Preparing Financially for 2013 and Beyond

Tue, 15 Jan 2013 23:50:28 GMT

For those of you who have subscribed to this blog for a while, you may recognize this post from last year. I’ve updated it for 2013. But guess what? Nothing has changed in the past year that changes any of the content or advice in this post. This post could have even been written 20 years ago and it would still provide good solid information.

Here’s what I’m not giving you: a list of financial resolutions to set for yourself. Rather, I am offering you a checklist to help you organize your life—financially—and get 2013 off to a good, sound start.

As I mentioned in a recent article, it makes no sense to make piecemeal decisions about individual aspects in your financial life, if you do not have the bigger picture in mind. And I’m talking about more than knowing how much money you have in the bank or how much you have saved for retirement. I’m talking about having a good handle on all the financial streams and impacts in your life: taxes, savings, insurance policies, collectibles, wills, investments, you name it. Making any decision that deals with one aspect of your financial life will undoubtedly impact another.

Think coordination and integration! It is virtually impossible to make sound financial decisions when your financial information is disorganized and/or not accessible. The first step is to gather all your financial information into one place for easy access and review. I suggest, at minimum, a plastic box designed for holding files—available at many stores.

My Financial Checklist

Collect the most recent copy for each of the following items:

How To Maximize Your Retirement: Should you continue to work?

Thu, 20 Sep 2012 12:03:12 GMT

This is the final post in our series on maximizing your social security benefits. In our last post[LINK], we looked at difference scenarios to give you a sense of the retirement options available to you. In this post we’ll look at the implications of continuing to work after retirement.

Some of my clients assume they can continue to work even after they start taking their Social Security benefits. And that’s correct. Colonel Sanders used his first Social Security check of $105 to start his Kentucky Fried Chicken Franchise. However, what my clients don’t always realize is that continuing to work may decrease the amount of your checks if you start your Social Security benefits before your Full Retirement Age.

Here are a few things to keep in mind:

Your Primary Insurance Amount may increase: Social Security recalculates your Primary Insurance Amount annually; therefore your new earnings may increase your benefits.

FICA tax: FICA is the Federal Insurance Contributions Act tax which is a payroll tax imposed by the federal government on employees and employers to fund Social Security and Medicare. If you continue to work, you will continue paying the FICA tax on your income from employment, even when you are receiving Social Security benefits.

Retirement Earnings Test: If you continue to work after starting your benefits before your Full Retirement Age, your earned income will be subject to the Retirement Earnings Test. For every dollar earned over the income limit, a percentage of your Social Security benefits will be reduced. At your Full Retirement Age, benefits will no longer be reduced and your benefits will be increased by the amount previously withheld.

You may find that if you continue to work while taking Social Security benefits before your Full Retirement Age, that you may receive the same amount part-time as you would working full-time due to...

Divorce, Survivorship and Other Retirement Scenarios

Fri, 17 Aug 2012 13:17:16 GMT

This is the fourth post in our series on maximizing your social security benefits. In our last post [LINK: http://www.consumerfinancialadvocate.com/blogslist.asp?id=46&CMD=ResetAll], we looked at how and when to apply for social security. In this post we’ll explore different scenarios so you can see the impact your decisions can have on your social security benefits.

Considerations for divorcees
If you are divorced, you may be able to claim benefits based on your ex-spouse’s benefits. This depends on how long you were married and your age. You will only need to provide the Social Security Administration your ex-spouse’s Social Security number, a copy of your marriage certificate and your divorce decree.

If you make a claim on your ex-spouse’s benefits it will be based on his or her Primary Insurance Amount [LINK: http://www.socialsecurity.gov/OACT/COLA/piaformula.html]. Some believe this type of claim would affect their ex’s benefits or involve them in the process. The truth is, your ex would not even be notified and your divorcee’s benefit is not tied to any family maximum that would impact your ex.

Additionally, your benefits may be affected if you were divorced and decide to remarry.

What happens when a spouse dies?
When a person who is eligible for Social Security dies, certain members of the family may be eligible for survivor benefits [LINK http://www.socialsecurity.gov/survivorplan/ww&os2.htm]. This depends on many factors, including your age, when you married, and how long you were married. It also depends on if or when you remarry. If you have dependent children, you may be eligible for benefits at any age.

What amount can you get? You may get as much as your late spouse’s Primary Insurance Amount and any extra increase from Delayed Retirement Credits earned up to the time of death. As is the case with taking your own retirement benefits, the earlier you...

Considering a Cash-Out Refinance?

Fri, 3 Aug 2012 16:04:19 GMT

A Cash-out Refinance (CoR) works when you have equity in your home, either from paying down the original mortgage or from an increase in home value or both. Simply put, you refinance your mortgage for more than you currently owe, then pocket (or invest) the difference.

Using your equity to buy a second home or rental property can be beneficial, but it can also be risky. Remember, once you use the equity, it may not be there for you to access again for several years. For many people, this is their only source of emergency cash, so make sure you have a backup source. For most families buying a home is the largest and most expensive purchase of their lives. Buying a second home or rental property is an even bigger investment; an investment that may come with unintended consequences.

