InvestingAnswers2013-05-25T10:41:49-04:00InvestingAnswershttp://www.huffingtonpost.com/author/index.php?author=investinganswersCopyright 2008, HuffingtonPost.com, Inc.HuffingtonPost Blogger Feed for InvestingAnswersGood old fashioned elbow grease.5 Easy Steps Toward a Worry-Free Retirementtag:www.huffingtonpost.com,2013:/theblog//3.28210712013-03-06T14:10:44-05:002013-05-06T05:12:01-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/By David Goodboy
Worry-free finances = a happy, productive retirement, right?
Well, that goal is easier to accomplish than you think. It only takes a little sacrifice... and as much planning as you can muster.
I'm going to tell you about five tips that should make your golden years that much more golden.
Ideally, begin planning with your first real paycheck. However, regardless of your age -- or financial condition -- starting now is better than not starting at all. Just remember: Each year you are closer to retirement, the more capital you'll need saved to reach your retirement goals.
I have other tips to put you on a path toward a worry-free retirement... And while nothing is guaranteed, these tips should get you started.
1. Have A Plan The American Savings Education Council provides calculators that show you how much you will need to save for retirement and obtain the right income. If you know what income you will need for retirement, then you will be able to save enough capital to earn the income. Don't fly by the seat of your pants: This is one time when it pays to be exact. You can also try InvestingAnswers' savings calculators here.
2. Use Your 401(k)
Your 401(k) plan is a powerful retirement savings tool. This is particularly true if you are fortunate enough to have an employer who matches your contributions up to a certain amount. Most experts suggest maxing out your contributions to the plan up to the allowable limit. This forced savings/investing method can translate into a worry-free retirement.
3. Build A Portfolio Of "Retirement Savings Stocks"
In addition to your 401(k) plan, build a portfolio of stocks that pay safe, rising dividends and supercharge your retirement fund. Think of this portfolio as your ace in the hole when it comes to speeding up the process. [My associate Carla Pasternak calls these investments "Retirement Savings Stocks." These stocks offer a reliable source of high income even if the market goes down and can give you the second income you're looking for.]
4. Keep Working
This may sound ridiculous, but working at what you love can be a great retirement plan for some. Choose a part-time job in a field or business that you enjoy. Many retirees turn their hobbies into small businesses or work part time at what they consider enjoyable. I have a friend, Joe, who loves to fish. He would spend many of his pre-retirement weekends fishing -- sometimes regardless of the weather. I thought he was overboard with the sport, but he was very passionate about it.
After retirement, he turned this obsession into a successful part-time business guiding other sportsmen to his favorite fishing locations. Last I checked, he couldn't be happier getting paid for what he loves to do. This is just one example of the multiple times I have witnessed retirees being happier working at something they love than not working. Not only will this keep you mentally sharp, but your knowledge and skills will be appreciated by others.
5. Monitor your progress
Once every six months, review your progress. Make sure your investments are performing as expected. It's easier to correct a mistake early on than to let it grow into a potential portfolio-damaging error.
The Investing Answer: You need an exit strategy. How will you turn your nest egg into income and spending money? This is the time to reap the rewards of careful planning and delayed gratification, so make sure you have a workable exit plan in place. The primary things to remember when developing an exit plan are place and affordability.
Since you are no longer tied to your old job, you can live anywhere you wish. Do you like the ocean, the mountains or the desert? Anything is possible now, so be creative! Next, explore where, within the overall plan, your retirement resources will provide the best "bang" for your buck. The cost of living varies wildly around the United States, and if you decide to look internationally, the sky is really the limit.
InvestingAnswers' mission is to empower you to build and protect your wealth. We'll teach you how to invest not only your money -- but your time, your efforts and your energies -- in the best way possible to grow your wealth and protect it. And we'll strive to do it in simple, plain-English terms, with as little jargon as possible. How? With hundreds of free, unbiased articles, videos, columns, tutorials and the most down-to-earth, easy-to-understand financial dictionary on the web -- which is always growing. Follow us on Facebook and on Twitter. ]]>4 Credit Moves to Make Before New Year's Evetag:www.huffingtonpost.com,2012:/theblog//3.22375862012-12-04T11:51:23-05:002013-02-03T05:12:01-05:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
That probably sounds strange, but I enjoy it because I like to enter the new year organized and on top of my credit life. That way, I make much better decisions with my finances.
You can go into the new year on top of your credit world, too. Set yourself up for a great year by doing these four things before the clock strikes midnight on January 1, 2013.
1. Get Your Free Credit Reports
You're entitled to a free annual credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. All you have to do is go to AnnualCreditReport.com, which is the official government site to obtain your free credit reports. (And it's the only one where the credit reports are truly free -- no strings attached.)
Review your credit reports carefully. Look for possible errors, which can drag down your credit score, and make sure your personal information is accurate. You also want to look for signs of identity theft. For example, if you see any accounts that you didn't open or purchases you didn't make, these are warning signs of fraud.
The Federal Trade Commission details what to do if you find an error or if you suspect identity theft.
2. Check Your FICO Score
Recently, there have been several stories about how many credit scores we all have. It's true that we have a bunch of scores, and they're used by lenders for different purposes.
You can get a free snapshot of your credit score on various websites. But remember that these aren't your FICO scores. That's why they're free. FICO scores are the ones lenders most commonly use when making decisions, and they're the only ones you should spend your money on.
Now, having said that, I think these free credit scores really do help you keep tabs on the overall health of your credit.
But because the vast majority of lenders use a variation of your FICO score to determine your creditworthiness, it's a good idea to check your FICO score at the end of the year. You can request your score when you request your free credit report (the score isn't free, though) or you can purchase your Equifax or TransUnion FICO Standard score at myFICO.com for $19.95. This site advertises a "free" FICO score, but you have to sign up for a 10-day trial credit monitoring service. It's $14.95 per month and the burden of canceling the subscription falls on you.
3. Review The Current Terms On Your Credit Card Accounts
You could save quite a few bucks by paying attention to these key things:
Look at your APR. If you've improved your credit score significantly in the past year, ask for an interest rate reduction. Another good reason to ask for a lower rate is if you already have excellent credit and your APR seems high compared to the offers you're getting in the mail.
Understand 0% introductory APRs on purchases or balance transfers. Know when the introductory period ends. If you're carrying a balance, pay that off before the go-to rate -- the regular APR you'll have when the intro rate is over -- kicks in.
Check balances on your rewards cards. Know if you're near any limits or expiration dates. Take a look at your balances and plan what you'll redeem the rewards for. Just don't let your rewards go to waste.
4. Set Credit-Related Goals For 2013
Set your sights a little high, but stay grounded in reality. For instance, if you have bad credit, make 2013 the year you improve your credit score. You're highly unlikely to go from bad credit to excellent credit in one year, but getting your score into the "fair credit" category is reasonable.
Another important goal: Deal with any credit card debt you have. If you have excellent credit, you can transfer your debt to a credit card offering a 0% introductory APR on balance transfers. If you don't qualify for the best cards, figure out how much money you can throw at your debt every month. Even if it's only a little above the minimum payment, you'll chip away at it. Be persistent.
If you don't have any debt, good for you. Pat yourself on the back. Stay that way in 2013 by setting up one more goal -- creating a budget and tracking everything you spend on credit cards. It's difficult to stay out of debt if you aren't sure how much you've spent.
The Investing Answer: Do a little year-end credit housekeeping and you'll make smarter financial decisions in the coming year. And when you're informed about your credit life, you'll also be clear about the goals you need to set for 2013.
- By Beverly Harzog
InvestingAnswers' mission is to empower you to build and protect your wealth. We'll teach you how to invest not only your money -- but your time, your efforts and your energies -- in the best way possible to grow your wealth and protect it. And we'll strive to do it in simple, plain-English terms, with as little jargon as possible. How? With hundreds of free, unbiased articles, videos, columns, tutorials and the most down-to-earth, easy-to-understand financial dictionary on the web, which is always growing. Follow us on Facebook and Twitter. ]]>Which Political Party Is Better for Your Stocks?tag:www.huffingtonpost.com,2012:/theblog//3.20880682012-11-07T10:34:22-05:002013-01-07T05:12:01-05:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
Democrats in Washington are courted by the same business lobbyists as their GOP counterparts. And Republicans, for their part, are well aware of the fact that any policies deemed too harsh on citizens (and too favorable to corporations) might get them booted out of office at the next election.
