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Retirement Review

marcus — Tue, 08 Dec 2009 19:02:14 +0000

As New Year goals are formed, don’t forget your retirement. Most understand the importance of saving money for one’s future and many even hope to retire someday; however, very few of us ever take steps to actually achieving the ability and financial freedom to retire. The days of working at one company for a lifetime and receiving the “gold watch” on the day of retirement have all but vanished as part of the American way of life. Today’s American employees are apt to change jobs more often than any proceeding generations, and therefore creating opportunities for the individual to explore new and different retirement savings options. Be attentive to the rules, penalties and taxes of withdrawing or borrowing against these employer or self invested retirement funds. Speak with 3rd party financial advisors that will explain the options available to you and the benefits and pitfalls of each. Make sure to discuss any upfront or “loaded” fees attached to any investments. Consider speaking with brokers and direct sales representatives of mutual funds and compare the cost associated with each. When deciding on investments don’t let past performance be the sole indicator to your decisions, as any good investment broker should warn, “past performance is not an indication of future performance.” Understand the difference between the different types of investment and do not be driven solely by the percentage return. And most importantly, recognize the need for this money, to not only aid in planning, but in helping to choose between investments. Some investments are taxed during different stages of the investor’s holding or withdrawal of the investment benefits. For example one may not be taxed on money contributed to a investment plan, but the money will be taxed during the beginning of the withdrawal…or vice versa. You would hate to find that your hard fought retirement plan was going to tax you earlier rather than later and your money on hand is short for your immediate financial plans.

Employers Re-Start Contributions to Retirement Plans

marcus — Mon, 23 Nov 2009 18:28:21 +0000

With record high unemployment levels and Americans feeling the cash pinch of the recessive national economy, many households have allowed their retirement plans to lag behind. Extra cash that was previously used to pay into a retirement account is being used to make ends meet during tough economic times. Likewise many companies suspended their employer contributions to employee retirement accounts. However, many employers are re-instituting employer matching contributions to 401k and other company sponsored pension plans. About 30% of employers that canceled the employer matching contributions over the past 3 years are reporting to start contributing again this New Year. Employer paid matching retirement contributions are a great way to save twice as fast into a retirement account because the employer matches the investment made by the employee to encourage savings and as an added benefit to employment. Make sure to inquire with your current (or prospective) employer as to what, if any, retirement plans are offered through the company or an affiliated group…your retirment pay is equally as important as the salary/pay you recieve.

The First Step to Financial Literacy

marcus — Tue, 17 Nov 2009 19:54:00 +0000

Its National Education Week and kids and families all across America are celebrating learning. And after leaving my kid’s school I realized kids still really only like 3 components of school: lunch, recess and the “end of day” bell. So how does one motivate one’s self to be more interested in education?….Expose the end results in a manner in which one can relate. As in the case of financial literacy…being able to pay bills is not enough motivation for most people to make timely payments, but avoiding collection efforts, late fees and off course, increasing one’s ability to continue spending money, can be a motivation. However, before one gets to the good part of money…acquiring needs and wants, one must first demostrate an interest in path of their money. Money comes in and money goes out of one’s possession. The most important aspect in getting a handle on finances is understanding where the money is going first…and not just 90% of income, but all of it. Make yourself accountable to your wallet and add all expenditures to help illustrate your spending patterns. To aid in this efffort, start collecting all receipts…yes, that includes the .50 cent toll road receipts. Write out a list of ALL cash expenditures during any entire pay period. Once you have a couple of pay period expenditures recorded, then comes the main question….Can some of those purchases be subsituted for other things such as investments, savings, insurance, vacations and/or retiring long term debt? This is only the first step to personal finance, but often the most difficult and misunderstood part of developing a financial plan.

Understanding Affordability is a Major Part of Financial Literacy

marcus — Thu, 11 Jun 2009 04:09:38 +0000

I recently got a call from a friend whose grandparents (80 years old) were placed into an expensive “no documentation” residential mortgage loan that is now foreclosing. The grandparents were seeking cash for medical expenses and didn’t qualify for a loan requiring full documentation of income and income sources. However, due to their excellent credit scores, they qualified for a riskier loan product that would forgo the process of verifying financial ability and documentation. Well, the mortgage interest rate adjusted and the medical expenses increased, the grandparents found themselves in an all too familiar situation… unable to afford their home of over 25 years and facing foreclosure. Key point to remember here is that everyone must understand bank loan qualifying standards are set to insure the loan applicant has a clear and certain ability to repay the loan in a timely manner. The mortgage company that determined the grandparents couldn’t afford the mortgage under normal conditions was wrong for suggesting the “no documentation” loan product with an unchanged understanding of the grandparent’s finances. Of course, after managing to maintain stellar credit, the grandparents should have been able to see that the riskier mortgage was more expensive and could reach an unaffordable level. But the thought of receiving an approval by creditors gives a false sense of security that the bank believes the loan requirements were manageable and affordable. In mortgage lending, irresponsibility in one’s fiduciary relationship to the client is inexcusable. The applicants are people… grandparents… who are relying on the guidance of the mortgage professionals and misuse of this trust relationship can lead to heavy fines on the lender. However, when mortgage professional are dealing with the elderly, there are additional laws that prevent and prosecute predatory lenders.
I know it’s not always great to get an unapproved status back on a loan application, but sometimes it for the best. Beware of risky loan products that speak beyond your level of financial literacy and discuss options with unbiased financial professionals (like CPA’s) outside of the transaction. If you feel you or someone else has been illegally advised on a mortgage transaction, contact your state’s attorney general and professional licensing commission arm.

