Q: “Should I start a 401(k) or 403(b) investment plan at 63 years of age?”

A: Yes! Actually, I think it can be a good idea to start a 401(k) plan at any point during your working years. You may know that a 401(k) or 403(b) is an employer sponsored retirement savings plan. But you may not know the full range of benefits associated with these plans.

For starters, you get three primary advantages with saving for your Golden Years using a 401(k). The first advantage is that you can set aside retirement funds on a pre‑tax basis; this lowers your annual tax bill. The second benefit is you get the potential for get capital appreciation when you invest your 401(k) funds in investments such as individual stocks or mutual funds. Finally, a third benefit of a 401(k) is that you may receive matching funds from your employer – which helps turbocharge your savings.

A 401(k) also gives you a more disciplined approach to investing for retirement, because you’ll be consistently contributing to your retirement assets – every pay period – regardless of what the market is doing. Such consistency also helps takes emotion out of the investing equation – making you less likely to be driven by fear or greed when the stock market swoons or surges.

Even if you wind up retiring in a few short years—say, at the age of 65 or 70, it’s still worth it for you to put aside more money into that nest egg and help to build your savings cushion.

That way, when you do leave the work place, you are not simply dependent upon your own savings that you might have had, which may be limited. You also won’t be solely dependent upon government funds such as Social Security.

Currently, the average Social Security recipient is only receiving roughly $1,000 per month. That’s not a lot of money to live off of.

If you’re 63, you’re probably at a higher level of earnings power, so you have the option to go ahead and put aside more money.

And here’s a bonus for you: The IRS recently announced that starting in 2012, the maximum amount you can sock away in a 401(k) plan is being raised to $17,000 for those under 50 and to $22,500 for those 50 and older. That’s a $500 increase over 2011 levels. (That $22,500 figure includes the “catch up” contributions that individuals 50 and older are permitted to contribute to a 401(k), as a way to help Americans who may have started saving for retirement later in life).

So let’s assume you did sock away at least $17,000 a year for five years. Well, that’s $85,000. If you saved $22,500 a year for five years, you’d amass $112,500, not assuming any increases (or losses) to your savings.

Hopefully, though, the funds you put aside for your retirement will grow and collect interest. Also, as I mentioned, you may even get some form of an employer match as well. It might not be dollar for dollar, but even if it’s $0.50 cents on the dollar or $0.25 cents for every dollar that you put in, that’s an additional kicker that you can look forward to.

All of this means you have many great reasons, even past age 60, to save in a 401(k) or 403(b) plan—and I would encourage you to do just that.

“Ask The Money Coach” is a syndicated column written by personal finance expert Lynnette Khalfani-Cox, co-founder of the free financial advice blog, AskTheMoneyCoach.com. Follow Lynnette on Twitter at @themoneycoach.

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Brace yourself for stock market activity with all the twists, turns and plunges of the Intimidator 305 roller coaster ride. The roller coaster ride is evident with the impact of the Standard & Poor’s downgrade, which gave the markets the worse day since the financial meltdown of 2008: The Dow Jones industrial average dropped more than 5.5 percent, or about 630 points, while the S&P 500, a broader measure of stocks, plunged about 6.6 percent. Investors fled to the new safe haven of the day: gold, which soared to a record high price of over $1,700 per ounce.

From predictions of a double-dip recession to the unprecedented decision of Standard & Poor’s to downgrade the nation’s AAA credit rating, last week’s market performance left investors queasy. Each major index took a steep vertical drop: the S&P 500 plummeted 7.2%, the Dow Jones Industrial Average tumbled 5.8% and the Nasdaq fell 8.1%.

President Barack Obama was finally able to sign legislation to raise the debt ceiling and avert default by the Aug. 2 deadline. Putting an end to the ugly month-long battle between Democrats and the GOP over deficit reduction, the act did little to move the market.