Yet if you ask many people, they'll tell you that Republicans are the best stewards of the economy. And they think that investment portfolios are likely to fare better when the Grand Old Party is in the White House. The facts tell a different story.
In an unusual twist to conventional wisdom, stocks have actually fared better under Democratic presidential administrations. That's the conclusion drawn by analysts at S&P Capital IQ, who analyzed annual market returns over the past nine decades.
Frankly, the margin of victory isn't even close. Even if you toss out the top period for Democrats (under Bill Clinton) and the worst period under Republicans (under George W. Bush), Democrats still would come out ahead.
Does that mean that stocks are likely to keep performing very well, now that President Obama has been re-elected? To answer that question, we have to go back and look at why the market has done better in some periods than others.
And that analysis starts with perceptions about Democrats. Voters have tended to elect a president from this party when the economy is troubled: FDR inherited a lousy economy (and a very weak stock market) from Herbert Hoover; the economy slipped into Recession during Eisenhower's last year in office in 1960, giving John F. Kennedy a nudge; Jimmy Carter won election during a period of high inflation and rising unemployment; Bill Clinton capitalized on the weak economy overseen by George H.W. Bush; and Barack Obama took office on the heels of a fresh economic crisis.
The common thread here is that Democrats have tended to benefit from a weak economy and low expectations.
Still, you can't look at market returns in a vacuum. Stocks may have risen 6.7 percent annually under Carter, but they actually lost ground when high inflation is taken into account. Simply put, inflation and interest rates have a much greater impact on stock returns than many realize.
Indeed you can credit a steady drop in inflation and interest rates that began in 1982 for the powerful bull market that started under Ronald Reagan, continued under George H.W. Bush and then went on for another eight years under Clinton. The fact that the stock market rose more than 15% annually, on average, in that 20-year period, is something we may never witness again.
The End Of An Era
This all helps explain why your expectations for stock market returns in the years ahead should be much more muted. With inflation and interest rates at post-war lows, they have nowhere to go but up.
Indeed you can attribute some of the 15 percent gain for the S&P 500 over the past year to the fact that few other solid investment choices exist. Bonds and CDs offer such skimpy yields that investors have concluded that they may as well cast their lot with stocks. But what happens when rates finally rise and bonds and CDs start to offer more robust payouts? Some of that money will have to come out of stocks.
The Investing Answer: Economists suggest that you should expect annualized stock market gains in the 5 percent to 8 percent range. Some of those gains will be eaten away by inflation, but your portfolio should still be able to rise in value at a decent clip over the long haul. Yet it's unwise to expect stellar stock returns, especially after strong market pullbacks, as we saw in the late 1970's or more recently in late 2008 and early 2009.
- By David Sterman
InvestingAnswers' mission is to empower you to build and protect your wealth. We'll teach you how to invest not only your money -- but your time, your efforts and your energies -- in the best way possible to grow your wealth and protect it. And we'll strive to do it in simple, plain-English terms, with as little jargon as possible. How? With hundreds of free, unbiased articles, videos, columns, tutorials and the most down-to-earth, easy-to-understand financial dictionary on the web -- which is always growing. Follow us on Facebook
and Twitter.]]>5 American Companies Whose Fortunes Are Secretly Bound to Asiatag:www.huffingtonpost.com,2012:/theblog//3.19549752012-10-17T11:07:42-04:002012-12-17T05:12:02-05:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
In its July 2012 Asian Development Outlook Supplement, the financial and policy institution forecasts 6.6 percent GDP growth in the region, down from 7.2 percent in 2011. (Read the report here.) The forecast also represents a downward revision from the ADB's initial 2012 GDP growth estimates of 6.9 percent in July for the 44 Asian countries that belong to the bank.
The translation is that things seem to be slowing down in Asia. But why? The answer is lower demand for Asia's exports and unwinding policy stimulus programs in the region. In short, consumers have less money to spend in Asia.
Many investors might take this as a cue to move toward stocks that rely on U.S. consumers for growth, but be careful: many All-American stocks actually rely on revenue from Asian consumers, though you wouldn't really know it. Here are a few:
This classic American food brand is more than just jelly on your toast; Smucker also owns many food brands America has grown up with: Folgers, Dunkin' Donuts, Jif, Crisco, Pillsbury, Eagle Brand, and Hungry Jack are just a few. But what you might not know is that J.M. Smucker is making a huge investment in the Chinese oatmeal business.
On March 26, 2012, the company bought a 25 percent interest in Guilin Seamild Biologic Technology Development Co., Ltd., a privately-owned manufacturer and marketer of oats products headquartered in the Guangxi province of China, for $35.9 million. The purchase comes with two manufacturing facilities in southern China and a third on the way. In 2013, the deal isn't expected to influence Smucker's revenues, which topped $5.5 billon last year, but the company doesn't expect that to be the case for long. "This transaction represents an exciting first step as we look to develop a meaningful presence in China over time," said CEO Richard Smucker when the deal was announced.
Aflac is a well-known provider of supplemental insurance policies that are designed to fill the coverage gaps in health insurance policies, but who knew the Aflac duck spoke Japanese? The company's revenues were $5.3 billion in the United States last year, and with many of the major components of health care reform taking effect in the next two years (and a famous duck at the core of its North American marketing campaign), the company has received a lot of attention lately.
But what few people know is that Aflac is huge in Japan -- at $18.4 billion, its revenues there were almost three times higher in 2011 than they were in the United States. Japan's aging population is only bringing more attention to managing health care costs, which is one reason the company is Japan's largest life insurer and the largest seller of cancer policies. Thanks to the company's 120,700 licensed Japanese sales associates and its sales agreements with 90% of the country's banks, the Japanese consumer is likely to determine the fate of this American company. Similarly, deregulation in Japan has brought an onslaught of competition in recent years, and the company took a short-term hit during the Fukushima nuclear disaster.
The Avon Lady has long been a traditional fixture of the American neighborhood, but this all-American brand is becoming more dependent on the shopping habits and fashion trends of Chinese women.
In 2010, the company built an R&D facility in Shanghai after the Chinese government lifted a ban on direct selling, but the slowdown in the growth of disposable income in the country may be having an effect -- Avon's revenues in China declined 35 percent and 20 percent in 2010 and 2011, respectively. There's also no telling whether the government will change its mind about its permission to direct-sell, but given that Avon recorded almost $1 billion of revenue in the country last year ($942.4 million, to be exact), the company has about 10 percent of its business in Asia. This means the company may find itself increasingly reliant on serving Asian beauty trends and ideals.
One of America's most legendary exports is Hollywood, but the appetites of Asian audiences are undoubtedly having a bigger influence on what Hollywood will become.
Lionsgate, which makes and distributes movies and TV shows, formed a partnership in early 2010 with two other production companies to form Celestial Tiger Entertainment -- a venture that creates content and operates cable channels for customers in Hong Kong, Singapore, Thailand, Vietnam, the Philippines, Malaysia, and other parts of Asia. The venture just began offering the first national Pay-per-View and video on demand platform in China. As of March 31, 2012, the venture wasn't profitable, but Lionsgate and other companies like it are increasingly aware that the future of the entertainment business is largely dependent on the tastes of Asian markets with more and more disposable income to devote to television and movies.
Coca-Cola is one of the most valuable brands on the planet and soda is one of the most-consumed beverages in the world, but the Asian beverage market is as competitive as ever. And with less disposable income, consumers in the region may be trading down.
It's a tricky situation: sales in Coca-Cola's Pacific region grew from $4.9 to $5.8 billion since 2009, much of which was due to double-digit sales in China. At about 12 percentof total sales in 2011, the region represents the company's second-largest market (after North America), making it even bigger than Europe. That share has been falling, however -- Pacific used to represent about 14 percent of Coca-Cola's sales. Margins from this segment are also falling: 39.4 percent versus 41-42 percent in 2010 and 2009, respectively. In addition, sales in Japan have been flat, and sales in the Philippines were down 9 percent last year.
