- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
401k 401k match 1974 1987 2001-2002 2008-2009 active duty advisor search alternative minimum tax area agency on aging asset allocation atm automobiles bad debt bank fees banking banking on-line banking relationships banks black monday brazil bric capital gains career transition caregiver 101 care manager car loans cash management charity china commodities compound interest core series cpa credit credit card credit reports credit union debit card debt decision making deflation desires directive to physicians divorce djia dollar cost averaging downsizing ea economic education elder care employment energy credits estate planning estate tax family care giver federal reserve fee-only fiduciary financial financial planning flexible spending account foreign markets foreign stocks gifting goals and objectives good debt government grat guardianship happiness harvesting losses healthcare hedging homeowner tax credit housing i-bonds identity theft income tax income tax preparation india inflation insurance interest rates investing investments ira irs itemized deductions japan laddering layoff life insurance trust linkedin long-term care lost decade marginal tax rates medicaid medicare medicare supplement medigap money mortgage napfa nasdaq ncua needs net-operating loss carryforward net worth new year's resolutions nine minutes non-mortgage debt occupational outlook handbook personality power of attorney profit sharing plan quarterly update real estate refinance regulation retirement plan contributions retirement planning retirement plans retirement relocation risk tolerance roth ira russia schedule c schedule d sep simple ira social security spending spending plan standard deduction stimulus check stock market recovery stock markets tax credits tax loss harvesting tips total return strategies unemployment unemployment benefits upsizing us news & world report webinar wills women
Making Cents
Subscribe
Downsizing Isn't All About Stuff
Downsizing Isn’t All About Stuff:
It Can Be a Smart Financial Move, Too
As people move into their 50s and 60s, priorities change. The hours spent on home improvements and the sheer time necessary to maintain a full-sized home seem to be a little more of a burden. As kids move on, there’s all that unneeded space.
Men and women tend to turn on the gas in the last 15-20 years of their working lives to make sure their retirement savings will be adequate to their needs. That’s why the idea of downsizing is a good one to start early. It’s also a good time for a financial check-up as well.
A fiduciary fee-only CERTIFIED FINANCIAL PLANNER™ professional may not be able to help you sort out what dishes and furniture to sell or give away, but he or she would make a good first stop in developing a complete downsizing strategy involving assets, investments, career and overall financial lifestyle planning. With life expectancies lengthening, many people 50-55 years of age could conceivably be at only the midpoint of their lives.
What is the chief advantage to downsizing? Handled correctly, it can save a lot of money. Selling a larger home – possibly one that still has a mortgage – in favor of a smaller house or condo that’s completely paid off can save potentially tens of thousands of dollars in interest payments over time while still building equity. The earlier the process starts, the better.
Here’s a checklist of considerations in downsizing your life:
Get advice first: As mentioned, downsizing should be a holistic process, a chance for a check-up of your overall finances while identifying things, expenses and habits in your life that you can jettison. A fiduciary fee-only CFP® can give you a push by asking important questions that will get you to a better place financially. It’s helpful to set up a plan to extinguish debt in all of its forms and move on to a check-up of savings, investments and estate matters.
Downsize potential health issues: No matter what the final effect of health reform on pocketbook issues, your out-of-pocket and premium-based health costs over time will be cheaper if you take steps to better maintain your health. Make weight and other personal health maintenance issues a new priority as you move into your pre-retirement years.
Plan for a retire-career: You might be working for a company or organization with a mandatory retirement age or you have a year in mind when it might finally be time to pack up and go. And there’s nothing wrong with a retirement devoted to travel and leisure activities. But if you think you won’t be able to afford to quit working completely or if doing nothing will eventually drive you nuts, consider getting some career counseling, personality testing and do some research now that will help you train for a new full- or part-time career for after you retire from your present job.
Start thinking about real estate and new places to live: Today’s retirees don’t necessarily have to move to predictable retirement destinations. Telecommuting allows many people to continue working lives and education from anywhere. For many people, the magic combination might involve cheaper real estate, desired weather and activities, travel options and access to good doctors and quality health care facilities. Decide what kind of home you could see yourself living comfortably in at age 70 or 80. This combination of factors might happen in a surprisingly large number of places based on individual preference. To get you thinking and hone your expectations, start with resources like U.S. News & World Report’s online “Best Places to Retire” selection tools.