Investing in a Down Economy

marcus — Wed, 10 Jun 2009 19:35:26 +0000

I always know when a state’s lottery has reached an unusually high amount by the lines in the stores selling lottery tickets and the general buzz around offices and at the popular lunch spots. It seems most of us are all drawn to financial wealth of enormous proportions and even more so, when the wealth can be achieved in one simple effort. Whether a lottery ticket, a casino visit or a stock market purchase…it’s all a gamble for riches. And yes, the financial markets are a gamble….I consider them a sort of thinking man’s lottery
Just as the high-paying lotteries cause a buzz around the water cooler, the depressed economy and slagging stock market has interest brewing among budding investors looking for a “inexpensive” investments that can bring in “quick, easy and high” returns. These new investors are looking to follow the number one rule of investing, “buy low” and “sale high.” A tidy profit can be made investing in an older, reputable company with a declining stock because of decreased sales, however, the company may not return to its prior market share once the economy rebounds…and that’s a huge risk to take for a novice investor. Investing in companies that are not doing well in this economy can deliver a great profit later down the line, but not without a high risk of posting a loss. Buying a great company with a hole in their current financial position is like being captain of a boat that’s sinking, but really close to shore? There’s no telling whether that ship will sink offshore or make it to a safe harbor. In addition, there are lots of safer boats in the harbor to consider.
Many of these struggling companies are filing bankruptcy for protection from their creditors and for a chance to keep their doors open, but bankruptcy courts are loaded with familiar household-name companies that are closing their doors forever. Coincidently, in bankruptcy court, the common stock owner is the “last in line” on any financial claims and is usually left empty handed. Of course, in the 80’s Chrysler stock plummeted as the company endured a drawn out bankruptcy, but once it emerged, Lee Iacocca led the company’s stock to return a handsome profit to all those that bought the stock at it’s all time low price. But yet another rule of investing (and rarely heeded,) is past performance of an investment is not an indication of future performance of the same investment.
I’m not saying investing for short term gains is a bad idea. There are basic investment principles on which good investor habits can be practiced to garner decent returns on investing, but investing in a company that is doing well during a hectic economy may be a better bet and a sign of a strong company and product. The profit return may not be as great on a stable company as the riskier stock, but one of these companies will come out of the down economy and the other one MAY survive. But before investing money into the stock market consider one last rule of investing…all the money you invested could be lost. Like the lottery and casino, if you don’t play, you can’t win, but there are no practice rounds and no refunds on losses.

Considering Bankruptcy and Have a 401k?

marcus — Tue, 19 May 2009 02:58:02 +0000

Americans are considering bankruptcy at a nearly unprecedented rate. In addition, there is a growing consideration of a “hardship withdrawal” of 401k retirement accounts in a last effort to access cash necessary to meet financial obligations and possibly avoid a personal bankruptcy. However, the penalties and taxes charged for prematurely tapping of these pension funds may be the least of the obstacles to negotiate before actually obtaining access to the much needed funds.

If one is considering withdrawing from a 401k account and filing for bankruptcy, it may be more beneficial to consider filing for bankruptcy before turning to the 401k retirement account. By law, the 401k retirement account is protected from bankruptcy and all creditors, as long as the money remains in the account before the 59th birthday of the account holder. Anyone holding a 401k account in these economic times should consider the following 1) what to do with the 401k account should changes in employment occur and during a bankruptcy filing and 2) what to consider should the funds within a retirement account come under immediate need during a bankruptcy.

Employees must consider professional management of their 401k in case of loss of employment or change of job as unemployment levels reach record proportions. Employers generally forward the retirement account holdings to the former employee after employment ends. The immediate experience of unemployment may place additional strain on a household’s finances and the temptation to access one’s retirement account early can become even more enticing. However, receiving cash from a retirement account prior to bankruptcy will appear as income and may make qualifying to file for chapter 7 bankruptcy more difficult. In addition, if the retirement account holder becomes unemployed and rolls over the 401k to an IRA or Roth IRA, then depending on the state, the retirement funds may become part of the bankruptcy estate and paid out to creditors. A consultation with a state-licensed financial advisor should be sought in all cases. Each state has differing laws on the bankruptcy estates allowable administration of certain qualified retirement accounts (non 401k) in a bankruptcy case.