During the real estate boom, I saw many who thought the housing and rental market would continue to appreciate above historical rates – which from 1963 to 2010 average 5.4% per year [.pdf]. [link: http://www.census.gov/const/uspriceann.pdf] Lured by easy money (mortgage loans) and a false sense of security about the housing and rental market, they took the plunge, often with little expertise or professional guidance. The results, for some, meant bankruptcy and hardship.

One would think the mortgage industry, with all its underwriting requirements, would help keep YOU financially out harms way. Right? Not necessarily. Witness the ongoing mortgage debacle. While you may have sufficient equity in your home (or other property), adequate household income and meet the debt-to-income ratio to refinance, is that all you should consider?

Cash-out Refinance, for many, is a great tool for investment property. Is it for you?

• Do you have an emergency fund for your household? (generally enough to cover 6 months of expenses)
• Do you have an emergency fund for your new property? (enough to cover 6 months of expenses)
• Do you...

How and When To Apply for Social Security

Thu, 5 Jul 2012 14:45:22 GMT

For many Americans, Social Security makes up about 40% of pre-retirement income for the average worker. With it making up such a large portion of one’s retirement, an important question to ask yourself is, “Do I know how to get the most out of my Social Security?”

This is the third post in our series on how to maximize your social security benefits. In earlier posts, we discussed how Social Security eligibility is determined and we shared some basic facts about Social Security. In this post, we’ll talk about how and when to apply for social security benefits.

How soon can I start taking benefits?
You can start taking benefits as early as age 62, or earlier, if you or your working spouse is disabled.

How to Apply: You should apply three months before you want to begin receiving your monthly checks. You can claim your Social Security benefits on the Social Security Administration website; however, it’s a good idea to make an appointment and speak with a Social Security Administration representative.

Visit the Social Security Administration website for a checklist of the documents you’ll need. Don’t wait until you have all your required documents before contacting Social Security Administration as you could lose benefits.

I’m unsure about when to retire…now what?
If you’re unsure whether to retire early and don’t want to miss checks that you are eligible for, you can use a Protective Filing Statement to save your application filing date for six months or more. This...

Five Picks for Your Summer Reading and Financial Enlightenment

Fri, 22 Jun 2012 12:17:40 GMT

Those of you who know me, know that I am a never at a loss when it comes to recommending articles, books and other sources for furthering your financial education. Just take a look at the resource section! I recognize, of course, that time is precious and you have other things on your “to-do” list beyond reading this summer. So in this spirit, I have produced an edited list of picks for your summer reading and financial enlightenment—just 5 books! If you read nothing else this summer, I hope you will make time and check out the following books that top my “must-read” list:

1. Predator Nation, by Charles H. Ferguson

2. The Pirates of Manhattan II: Highway to Serfdom, by Barry Dyke

3. Lords of Finance: The Bankers Who Broke the World, by Liaquat Ahamed

4. Civilization – Western and the Rest, by Niall Ferguson

5. LEAP: Lifetime Economic Acceleration Process (The Key to Financial Success), by Robert Castiglione

I would note that if there is only one book that you read this summer (or this year), read Predator Nation. It will change your view of our economy and your life and turn your thoughts about Wall Street, investment banks and government collusion upside down.

How about you—what books would you add to this list?

Timely Financial Insights: Two Programs Definitely Worth a Listen

Fri, 15 Jun 2012 12:50:31 GMT

For those of you who missed this recent program on National Public Radio, On Point host Tom Ashbrook welcomed two guests to share their viewpoints about the 401k and how well it is serving us. Can you tell which guest makes a living on the backs of hardworking Americans who are regular contributors to their 401ks? Definitely worth a listen!

Is the 401k Working?

Another great program from On Point, this time author and director Charles Ferguson is Tom Ashbrook’s guest. Ferguson directed “Inside Job,” the documentary that covered the 2008 financial collapse in the U.S. His most recent book, Predator Nation, takes a hard look at our nation’s political and financial systems today.

Charles Ferguson, Predator Nation

What do you think of these programs? Share your thoughts here!

How To Maximize Your Retirement: Social Security Eligibility

Fri, 18 May 2012 14:46:30 GMT

Understanding Social Security eligibility is critical to maximizing your retirement. In this post, we’ll discuss how eligibility is determined and what you can do to protect yourself from being underpaid.

Social Security Eligibility
To be eligible for benefits, you or your spouse must be a US citizen or legal alien and earn 40 credits. Benefits are determined by your birth year, retirement age and your lifetime earnings. For married couples, the lifetime earnings of a spouse also come into play.

Social Security provides three types of benefits: Retirement, Disability, and Survivor. Spousal benefits are a sub-set of Retirement benefits.

The Social Security Administration bases all benefits on your Primary Insurance Amount. They use a formula, but the simplest way to think of it is that your Primary Insurance Amount is the monthly check you are eligible to receive at your Full Retirement Age (age 65 to 67 depending on your year of birth). The formula uses the highest 35 years of Average Indexed Monthly Earnings, regardless of when you worked.

Your Earnings Record is determined by a credit system. You get one credit for each quarter of the year in which you had eligible covered income. You need a total of 40 credits to be eligible to get Social Security benefits.

Starting March 31, 2011, the Social Security Administration stopped mailing the annual statement of estimated monthly benefits and earning summary. You can find your annual statement here.