Nervous investors sold shares responding to reports that American consumers had cut spending for the first time in 20 months and manufacturing barely grew in July. The news came a week after investors became jittery over the Commerce Department‘s announcement that the U.S. economy grew less than 1% for the first half of 2011. To make matters worse, a downbeat economic review from Federal Reserve Chairman Ben Bernanke and fears over a widening European debt crisis contributed to the Dow’s 513-point nosedive last Thursday, the largest point decline since Oct. 22, 2008.  Then Friday the Dow had another wild ride, a 416-point swing as investors in response to the better-than-expected jobs report, progress on the European financial front and news of the debt downgrade, which S&P announced after financial markets closed.

Informing the agency of $2 trillion error in its deficit projections, U.S. Treasury officials stated the miscalculation raised “fundamental questions about the credibility and integrity of S&P’s ratings action.” In a conference call with reporters on Saturday, the agency defended its move, asserting the debt ceiling stalemate demonstrated  “a degree of uncertainty around the political policy-making process which we all think is incompatible with a AAA rating.”

The downgrade from AAA to AA+ could lead to higher interest rates and borrowing costs on everything from credit cards to mortgages. And local governments may find access to funds much more expensive.

It also brings another element of uncertainty to the markets. Policy makers and investors are preparing for even more turbulence. Global exchanges had a negative reaction to the downgrade when markets opened Monday: Major Asian indexes in Tokyo and Shanghai were all down more than 2% after the opening bell. Treasury yields fell as gold hit a record.

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Expect Wall Street to be just as volatile. And this seesaw activity will continue as markets react to every financial event, political upheaval, policy decision and economic report.  But even in this environment, you can still make basic moves to fortify your portfolio and protect assets. Studies have shown that African American investors have a greater tendency to avoid risk and volatility than their White counterparts. As a result, large numbers have pulled dollars out of the market, converting paper losses into wealth-depleting capital losses.

In most cases, it’s costly to get off the ride before it’s over. In fact, turbulent markets and economic downturns can present wealth-building opportunities for strategic investors. The following tips may help you find a smoother, more profitable course:

• DON’T PANIC: Our rule-of-thumb: engage in disciplined, long-term investing. It’s true the past can never fully predict future outcomes but it serves as a valuable reference. Note that the stock market crash of 2008 extended to two months of 2009 before equities began to rebound. Between the Great Recession market low of 6,547 on March 9, 2009 to the post-crisis market high of 12,810 0n April 21, 2011,  the Dow posted a spectacular 95% gain in a two-year period.
• LOOK FOR DIVIDEND STOCKS: With increasingly unpredictable environment, consider purchasing shares of companies that make cash distributions to shareholders on a quarterly basis. These stocks tend to be high-quality blue chips that can provide you with additional cash flow from a yield of 2% to 3% . Also, the capital gains taxes on qualified dividends are no higher than 15%.
• TAKE ADVANTAGE OF 401(k) PLANS: In our recent August issue, BLACK ENTERPRISE CEO Earl G. “Butch” Graves, Jr. stresses the value of contributing to employer-sponsored 401(k) and 401(b) plans in his Executive Memo column. For good reason, it’s a systematic way to build your retirement nest egg.  As many of you know, funds are deducted from your paycheck and you get to invest in an array of investment offerings with tax-free dollars. An added bonus is that in many cases your employer will match a portion of your contribution—the maximum is currently $18,500 per year. By doing so, you benefit from dollar cost averaging—the process of investing equal dollar amounts at regular intervals—which enables you to purchase more shares of quality companies when the stock price drops, a likely event in today’s capricious market.  Since these tax-deferred vehicles are designed for retirement, you’ll face stiff penalties and tax liabilities if you withdraw funds before age 59 1/2.
• GO INTERNATIONAL BUT BE PICKY: In diversifying your portfolio, you should still get some foreign exposure. Among our recommended financial power moves is making investments in emerging markets like China and India through mutual funds. Experts suggest such vehicles represent no more than 10% of your holdings, however.
• GET DEFENSIVE. Identify recession-resistant stocks. Companies in sectors such as pharmaceuticals, personal care, household products, food and consumer staples—products consumers purchase in economies weak or strong—will offer some portfolio stability.

