inc.

Key points

  • New Year’s resolutions are often abandoned by early January, especially if they’re unrealistic or too general.
  • To make a resolution stick, you really need to have a specific plan of action.
  • When it comes to your financial resolve, try these seven financial tips to help set yourself up for success all year long.

We’re still in the early part of 2017 and do you know what that means? For a lot of us, it means our New Year’s resolutions are already a thing of the past. It isn’t that we’re not committed to positive change. It’s just that often we’re not clear about how to achieve it. Especially if resolutions are general — sure, we all want to lose weight or save more money, but it can be hard to follow through.

So what’s the answer? First, when it comes to your finances, get specific about what you really want to accomplish. For instance, how much do you want to save each month? What bills do you want to pay off first? The second essential part of success is making a plan and then sticking with it. The following financial tips are designed to help make it easy — almost automatic — to stay on track. Basically, these are simple things you can set in motion now that can keep you going in the right direction all year long. [Read more…]