Protect Yourself from Being Underpaid
Nearly a billion dollars of Social Security income won’t be paid due to some easily avoidable but commonly made mistakes by those retiring. The good news is you can make sure you’re not underpaid and get all that you deserve from this benefit.

A first step to protecting yourself against...

How To Maximize Your Retirement: Get the Facts on Social Security

Tue, 24 Apr 2012 12:30:26 GMT

"The Rumors of My (Social Security) Death Have Been Greatly Exaggerated." Mark Twain

Regardless of what you hear, Social Security is not in imminent danger of going bankrupt. While the ‘demise of Social Security’ might play well in politics, it’s important not to be swayed by fear. It is vital to understand your benefit options, including how and when to start receiving them. Seeking help from a knowledgeable professional to maximize your Social Security benefits is essential. Making a wrong decision will last a lifetime.

Social Security Facts
Here are some facts from the May 2011 Social Security Brief No. 36, Social Security Finances: Findings of the 2011 Trustees Report published by the National Academy of Social Insurance[.pdf]:

Annual surpluses are projected to continue for the next 10 years and reserves are projected to grow to $3.7 trillion by the end of 2022. The Social Security system has enough funds to pay all scheduled benefits on time for more than a quarter of a century.
Funds will still be available to pay benefits after 2036. Assuming Congress takes no action between now and 2023, new revenues coming into Social Security and draw down on surpluses will still cover about 77% of scheduled benefits through the remainder of the 75-year period.
Social Security is strong in the near term and relatively modest changes (like increasing the FICA tax or increasing the retirement age) can bring it into long term balance over the next 50 and 75 years.

Social Security Features
Today more than 55 million people receive Social Security benefits. Here are the many features this benefit offers:

Income You Can’t...

Take This Quiz to Determine Your Financial Literacy

Wed, 28 Mar 2012 17:47:17 GMT

"Financial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances (money)." Source: Wikipedia

In a recent FINRA (Financial Industry Regulatory Authority) survey “an overwhelming 97 percent of investors realized they need to be better informed about investing. And nearly half said they could have avoided a negative experience had they known more about investing.”

Investing is but one part of understanding money. For example, many consider “investing” and “saving” to be one in the same. They are not.

So to broaden this discussion, I’ve developed this list of 11 critical questions that everyone should be able to answer to have a more successful financial life. These answers are not intended to serve as recommendations, but rather they are designed to educate and provoke a broader understanding of money and help you start building your Financial Intelligence bank. As you’ll see, the answers to these questions are not discrete, but are very much interrelated. The intent is to show how a financial decision in one part of your life can impact, significantly, other parts of your finance life, your well-being and ultimate financial success.

The answers to these questions could be expanded in much greater detail, but for the purpose of this quiz, I have presented the “short form” version here.

Test Your Financial Literacy

1. What is your Federal marginal tax rate?
Understanding the difference between marginal tax rate and average tax rate can not only...

Using Basic Math to Make Better and More Informed Financial Decisions

Wed, 22 Feb 2012 13:36:32 GMT

I’m a big proponent of using basic math to evaluate the soundness of financial decisions. One such piece of math I use is called the ‘Rule of 72.’ This rule is represented by the following formula:

# of years to double = 72/interest rate

Basically, it tells you the approximate number of years it will take an investment to double in value.

For example, if you want to know how long it will take to double your money at 12% interest, divide 12 into 72 and you get six years. Divide 72 by 6% and you get 12 years. You get the picture.

Using the ‘Rule of 72’ backwards

You can also use the Rule of 72 backwards to determine the rate of return you might need to meet a certain goal. Let’s say you want to double your money in five years. What rate of return would you need? Divide 72 by five years. The result (14.4%) is the after-tax compounded annual rate of return you would have to earn to meet your goal.

Using the ‘Rule of 72’ to anticipate future costs

Inflationary items such as food, clothes, transportation, and utilities, as well as college tuition increases, the rising cost of health care, and population trends, can and will impact our financial households adversely. You can use the Rule of 72 to see the impact of these costs before they occur and plan accordingly.

According to a USA Today analysis the cost of health care in the US for each senior more than doubled – from $13,184 in 2000 to $27,289 in 2007. What was the average annual increase in health care costs? Using the ‘Rule of 72’ the increase was 10.3% per year (72/7years). And by 2020 health...

Preparing Financially for 2012 and Beyond

Fri, 13 Jan 2012 13:33:39 GMT

At this point in 2012, we’ve seen plenty of articles and blog posts about making new years resolutions. Rather than offer you a litany of financial resolutions to set for yourself, I’m offering you a checklist to help you organize your life—financially—and get 2012 off to a good, sound start.

Think coordination and integration! It is virtually impossible to make sound financial decisions when your financial information is disorganized and/or not accessible. The first step is to gather all your financial information into one place for easy access and review. I suggest, at minimum, a plastic box designed for holding files—available at many stores.

My Financial Checklist

Collect the most recent copy for each of the following items:

Checking and/or savings account statements

Checking and/or savings account statements for your minor children

Savings bonds

Federal and State tax returns (for at least the past 5 years)

Property tax statement

Mortgage statement if you’re a homeowner/Lease agreement if renting

Auto or other vehicle insurance policy

Homeowner’s insurance policy

Life insurance policy

Disability insurance policy

Health insurance policy

Long-term care insurance policy

Employee benefits policies from your work

Retirement (IRA, Roth IRA, 401k, 403b, etc.) investment statements

Certificate of Deposits (CD) statements

Stocks and/or mutual funds or other investment statements (non-retirement)

Collectibles

Real estate documents

Tax shelters

Name and contact information for your attorney

Name...