The Investing Answer: We can't tell you what's right for your personal portfolio, but what we can tell you is that you can't ignore Asia if you're a long-term investor. Companies can't ignore Asia either, which is why you should always be sure to understand the geographic dependencies of every company you invest in. In annual and quarterly filings, look beyond the income statement, balance sheet, and statement of cash flows. Read the notes, and pay special attention to the sections that report operations by segment -- they will often include a break-out of performance by region or show how divisions in certain geographic regions are doing. It's in those disclosures that you might discover just how much your non-Asian stock picks depend on Asia after all.
]]>For Same-Sex Couples, This Seemingly Smart Financial Move Can Really Backfiretag:www.huffingtonpost.com,2012:/theblog//3.18221782012-08-27T13:40:43-04:002012-10-27T05:12:03-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
Estate planning creates a special challenge for gay and lesbian couples. The federal government doesn't recognize gay marriages and civil unions, so the couples have to get creative to avoid a serious obstacle to inheritance. But one solution could be construed as no solution at all, because it is fraught with complications.
When it comes to inheritance, spouses and children have the advantage. Maryland, for example, charges an inheritance tax of 10 percent on property passing to people other than a child, spouse, parent, grandparent or sibling.
Another problem? If there's no recognized spouse or child to inherit, everything could go to probate, a process that drags your will or your assets through the court system after you die to make sure that all of your debts are paid and all of your assets are accounted for. Probate comes with a time lag as well as administrative costs for legal advertising, appraisal fees and so on.
To protect their assets, some gay and lesbian couples resort to the last remaining way they can choose to be recognized as family by the court system. It's not the most ethical or the most honest way of representing themselves, but some believe it's the only way.
They adopt each other as if they were parent and child. But here are three reasons that's a bad idea.
1. Adopting your spouse comes with a bundle of complications. For starters, it might be considered sexual abuse by some courts.
"The court sees that the adoption is taking place, and it's based on a child-parent situation," said financial adviser Tony Aguilar, founder of Texas-based Amiti Advising.
"When they find out they're having sexual relations, in most states that's incest. So that's why a lot of the big courts won't pass it. They say, 'If we allow this, then we're allowing incest to take place, and we can't allow that in the court system: We can't allow this agreement to go through,'" Aguilar said.
2. Another problem is that, unlike getting a marriage annulled or divorced, you really can't undo an adoption. That makes it "perilous," according to Matthew MacLean, partner at global law firm Pillsbury Winthrop Shaw Pittman LLP.
"I say it's perilous because it might not address the problem you're trying to address, and secondly, unlike writing a will or even getting married, adoption is very close to irreversible if one or both of the partners changes their minds later," MacLean said.
If you do change your minds later, you're kind of admitting to falsifying your relationship for financial benefit -- something that's not looked upon too kindly by the courts. In fact, it could even be considered lying under oath.
"The court is going to ask 'Why?' and if you say 'We're no longer together,' then, in the court's eyes, since it was based on a parent-child relationship, you were committing perjury at the time. That's a huge issue," Aguilar said.
If you're adopting for the sake of trust money established by another relative, sometimes the trust has stipulations.
"It might exclude adult adopteds, which some trusts do, or include only children of the blood," said David Keyko, also a partner at Pillsbury. "You can actually then have accomplished absolutely nothing."
3. Another problem? You might go through all the trouble of adoption, but if you don't follow the fine print to the letter of the law in the state in which you adopt, you might not be eligible anyway.
Each state has its own law regarding the issue. Some states carry an age gap stipulation: You can only adopt someone 20 years younger than yourself, for example. Other states, like Maine, have no age gap, but insist that at least one of you must be a state resident.
"You have to make sure you're entitled to be adopted in the state so third parties can't say it wasn't properly accomplished. ... This is still something that can be challenged in a lot of states and might be challenged in a lot of circumstances," Keyko said.
Because it's rare, sometimes it breaks new ground in the courts. That means it's not iron-clad protection from the surviving relatives, especially if there's a lot of money involved, which tends to bring out the family's claws and fangs.
Partner adoption caused a trust-fund brawl in 2005 when Olive Watson, daughter of Thomas Watson Jr., the son of the founder of IBM, sought a way to give her long-term partner financial security. She eventually adopted Patricia Spado, who had given up her career to become the housewife of the couple.
Shortly after the adoption, the two parted ways, and Spado suddenly became eligible to inherit money from a trust given to grandchildren of the IBM fortune. It caused an uproar amongst the relatives, who tried to annul the adoption, claiming fraud. Some argued Spado hadn't lived in Maine long enough, since she had only summered there. After years in court, it was decided the trustees failed to establish sufficient facts to support their claim, and Spado won her case in 2009.
Lesson learned: You can spend years in legal and financial purgatory. "In the meantime, (while fighting the court battle), the person is unclear about their income and their finances. If this goes on, then they're now paying attorney fees on top of everything else," Keyko said.
The Investing Answer: To avoid probate, according to Aguilar, Keyko and MacLean, same-sex couples can:
Hold property in your joint names (that wouldn't pass through probate; it's automatic.)
If you have $100,000 or more, consider creating a trust for liquid assets and for passing all the property.
Have a prenuptial-style agreement or contract, naming procedures to divide assets in case of a split (or death). You can use anything as a trigger; it's not necessarily tied to divorce.
Have a financial planner plan for both partners as individuals in case of loss or split.
Find out if you can bring your same-sex partner onto your company's health insurance and retirement accounts.
By Christine Giordano, www.investinganswers.com
Read the original article, "Protecting Your Partner's Assets? This Move Can Backfire in a Big Way"]]>The Financial Wisdom of Our Fathers: A Father's Day Tributetag:www.huffingtonpost.com,2012:/theblog//3.16024222012-06-17T09:42:27-04:002012-08-17T05:12:10-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
When it comes to money, it's no different. That's why, in honor of Father's Day, we asked some experts from the personal finance community -- including some from our own team and those with our sister site, StreetAuthority.com -- to share with us the financial wisdom that their fathers shared with them. We were thrilled with the response and put together a list that includes bloggers, authors, TV commentators and more.
And if you've got a great story, we want to hear it, too. Share it with us by leaving your comment at the end of the story. Or just tell us which one of these was your favorite.
--
"Best advice my dad gave me was/is twofold:
1) His advice wasn't spoken, it was done. He took me to the local bank to get my first savings account and passbook when I was 12 years old. I had to speak to the bank manager, sign papers and manage my own savings -- at 12! What wasn't spoken was done -- start saving early, pay attention to your money, be responsible for it and don't be afraid of banks.
2) The heavy and very cool side of him doing that with/for me? He signaled to me that gender is not an issue or factor when it comes to money. Here I was, a girl, opening her own bank account at 12 years old. In the 1980's. I, a female, was being put in charge of my own money, very early on. I didn't realize for years just how powerful that was until I'd tell that story to female audiences and I'd hear from them that, gender-wise, it was amazing that my dad took his daughter to do something so powerful for her independence so early."
"Every Saturday morning, my dad and I would sit at the kitchen table. He would tell me the name of a stock, and I would look up the closing price in the newspaper. Armed with a clean sheet of paper and a sharpened No. 2 pencil, he would tally up the week's gains and losses.
We rode out good markets and bad at that kitchen table. During market corrections and economic downturns, my father would always say the same thing:
'Amy, when they raid a house of ill-repute, they take all the girls to jail, even the piano player and the cook. But if they get a good judge, the piano player and cook will be out in no time.'"
"Best advice from father: Always max out your 401(k) at least up to what your employer matches. Not only will it help YOU get going with retirement, but it's pretty much like getting FREE money from your employer too! Who doesn't like that?
Sadly, it took me three years to finally take him up on his advice, but here we are, almost 8 years later, sitting on over $150,000 because of him. ;) Gotta love dads!"
"The advice my father provided didn't come when I was growing up, as far as I remember. While I was in my twenties, my personal finances had taken a bad turn, but I was doing what I could to get myself back on the right track. It was at that time, while I was struggling and moving forward, and while my father was out of debt himself, that he shared with me a basic piece of advice that stuck with me.
Paraphrased, he said, get out (of debt) and stay out (of debt). Being free from debt, including a mortgage, gave him the freedom to use his income for more than just paying back banks for borrowed money. That stuck with me, and it provided more motivation to reach that point myself."
"My father taught me the value of hard work and the importance of personal connections. He started his business in college selling records. When he graduated, he moved from records to jewelry, eventually selling gold and diamonds as a wholesaler. Although he passed away when I was just 12, I have fond memories of going on sales calls with him to local jewelry stores in central Ohio.
