Friday’s need-to-know money news

download (1)Today’s top story: Poll reveals Americans are feeling better about their personal finances. Also in the news: How to raise financially savvy kids, learning how to balance saving for the future with enjoying the present, and five credit card fees you should try to avoid.

Americans’ Ratings of Their Personal Finances Inch Up
Does your opinion match up?

How to Rear Money-Smart Kids
Starting kids off on the right foot with money.

How To Balance Enjoying Life With Saving For Your Goals
Saving for the future doesn’t mean you can’t enjoy the present.

5 Credit Card Fees to Avoid
There’s no need to give the banks extra money.

5 Ways to Save for a One-Time Expense
Saving for and expecting the unexpected.

Take a year to Get Rich Slowly

Fixing material in the red plastic boxesJ.D. Roth went from being over $35,000 in debt to having over $1 million in the bank. He documented his journey at the excellent Get Rich Slowly site, sharing what he learned about frugality, investing and smart money decisions.

He also wrote a very good book, “Your Money: The Missing Manual.” But The Missing Manual series has a definite format (like the For Dummies and Idiot’s Guides). I’ve been looking forward to reading what J.D. could come up with on his own.

It was worth the wait. J.D. and fellow entrepreneur/blogger Chris Guillebeau just debuted the Get Rich Slowly course. For $39–75 cents a week–you get:

  • An email every Monday that features the best lessons from the blog.
  • A 120-page guide called “Be Your Own CFO”, that in my view is the highlight of the course. (J.D. agrees, calling it “the best work I’ve ever done.)
  • Supplementary downloads, including a revised version of my Roth IRA guide.
  • Interviews with people with a bunch of money thought leaders, including Jean Chatzky, Gretchen Rubin, Tess Vigeland, and yours truly.

I’m not getting paid or compensated in any way for recommending J.D.’s course. I just think it’s a great way to step up your game when it comes to money, and maybe your life.

Check it out at MoneyToolbox.com.

Thursday’s need-to-know money news

teen-creditToday’s top story: The retirement age for millennials is increasing. Also in the news: The pros and cons of delaying your social security benefits, how to avoid buyer’s remorse, and at what age should a teenager start building credit?

Five Retirement Warning Signs for Millennials
Recent college grads may not be able to retire until age 73.

Social Security At Age 62? Why Delaying Your Benefits May Not Pay Off
Your mileage may vary, of course.

How to Avoid Buyer’s Remorse
From handbags to homes.

Are your kids old enough to start building credit?
Should old enough to vote also mean old enough to charge?

This is one Social Security document you don’t want to toss
The return of the paper benefit statement.

Q&A: Home equity loans, mortgages and retirement

Dear Liz: I wish to add a little more information for the retired individual who had trouble getting approved for a home equity loan because he had no regular income (although he had plenty of assets). I’d suggest consulting a mortgage broker, not a bank. An independent broker is not captive to one set of policies. My broker suggested that I set up automatic withdrawals from my IRA to show that I had income in addition to Social Security. Once this was done and I met all the other credit requirements, I closed on a refinance in less than 30 days at a very good interest rate. Then, I discontinued my automatic withdrawals and went back to taking my funds as needed. I learned to use a qualified mortgage broker many years ago after a divorce and not having a job. I could not get a mortgage on my own, but my mortgage broker did and at very good terms. Each time I’ve used a broker, the process went smoothly and was stress free.

Answer: Many people don’t realize that lender policies differ quite a bit. In this case, mortgage buyers Fannie Mae and Freddie Mac have clarified that mortgage lenders can calculate a retiree’s income based on his or her assets, but not all lenders are willing to do the extra work these loans require.

People who are W-2 employees with solid income histories and great credit scores probably don’t need help finding a loan, because plenty of lenders will want to compete for their business. When your situation is outside the norm, however, a mortgage broker may be able to track down a lender when others balk. The National Assn. of Mortgage Brokers at http://www.namb.org offers referrals.

Money rules of thumb: Retirement edition

Thumbs upFor every rule of thumb, there are hundreds of people who would quibble with it.

We saw that just recently with a USA Today columnist who quantified exactly how much you need to save for retirement (his answer, via an analysis by T. Rowe Price: $82.28 a day). Lots of people didn’t like that the number was an estimate, an average, and that their own mileage may vary.

But many more people don’t have the patience, knowledge or energy to sort through all the potential factors for every financial decision. Sometimes, they just want an answer.

Over the next few days, I’m going to share the most helpful rules of thumb I know. They aren’t going to apply to everyone in all situations. But if you’re looking for guidelines (or guardrails), there are a starting point.

Let’s start with retirement:

Retirement comes first. You can’t get back lost company matches or lost tax breaks, and every $1 you fail to save now can cost you $10 to $20 in lost future retirement income. You may have other important goals, such as paying down debt or building an emergency fund, but you first need to get started with retirement savings.