Multi-Generational Housing: A growing trend or market reality?

Mon, 26 Dec 2011 17:09:20 GMT

We’ve written before about challenges faced by the sandwich generation as they find themselves raising their young children, working and saving money for retirement, while also needing to care for their elderly parents. This situation no doubt can be a source of great stress in the household.

One solution to this quandary—multi-generational housing—has been around for generations, but mainly practiced in other countries. Living with the whole family (grandparents included) under one roof hasn’t been widely accepted in the United States. But the economy is forcing many to rethink their financial lives and the way they live. As a result, multi-generational housing may be coming soon to a neighborhood near you.

In fact, many Vermont communities have made changes to zoning to accommodate, and even encourage, Accessory Residential Units or accessory dwellings; often referred to as granny flats, backyard cottages and in-law units. Regardless of what you call them, for many, they make tremendous sense.

The advantages of multi-generational homes go beyond financial benefits, with two or three generations living under one roof, families experience more quality time together and more flexible schedules for juggling childcare and eldercare.

Multi-gen housing is an economic alternative
In the western part of the United State, there are signs of a growing trend in multi-generational housing, with architects and developers now designing homes specifically for those wanting to include parents and their children as well as grandparents, aunts and uncles and others. This seems to be a direct result of a growing immigrant (Asian and Hispanic) population who prefer to have the whole family living under one...

Needs versus Wants and Hyper-Consumption

Thu, 8 Dec 2011 20:21:18 GMT

At a recent client meeting, the concept of “needs” versus “wants” came up. My client and I agreed that society seems to have lost the distinction between the two. Our over-spending and consumption reflects a mentality of instant gratification, with little concern about the future.

My client mentioned that her parents, born during the Great Depression and now in their early 80s, are still in “saving mode.” They don’t spend money on the latest flat screen TV, Jacuzzi tub, travel or new car. Instead, they are saving for the long term—their grandchildren, perhaps—rather than spending money (even though they have it) and consuming blindly.

Why aren’t more Americans living with this mentality? How did our debt grow to at an all-time high, with people buying houses they cannot afford and over-extending their credit cards—consuming for the sake of consuming?

Savings versus Debt: A startling statistic!

Compare our skyrocketing debt with the declining level of savings—the situation looks even bleaker. According to a New York Times study, the “average annual savings per household in 1923 was $5,533 versus $6,219 in debt. By 2008, our savings had slipped to $392 versus $117,951 in total household debt.”

It all comes down to values: Have we lost them?

My client reported that her parents attribute their “saving” mentality primarily to good, old-fashioned values: hard work; resourcefulness; honesty; fairness; and, accountability. They don’t place much value on “things” and therefore don’t feel the need to buy things to bring them pleasure. Their satisfaction and security are founded on prudent management of resources, rather than instant gratification.

Bigger is not better

“Downsizing” or “right-sizing,” especially...

Investment Fraud: A Growing Concern among Seniors and Baby Boomers

Fri, 4 Nov 2011 19:05:18 GMT

Investment fraud is not a new topic, but one that certainly deserves repeating. According to the Securities and Exchange Commission (SEC) and FINRA, the Financial Industry Regulatory Authority, investment fraud is on the rise, especially among older investors and the Baby Boom generation (the 78.2 million born between 1946 and 1964).

According to results from a recent MetLife study (.pdf), fraud among older Americans is up more than 12% from 2008—older Americans are losing $2.9 billion a year as a result. Americans over age 65, just 13% of the population, represent nearly one-third of scam victims, according to the U.S Census.

As Baby Boomers retire in record numbers (10,000 per day starting January 1, 2011), they are worried about the “stability of their retirement income.” That’s certainly a valid concern. But get this, more Boomers (61%) fear outliving their money in retirement than they do dying (39%). So what does that have to do with fraud? Though their nest eggs may not be as sizeable as they hoped or expected, millions of Boomers have been accumulating pots of money through company 401(k)s and personal accounts. Add to that their fear of running out of money and you have a population that is more vulnerable to those “too-good-to-be-true-offers.” It has in effect created a “perfect storm” situation for fraudsters who tend to go where the money is.

The Face of Investment Fraud

The following is an excerpt from “Fighting Fraud 101: Smart Tips for Older Investors:”

Recent research has shattered the stereotype of investment fraud victims as isolated, frail, and gullible....

Financial Literacy for Children

Fri, 14 Oct 2011 14:12:35 GMT

Discussions around the need for financial literacy seem to be everywhere lately. This is great—it’s important for everyone to have these discussions, adults and children alike. However, no matter who the education is intended for, it’s always important to know the source.