U.S. Treasuries are still safe bets. As the debt ceiling battle in Washington came to a close, I asked Jason Tyler, senior vice president of Investment Research for Ariel Investments, L.L.C. (No. 6 on the BE ASSET MANAGERS list with $5.5 billion assets under management) whether investors should still flock to government bonds as safe havens.  He unequivocally asserted that these securities represent the world’s most solid investment—even with the downgrade. “People hold U.S. Treasuries because there’s extraordinary financial stability underneath it and that’s still the case,” he says, adding that the European debt crisis has made that continent’s securities less attractive. “U.S. Treasuries should continue to be seen as the safest place to park money. At the end of the day, nobody holding U.S. Treasuries is going to lose principal.”

Even though you employ these strategies, the market may still take you for a loop or two. Some days you’ll have to hold on tight. If you stay focused, however, when you return to terra firma, you’ll be richer for it.

Black Enterprise Business Report host Clarke with Brown and Aberra.

Power couple Amsale Aberra and Neil Brown, the husband and wife team behind Amsale, the couture bridal and evening wear fashion company, are featured on this week’s edition of the Black Enterprise Business Report, hosted by Caroline V. Clarke. The name Amsale has become synonymous with some of the most alluring bridal fashion in the world. The designs have captivated modern brides and industry insiders alike, who snap up her dresses for their own weddings, as well as for famous weddings portrayed on film (Grey’s Anatomy, 27 Dresses).

In Executive Style, Sonia Alleyne explores Sphatika, a full-service spa in New York City where busy, overworked professionals can go to relax and replenish. A student of holistic health and Eastern philosophy, former actress Janet League-Katzin was inspired by her personal journey to health to open Sphatika four years ago with a restorative focus for the mind, body, and spirit and the mantra, “Beauty is Balance.”

Also this week on the Black Enterprise Business Report, 0ur Entrepreneur of the Week segment profiles cosmetic surgeon Dr. Michael Jones of Lexington Plastic Surgeons in Los Angeles. And Jackie King, a financial advisor for Edward Jones Investments, shares the basics of starting a 401(k) retirement savings plan with Black Enterprise Personal Finance Editorial Director John Simons in our Wealth for Life segment.

Black Enterprise Business Report is the award-winning weekly, half-hour program offering a mix of one-on-one Power Player interviews with top Black corporate executives, Wealth for Life discussions on personal finance, Entrepreneur of the Week profiles of successful small business owners, Quick Tips providing actionable advice from top business leaders, and Executive Style featuring the hottest lifestyle trends and luxury living for today’s consumer.

Click here for times and stations where the Black Enterprise Business Report airs in your area.

Ilyas Akbar, a retirement planning specialist for AXA Advisors, says it’s good for young professionals just starting out to think of their money as three buckets; short, mid, and long-term. BLACK ENTERPRISE and Akbar created a plan to help you identify your financial goals and some possible investment options for achieving those ambitions.

• Short-term

Short-term goals are generally defined as those goals you want to achieve within two years. Akbar says these can include building an emergency savings fund, saving for a down payment on a home, purchasing a car, or going back to school etc. In the event of an unexpected expense “you want to have liquid cash available that’s not tied up in the market,” he adds.

Savings Vehicles:

1. Savings account: Although interest rates are lower, your money is liquid and your deposits are FDIC-insured up to at least $250,000 per insured bank. You can easily transfer or withdraw your money from savings accounts.

2. Checking accounts: Although most are non-interest bearing, some banks and credit unions offer higher interest rates. These accounts are FDIC-insured and can be easily accessed. Banks may impose minimum balances, limit the number of transactions that can be made within a time period or may require direct deposit to qualify for the high-interest rate.

3. Money Market Accounts: The rate of return is typically higher on MMA’s since they are based on the current market rate of interest. They are generally FDIC-insured. Banks may impose minimum balances, or limit the number of transactions that can be made within a time period.

