Question 5: Should I Convert to a Roth IRA?

For the first time, if your annual income exceeds $100,000 you can convert a traditional IRA (as well as a SEP IRA, Simple IRA or 401(k) or 403(b) plan held with a former employer) to a Roth IRA and take advantage of its many benefits. But make no mistake: A Roth conversion doesn't make sense for everyone; you'll have to ponder a few variables. In a recent survey, TDAmeritrade found that nearly half of its clients who are newly eligible to convert remain undecided. The subject is that confusing.

Consider future tax rates. 

However, a lot of people — a stunning 86% in the TDAmeritrade survey — believe it is now likely that their income taxes will go up in retirement, largely because of the huge deficits the nation is running as a result of the recession, financial crisis and war. If a higher tax rate looms, converting to a Roth now may make sense. A Roth has another tax advantage in that withdrawals do not count as income against the taxable level of Social Security benefits, which is not the case with a Traditional IRA.

Time Magazines The Five Big Questions About Retirement Planning

A record 20 million-plus people collected unemployment benefits at some point in 2009, a year that ended with the jobless rate at 10 percent.

As the pace of layoffs slows, the number of new applicants visiting unemployment offices has been on the decline in recent months. But limited hiring means the ranks of the long-term unemployed continues to grow, with more than 5.8 million people out of work for more than six months.

For 2009, the Dow Jones industrial average  climbed 18.8 percent, the S&P 500  shot up 23.5 percent and the Nasdaq surged 43.9 percent.

Sure..yields are low right now-but put some money aside.  Your IRA or 401k plan should not be your emergency fund. 

Build a rainy-day fund.

Advice on how to save for retirement or your kids' college is plentiful. Less plentiful is guidance on what kind of rainy-day fund you should have.

A rainy-day fund, which your savings plan can feed, should cover about six months of income. It's a form of personal insurance, valuable in these rapidly changing times.

This fund should be kept in safe and easy-to-tap assets. Laddering certificates of deposit out six months is one way.

That means buying CDs of one month, two months, etc. to six months. As each CD matures you buy another six-month CD to keep the ladder in place.

Courtesy of WSJ.com

Ford Motor Co. has offered buyout or retirement incentive packages to all of its 41,000 U.S. hourly workers as it tries to further reduce its factory work force.

The buyout package, offered to workers with at least a year of service, includes $50,000 cash and the choice of a $25,000 voucher to buy a vehicle or $20,000 more in cash. The deal also includes basic health care coverage for six months, Ford said. Retirement-eligible workers can take the buyout but must wait up to 18 months before retiring.

The retirement package includes $40,000 for skilled trades workers and $20,000 for nonskilled employees. To be eligible, workers have to have either 30 or more years of service, be age 55 or older with 10 or more years of work, or they can be 65 with at least one year of service, the company said.

Courtesy of Marketwatch.com: Ford offers buyouts

Most financial planners and retirement experts say there are a number of factors to consider.  Heres an article with important insight.

The Center For Retirement Research at Boston College Social Security Claiming Guide

At what age should you begin claiming Social Security benefits? If you’re approaching retirement, it’s the most important financial decision you’ll likely make. The Social Security Claiming Guide sorts through all the options near-retirees need to consider. Presented in an easy-to-read, colorful format, the Claiming Guide shows you where to begin, spells out how much you can get, and answers frequently asked questions about how the claiming process works.

Download an electronic copy of the Social Security Claiming Guide

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Starting, Jan. 1, the $100,000 income limit disappears for converting traditional individual retirement accounts and employer-sponsored retirement plans to a Roth IRA. 

Moving money from an IRA or employer plan to a Roth account is know as "converting."  So, anyone willing to pay the income taxes due upon making such a move will be able to funnel retirement savings into a Roth, where it can grow tax-free.

Still, there is a cost to converting to a Roth -- namely, the income-tax bill. When you withdraw money from your traditional IRA, you will have to pay income tax on the withdrawal, or, more precisely, on the portion of it that represents pretax contributions and earnings.

In 2010, Uncle Sam is offering taxpayers who convert a special deal: They can choose to report the amount they convert on their 2010 tax returns, or they can spread it equally across their 2011 and 2012 returns. (If you are worried that Congress may raise tax rates, consider paying the tax bill in 2010.)

Keep in mind that you don't have to convert your entire IRA. It might make sense to do it piecemeal, as you can afford it, over a number of years.

Courtesy of WSJ.com

This summer, Glacier Park Magazine editor Chris Peterson undertook a photographic project to take photos of Montana's Glacier National Park over 100 consecutive days, starting on May 1, 2009, for a traveling photo show in 2010 to commemorate Glacier's Centennial. He used a mix of film and digital cameras, including an 8 by 10 field camera, a Kodak Pocket Vest camera, circa 1909, and a Speed Graphic, among others. His idea was to use the cameras that would have been used over the course of the Park's 100 years.

While Chris was kind enough to share some of his photos below, you really should check out his whole set of 100. All photos and captions are from Chris Peterson. (24 photos total)

Courtesy of the BostonGlobe.com

Fidelity Investments said Thursday that the average balance for its customers’ 401(k) retirement accounts has returned to September 2008 levels.

The average balance rose nearly 13 percent to $60,700 at the end of the third quarter from the end of the previous quarter, and increased 28 percent from the end of the first quarter low of $47,500. The average balance was $58,400 at the end of the third quarter of 2008.

Fidelity attributed the rise to the rally in the equity markets — the Standard & Poor’s 500-stock index had a total return of 34 percent over the second and third quarter combined — as well as employee contributions and the reinstatement of employer matching programs as the economy began to recover.