As an example, my daughter came home from school the other day with a booklet about raising a “money smart” child. As I read through it, I came across topics one would expect to see for children ages 9 to 12: allowances, piggy banks, savings accounts, budgeting and mutual funds. Whoa! Mutual funds? That was quite a jump to go from basic lessons about money to an investment product—and for 9-to-12 year olds? Could be just me, but I found this a little out of context with the previous topics. While the information presented on mutual funds was accurate, I think there are plenty of other topics to hit on, before a discussion on mutual funds. But, considering the source of this particular information, MFS Investment Management, maybe I shouldn’t have been too surprised.

It brings to mind the Joe Cool ads for Camel Cigarettes. The FTC determined that “some Reynolds employees identified the need to attract younger smokers….” It was later determined that due to the heavy advertising targeting these potential young smokers, Joe Camel had become “as recognizable to kids as Mickey Mouse.” Are we beginning to see a repeat of big industry targeting our young people with advertising, only this time cloaked as “literacy and education” from the financial industry? Stay tuned.

Warren Buffett on teaching kids about money
I read an interview that Warren Buffett gave about investing and “lessons for children.” His advice was...

Watching the 99% Protest

Tue, 4 Oct 2011 23:44:55 GMT

Remember that famous line: “I’m mad as hell and I’m not going to take it any more?”

Well, you’d have to be playing super close attention—because the major media outlets haven’t been covering it much up to this point—but this very theme has been playing out on Wall Street over the past few weeks. Thousands, calling themselves the 99 percent have been marching on Wall Street to demonstrate their outrage over the greed and corruption on Wall Street and in our political process.

In what limited coverage the protestors have received, some in the media are portraying these protestors as “wackos,” in an effort to marginalize these people and discredit their messages. But these people aren’t “wackos,” they represent you and me—middle class Americans, educated, many without jobs and tired of the status quo.

Why hasn’t this received more attention until now? What’s your take on this?

Read more:
Andrew Ross Sorkin Sneers at Wall Street Protestors, Estimates Only 80 There

Occupy Wall Street: “It Is a Revolution”

Mass Arrests on the Brooklyn Bridge: Is This What Civil Disobedience Looks Like?

Critical Needs of the "Sandwich Generation"

Sat, 6 Aug 2011 22:14:59 GMT

If you’re in your 50s or 60s, chances are good that you are struggling to cope with the costs of caring for aging parents while helping your children pay for college—all while trying to fund your own retirement. If this describes you, you are indeed part of the “sandwich generation.”

I have many clients who are facing this dilemma and feel totally unprepared financially and emotionally. The biggest challenge is a lack of knowledge and a sense of urgency.

Very few people have planned ahead. Many express concern only when issues are brought to their attention or they have been thrust into an unforeseen event and forced to deal with it. For some it’s just easier to not think about the future and retreat into their daily lives.

Here are some stats that should cause everyone to go into planning mode: The baby boomers (those born between 1946 and 1964) began retiring on January, 1, 2011. More than 10,000 baby boomers will turn 65 per day for the next 19 years. Not only is this putting tremendous strain on Social Security, Medicare and Medicaid—and raising hard questions about the sustainability of these programs—it is creating hardships for those trying to keep multiple financial balls in the air. I cannot emphasize enough the need to make planning for the future a priority in your family’s life.

Where should you start?

Regardless of family dynamics, you must open a dialogue with your parents and children. Find out your parents’ wishes for burial/cremation, funerals, long-term care, etc. Have they prepared financially to help you handle these issues? I have found that most...

The Debt Ceiling: Why should you care?

Sat, 23 Jul 2011 14:36:35 GMT

Much of the news has been focused on the debt ceiling and the ongoing discussions between the Obama administration and members of Congress. While it’s easy to ignore this and chalk it up to “politics as usual,” there is good reason for each of us to pay attention and understand the implications of these conversations.

What is the debt ceiling?

First, let’s start with a brief definition of what the debt ceiling is. Think of the debt ceiling as a line of credit for our nation. Congress set a law many years ago on how much debt we could incur as a nation (this has changed many times historically). The debt ceiling is currently set at $14.3 trillion. That’s a lot of zeroes and hard for most of us to fathom.

We incur debt because our government is not taking in (via taxes) enough to cover our spending. We’ve been doing this for many years and, unfortunately, no previous party or administration has been willing to take this on, for fear of not being re-elected.

Saving and Investing: What's the difference?

Fri, 24 Jun 2011 17:48:52 GMT

These days it seems that the word “saving” has become one in the same with “investing.” In the dictionary saving is defined as “setting money aside for a certain purpose.” So I guess it’s easy to understand why many would believe that money put into an IRA and set aside for retirement could be considered savings. But is it?

Think about it. Retirement savings, or “qualified plans,” often come in the form of IRAs or 401ks, which tend to be made up of mutual funds that are invested in Wall Street. As we all know too well, “the market” goes up and down—and sometimes the drops can actually eat into your “savings”—significantly. So should we really count invested monies as savings?

It seems to be a cultural phenomenon that savings and investing are used interchangeably. For many people the difference is so subtle that they never give it a second thought. But when brought to their attention it makes a BIG difference as to their perception of soundness, or lack thereof, of their retirement “savings.” And that is the point.

Marketing blurs the line

When I was young, my parents used to tell me to put money into a savings account and it would be there when I need it. And the laws that govern that product (savings accounts) make that true. However, they also said that if I was going to “invest” in Wall Street it was risky and I should only play if I had money I could afford to lose. Funny thing though as I grew older, that BIG BOLD print about risk on the front page of a prospectus has somehow disappeared. Why is that? How did this happen?