It was clear to me back then that he made a personnel connection with his clients. They genuinely liked him and liked doing business with him. He hustled, built a solid business, and enjoyed the fruits of his labor. I've tried to follow in his footsteps."
For more financial wisdom from Dad, check out the full article here. ]]>10 States With the Most Student Loan Debt Per Graduatetag:www.huffingtonpost.com,2012:/theblog//3.15095002012-05-14T11:16:15-04:002012-07-14T05:12:04-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/By Christian Hudspeth
Most college graduates will tell you it's hard enough to complete four (or more) long years of packaged noodles, 10-page papers and excruciating final exams.
But there's one challenge that may present an even greater threat to a new grad. It follows them for years -- even decades. It typically can't be forgiven in bankruptcy. The government can garnish wages to make sure a graduate repays it. And it doesn't care what kind of job the graduate gets -- it must be repaid at all costs.
Collectively, college graduates now owe more than $1 trillion in student loans -- more than what all Americans owe on auto loans or even credit card debt. The graduating class of 2010 owed an average of $25,250 per student, according to the Institute for College Access & Success.
Here are the top 10 states that held the most student loan debt per graduate at the end of the 2010 school year, according to a report by the Institute for College Access and Success:
10. New York -- $26,271 Owed Per College Graduate
Average Public School Debt: $21,710
Average Private School Debt: $29,586
Percentage of Students Graduating with Student Loans (Public and Private): 61 percent
The state that boasts the prestigious, popular and pricey universities of Columbia, Cornell and NYU also boasts some big student loan debt.
9. Rhode Island -- $26,340 Owed Per College Graduate
Average Public School Debt: $21,502
Average Private School Debt: $32,165
Percentage of Students Graduating with Student Loans (Public and Private): 67 percent
It's the nation's smallest state by area, but not in terms of debt. Rhode Island's students graduated with the second-highest private school student loan debt in the nation.
8. Indiana -- $27,001 Owed Per College Graduate
Average Public School Debt: $26,142
Average Private School Debt: $28,629
Percentage of Students Graduating with Student Loans (Public and Private): 62 percent
Home of the well-known -- and expensive -- universities such as Notre Dame and Purdue, the state of Indiana cracks the list at No. 8.
Percentage of Students Graduating with Student Loans (Public and Private): 68 percent
Whether you're an Ohio State Buckeye, a Cincinnati Bearcat or a graduate of some other Ohio college, you're likely not happy with your student loan debt amount.
But recent graduates have a reason to cheer up. Ohio's labor market has been looking a bit brighter since last year, and unemployment in the state is now slightly lower than the national average -- 7.5 percent vs. 8.1 percent.
6. Vermont -- $28,391 Owed Per College Graduate
Average Public School Debt: $27,538
Average Private School Debt: $29,323
Percentage of Students Graduating with Student Loans (Public and Private): 66 percent
Home to the University of Vermont's Catamounts, the state ranks No. 6 overall and in public school debt in particular. The typical public college graduate in Vermont will owe more than $5,000 more in student loans than the average public college graduate in America.
Fortunately, Vermont's graduates aren't likely to have to work as hard to land a job after they graduate. Vermont boasts the fourth lowest unemployment rate in the entire country -- just 4.8 percent in April, according to the Bureau of Labor Statistics.
5. Pennsylvania -- $28,599 Owed Per College Graduate
Average Public School Debt: $27,838
Average Private School Debt: $29,617
Percentage of Students Graduating with Student Loans (Public and Private): 70 percent
Students in the state that boasts the Liberty Bell and Independence Hall are definitely not free from student loan debt. Seven out of 10 graduates from the universities of Carnegie Mellon, Penn State and all other Pennsylvania colleges will walk away from college with student loan debt.
Percentage of Students Graduating with Student Loans (Public and Private): 71 percent
While Minnesota's graduates carry a heavy debt load, there is good news. They will have great job prospects compared to the rest of the country -- the state has a healthy unemployment rate of just 5.8 percent.
3. Iowa -- $29,598 Owed Per College Graduate
Average Public School Debt: $28,108
Average Private School Debt: $31,155
Percentage of Students Graduating with Student Loans (Public and Private): 72 percent
Called "the food capital of the world" for its huge agricultural economy, this state ranks fourth in the nation in terms of the percentage of students that graduate with student loan debt.
However, Iowa graduates should also feel fortunate about their job prospects. The state has the sixth lowest unemployment in the country -- just 5.2 percent in April, according to the Bureau of Labor Statistics.
2. Maine -- $29,983 Owed Per College Graduate
Average Public School Debt: $32,807
Average Private School Debt: $22,251
Percentage of Students Graduating with Student Loans (Public and Private): 68 percent
Maine may be famous for lobsters and beaches, but Maine's students are swimming in debt. The state's graduates held the most public school student loan debt in the nation, according to the report. Maine's private school student loan debt, however, was well below the national median.
1. New Hampshire -- $31,048 Owed Per College Graduate
Average Public School Debt: $31,111
Average Private School Debt: $30,863
Percentage of Students Graduating with Student Loans (Public and Private): 74 percent
As the home state of the prestigious Dartmouth College, New Hampshire ranks No. 1 in terms of average student loan debt and No. 2 in percentage of students graduating with loan debt. (South Dakota ranks No. 1 at 75 percent.) That's a scary combination.
Ready for the good news? New Hampshire has the fifth lowest unemployment in the entire country -- just 5.2 percent. That gives many New Hampshire grads just the opportunity they need to tackle the debt load they've taken on.]]>10 States With the Highest Credit Card Debt per Persontag:www.huffingtonpost.com,2012:/theblog//3.15031452012-05-09T15:47:09-04:002012-07-09T05:12:04-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
Whether you love it or hate it, if you've got a card -- and 2010 Census Bureau projections estimate that 181 million Americans do -- you likely see one in your mail or inbox every month.
Some card holders won't feel the stinging interest charges, though. A 2009 study from the FINRA Investor Education Foundation said that 49 percent of credit card holders don't carry a balance. Many in this camp are just using credit cards to build credit or simply as a convenience. Many more use cards to rack up reward points for vacation and cash back perks.
But a small majority of card holders do carry a balance on their credit cards, the study reported. And the debts can be significant. According to the Federal Reserve, Americans had more than $800 billion in outstanding credit card debt at the end of 2011.
So how much credit card debt do most people really have? That all depends on the state you're talking about.
Here are the top 10 states that held the most credit card debt per capita at the end of 2011, according to a February 2012 report by the Federal Reserve Bank of New York:
10. Massachusetts -- $3,360 in credit card debt per capita in 2011
Previous years' totals:
2010:3,430
2006:3,680
2001:3,000
9. Virginia -- $3,400 in credit card debt per capita in 2011
Previous years' totals:
2010:3,450
2006:3,380
2001:3,140
8. Maryland -- $3,420 in credit card debt per capita in 2011
Previous years' totals:
2010:3,490
2006:3,390
2001:3,150
7. New York -- $3,440 in credit card debt per capita in 2011
Previous years' totals:
2010:3,510
2006:3,730
2001:3,210
6. New Hampshire -- $3,450 in credit card debt per capita in 2011
Previous years' totals:
2010:3,510
2006:3,750
2001:2,950
5. Connecticut -- $3,510 in credit card debt per capita in 2011
Previous years' totals:
2010:3,540
2006:3,660
2001:3,100
4. Colorado -- $3,560 in credit card debt per capita in 2011
Previous years' totals:
2010:3,720
2006:3,880
2001:3,030
3. Hawaii -- $3,580 in credit card debt per capita in 2011
Previous years' totals:
2010:3,650
2006:3,650
2001:3,080
2. New Jersey -- $3,690 in credit card debt per capita in 2011
Previous years' totals:
2010:3,690
2006:3,780
2001:3,360
1. Arkansas -- $4,060 in credit card debt per capita in 2011
By Christian Hudspeth]]>Catch Up on Retirement Savings in 5 Simple Stepstag:www.huffingtonpost.com,2012:/theblog//3.14326802012-04-18T10:57:56-04:002012-06-18T05:12:02-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
With so much gloom-and-doom surrounding Social Security -- a 2011 report from the Social Secuirty Board of Trustees said Social Security will be insolvent by 2017 -- a self-funded retirement is more of a reality for many Americans.