4. Certificates of Deposit: CDs generally receive a higher interest rate, especially on longer terms, which range from one month to five years. They are fairly liquid, but there is a penalty if you withdraw the funds before its maturity date.

Rate of Return: The average rate of return that one might target is 1-2%. “You won’t earn a lot on your money, but the benefit is liquidity and stability,” says Akbar.

• Mid-term

Mid-term goals are generally those goals that you want to accomplish in the next 5-15 years, such as early retirement, business, education, a second home or a large purchase. “This bucket provides financial flexibility, freedom and allows people to enhance their abilities in their lives,” says Akbar.

Where to Invest:

1. Mutual Funds: By investing in a pool of stocks, bonds, and other instruments with multiple investors, gives you holdings in several different companies (diversification). Like stocks, they can also be converted into cash.

2. Stocks: Ownership of a corporation represented by shares that are a claim on the corporation’s earnings and assets.

3. Real Estate: A publicly traded company that invests in a specific type of property, from shopping centers and office buildings, to apartment complexes and hotels.

4. Exchange Traded Funds: ETFs are similar to mutual funds in that they represent a collection of investments. Unlike mutual funds, ETFs trade on an exchange (hence the name). Some investors prefer ETFs to mutual funds because they have low expense ratios and generate lower capital gains taxes than similar mutual funds.

Rate of Return: The average rate of return that one might target is 6-10%.

• Long-term goals

“This is probably this biggest thing you’ll ever save for,” says Akbar. This savings for your retirement. Social Security won’t be able to fund your retirement. Here are other investment vehicles you may want to consider to help you start investing for your golden years.

Where to Invest:

1. 401(k)-Tax deferred retirement account that an employee elects automatic contributions from their paycheck to the plan on a pretax basis. Distributions received before age 59 1/2 are subject to an early distribution penalty of 10% additional tax unless an exception applies.

2. Individual Retirement Account: An IRA is a fund earmarked for retirement savings (There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.)

3. Cash Value Life Insurance: An insurance policy that covers you for the duration of your life. It builds cash value

Rate of Return: The average rate of return that one might target is 8-10%.

Option 1: Roll the money into your new employers plan

If your new employer accepts your previous employer’s 401(k) plan you can simply roll it over. There are no taxes or penalties to do so and the money continues to grow tax deferred.

Myth Buster: Your new employer and previous employer do not have to do business with the same brokerage firm in order to accept the rollover.

Option 2: Leave the money with your previous employer

“The only reason you would want to do this is if you have a loan against your 401(k),” explains Harris. In general, you’ll have to repay that loan in full before you make any movement. Also, if you leave the money with your old employer’s plan you won’t be able to add any more money to it and you’ll also have less investment options than you would with an IRA, which has thousands of mutual funds to choose from.

Quick tip: Make sure there are no administrative fees and the 401(k) bylaws are the same for non-employees.

Option 3: Roll the money into an IRA

IRA’s offer the same tax advantages in addition to more investment options. You can invest in mutual funds, individual stocks, bonds and real estate.

Here’s how you do it:

1. Open an IRA with the trusted brokerage firm of your choice.
2. Call your human resources department at your former job and request a direct rollover form (generally 1-5 pages).
3. Put your new account number on the form and make sure to select direct rollover (not distribution).
4. Confirm with your HR department that they will mail out a check to you. You have 60 days to deposit the funds into your new IRA account.

Quick Tip: Some brokerage firms offer specialized roll over agents to assist you in the process. Please also note that since 401(k) contributions are made before taxes are taken out, you cannot roll your money directly into a Roth IRA, which allows tax free withdraws.

Option 4: Cash it out

This option is listed last because it’s one that you want to avoid if possible. It has the most serious ramifications if you are under age 59 ½. Receiving a full payout will cause you to pay taxes on the money (usually 20% off the top) and you will be subject to a 10% penalty as well.

Saving Grace: The IRS has a 60-days roll over rule that allows you to take the money you pulled out and roll it over into an IRA. Please note you will have to pay a mandatory 20% withholding fee, but you can recoup the money when you file your tax return (20% tax credit).