I believe that the blurring of the line between saving and investing has been created in large part by...

The Electronic Disconnect of Our Financial Lives

Mon, 23 May 2011 13:25:45 GMT

Oh, the wonders of technology! It makes our lives easier in so many ways and allows us to stay connected with those near and far in a blink of an eye. And yet despite the wonderful connectivity that technology provides us, I’ve come to believe it has a way of disconnecting us from our money.

Think about it: we have debit and credit cards that make buying things without cash quick and easy. We have direct deposit for our paychecks so all we get is a paystub. We have automatic payment for our mortgage, taxes and insurance. We have online banking and electronic bill paying. We can make investments in our 401ks by filling out a form once a year and our money will magically move from our paycheck to our retirement accounts without a second thought from us. Our money, our financial lives are represented by scraps of paper, stubs stuck into our back pockets, crumpled receipts and emails that probably don’t get more than a passing glance from us. But it’s certainly easy!

Real money in its tangible form rarely passes through our hands any more. It’s just like those commercials where everyone is paying with plastic, things are moving smoothly, and then when someone brings the cash out, the whole system crashes. We’ve lost touch with our money!

Keep Money Real

I am not suggesting that we should do away with all the electronic conveniences that technology has brought into our lives. I am simply suggesting that we need to be more intentional in how we connect with our money.

Consider this: you’re on your way to work, fill up the gas tank, grab a coffee and a muffin and it all goes on your debit card. At the end of the day, do you stop and account for all the places your money went? Probably not. We just do it all over again tomorrow morning. It’s easy to lose track.

How...

Know the big picture on your financial health

Sun, 24 Apr 2011 13:22:24 GMT

In this day and age of instant gratification, it seems we’re always seeking quick answers to just about anything. When it comes to your financial life, however, the quick answer is not always the best one. That’s because there is no neat and tidy, one-size-fits-all approach to your financial health.

Yet to read the many financial columns, newsletters and blogs or listen to the financial news, it certainly seems like there is a one-size-fits-all approach. After all we keep hearing the same old things from Wall Street: max out your 401k, diversify your portfolio to avoid market volatility, stay in for the long term, pay off your house as quick as you can, start a 529 to save for your children’s college education, invest in a Roth IRA to avoid the tax hit later. And it goes on and on.

So what gives? Is there really a formula for financial success? While the pundits would love nothing more than you to believe this, the real answer is a quick “no.” Financial advice should not come by way of a byline, a blog post, an infomercial or the headlines that roll across your TV screen.

Consider this. A question as seemingly as innocuous as “Should I pay off my mortgage?” simply cannot be answered without having complete understanding of your entire financial life. After all, a mortgage is just one financial product of the many available. Your financial life is made up of many money streams flowing in and out, whether they be made up of the financial products you buy (like IRAs, car insurance, or a mortgage), places where you save (checking or savings accounts, coffee cans or CDs), your assets (car, home, jewelry, antiques, etc.) and your spending habits and lifestyle. Then there are the Federal and state income taxes, estate taxes (Federal and state) and laws that can affect them all.

It’s essential to have...

Are you rich? Time for a new definition

Wed, 23 Mar 2011 18:27:09 GMT

Rich, wealthy, loaded, living large…these are among the words that come to mind when you think about wealth and money. Are you rich?

I recently came across a blog post on a survey that Fidelity conducted among more than 1,000 millionaire households.

It seems that these millionaires don’t feel rich unless they have more than $7.5 million in assets—that’s beyond what they may have in retirement accounts or in real estate.

For most of us, that’s probably pretty hard to relate to. We’d likely be happy to live with even a small portion of that in the bank. So I read that post, tried to empathize with the wealthy who don’t feel wealthy (but couldn’t) and then let it go.

Later it dawned on me (and triggered this blog post): I found that what bothered me most about this post was the headline: How Much Does it Take To Feel Rich? And it prompted me to suggest a whole new definition for the word “rich.” This post is my attempt to redefine “rich” for the wealthy in the survey and for the rest of us.

While the author’s headline implies that richness comes from “stuff” or “money,” I offer that we can be “rich” in other ways in life. We can be en-riched by learning, by our experiences, by those we surround ourselves with and yes, I suppose we can be rich with the materials things. But largely richness, for me, isn’t limited to what’s in my bank account. My definition for rich or wealthy is very different from that of Webster’s primary...

Estate Plan: Should You Have One?

Wed, 23 Feb 2011 16:39:09 GMT

When discussing finances and future planning, the question of wills and trusts almost always comes up. Most people do realize the importance of estate planning documents to protect and provide for their dependents, but they become so involved in their daily activities, that they fail to plan and often die prematurely leaving dependents unprotected. Families can be financially devastated and ripped apart by this procrastination.

What’s involved in estate planning?
Estate planning involves wills, trusts, beneficiary designations, powers of appointment, property ownership (joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), gift, and powers of attorney, specifically the durable financial power of attorney and the durable medical power of attorney.

Virtually everybody has an estate, although they may not know it. Your estate consists of all your property or interests in property, plus your possessions (your home, land, vehicles, bank accounts, retirement accounts, benefits of insurance policies, furniture, boat, investments such as shares, personal jewelry, artwork, etc.).

