Talk about money: Jump-start your financial fitness in 2011

The new year has arrived, and with it myriad resolutions. For many of us, including myself, those resolutions center on getting healthier and fitter.
While healthier living is a worthwhile objective, it needs to be coupled with financial health and fitness. After all, the hope is that a healthful lifestyle leads to increased longevity, and the longer you live, the more financial resources you will require — especially in your extended retirement.
Fortunately, a brand-new payroll tax deduction exclusive to 2011 will allow many of us to improve our financial fitness without feeling the usual pangs of hunger or burn.
The absence of discomfort largely has to do with the reduction of the employee percentage of the payroll tax from the normal 6.2 percent of salary to 4.2 percent. What that means is that every wage-earner will have an effective 2 percent reduction in taxes on their first $106,800 of income this year.
A smart New Year’s resolution is to take the savings and apply it to your 401(k) or other retirement plan. After all, this is found money, so applying it toward savings needn’t require the same level of sacrifice a traditional New Year’s resolution might.
To better illustrate your path to financial fitness, let’s assume that Richard Simmons was a 30-year-old in 2011 who wanted to say farewell to his financial fat. Let’s further assume that his annual wages totaled $50,000 and that he planned to retire at age 67. Mr. Simmons’ payroll tax break for 2011 equaled $1,000, and he applied that savings to his 401(k). And because Mr. Simmons liked the way his 401(k) looked at the end of the year, he decided to keep funding it with the additional $1,000 for the next 36 years, at which point he retired.
Assuming a long-term growth rate of 7 percent, this small addition would leave Mr. Simmons with an extra $171,561 at retirement. From that, he could potentially generate an extra $15,134 of income per year until age 87 — no small amount.
Keep in mind that this is for illustrative purposes only and not indicative of any specific investment product or investor. Everyone’s situation is different.
As you can see, a small step now can drastically improve your financial fitness for years to come and lead to a happier (and healthier) retirement. And because of the payroll tax break for 2011, you can improve your fitness without any sacrifice.
That’s one thing that might sound too good to be true, but is not.
Orion Melehan is a certified financial planner for LMC Financial Services in Scotts Valley. Contact him at 454-8042 or

or***@lm**********.com











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