The average person lived 16 years longer in 2007 -- most recent year for which data was available from the U.S. Centers for Disease Control -- than they did in 1935 when Social Security was introduced. So, even without inflation, the number of dollars needed to sustain a retiree has gone up.
For those planning to retire by 65, their retirement fund will need to be big enough to replace their income for at least 12 years. According to a 2012 survey by the Employee Benefit Research Institute, nearly half of U.S. workers say they don't feel confident they will have enough money to live comfortably through retirement. In other words, these workers will have to lower their standard of living once their working income stops.
Here are some steps to increase your savings as quickly as possible:
Step 1: Shrink Your Expenses
Achieving a retirement savings goal means living below your means, which is why lowering your monthly expenses is critical. While you work, a lower cost of living allows for more savings, and when you retire, it means your savings will last longer.
Start by eliminating any high-interest debt, such as credit cards or unsecured loans. Even if your house is paid for, if it's too large or requires constant maintenance, it could become a financial burden. Consider selling your home and downsizing to a smaller, more affordable one with minimal upkeep.
If you pay off your mortgage early, you can channel the money you paid on your mortgage toward your retirement savings. For instance, if you invested an extra $700 a month at an 8% rate of return, in just six years you'd have an extra $78,469 in your retirement account.
Step 2: Max Out The Match Point on Your 401(k)
If your employer offers a 401(k) plan, make it a priority to max out the matched contributions. It's essentially free money going toward your retirement savings. Some employers match 50 cents for every dollar (usually up to 6% of your salary), while others match 100% of your contribution up to 3% - 6% of your salary.
For example, if a worker earning $50,000 per year invests 3% of his income with an employer who matches him dollar for dollar, $250 a month will go into his 401(k). If he does this every month for 15 years and the account gets an average of 8% interest over time, he'll end up with $86,509.
Any money you contribute to the fund is tax-deductible. Schedule a meeting with your financial advisor to find out the details of your 401(k) investments and your company's matching policy.
Step 3: Create an IRA Supplement
In addition to a 401(k), it's also good to have an IRA account for the tax advantages and the favorable rate of return. It's also a way for self-employed, business owners, or employees without an employer-sponsored plan, to invest for retirement.
Roth IRA investments allow investors to contribute after tax funds into the account. The contributions are limited to $5,000 per year, but they are increased to $6,000 per year if you're over 50 years of age. Once you are 59½ years of age, the money can be withdrawn tax-free and without penalty, provided the funds have been in for at least five years. They also do not require withdrawals at any age, so the funds can keep growing as long as the investor wants to keep them in the account.
Contributions to a traditional IRA are tax-deductible, which makes it cheaper and easier to invest on the front end. However, once you access the funds after age 59½ you will need to pay taxes on the amount you withdraw. The funds must be withdrawn before you turn 70½ years of age, if you want to avoid penalties and taxation.
Step 4: Diversify Your Retirement Assets Carefully
During an economic downturn, your retirement accounts could take a major hit, and withdrawing before investments level out could mean big losses.
A well-diversified retirement portfolio means you are more likely to benefit when an industry booms. That's why your portfolio needs domestic and foreign stocks, as well as fixed-income investments like equities and bonds.
Your investments should have little to no risk in last couple of years before you retire; should your high risk investments face large dips on the eve of your retirement, you won't have time to recover money lost.
Step 5: Extend Your Working Years
One of the simplest ways to catch up on retirement savings is to work longer. This will give you more time to save for retirement and will also increase your Social Security benefits.
According to the Social Security Administration, if you retire at age 62, your benefits could be about 25 percent lower than they would have been if you had waited until full retirement age. For people born between 1943 and 1954, that age is 66 years old. If you were born in 1960 or later, full retirement age is 67. (For those born from 1955 to 1959, check SSA.gov for your full retirement age. Each of those years is different.)
Wait even longer and the payoff gets even greater. The SSA says that if you were born in 1943 or later, 8 percent per year will be added to your benefits for each year you delay retirement.
The Investing Answer: Reaching a retirement goal on time requires aggressive saving, maximizing tax advantages, lowering your expenses and keeping a diversified investment portfolio. As the old Chinese proverb says, "The best time to plant an oak tree was 20 years ago, and the next best time is today."
-- By John-Michael Haines]]>8 Scary Tales of Celebrity Tax Troublestag:www.huffingtonpost.com,2012:/theblog//3.14207652012-04-12T12:39:35-04:002012-06-12T05:12:01-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
According to the filing, Sapp owes more than $6.7 million to creditors, back child support and alimony. Among the creditors: The IRS, to whom Sapp owes $942,000 in back taxes from 2006 and 2010.
Sapp certainly isn't alone. Whether through poor advice or mistakes by a trusted adviser or even themselves, celebrities often find themselves in trouble with the IRS.
Below is a list of seven more notable cases from recent years. While some people long to live the life of a celebrity, no one should emulate the mistakes these rich and famous folks made en route to their run-in with the IRS.
Nicolas Cage
There are apparently no treasures too expensive for Nicolas Cage. Why would there be? He has been one of the highest paid actors in Hollywood for years, so it is no wonder he is reportedly the owner of three castles, two islands in the Bahamas, two yachts, a Gulfstream jet, 50 cars and even a $276,000 dinosaur skull he outbid Leonardo DiCaprio to obtain. However, there is one important thing he doesn't have: a clean record of paying his taxes.
In 2010, Cage told TMZ, "Over the course of my career I have paid at least $70 million in taxes. Unfortunately, due to a recent legal situation, another approximate $14 million is owed to the IRS."
But since then, Cage has taken some big steps in the right direction. TMZ reported in April 2012 that Cage paid his $6,257,005 tax bill from 2007. Now, he just has to take care of 2002, 2003 and 2004. Maybe sell an island or two?
Willie Nelson
With his ardent marijuana advocacy, Nelson is no stranger to run-ins with the law. But those troubles hit a whole new level when, in 1990, the IRS served up a staggering $16.7 million tax lien on him.
His accounting firm, Price Waterhouse, reportedly hadn't paid his taxes for years, instead placing his money into illegal tax shelters. Without the money to pay the massive debt, Nelson made lemonade out of lemons with the 1991 release of a double album called The IRS Tapes: Who Will Buy My Memories?
Fortunately, Nelson's lawyers were able to negotiate a deal with the IRS to cut the bill in half -- taking it down to $6 million. Between that double album and the liquidation of his assets, Nelson was able to raise enough to pay off the debt, and by 1993, he had settled his tax troubles with the IRS.
The Osbournes
Ozzy Osbourne may have been able to get away with a lot of shenanigans during his crazy years rocking with Black Sabbath and as a solo artist, but he couldn't avoid the watchful eye of the IRS.
In spring 2011, the IRS reportedly claimed that Ozzy and his wife Sharon owed $1.7 million in taxes for the 2008 and 2009 tax years. The IRS then placed a lien on the family's home. After media reports about the discrepancy, the couple quickly settled the bill.
Pete Rose
Baseball's all-time hits leader accomplished a lot in his time as a major league player and manager, but he didn't leave the game in good standing. In 1989, he was given a lifetime ban from the sport for gambling on baseball. His suspension, however, was far from his only worry.
A year later, Rose pleaded guilty to two charges of filing false income tax returns. It seems that Rose didn't include income from selling autographs and memorabilia, as well as income from horse race winnings. According to the Associated Press, Rose was sentenced to five months in jail and fined $50,000. He also had to serve three months in a halfway house when his prison sentence ended and perform 1,000 hours of community service.
You'd think Rose would have learned his lesson after that. However, in 2003, Rose was reported to be in the IRS's doghouse again. That time, he failed to pay taxes and had a $154,000 lien put against him. The punishment didn't include jail time, but he did have to liquidate his Los Angeles condo to pay the tab.
Wesley Snipes
Snipes was one of the most successful movie stars in the 1990s with hit movies like "Major League," "White Men Can't Jump" and the "Blade" trilogy. However, in his 2008 tax evasion trial, prosecutors reportedly claimed that Snipes didn't file tax returns between 1999 and 2006, which left $38 million in unreported income.