What if I don’t have a large or valuable estate?
In the case of estate planning, size or value matters little. With a small estate, your planning may only focus on who will receive your property at death. However, if you have a large estate you will need to think not only about who will receive your assets (your personal property as well as businesses, investments, etc.), but you will also need to think of ways to preserve your estate for your heirs.

The best way to...

Strategic Uses of a Reverse Mortgage

Fri, 4 Feb 2011 15:50:44 GMT

There are generally two phases of personal money management: the accumulation phase and the distribution phase. The accumulation phase is when you buy a home, start a family and save for things like college, retirement, etc. The distribution phase may include funding college, but it generally refers to your retirement or the time to reap the benefits of your life’s work.

I find that most people have an eye toward one phase or the other. The best financial strategies, however, should include both phases simultaneously—regardless of age. This is where a reverse mortgage come in. A reverse mortgage is a low-interest loan to senior citizens* that uses a home’s equity as collateral (for homes valued up to $625,000). Homeowners can also use a reverse mortgage to buy a home or upgrade their current one. Few planners or advisors view home equity as an organic part of financial planning, which is why reverse mortgages are an under-utilized financial strategy.

Many people believe they should wait until they are old or in desperate financial need before getting a reverse mortgage. However, once you’ve set up the credit line for a reverse mortgage, your home’s value and interest rate are locked in, regardless of when you access the credit line or what happens in the marketplace. This can be especially valuable in these times of volatile interest rates and home values.

Consider a Las Vegas homeowner who looked into a reverse mortgage at age 65, but decided to wait. Instead, the homeowner set up a reverse mortgage five years later. One would think this homeowner would receive more money from a reverse mortgage because home values have “historically gone up.” But, in fact, home values decreased during this period and the homeowner would receive...

Reverse Mortgages: Facts and Fiction

Mon, 17 Jan 2011 17:48:09 GMT

Reverse mortgages are perhaps the most misunderstood mortgage product out there. You may recall from previous posts that a reverse mortgage is a low-interest loan to senior citizens that uses a home's equity as collateral. As with any financial product, it has advantages and disadvantages. In this post, we’ll clear up some of the more common myths of reverse mortgages—19 of them in all.

MYTH 1: The bank owns my home.

Fact: The homeowner retains title to the property throughout the life of their reverse mortgage and can choose to sell or refinance the home at anytime. The lender will place a lien against the property as collateral for the growing reverse mortgage balance.

MYTH 2: If I live longer than expected, the lender will evict me.

Fact: The FHA reverse mortgage was created specifically to allow seniors to live in their homes for the rest of their lives. Because the homeowner receives payments from a reverse mortgage instead of making payments to a lender, the homeowner can never be evicted or foreclosed on for non-payment so long as the homeowner pays the property taxes and keeps the home insured.

MYTH 3: To qualify for a reverse mortgage, my home must be owned “free and clear.”

Fact: The number one reason most seniors take out a reverse mortgage is to pay off a mortgage or equity loan. To qualify for a reverse mortgage, you must either be at least 62 and own the home free and clear or have a mortgage balance that is no more than approximately 65% of the home’s value.

MYTH 4: A homeowner or his/her heirs could end up owing more than the home is worth.

Fact: Reverse mortgages are structured so the borrower or his estate: 1) will never owe more...

State Budgets: The next financial crisis

Tue, 4 Jan 2011 16:31:55 GMT

The Coming Financial Crisis Nobody Wants To Talk About

A recent segment that aired on 60 Minutes showed the immense financial difficulties many states are facing with their pension systems. Here’s my reaction: Why is it that “those in the know” and “those in control” don’t really want to discuss what’s going on at the state level? How is it that every state has a pension fund (aka, retirement system) on the verge of bankruptcy and yet it seems to be surprising news to so many? Every governor in every state has precisely the same problem, but as respected financial analyst and businesswoman Meredith Whitney points out to 60 Minutes reporter Steve Kroft, it’s easier to ignore it.

This is critical information that everyone should pay attention to and understand. The bottom line is this: Those who are planning to rely on their state pension for meeting their basic needs (or beyond) in retirement won’t be able to. States are being forced to cut their pension payouts to keep governmental services running. And this segment is dealing only with pension problems. It doesn’t consider the impact of unemployment, loss of manufacturing jobs, bailouts, Medicaid and Medicare deficits. Whitney eludes to—but doesn’t dwell on—this point: This issue may have potentially greater impact on all of us than the real estate crash. Take some time to watch the segment below and then share your questions, reactions and concerns with us.

Reverse Mortgages - Are they for you?

Sun, 19 Dec 2010 05:00:00 GMT

You may have seen TV commercials about reverse mortgages and wondered if they would be a good option for you. There is no easy 1-2-3 for reverse mortgages—they can be confusing so be sure to ask questions and do your research. Used carefully, reverse mortgages can be part of a sound financial strategy. Let’s start by explaining what a reverse mortgage is.

What is a Reverse Mortgage?

A reverse mortgage is a low-interest loan to a senior citizen that uses a home’s equity as collateral. Instead of making a monthly mortgage payment, you receive payments (based on a formula that considers your age, interest rates and your home’s value). Almost all home types are eligible, including a mobile home built within the last 30 years on a permanent foundation and on owned land.