• Do the choices in your employer’s 401(k) plan leave you wanting…more? We spoke to Dawn Brown, senior financial adviser at New York-based wealth management firm Altfest, to get a few tips on how to convince your employer to make a change, and expand the company’s selection of investment options.

• 1) Express your concerns, and be solution oriented: If employees are not satisfied with investment options within their employer-sponsored retirement plan, feel free to express concern to your employer. However, cautions against merely complaining. “Go with an outline of what you would prefer,” says Brown. “Is there a larger number of choices a different provider or different investment options?” To get a sense of alternatives, Brown suggests canvassing friends who work for other employers about their 401(k) plan choices.

• 2) Take advantage of in-office financial briefings: It’s not uncommon for companies to hold an annual meeting with employees and the 401(k) provider. Employees should take this time to inquire about additional plan options, advises Brown. Since employees cannot initiate a meeting with the provider, this is an opportune time. From there, address your concerns with your human resource department, which is traditionally responsible for handling any issues with the plan provider, adds King.

• 3) Seek buy-in: Consider banning together with colleagues to make a request or petition. “An employer will likely want the employees to be happy with the plan as it will increase participation rates,” says Brown. Low participation rates could spell trouble for employers as the retirement plan may become “top-heavy” – that’s when more than 60% of assets in a plan belong to “key employees” or employees earning more than $160,000 annually.

• 4) Know your rights: Investment plans are overseen by the Department of Labor who oversee ERISA, the law that governs defined contribution plans. While companies are not obligated to provide retirement plans, those that do offer them are obligated to maintain detailed rules of the plan. “By providing a 401(k) plan the employer has a fiduciary role,” says Brown. “This includes choosing the investment manager, choosing investment options and monitoring the performance,” The investment options your company offers should be diverse.

• 5) Think twice before exiting: Even if your options remain limited, you may want to reconsider completely withdrawing from a company-sponsored 401(k) plan. A 401(k) allows you to save funds tax deferred, up to $16,500 each year (with a catch-up for those over 50), explains Brown. Keep in mind that even though IRAs offer more flexibility in investment choices, they have much lower tax deferral amounts.

For more financial advice, strategies, and tips for young people, read “BE Next: Your Questions, Answered” in the January 2011 issue of BLACK ENTERPRISE, which hits national newsstands on December 28.

As a single mother of sons Rashaad (not pictured) and Tariq, McLemore has always been concerned with budgeting. (Photo by Mark Greenberg)

Friends and family aren’t likely to find April McLemore shopping in stores such as Nordstrom or Neiman Marcus. That’s because she’s probably walking the aisles of TJ Maxx or Marshalls, eyeing the clearance racks and hunting for bargains.

“I am all about saving money,” says the 39-year-old Internet sales executive who refers to herself as the “Coupon Queen.” “Sometimes when the coupons are really good, I buy two or three Sunday newspapers. This way I can get multiple coupons. It’s worth spending an extra $2 on the paper if I am going to save $40 to $50 out of that.”

McLemore’s frugality extends to big purchases too. When she purchased her four-bedroom home in August 2008 for $151,000, she pre-qualified for more than $200,000 but didn’t want to assume a larger mortgage. “I am very practical about how I spend my money. I never want to be put in a position where I can’t afford something,” explains the Kyle, Texas, resident.

As a single mother of two sons, McLemore has always been concerned about budgeting and managing debt. “I pay cash pretty much for everything.” Not surprising, she has zero credit card debt. “I usually charge about $300 to keep my accounts active and pay off the balance at the end of every month,” she says of the three credit and two store charge cards she holds.

McLemore does, however, have other debt obligations. She is paying $600 a month on a $33,000 car loan at 0% for her 2009 Nissan Maxima. She also owes $2,000 in school loans for some continuing education classes. As for her oldest son Rashaad, 22, a college senior, she bears no financial responsibility for his schooling. He pays his own way, largely with loans. McLemore expects younger brother Tariq, 17, a junior in high school, to do the same.