The analysis was based on the accounts of more than 11 million participants in the more than 17,000 corporate defined-contribution plans at Fidelity.

America's two largest publicly funded retirement programs, Social Security and Medicare, are rapidly going broke. Medicare is already running massive deficits, and its trust fund is expected to be exhausted by 2017. Social Security has a bit more time. Its 2010 deficit is projected to be "only" around $10 billion, and the serious strain on that system isn't expected to start until 2016. Unfortunately, by 2037, Social Security's trust fund will be out of cash, too.

What to do
First, understand that neither Social Security nor Medicare will disappear tomorrow. If you're already receiving or scheduled to start receiving benefits soon, chances are pretty good that the programs will continue largely unchanged for you, at least in the near term. While you do need to prepare for a future with far less generous benefits, there's no need to panic.

Next, get the rest of your financial life in order. Pay off your high-interest debts. Figure out what's really important to you in life -- and what you'd be willing to live without. Make sure you have a sufficient cash buffer to handle the common curveballs life sends your way. When all is said and done, money does make a difference. If you owe it and times get tight, you're at the mercy of those to whom you owe the money. If you've got it, then you're in a far better spot.

Finally, invest as if you'll need money for the rest of your life. Health-care inflation has typically been rising far faster than ordinary inflation. If that trend continues, when combined with Medicare's increasing budget difficulties, it means that you'll likely need a significant nest egg to cover your health expenses in your golden years. Likewise, if you're alive once Social Security's trust fund is exhausted, you'll need to make up that shortfall, as well.

Protect yourself from escalating costs
If you expect to live for the next few decades or longer, you need to prepare for regular inflation, medical inflation, and the additional costs you'll see as Social Security and Medicare benefits decline. That's a pretty heavy burden to bear, and it will likely require you to invest for a bit higher returns than you may otherwise have been targeting.

The Pension Benefit Guaranty Corp. said Friday that its deficit had almost doubled to $22 billion in fiscal 2009 and that its exposure to future losses from weak companies had more than tripled

"We could face much higher deficits in the future," PBGC acting director Vincent Snowbarger said in a statement. "We won't fail to meet our obligations to retirees, but ultimately we will need a long-term solution."

The PBGC's finances this year have been battered by the weak economy, which put it on the hook for 144 new pension plans that failed during the year ended Sept. 30. That compares with 67 in the previous year.

Delphi Corp., the auto-parts maker, and Nortel Networks Corp.'s U.S. subsidiary are among the companies whose pensions the PBGC took over this year.

The agency's investment return rate was 13.2%.

Most 401k retirement plans (403b plans too) provide you a "menu" of funds. 

The plan provider generally offers a a group of funds in different investment categories.  Get familiar with terms like large cap, small cap, international stock funds and also different types of bond funds.  Websites like Morningstar can provide helpful information on these investment categories.

How do you know which funds to select?  CNNMoney.com How To Invest Your 401k.

Question: I've got many investing options in my 401(k) -- small caps, large stocks, emerging markets, fixed-income, etc. What would be the ideal portfolio for me considering that I'm 51 and plan to retire at 65?

Stocks vs. bonds

Start by coming up with an overall mix of stocks and bonds that appears appropriate for you. You've got a pretty long investing time horizon -- 14 more years until you retire, plus another 20 to 30 in retirement. So you need capital growth to build the value of your 401(k) between now and retirement and to help maintain purchasing power during retirement. That argues for putting a sizeable percentage of your 401(k) in stocks since over very long periods stocks generally outperform bonds.

That said, we also know that stocks can get whacked for losses of 30% or more occasionally. And at your age you can't afford to lose too big a chunk of your 401(k) balance. You may not have enough time to recoup the loss. So that argues for not going overboard with stocks.

What type of stocks?

If you could foretell the returns of, say, large-cap, small-cap and foreign stocks as well as how they'll move around compared with each other, you could put together an ideal blend.

But you can't. Which is why for the domestic stock holdings in your portfolio, I think you should take your cues from the way investors overall divvy up their money between different types of stocks. To do that, plug the ticker symbol (VTSMX) for Vanguard Total Stock Market Index fund (VTSMX), which tracks the entire U.S. stock market, into Morningstar's Instant X-Ray tool. You'll immediately see how U.S. stock investors allocate their investing dollars by stock size (small, medium and large) and style (value, growth and blend). Unless you think you know something your fellow investors don't, I wouldn't stray too far from those allocations.

It's not a bad idea to diversify your portfolio a bit more by adding some foreign stocks, assuming they're available in your plan. How much foreign exposure? I'd say 10% to 20% of your overall stock holdings in broadly diversified foreign funds ought to do it.

You could also consider branching out into emerging market foreign funds. But don't be unduly swayed by their recent boffo returns. These funds are the investing world's versions of manic depressives, flying high one year, crashing the next. So if you dabble in them at all, they should represent only a small portion of your foreign holdings.

What type of bonds?

Again, I think broad diversification is the key. I recommend that investors consider making a total bond market index fund the core of their bond portfolio. If you want to diversify beyond that into foreign bonds, high-yield and TIPs for a bit of inflation protection, fine. But these options combined probably shouldn't account for more than 10% to 20% of your bond portfolio.

When you've got a lot of investment options, there's an inclination to think you should be using as many as you can. Problem is, the more investments you own, the more complicated it gets to choose, monitor and maintain them in a coherent portfolio.

How many funds do I need?

So I think you're generally better off keeping things simple. To my mind, there's a lot to be said for a portfolio of just three funds -- a total U.S. stock market index fund, a total U.S. bond market index fund and a broadly diversified foreign stock index fund -- that you rebalance periodically. That combo would give you large and small shares, growth and value and international exposure.