Arizona - What are you doing to ensure your financial future?  Aside from paying your bills on time, and keeping your credit scores up, have you thought about what type of life-style you will lead after retirement?

For those of you who work for companies who are willing to match your 401k contributions, if you’re not contributing enough to take full advantage of the match, you're essentially donating part of your income back to the company.  Benefits are simply “pay” in another form.  They have a monetary value, and if you don’t take advantage of them, then you’re leaving money on the table.

For those who don’t have the benefit of company matched 401k plans, there are other ways to fund your retirement.  You’ve heard the old expression “pay yourself first”.  This means out of every paycheck, settle on a percentage of what you want to keep for your future, if a percentage is too difficult to work out, then settle on a flat amount.  The very first transfer out of your checking account, should be to your savings account.  Then pay the rest of your bills. 

I promote the theory of saving until you have 6 months of “bare necessities monthly expenses” saved.  This is your “save-me-cushion”.  After that, open a 2nd savings account.  If you always pay yourself first it will accumulate steadily.  Most credit unions will let you open a CD with as little as $500.  I recommend a 1-year maturity choice.  During that year, you continue with your pay yourself first plan, to accumulate more money to add to the CD when it matures.  You also have the opportunity to take advantage of rising interest rates with 1-year maturity.  You really do not want to open CD’s until you have your “save me cushion” fully funded and in tact, because there is a penalty for early withdrawal on Certificates of Deposit.  As your income increases, or you find ways to contribute more to your “mine to keep” savings account, you may want to look into some safe, dividend paying investments. 

I maintain a philosophy of Dividends don’t lie.  With all of the scandals on Wall Street over the past few years, with company’s lying about their profits, lying about their debts, I’ve found one of the safer ways to travel is buying dividend paying stocks.  Company’s that agree to share their profits with their shareholders in the form of cash, are less likely to be “pumping up” the bottom line, since the bottom line is shared with shareholders in the form of cash payments.  While CDs are taxed at “regular income” rates at the end of the year, many dividends qualify to be taxed at the lower rate of 15% as if they were Capital Gains.  One needs to investigate the type of dividends before investing to ensure that they are prepared for any tax consequences.  For example many REITS (Real Estate Investment Trusts) pay high dividends, but many of those are taxed as regular income because the profits derive from rental or management income.  Some will be taxed at Capital Gains Rate, if they sold a building and shared those proceeds with shareholders.  Most REITS are required to pay out 90% of their liquid income to shareholders, in order to maintain their own tax-free status.  They share the tax-burden with the shareholders.  Whatever portion you receive, though part may be taxed as regular income and part as Capital Gains.  I prefer the types of REITs that actually own & manage properties, whether for residential, commercial or industrial use.  Many however, are REITs of Paper Only.  These companies essentially buy mortgages, and the income they generate is from the interest on these mortgages.  This is often referred to as Mortgage Backed Securities.  While these used to be fairly safe investments, I am feeling a little edgy about the economy and the rising number of foreclosures across the nation, therefore I would be more inclined to stick with those types of REITs that own and manage real property.