Talk to your family: It’s really important to discuss not only your expectations for later in life with your family members, but it’s important to get their feedback on what they consider good ideas for you. There may come a day when you need to rely on others for help, and it would be a good idea to identify how realistic that is. Also, if you’re talking about downsizing certain assets or property that might have been in your family a long time, it’s important to discuss that with others who might be affected by that decision.
Start weeding: Physical downsizing isn’t something that’s done in a month. Give yourself a year to go through each room in your home and prioritize what you’re really going to need if you move to a smaller place. Make a list of what you hope to give to friends and family members and what you’ll donate or trash. Time will give you more opportunities to put good, usable items in the hands of people who could really use them. Develop a recordkeeping system that fits you so you won’t forget any decisions you’ve made along the way. Also, you might want to set up a separate area for family photos and other keepsakes that have high emotional value and set up a hopefully egalitarian system for who will get what either when you move or when you die.
Don’t start upsizing later: When you do move, chances are you will need to invest in some new household items or possibly furniture to match new surroundings. Try to avoid going overboard with this – that’s why thoughtful downsizing should prevent a lot of spending for stuff you’ve already chucked. Oh, and make a permanent life decision if possible not to start re-using credit cards or mortgage debt if you can possibly avoid it in your later years.
Don't Miss the Match!
Don't Miss the Match!
Are you taking full advantage of your company’s 401(k)?
The 401(k) plan is one of the most widely-utilized wealth creation tools offered Americans. These retirement savings plans have several advantages, including dollar cost averaging, tax savings and tax deferral. However, one of the most powerful advantages is the company match. If your company offers a match, are you making the most of it?
Not taking advantage of the company match is like passing up “free money”. Most rational people don’t walk past a $5 bill on the ground without picking it up, but that’s what people do every day when they don’t contribute enough to their 401(k) to get the full company match. A full one-third of employees don’t take advantage of this feature, and it may make their retirement less comfortable.(source)
The Potential of the BRIC Nations
THE POTENTIAL OF THE BRIC NATIONS
Why emerging market equities have the world’s attention.
Brazil. Russia. India. China. These four nations have some of the fastest-growing economies on earth and are becoming drivers in the world economy. In the coming decades, they may command as much attention as the U.S., Japan and other “heavy hitters” … or more.
The future aside, we know one thing about the BRIC nations and other emerging markets: collectively, stocks in these countries have outperformed U.S. stocks for the last 20 years.
During this past decade alone, the MSCI Emerging Markets Index brought a total return of 102.4% while the S&P 500 posted a total return of -10.0% (-24.1% before dividends). Across the 1990s, the S&P 500 produced a total return of 432.0% - pretty impressive. Yet the MSCI Emerging Markets index posted a total return of 2408.6% for that decade.(source)(source)
Great volatility … but also great potential. If U.S. stocks soar or fall, emerging markets really feel the effect. We’ve seen them recoil in the first quarter of 2010. Yet short-term slumps aside, there are compelling arguments for investing in emerging market equities as part of a diversified portfolio.
Look at last year’s returns. In 2009, the benchmark index in Brazil (the Bovespa) gained 82.66%. Russia’s RTS gained 128.62%. India’s Sensex 30 advanced 81.03% and China’s Shanghai Composite rose 79.98%.(source)
How Your Personality Affects Your Financial Decision-Making
All investors are not created equal. That’s why many fiduciary fee-only CFP® start their initial client meetings with a discussion of money attitudes, goals and risk tolerance – the driver at the root of all investment decisions. Some financial planners do this by general conversation, others by detailed surveys they ask their clients to fill out.
The survey route can be a more valuable tool because it forces clients to face their money issues, perhaps for the first time. Despite the difficulty in facing up to such key issues, individuals get a better idea of where their money strengths and weaknesses really lie. Often, the real difficulties lie in how money is spent.
The real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know – how the sources of your money, the way you made it, your money viewpoints and current methods of handling it will inform every decision you make about it in the future.
The most important thing a questionnaire can reveal is your true money priorities and behaviors. Trained financial advisers, such as CERTIFIED FINANCIAL PLANNER™ professionals – use both conversation and surveys to reach some firm answers that might surprise you.
Are there particular money types? In reality, you’ll find quite a number of surveys out there that define money types in particular ways, but you’ll find personalities that are common on the scale from conservative to liberal. Deborah L. Price, a Financial Planning Association member and founder and CEO of the Money Coaching Institute, offers these scenarios in an article titled, “What’s Your Money Personality?”:
The Innocent: Price notes that innocents often live in denial, are easily overwhelmed by financial information and rely heavily on the advice and opinions of others. They tend to be the most trusting because they generally don’t see people or situations clearly – which leaves them open to bad decisions at best and fraud at worst.