If the use of the 401k account funds is needed after filing bankruptcy, the chapter of bankruptcy will determine the process to access the funds. Loans on retirement accounts are popular and allow the account to remain intact without incurring penalties or taxes on the account loan proceeds. Loans on 401k accounts are not able to be discharged in a bankruptcy, they must be repaid. If the loan on a retirement account is requested after a discharge of a chapter 13 bankruptcy, the loan must be approved by the court trustee. It is customary in all chapter 13 filings that any new debt incurred by the filer must be approved by the bankruptcy court trustee and addressed within the payment plan. However, after a chapter 7 bankruptcy is discharged, a retirement account can be collateralized for an un-penalized and untaxed loan or entirely withdrawn minus penalties and taxes, if premature withdrawal is applicable.

Retirement accounts are an often tapped assets as households endure a growing need for cash. However, enticements to access these funds should be avoided without proper consultation by state licensed financial or legal advisers to determine if retirement account plans qualify under the state’s law to become a part of a bankruptcy estate.

Looking for Money in All the Wrong Places

marcus — Thu, 07 May 2009 05:14:38 +0000

I spoke with someone recently that complained that he made approx $6,000/month and his bills were only $4500/month, yet he had no savings and couldn’t understand where his money had gone at the end of each month. I told him he needed to set a bag or box by his door and in his closet, so that he could start collecting ALL receipts from any of his expenditures, including ATM and toll receipts. At the end of the month we tabulated teh receipts. Our tabulation evidenced: $250/month for drive-thru breakfast and lunches, $50/month for ATM fees, $75/month on vending snacks and $175/month from weekday and weekend convenience store stops….of which $50/month was for sports drink after leaving the gym and finally, $250/month for dining out. Although we didn’t track down each dime of his missing $1500 in net income, before he realized it was for a lack of financial planning that he allowed himself to frivolously spend a considerable amount of his discretionary income…mostly on eating and snacking. It’s a shame the very same dietary habits could eventually add prescription costs to his monthly expenditures. If you are looking for money, look at the receipts, you could very well be spending your retirement and vacation money on snacks and fast food.

Life Gets in the Way of Living

marcus — Thu, 30 Apr 2009 03:58:32 +0000

No one can predict the loss of employment or even worse, the loss of a loved one. And because of life’s unpredictability, certain financial safeguards should be created to prevent life’s imbalance from causing you to fall into financial ruins. No amount of planning to live can avoid the inevitable tragedies of living; after all, life often gets in the way of living.
The average American is aware that planning for life’s “rainy” days is a good mantra for which to strive in any successful financial management plan. But the reality is few ever initiate an actual action plan to prepare and manage these “rainy” days. Planning for life’s’ mishaps incorporates a system of regularly placing a small portion of all income into a “hard-times” fund, better known as reserves. These funds represent cash reserves that can be used should a decline in income or profits occur. This fund should not be used for a down payment on a car, a new sink or a last minute trip to a friend’s wedding. This fund is best described as the fund for “when things fall apart.” However, separate funds should be established for other things such as holiday expenses and vacations. It’s always essential for a good financial plan to include components that address life’s imperfections and surprises.
Illness, job loss and death can wreak havoc on your livelihood. Why not be prepared for worst case scenarios and ensure financial security while you can? There are a cornucopia of insurance products to assist with preparation for short and long term disabilities, automotive accidents, and death. It’s inevitable that accidents will happen, but the existence of a financial plan and reserve account will determine if the event will be simply challenging or outright devastating. Sometimes insurance policies and warranties only address certain types of losses, but a cost benefit analysis can be completed to determine the effectiveness of the insurance coverage as well as the projected costs associated with maintaining it.
Starting a reserve account is as easy as getting a paycheck. As each pay period occurs, deduct a portion from the earnings and deposit it into a separate financial account. The reserve fund deposits should be debited from income like any other creditor and maintained with the same vigilance. The funds should be separated from savings and retirement accounts, and in denominations that are comfortably maintained during each pay period. Generally, a reserve account is measured by its monthly ability to cover all expenses associated with a budget.
Leading economists have often stated that the majority of Americans do not have immediate access to a thousand dollars without tapping credit lines, family and/or friends. Credit cards and loans should not be a part of a “rainy day’s” financial coverage. In the past, home equity and credit cards were factored as emergency financing tools. However, as demonstrated by the current economic crisis, those credit lines and home values can disappear very quickly. The same can be said for retirement accounts. Retirement age will eventually surface and early withdrawal of those immature funds can prove disastrous to the accumulated money because of penalties, taxes and future dependency of that money during retirement. Establishing and maintaining “rainy day” funds for life’s hiccups can provide for a safer and carefree financial journey. It’s not an issue of whether someone will encounter financial difficulties, but how well they can preempt such crises and build more wealth and security through proper preparation.