Lessons Learned/A rule to live by: Accept an employer’s offer to help

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“Would you mind looking at my latest 401(k) statement?” my friend asked. I was flattered. She frowned slightly while handing me the envelope.

Later, a glance at the first quarter statement told me the value of her employer-sponsored retirement account had slipped slightly, when compared with year-end 2007 figures. Two value-oriented funds in the portfolio had lost traction. And a large-cap growth fund was floundering. Yet several income-style funds and a “balanced” fund, which holds both stocks and bonds, showed gains. All in all, her portfolio had survived the bear market with only modest damage.

“I seem to be losing ground,” she said during a phone conversation. For perspective, I pointed out that most of the major market indexes had not performed as well as her portfolio during the quarter. Six months ago, I had helped diversify her account among 10 investment choices. The goal was to reduce overall risk. Yet, over time you need to take risk to get reward.

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It was time, I decided, to deliver a mini-sermon: “I see that you’re not making contributions to this account. Think of all the employer-matched dollars that are slipping between your fingers,” I said. My friend agreed, then disclosed that, starting in April, she had signed up for automatic payday contributions. “I don’t contribute the maximum. But it’s a start,” she said.

Many Americans are not even in the savings game: Nearly 25 percent of workers who could participate in a 401(k) or similar plan just sit on the sidelines, according to the Employee Benefit Research Institute.  

If my friend had regularly plowed money into her 401(k) during the entire bear correction, she likely would have piled up some very cheap shares. 

One secret of building wealth is to automate your retirement contribution, then keep that money in the market so it can compound. If you don’t physically contribute the money, you won’t miss it. And you won’t be spending it either.

n Use an FSA to shrink taxable income: If your employer offers a health care “flexible-spending arrangement,” take advantage. This type of FSA account lets you pay out-of-pocket medical costs — even health insurance premiums — with pre-tax dollars.

Dedicating a portion of wages to the FSA will also shrink your taxable income. It’s a win-win choice.

n  In a volatile market, spread your IRA withdrawals: A year ago, I was searching for a clever way to take my first-ever Required Minimum Distribution from traditional IRA accounts. Like it or not, old duffers like me have to take money out of tax-sheltered accounts, starting at age 70½, because the Internal Revenue Service wants to tax these dollars as ordinary income.

After failing to find a too-clever idea, I settled for a take-some-profits strategy: The RMD was spread across numerous funds in one mutual fund family. The size of each distribution was based on the fund’s year-to-date performance. When the process was complete, the remaining value of each fund was about the same.  

This skim-some-cream approach worked because all of the funds were reporting gains.

That’s not true this year: Several of these funds have year-to-date gains, but most are showing losses. I’m toying with the idea of taking one-third of the RMD money now, another third during July and the final one-third in October.

Since I expect market volatility to continue as the economy rebounds, spreading withdrawals across the calendar year makes sense to me. Another twist: Distributions will be made to a money-market fund within the IRA account, then electronically into my checking account.

n  Old and new ideas for ID-theft protection: Periodically, readers ask for details about getting a free copy of their credit report every four months. First, call 877-322-8228 or use the Internet to locate annualcreditreport.com. You could then order a report, once a year, from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Better yet, stagger your requests, so you can review a report for accuracy every four months. 

Be wary of identity-theft seminars or other Web sites that advertise “free” reports. They will try to talk you into paying for a credit-monitoring service, which might include insurance against losses. Is an ID-theft protection plan worth $10 to $12 a month? Most credit card issuers don’t hold their customers liable for fraudulent charges.

You may already have ID-theft protection through your homeowners policy, or be able to add that coverage for roughly $25 a year.

If you have a Lessons Learned topic to suggest, you can call Gene Kelly at 421-2861, write to him at 2611 Bretigne Circle, Lincoln 68512, or e-mail him at genekelly@windstream.net.