The Victim: She notes that victims are people who tend to live in the past and blame their woes on outside factors and situations they claim they can’t control. These people may have been abused, betrayed, or have suffered some great financial loss, but they generally see life as a self-fulfilling prophecy that they can’t change.
The Warrior: Generally seen as a successful person in the business and financial worlds, they will listen to advisors, but they make their own decisions. They tend to be great caretakers.
The Martyr: These people generally put other people before their own financial health. They use their money to rescue others based on their high expectations for themselves and the people they’re rescuing, but these decisions may be costly in the long run.
The Fool: The Fool, explains Price, is a combination of the Innocent and the Warrior because they have no clue about what they’re doing but they’ll act fearlessly. They are financially adventurous and they act on impulse.
The Creator/Artist: These people often have a love/hate relationship with money. They’re constantly struggling to make their finances work, but they often feel that caring about money means something bad.
The Tyrant: Price reports that this type hoards money and uses it to manipulate others. They may have everything they need, but they’re never comfortable with their lives because they fear losing control.
The Magician: Price defines the The Magician as the ideal money type. They’re aware of their circumstances and responsibilities and can see situations very clearly.
A fiduciary fee-only CFP® tries to see through the static to find out what you really need to create a solid financial life. But it might make sense to ask yourself a few questions before you and your planner sit down:
1. How would you describe your financial status right now?
2. What’s important about money to you?
3. What’s your family history with money?
4. What do you do with your money?
5. If money wasn’t an issue, what would you do with your life?
6. Has the way you’ve made your money – through work, marriage or inheritance – affected the way you think about it in a particular way?
7. How much debt do you have and how do you feel about it?
8. Are you more concerned about maintaining the value of your initial investment or making a profit from it?
9. Are you willing to give up that stability for the chance at long-term growth?
10. What are you most likely to enjoy spending money on?
11. How would you feel if the value of your investment dropped for several months?
12. How would you feel if the value of your investment dropped for several years?
13. If you had to list three things you really wanted to do with your money, what would they be?
It's Not too Late to Get 2010 Off to a Great Financial Start
Get 2010 Off to a Great Financial Start
It's not to late to get 2010 off to a great start. Plenty of people make resolutions to lose weight, get a new job or make other things happen in their personal life, but relatively few make solid resolutions about money. Make 2010 the year you’ll live a better life financially. Here are a few resolutions to think about:
Write down the things you really want in life: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them a formality and a starting point for the planning you must do. Make a list today of your 2010 financial goals and objectives.
IRA Contribution Deadline
IRA Contribution Deadline
Don’t miss the IRA contribution deadline! Make sure you make your 2009 IRA contribution before April 15, 2010! Fully funding your IRA for 2009 (and 2010) could mean a tremendous boost toward saving for retirement.
If you’ve been contributing $50 or $100 to an IRA each month, there’s room to contribute a lot more. Putting $600 or $1,200 in your IRA annually is nice, but you can direct up to $5,000 into your IRA for tax year 2009 (and up to $6,000 if you turned 50 in 2009).
January 2010 Monthly Economic Update
January 2010 Monthly Economic Update
The month in brief. Wall Street had an eye on Washington for much of last month. Anticipation of earnings season gave way to concern over what might happen if proposed limits on bank risk went into effect, and what might happen if federal tax credits in the housing market went away. Stock and commodities markets fared poorly as some economic data led traders, economists and investors to wonder how much of the recession recovery was attributable to government measures. Still, consumer confidence was on the rise and the economy was clearly on the mend.Domestic economic health. Some very good news arrived in January: according to the Commerce Department, the preliminary 4Q GDP reading was +5.7%, the best quarter in six years and 1.0% higher than the expectations of analysts. Consumer spending represented 2.0% of the gain. Additionally, the Conference Board’s survey of consumer confidence hit a two-year high last month.(source) The University of Michigan consumer sentiment poll rose by 1.6 points to 74.4.(source) The latest consumer spending data showed a 0.2% gain for December. January also brought the best news on factory output in five years – the Institute for Supply Management’s manufacturing index read 58.4 for the month.(source)
Other news items bothered the Street. In late January, President Obama rolled out a proposal he referred to as “the Volcker rule”. Developed with input from former Federal Reserve chairman Paul Volcker and former SEC chair William Donaldson, the rule would prohibit banks and bank holding firms from getting involved in hedge funds or conducting proprietary trading operations.(source) Intended as a corrective to the behavior of the 2000s, the proposed limits on bank size and bank risk sent stocks skidding, as investors saw reduced potential for bank profits. Tightening in China, debt problems in Greece and a downgrade of the U.K.’s banking system didn’t help the mood.