McLemore is in solid financial position because she has a gross income of $120,000, cash reserves of $24,000 in a money market account, no college cost obligations, no credit card debt, a home mortgage at 5.375%, manageable car note, and $2,500 in monthly discretionary income. Her major financial challenges are that she needs to rebalance her investment portfolio and maximize her discretionary income to meet her goal of retiring at age 55, which is just 16 years away.

McLemore’s monthly take-home pay is roughly $6,500, with living expenses adding up to $4,500 ($1,000 of which is deposited into a money market account earning 1.49% interest and an additional $250 is applied to her mortgage payment). In addition, she is contributing 10% of her salary to her 401(k) plan, which is currently valued at a little more than $34,000.

McLemore saw her 401(k) take a big hit during the 2008 stock market decline. But just as she value shops for food and clothing, she should have applied the same principle to her investments. Instead of becoming fearful and moving her funds into a more conservative allocation, she could have done some “bargain hunting” for investments that had fallen in price.

“I know that the money I make right now I may not make forever,” she says. ”So, I need to make sure I am putting it in the right places. I want to get the best return on my money for the future.”

The Advice
Black Enterprise devised a plan to help McLemore achieve early retirement:

Raise 401(k) contributions and consider a later retirement date. Given her current portfolio, McLemore’s desire to retire at age 55 and live comfortably without any future employment income isn’t practical. With only about $35,000 amassed in her 401(k) plan, this is hardly enough to get her to where she needs to be in 16 years. Lee Jenkins, a managing partner and financial adviser at Atlanta Capital Group and the author of Lee Jenkins On Money: Real Solutions to Financial Challenges (Lift Every Voice; $14.99) says McLemore needs to increase her 401(k) contributions from 10% to 13.75% of her income. “That percentage increase would allow her to max out her contribution limit at $16,500. It would be an additional $4,500 a year, or just $375 a month, which she could easily afford.” With a company match of $3,600 per year (which represents a 50% match on the first 6% of her income), April will have annual 401(k) contributions of $20,100. To live comfortably in retirement, she will need $84,000 each year (70% of her current income of $120,000 as a rule of thumb).

Rebalance 401(k) investments. Her current 401(k) allocation is 70% fixed income, and 30% equities. This allocation is too conservative at age 39, says Jenkins. “She needs to be more diversified with her retirement investments. For instance, she currently has only three investments in her account, although her company offers more than 30 different mutual funds.” She currently has 56% in the PIMCO Total Return Fund, 28% in the AllianceBernstein 2030 Retirement Strategies Fund, and 16% in IAC stock (her company’s stock). Jenkins recommends six areas of diversification: 20% large cap stocks; 15% small cap stocks; 15% large cap international stocks; 15% IAC Co. Stock Plan; 10% in a global REIT; and 25% in a fixed income fund.

Open up a Roth IRA. McLemore needs to save money outside of the 401(k). Jenkins suggests a Roth IRA. Contributions are tax-free forever unlike a traditional IRA, in which any distributions are taxed. The maximum annual contribution to a Roth IRA in 2010 is $5,000. Although McLemore’s gross income is $120,000, as a single filer and/or head of household she qualifies for a Roth IRA. Contribution limits are based on modified adjusted gross income (gross income after itemized deductions). Hers is under $105,000, so, she can contribute $416 a month to reach the $5,000 limit. If her modified adjusted gross income was between $105,000 and $120,000 she could only make a partial contribution to a Roth IRA. This will bring her total retirement contributions to $25,100 annually. With all three of these contributions (401(k), company match, and Roth IRA) McLemore should accumulate about $1,441,000 for her retirement in 21 years (at age 60) if she averages a conservatively estimated  8% a year return on her investments.

Eliminate consumer debt. Jenkins recommends that she not make extra payments toward her mortgage. Instead, she should apply $459 toward paying off her car loan at a faster pace. She can use the $2,000 from the financial fitness contest winnings to pay off her student loans. After all of her consumer debt is paid off, she can resume attacking the mortgage loan by making extra payments.