To qualify for a reverse...

Facing the Facts of Retirement

Thu, 16 Dec 2010 05:00:00 GMT

It doesn’t matter how old you are. If you plan on having money for retirement, it’s important to be aware of what lies ahead and not necessarily what’s passed.

Throw away outdated income planning models

Conventional income planning models used to assume that most people would retire at 65 and live another 10 to 15 years. Changing lifestyles and increased longevity have made those assumptions obsolete. Living until age 90 or beyond implies a retirement period of perhaps 25 to 30 years. That’s quite a bit longer than many of us plan for. Are you prepared?

Baby Boomer facts

Before you answer, let’s take a look at some hard facts and how they may affect your retirement investment strategy:

·With interest rates at an all-time low, you may be thinking about refinancing your home. Perhaps you want to pay off your house sooner or maybe you have a little extra cash on hand and want to pay a little more each month. Before you decide what mortgage product makes sense for you, here is some information to keep in mind:

1. A mortgage is not a goal.

Your goal may be to pay off your house in 15 years, but that doesn’t mean you must go with a 15-year mortgage. There are other safer strategies that can help you accomplish your goal.

2. Longer-term mortgages give you the flexibility to pay more or less per month (above your base mortgage).

Shorter-term...

Investment risk: A necessary evil?

Tue, 30 Nov 2010 05:00:00 GMT

I was listening to a financial radio show recently when a listener called in and asked, “I’ve saved $10,000 for retirement, where should I invest it?” The financial expert suggested she put it into an IRA or Roth IRA. He then asked her age—she was in her mid-20s. He suggested she speak with an advisor to pursue a mutual fund portfolio with an aggressive profile. Because she was young, he implied, she could afford to take risk and have “plenty of time to make up any losses.” Really?!

Save for a rainy day, reduce debt

Given what’s happened on Wall Street these past few years, one would think we’d hear a different response. If it were me on the show, I would have responded this way:

Do you have an emergency fund of at least six months? Do you have credit card debt or outstanding college loans? Do you own a home? If not, do you plan to buy one in the near future? Do you have children?

...

6 reasons your home may be your best investment

Thu, 25 Nov 2010 05:00:00 GMT

I’m often asked whether a home is a good “investment.” The short answer is “yes”—a house can be both a “home” and an “investment” at the same time. The investment characteristics of home ownership are virtually the same as most retirement accounts, but with few of the downsides. For most of us, our home is our largest and best investment. It can also be our best retirement plan. Here’s why:

It provides shelter for you and your family

It almost always appreciates in value

It provides a 100% tax deduction (in most cases)

It can be sold, up to $500,000 tax-free, per married couple

It can be borrowed against, without restrictions

Have you ever stopped to consider how sophisticated industry has become in selling us what is most profitable to them, as opposed to what is of greatest value to us, as consumers?

If you think about it, the same holds true for the financial industry and we’ve seen evidence of this quite recently. Some financial industry leaders are paying millions of dollars in fines because it has been determined that while they were promoting and selling one financial product to us (thereby, profiting) they were making billions by betting on the opposite result. Sounds impossible, but it’s true. Wall Street wrapped mortgages into bonds, and sold mortgages to anyone who could breathe, then they invested in and profited from the inevitable collapse.

Maybe that’s why reporter Matt Taibbi referred to the most highly respected Wall Street investment house as “…a gangster state, running on gangster economics…even prices (of stocks and bonds) can’t be trusted anymore…maybe we can’t stop it, but we should at least know where it’s all going.”

Become an educated consumer.

So what’s the lesson in all this? To me, it underscores the responsibility we all have in becoming educated consumers…especially when it comes to our money.

I’ve dedicated myself to teaching people...

Consumer Financial Advocate

Preparing Financially for 2013 and Beyond

How To Maximize Your Retirement: Should you continue to work?

Divorce, Survivorship and Other Retirement Scenarios

Considering a Cash-Out Refinance?

How and When To Apply for Social Security

Five Picks for Your Summer Reading and Financial Enlightenment

Timely Financial Insights: Two Programs Definitely Worth a Listen

How To Maximize Your Retirement: Social Security Eligibility

How To Maximize Your Retirement: Get the Facts on Social Security

Take This Quiz to Determine Your Financial Literacy

Using Basic Math to Make Better and More Informed Financial Decisions

Preparing Financially for 2012 and Beyond

Multi-Generational Housing: A growing trend or market reality?

Needs versus Wants and Hyper-Consumption

Investment Fraud: A Growing Concern among Seniors and Baby Boomers

Financial Literacy for Children

Watching the 99% Protest

Critical Needs of the "Sandwich Generation"

The Debt Ceiling: Why should you care?

Saving and Investing: What's the difference?

The Electronic Disconnect of Our Financial Lives

Know the big picture on your financial health

Are you rich? Time for a new definition

Estate Plan: Should You Have One?

Strategic Uses of a Reverse Mortgage

Reverse Mortgages: Facts and Fiction

State Budgets: The next financial crisis

Reverse Mortgages - Are they for you?

Facing the Facts of Retirement

Investment risk: A necessary evil?

6 reasons your home may be your best investment