In terms of rates we all watch, things stayed pretty much the same: the benchmark interest rate remained between 0-0.25% after the latest Federal Open Market Committee meeting, and the Senate reconfirmed Ben Bernanke as Fed chair. We learned that the jobless rate stayed flat in December at 10.0%.(source) The inflation rate (CPI) had inched north 0.1% for December, up 2.7% over the last 12 months with core CPI rising 1.8% in that stretch.(source)
A previously obscure Massachusetts state senator became a person of influence on Capitol Hill. The unexpected election of Sen. Scott Brown (R-MA) effectively derailed passage of the Obama administration’s seemingly assured healthcare reforms. White House press secretary Robert Gibbs claimed that the health care reform bill was still “inside the five-yard line.” There were signals that health insurance reform might be the new tack.(source) This was great news during January!
Global economic health. Concerned about an overheated economy, China told its commercial banks to boost capital ratios; that led to the worst market day in Asia since early November, and it was the first in a series of cautions from the government.(source) China’s GDP was +10.7% in 4Q 2009 with December showing amazing annualized gains in industrial output (+18.5%) and retail sales (+17.5%).(source) The Bank of Japan forecast moderate improvement for that nation’s economy; Japan’s jobless rate fell to 5.1% in December, and its vehicle sales went north in January for the sixth consecutive month.(source)
In Europe, the government of Greece wrestled with a $75 billion budget deficit. Standard and Poor’s took the United Kingdom’s banking system off of its global list of “most stable and low-risk” banking systems.(source) Yet Eurozone consumer confidence increased for the tenth consecutive month in January, even as the latest figures showed unemployment had reached 10.0% for November.(source)(source)
World financial markets. Indices in a few of the BRIC nations posted gains last month. Venezuela’s Caracas General pulled off a 7.7% increase, and Russia’s RTSI rose 3.3%; the Jakarta Composite in Indonesia gained 3.0%. (The world’s best performing index was the CASE 30 in Egypt, which rose 7.8% last month.) Most world indices took monthly losses, as follows: Hang Seng, -8.0%; Shanghai Composite, -8.8%; Sensex, -6.3%; All Ordinaries, -5.9%; Nikkei 225, -3.3%; STOXX 600, -2.4%; DAX, -5.9%; CAC 40, -5.0%; FTSE 100, -4.1%. The MSCI World Index fell 3.67% in local currency terms; the MSCI Emerging Markets index lost 4.47% in January.(source)(source)(source)
Commodities markets. Most commodities struggled on the NYMEX last month. Three posted January gains of 5% or better: coal, +8.31%; sugar, +9.80%; orange juice, +5.46%. Platinum prices went up 3.15% and palladium prices gained 0.93%. Gold lost 1.20%, silver 3.89% and copper 8.79%. Gold ended the month at $1,083.00 per ounce. Crude oil, which finished January at $72.89 per barrel, lost 8.15% for the month. Crops were hit hardest, with soybeans down 12.83%, wheat down 12.47%, corn down 13.99% and oats down 17.69%. The U.S. Dollar Index gained 2.07% last month.(source)
Housing & interest rates. What would happen with the housing market without federal subsidies in place? The latest new and existing home sales figures made analysts wonder. Purchases of existing homes fell by 16.7% while new home purchases dipped 7.6%; both figures reflected the assumption that government tax credits were expiring.(source) Construction spending slipped 1.2% in December.(source) On the bright side, National Association of Realtors tallies put existing home sales for 2009 approximately 5% above levels of 2008.(source)
What about mortgage rates? Did 30-year FRMs manage to average under 5% for another month? The answer is yes. On January 28, Freddie Mac tracked average interest rates on 30-year FRMs at 4.98%. Rates on 15-year FRMs were averaging 4.39%, rates on 5-year hybrid ARMs were averaging 4.25% and rates on 1-year ARMs averaged 4.29%.(source)
Major indexes. January brought some chills to Wall Street, with the proposed “Volcker rule” and concerns about financial pressures in China, England and Greece affecting the three marquee indices.