According to the New York Times, Snipes owed the IRS $17 million in back taxes, plus penalties and interest, but his punishment was far beyond just financial. Snipes was sentenced to three years in prison for failure to file federal tax returns and is currently in jail in Pennsylvania.
Martha Stewart
Years before her insider trading conviction landed her in the pokey, Stewart had a disagreement with the state of New York over taxes on her home in East Hampton, N.Y.
According to the New York Daily News, Stewart felt she didn't spend enough time at the residence to warrant the $220,000 in taxes she was required to pay. Unfortunately for her, she was unable to convince the judge of that and she had to pay up.
Chris Tucker
You could always count on Tucker to provide the comic relief starring beside Jackie Chan in the Rush Hour movies. Tucker was paid $20 million for Rush Hour 2 and $25 million for the third movie, but all that money brought its fair share of headaches.
In 2009, the IRS issued a tax lien for $3.5 million on the actor and comedian and by 2010, according to TMZ.com, The site reported that the number had ballooned to $11.5 million for taxes owed in 2001, 2002, 2004, 2005 and 2006. In 2012, the state of Georgia got into the act as well, claiming Tucker owes the state $600,000 in taxes from 2007. That makes Tucker's total tax debt more than $12 million. Anyone ready for Rush Hour 4?
The Investing Answer: Examining these celebrity cases, a few common themes stick out. First, always file your tax return. Even if you don't have enough money to pay your full bill, the harshest penalties are always for failure to file. Second, just because someone is paid to handle your finances or taxes doesn't mean they are doing them correctly. Take personal responsibility for your own tax returns because in the end, you will be the one who is liable if there are problems.
By Brian Reed]]>The Fastest Way to Increase Your Credit Scoretag:www.huffingtonpost.com,2012:/theblog//3.14162922012-04-10T21:00:42-04:002012-06-10T05:12:01-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
A typical credit card for someone with poor credit may have an interest rate of 20 percent. If you carry a balance of $5,000 on that card and make payments of $150 each month, you'll pay more than $900 in interest alone in the next 12 months. Bump that rate to 25 percent and the interest grows to almost $1,200!
Now, let's say you've got great credit. You're carrying the same balance and making the same monthly payment, but your interest rate may be just 12 percent. You'd pay only about $500 in interest in that first 12 months. That means you'd save about $400 -- or almost three full monthly payments -- simply because your credit was good enough to help you get that lower interest rate.
Even small increases in your credit score can have a real impact. Bumping your credit score from 690 to 720, for example, could land you a card with a low interest rate instead of an average one. That equates to less money out of your pocket in the long run.
So how do you get good credit? Any expert will tell you that the most important way to improve your credit score over the long run is to pay your bills on time, every time -- and they're right.
However, that's not the quickest way to a better credit score. There's an often-misunderstood formula within credit scoring models that, if you grasp it, can help you make a big impact on your score in a big hurry.
Do your homework before buying a score.
Before I continue, it's important to note that countless credit scores exist -- many of which are virtually worthless. Why? Because the only credit score that should matter to you is the one used by the institution from which you're trying to borrow. In the vast majority of cases, that score comes from FICO, the credit scoring behemoth once known as Fair Isaac Corporation.
Each of the major credit reporting bureaus -- Experian, Equifax and TransUnion -- offer their own FICO scores, and the scores can be quite different because each bureau can have different information about you. Ask your lender which credit score they'll use to make their decision, and they'll likely tell you. That way, if they say they use a FICO score from Experian, for example, you can check your Experian credit report for any mistakes or inaccuracies that may lower your credit score. (Correcting those errors can improve your credit in a big hurry. However, not all credit reports contain errors and not all errors have a significant impact on your score, so it's unwise to rely on them to jump start your credit.)
Your FICO score, which ranges from 300 to 850, is made up of five components of various weights.
Your payment history -- 35 percent of your score
How much you owe -- 30 percent
How long you've had credit -- 15 percent
The different types of credit you've used -- 10 percent
New credit (or how much credit you've applied for lately) -- 10 percent
However, while your payment history ranks as the most important piece of your credit score, it can take months or even years to dramatically improve it. Looking for a quicker fix? Focus on what's known as your credit utilization rate.
What is credit utilization?
Put simply, your utilization rate is this: how much debt you have compared to how much credit you have available.
It's a major component of the second-most important part of the credit scoring formula -- how much you owe -- and the lower your rate, the better. Why? Because using a smaller percentage of your available credit makes you look like less of a risk to a bank, and less-risky borrowers get the best interest rates.
Here's how this works: Say you've got three credit cards. The cards' combined credit limit is $10,000 and the total balance is $4,000. Your credit utilization is 40 percent. ($4,000 is 40 percent of $10,000) That's not good. Most experts recommend keeping your utilization below 30 percent.
However, knock your balance down to $2,500 and your utilization rate falls to an acceptable 25 percent. That will increase your score. It won't happen immediately, since banks typically only report cardholders' balances about once a month, but it will happen. And the bigger the drop in your utilization, the more your score can climb. (Don't expect miracles, though. It won't change a 550 score to a 750. However, as I said earlier, small changes can make a real impact in how lenders view you.)
There are other ways to improve your utilization as well. For example, you could focus on increasing your credit limit rather than reducing your debt. This would lower your utilization, but it could also have a side effect. If you increased your overall credit limit by acquiring another card, you would take a small hit in the "new credit" category, which considers how much credit you've applied for recently. The impact would be small and short-lived, assuming you don't go crazy and apply for too many cards at once. However, it would blunt the impact of your improved utilization rate.
Remember, also, that it's not just your overall utilization that matters. FICO officials have said that utilization rates on individual cards are considered as well. Thus, in the above example, it's better to have that $4,000 debt spread among the three cards rather than having it all on one card that would likely have an unacceptably high utilization rate.
The Investing Answer: Do the math to figure your own utilization rate and how much debt you'd need to lose to get that rate down to an acceptable level. Then, get creative to raise the cash you need. Sell something of value that you own. Put in extra overtime at work. Do whatever you need to do to raise that money, as long as you don't put yourself in a short-term financial bind in the process.
Finally, resist the urge to cancel any cards you pay off in full. By cancelling the card, you would lower your available credit, hurting your utilization rate, and essentially undoing much of the good you did in getting rid of your debt.
By Matt Schulz
]]>3 Tax Mistakes Retirees Can't Afford to Maketag:www.huffingtonpost.com,2012:/theblog//3.14029322012-04-04T13:28:47-04:002012-06-04T05:12:02-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
Unfortunately, taxes don't get less complicated when you retire. In fact, they get more baffling. Adding to the challenge is that our ability to make clear financial decisions declines as we age.
Here are three common tax pitfalls that seniors run into and suggestions on how to avoid them:
1. Forgetting to Take or Miscalculating Your Minimum Required Distribution (MRD)
In general, the deal with retirement accounts is that you can't touch the money until you're old enough to retire (usually age 59 1/2). Touching it earlier than that usually comes with a huge penalty from the IRS.
Many people reach age 59 1/2 and don't want to start taking money out of their retirement accounts. Maybe they're not ready to retire or they don't want to burn through the money. Usually this is fine, but sometimes people forget that their accounts have minimum required distributions.
An MRD virtually forces you into retirement because it requires you to start taking money out of your retirement accounts at age 70 1/2. The government enforces the MRD in order to collect taxes. (And that MRD tax rate is usually the same as your income tax rate.)
There are two big exceptions to the MRD rule, though. One is Roth IRAs, which do not have an MRD attached. The other is that you don't have to take withdrawals if you're still working.
MRD rules are complicated, but the important things to remember are that you need to make sure you take your distributions, and you need to take the correct amount -- otherwise, the IRS will charge a 50 percent penalty on the portion of the withdrawal you didn't take. IRS Publication 590 will help you calculate the right MRD amount, but your financial institution should be able to do it for you.
Most of the time, calculating how much you have to withdraw is based on everybody's bet on how long you and your beneficiary are going to live. The three life expectancy tables that can be used include:
Joint and Last Survivor Table -- For owners whose sole beneficiary is a spouse who is 10 years younger or more.
Uniform Lifetime Table -- For owners who do not list a spouse as a beneficiary or whose sole beneficiary is a spouse less than 10 years younger.
Single Life Expectancy Table -- For beneficiaries.
So what's the pitfall? Many retirees aren't informed about the MRD, which ends up costing them 50 percent of the withdrawal each year they miss it. Be sure to understand how your financial institution is calculating your distribution.
2. Forgetting to Plan for Taxes on Your Social Security Income
One of the most common questions retirees have is whether social security benefits are taxable. The easy answer to this question is "maybe."
The first step is to look at the benefits you received during the calendar year, which appears on the Form SSA-1099 you receive from the government.
Use that to calculate your combined income:
Combined Income = Adjusted gross income + nontaxable interest + ½ of Social Security benefits
If you file an individual return and your combined income is between $25,000 and $34,000 ($32,000 to $44,000 for joint filers), up to 50 percent of your Social Security income is taxable. If your combined income is over $34,000 ($44,000 for joint filers), up to 85 percent of your benefits are taxable. If you're married and file separate returns, 85 percent of your Social Security income is probably taxable. You can find more details on how to calculate how much of your social security benefits are taxable here.
In general, if your only income during the year was Social Security, none of it is likely taxable. But if you receive any other income -- even if that income isn't normally taxable -- it could result in some Social Security benefits being taxed.
3. Blowing off Estate Planning
Estate planning can be complex and intimidating, especially if you have a decent net worth. But if you blow it off, you might cost your heirs thousands of dollars or leave them with a tax bill that could force them to sell the very things you want them to have the most when you're gone. That's why it's important to hire a professional estate planner.
[InvestingAnswers Feature: Reduce Your Federal Estate Tax With These 4 Powerful Estate Planning Tools]
One important task that your estate planner will handle is to make sure you designate beneficiaries for your assets. Generally, when you die, all of your assets can pass to your spouse without taxation. But to avoid probate, set up a will and a trust that specify clearly what you want done with your holdings. You can save your heirs hundreds of thousands of dollars and protect cherished assets or heirlooms just by setting up a will and trust, as well as designating (and regularly reviewing) beneficiaries on your retirement accounts, life insurance policies and any other financial assets.
Here are a few suggestions that can help you avoid those tax pitfalls:
Consolidate Those Old Accounts
First, if you're not working anymore, consolidate your old 401(k) accounts into IRAs. Leaving a 401(k) or other retirement plan at your old company is unnecessary. In fact, when it's time to start living off of these funds, taking money out of a 401(k) is often more difficult than taking money out of an IRA. Rolling a 401(k) over into an IRA is an easy process and is usually not taxable.
If you like the idea of guaranteed income for life, you might want to turn your IRA into an annuity. Here, your financial institution looks at your life expectancy and calculates a monthly payment that theoretically ensures that you won't outlive the money in the account.
Of course, the longer the guaranteed payout, the lower the monthly payout will be -- which is why you can also instruct your financial institution to annuitize your IRA for just a certain time period.
Set Something Aside for Taxes in Retirement
Many people assume that not having a job means not having to pay taxes. This is the pitfall that seniors run into with their retirement accounts, because they don't realize that taxes are due on the distributions or on their Social Security income.
When you start taking distributions, you should receive a 1099-R showing the amount. Set aside some money to pay for the taxes on these distributions -- usually they're taxed at ordinary income tax rates.
The Investing Answer: Unfortunately, when it comes to financial planning, retirement can actually make things more complicated. Like anything in life, planning ahead can save you headaches and in this case, hundreds of thousands of dollars. The cost to avoid these pitfalls is small, but the savings can be substantial for you and your family.
Hiring a professional tax preparer and/or estate planner can help ensure you've covered all of your bases. To be sure you're hiring a good one, read "10 Easy Ways to Spot a Tax Scam."
By Jody Osborne]]>Four Ways Seniors Can Fight Financial Fraudtag:www.huffingtonpost.com,2012:/theblog//3.12597762012-03-01T00:00:00-05:002012-04-30T05:12:01-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
Senior citizens are a growing target for financial scammers. A survey on elder fraud from Investor Protection Trust estimates about 20 pecent of unsuspecting retirees become victims of financial fraud. According to a June 2011 MetLife report, seniors lose more than $2.9 billion a year to financial fraud. That amount is up 12 percent from 2008. But, since many cases of fraud go unreported, these numbers may in fact be far higher.
With the increasing proportion of aging baby boomers -- who account for about a quarter of the U.S. population -- criminals have a wealth of potential victims. According to the same Investor Protection Trust study, one in every five Americans over 65, or about 7.5 million people, has lost money through financial fraud.
Why are retirees so vulnerable? As described in our article "How Our Aging Brain Affects Our Financial Decisions," after age 60, one's cognitive facilities weaken, making the elderly more susceptible to poor decision making. No matter how well-educated we are, financial literacy and savvy decrease as we age, according to Harvard University economics professor David Laibson.
Seniors tend to rely more on the assets they've accumulated, as they may no longer be earning a steady income. Combined with being intellectually vulnerable, this makes them attractive prey for would-be scammers.
And, with more North Americans retiring in debt, they're that much more likely to be tempted by fraudulent "get rich quick" schemes. A 2011 AARP Public Policy Institute survey found nearly 15 percent of retired Americans had difficulty paying their credit card bill, rent or mortgage.
Those with money in the stock market may be scrambling that much more. Since the October 2007 market peak, the Dow Jones Industrial Average has fallen approximately 10 percent to date, even taking into account the healthy rally so far this year. As a result, some investors may have lost much of their retirement savings and are looking for quick ways to recoup losses.
All these factors can lead to financial desperation, making retirees particularly easy targets of financial fraud. But, don't let yourself fall victim. You can help prevent financial fraud by following these four steps:
1. Beware of "Safe" Returns Higher Than Six Percent.
Unless you're investing in high-yield stocks such as REITs or MLPs, use caution if you come across a financial guarantee which promises a "secure" return of 6 percent or more. According to Pat Huddleston, founder and CEO of the private investigative firm Investor's Watchdog, scammers currently lure retirees by offering returns between 6 percent and 8 percent. This yield is not outrageous, but with North American interest rates currently hovering around 1.5 percent, it's wise to probe how a credible financial institution can offer so much more than the average bank. Before you buy, verify the organization's credibility. Often the money you invest is capital you can't afford to lose.
2. Know What You're Investing In.
If you've never heard of a Turkish Eurobond that gives quarterly returns 8.5 percent, or a gas fund that's guaranteed to produce $8,500 in monthly income, it's probably because these securities don't exist. If somebody gives you a sure-fire investment lead, familiarize yourself with it before you commit to a purchase. Practice informed investing as a general principle. Turn to credible websites like our sister site, StreetAuthority, for well-researched investing tips from recognized stock pickers.
3. Avoid the "Suckers List."
As a rule of thumb, if it seems too good to be true, it probably is (a scam). With that in mind, don't sign up for sweepstakes, incredible travel giveaways or suspicious free gift offers. According to the National Consumers League fraud center, once the scam bait has been taken, your contact information may end up on a "suckers list," where it's collected and then sold to outside parties. From that time onward, you will likely find yourself receiving a plethora of fake mailings and phone calls.
These are harmless enough, albeit annoying. But, as we age, our ability to discern the credible from the not so credible decreases. Retirees in the early stages of diseases like dementia or Alzheimer's may be that much more prone to fall for illegitimate phone or mail money-grabbing ricks. To find out whether the offer you're receiving is legitimate, you can read about the latest financial schemes at both the Federal Trade Commission and National Consumer's League websites.
4. Beware of the Grandparent Scam.
One frightening scam comes as a call from someone pretending to be a family member needing money. The criminals often do intensive research on the potential victim's family, so their story may sound credible. For example, they might pose as a grandson who was arrested on a trip abroad and needs money wired immediately. If this happens to you, ask the person if you can call them back later and immediately check the facts with your family. Never give money to anyone without verifying their identity.
The Investing Answer: Avoiding financial fraud may seem like common sense, but the elderly must be extra careful about every financial decision. Stay informed and do extensive research before you sign away any of your retirement savings. Of course, there are plenty of other scams out there, including phony charities asking for donations, advance-fee loans, fake checks and identity theft. You can read more about how to protect yourself from identity theft in this InvestingAnswers feature, "5 Frightening Facts About Identity Theft."]]>How to Retire Without Worrying About Social Securitytag:www.huffingtonpost.com,2012:/theblog//3.12144022012-01-19T10:42:57-05:002012-03-20T05:12:01-04:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
Your decision may mean the difference between relaxing on that yacht or chasing the mailman for your social security check.
Asset Allocation 101
Simply stated, asset allocation means diversifying your investments. It's best expressed by the adage "don't put all your eggs in one basket." Investing in just one type of security -- be it high-yield stocks or government bonds -- subjects your portfolio to potentially devastating market fluctuations. A study by Brinson, Hood and Beebower found that asset allocation causes over 90 percent of volatility in an investor's returns.
According to The Four Pillars of Investing, by William Bernstein, during the 1973-1974 bear market, investors who only held stocks found themselves down over 40 percent. But, investors who diversified by holding 25 percent stocks and 75 percent bonds lost less than 1 percent of their net worth.
Still, asset allocation is more than just owning both stocks and bonds. How much you hold of each asset is just as important as the assets themselves.
Guidelines to Proper Asset Allocation
How to effectively allocate your assets for future market performance is, however, a matter of personal preference and perception. The decision is based on factors like: 1) how much investing knowledge you have, 2) how long you think you might live and 3) how much of a legacy your hope to leave to your family. Each decision will influence your investing strategy.
While there are no hard and fast rules to effective asset allocation, here are some guidelines to a stress-free retirement:
1. Balance risk with reward.
A successful portfolio does just that. Fixed income tends to be more secure, but equities tend to return more over the long-term. In general, based on historical statistics, you can expect equities to return an average of 10 percent annually, fixed income to return 5 percent yearly and cash or equivalents to return 3 percent over the long-term.
The first step to appropriate asset allocation is to decide how much you want to allocate to lower risk, lower return fixed income instruments (such as bonds and preferred stock) and how much capital you want to put toward higher risk, higher return equities.
In addition to stocks and bonds, your investment choices might also include money market funds, gold and silver, and insurance products, like annuities.
2. Find the right mix.
There's no set rule for how you should allocate your assets, but a conventional guideline is 100 minus your age. Take 100 minus your age as the percentage you should hold in stocks; the balance should be in fixed income. For example, if you're currently 65, you'll want to keep 35 percent in stocks (100-65=35) and 65 percent in bonds (100-35=65).
3. Adjust as you age.
As long as you don't live beyond age 100, the above formula will suit you fine. But maybe you're a regular runner on a macrobiotic diet -- or you've been blessed with great genes. In that case, there are arguments the calculation should be increased to 110 or 120 minus your age. At 120 minus age 65, you'll want to keep 55 percent in stocks (120-65=55 percent) and the remaining 45 percent in fixed income. Notice how the allocation of stocks to fixed income increases the longer your expected lifespan. If you think that formula is too general, you can try an online calculator, like this one from Forbes.
4. Have enough capital.
The key to a financially comfortable retirement is to have your assets outlive you. A good target is to have enough capital to comfortably withdraw an average of 4 percent annually for the rest of your (and your spouse's) life. This 4 percent withdrawal guideline is based on an average portfolio growth rate of 7 percent, minus an average 3 percent inflation rate. Additionally, you'll want the income from your investments to supplement any pension and old-age income you might receive.
5. Protect yourself from inflation.
Inflation is an important factor to consider in retirement planning. Over the last century, inflation has occurred at an average clip of about 3.4 percent, annually. Think about how factors such as your age and your current level of capital might be affected by future inflation. Plan accordingly. For example, you might want to allocate at least 10 percent of your investment portfolio to gold. Historically, gold has held or increased its value during high inflation periods.
The Investing Answer: Asset allocation can be daunting. But, taking the time to plan and design an ideal portfolio is worth its trouble in gold. Consider you age, your risk tolerance and your income needs. Then decide on the investments that are best suited for you. A well planned allocation strategy may allow you to achieve even the most optimistic retirement dreams.
By Deborah O'Malley, M.Sc. and Melvin Pasternak, Ph.D., www.investinganswers.com.]]>A Solution to Your Worst Retirement Nightmaretag:www.huffingtonpost.com,2012:/theblog//3.11812892012-01-04T11:17:22-05:002012-03-05T05:12:02-05:00InvestingAnswershttp://www.huffingtonpost.com/investinganswers/
While you may be delighted with your wonderful genes, you should also be concerned about something that every retiree and pre-retiree worries about constantly as they grow older: outliving your retirement nest-egg.
So what's one possible solution? Purchase longevity insurance.
Also known as a Longevity Income Guarantee, longevity insurance is a deferred fixed annuity that guarantees a lifetime of income payments.
Once you reach a certain age (typically 85), the plan sends you fixed monthly payments as agreed upon when you set up your policy -- monthly income for the rest of your life! That seems like a no-brainer.
But, as always there's a catch. If you buy the insurance and then decide it's not for you, there's usually not an option to cancel. And, your family won't receive death benefits when you pass on.
As a result, longevity insurance can be a gamble. You're signing away a lot since you may or not live long enough to benefit from it.
Before you consider purchasing longevity insurance -- or discounting its relevancy -- here are some important factors for you to consider:
Can I Get Longevity Insurance At My Age?
Longevity insurance is generally geared toward people in their 50s and 60s contemplating retirement. The earlier in life you purchase the insurance, the lower your premiums and more you'll end up receiving when -- and if -- you reach 85.
For example, if you're a healthy 55-year-old man, and you put an initial $20,000 toward the insurance, at age 85 you'll receive approximately $11,000 per year, every year until you pass away.
But, if you wait until age 60, you might receive payments of only about $8,000 a year. And, if you don't buy the insurance until age 65, you would get only about $6,000 per year starting at age 85. The same annual payment decline applies to women. But, because women tend to live longer, they generally receive lower annual amounts than men.
With robust annual payouts like these, it seems you can't go wrong. However, it's also important to remember that if you don't make it to 85, you won't receive anything at all.
As well, if you buy the insurance at age 55, the initial capital investment, plus annual premiums, means your money is tied up for 30 years, until you turn 85. This capital could otherwise be put toward investments like preferred shares or bonds that provide regular interest for living expenses.
What's the Big Benefit?
If you do live well into your 90s, or beyond, you won't ever have to worry about having a certain base income beyond social security payments. While your normal retirement savings may run out after a time, longevity insurance provides you with monthly payments for as long as you live. That fact should surely help you sleep well at night.
How Long is the Average Person Expected to Live?
It may be helpful to know, most people tend to underestimate how long they'll live. According to the U.S. Census Bureau, in 1950, average life expectancy for men and women in the U.S. was age 68. By 2010, average life expectancy ramped 10 years, to 78.
By 2020, it's expected the average person in the U.S. will live to be almost 80. With advances in modern medicine, you'll want to make sure your financial portfolio keeps up with you. Longevity insurance may be one piece of the puzzle.
How Long Will I Live?
Clearly, the longer you live, the more money you'll need to cover your retirement expenses. Longevity insurance makes a lot of sense if you think you'll live a long time. Unfortunately, there are no hard and fast rules for estimating your life expectancy. Your current health status, your lifestyle and the age your parents passed away at are all influencing factors.
To "guesstimate," your life expectancy, you can use an online life-expectancy calculator, such as the one found here. If the prognosis looks positive, you may want to consider longevity insurance to help protect you from running out of money in old age.
Is There a Premium Involved With Longevity Insurance?
Most longevity insurance policies require you to pay an annual premium. Depending on your insurance provider, you may need to pay a higher premium as you age, in order to receive the same benefits.
If your premium does not increase with age, make sure you're still adequately covered by finding out about the benefits you'll receive. Before purchasing longevity insurance, shop around to ensure you're receiving the best rate with the most optimal coverage.
And What About the Threat of Inflation?
Due to inflation, an item purchased for $5,000 in 1980 now costs nearly $13,700! Imagine how much this same item will cost in 30 years.
If you're considering longevity insurance at age 65 and have reason to think you might live until 95, make sure your plan includes inflation protection. This extra coverage will raise your premiums, but is a necessity to ensure your insurance will adequately cover you in 30 years.
The Investing Answer: Before purchasing longevity insurance, consider these factors to determine if this kind of retirement coverage is right for you. Think about your life-expectancy and your retirement needs. While it's never certain how long you may live, longevity insurance can provide a back-up nest-egg which will assuredly last throughout your golden years.