Save 10% for basics, 15% for comfort, 20% to escape. If you start saving for retirement by your early 30s, 10% is a decent start and 15% should put you in good shape for a comfortable retirement (these numbers can include company matches). If you’re hoping for early retirement, though, you’ll want to boost that to at least 20%. Add 5-10% to each category for each decade you’ve delayed getting started.

Don’t touch your retirement funds until you’re retired. That pile of money can be tempting, and you can come up with all kinds of reasons why it makes sense to borrow against it or withdraw it. You’re just robbing your future self.

Keep it simple–and cheap. Don’t waste money trying to beat the market. Choosing index mutual funds or exchange-traded funds, which seek to match market benchmarks rather than exceed them, will give you the returns you need at low cost. And cost makes a huge difference. If you put aside $5,000 a year for 40 years, 1 percentage point difference in the fees you pay can result in $225,000 less for retirement.

 

Thursday’s need-to-know money news

money-bucketsToday’s top story: What you need to save every day for a comfortable retirement. Also in the news: The three tax buckets, the 10 commandments of savings, and four boring but essential money conversations.

$82 a Day Is the Average Savings for a Comfortable Retirement
$82.28 to be exact.

What Pre-Retirees Should Be Asking About Taxes
Introducing the three buckets.

The 10 Commandments of Saving Money
Thou shall follow these rules.

4 Boring Money Talks You Need to Have
Boring but necessary.

How to Find Financial Assistance for Your Down Payment
Don’t let your down payment hold you back.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Protecting your 401(k). Also in the news: What to do if you have a large tax bill, rental mistakes to avoid, and the two legal documents you can’t live without.

How To Spot A 401(k) Rip-off
Don’t sell your retirement short.

Big Tax Bill? IRS Offers Payment Options
Taxes don’t have to drain your wallet all at once.

5 Mistakes Renters Make
Don’t let your rental become a money pit.

6 Financially Freeing Tasks Not to ‘Pass Over’
A festival of financial freedom.

2 Legal Documents You Can’t Live Without
They’re inevitable.

Social security switch

Dear Liz: When I turned 66, I applied for and then suspended my Social Security benefits so that my husband could take spousal benefits based on my work record. Shortly after he turned 69, he decided to start taking his full benefit from his own work record, so we canceled the spousal benefits.

After he applied to take his full benefit, I applied for spousal benefits from his account. Since I am only 67, the plan was for me to collect spousal benefits until I reached 70 and then collect off my account. Since I am the primary breadwinner, that allows the maximum lifetime funding should something happen to either of us. I sat with an employee at the local Social Security office. Together we processed all the appropriate documentation and she submitted it.

I just received a notice of denial that says, “We cannot approve your request because we received it after the 12-month limit.” I took the letter to the Social Security office for an explanation, and the woman had never heard of the rule it cited. The rule, it turns out, was designed to prevent people from repaying all the benefits they’ve received over the years so that they can restart their benefit at age 70. The rule says that they can pay back only benefits received in the prior 12 months to restart their benefits. But that is not what I did.

Answer: No, it’s not, but what you tried to do still won’t work.

Here’s the simplest way to explain it: There’s only one spousal benefit for each couple. Once you filed for your own benefit, allowing your husband to claim spousal benefits, you aren’t allowed to switch even though you hadn’t started receiving checks yet.

If it’s any consolation, you chose the right spouse to receive spousal benefits, since you’re the higher earner. It would have been best if your husband had waited to switch at age 70, when his benefit reached its maximum, but his checks are still substantially larger than they would have been if he had started earlier.

Another point that should be made because it’s often misunderstood, is that your husband was allowed to switch from spousal benefits to his own benefit because he started Social Security at or after his own full retirement age. If he’d started benefits before his full retirement age, which is currently 66, he would have been stuck with a discounted spousal benefit and couldn’t have switched to his own benefit later.

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: What parents and students need to know about financial aid. Also in the news: Using your smartphone or tablet to clean up your finances, tax tips for procrastinators, and what to do when your teenager has become a financial disaster.

Eight Financial Aid Secrets That Parents And Students Need To Know
What you need to know before filling out the FAFSA.

12 Powerful Ways Data Can Help Clean Up Your Finances
Putting your smartphones and tablets to work.

6 tax tips for procrastinators
Tick-tock.

Help! My Teen is a Money Monster
What to do when your kid is out of financial control.

How to Budget For Health Care Expenses in Retirement
Health care expenses will eat up a significant part of your retirement savings.

How to start investing

Zemanta Related Posts ThumbnailA reader recently posted this question on my Facebook page:

Liz, I’m 30 years old and looking into starting [to invest in] mutual funds and IRAs and have no idea where to start. I know I really need to invest for the future and am eager to do so, but again, have no knowledge on any of this nor know where to start. Any advice or pointers would be more than appreciated.

I suggested he start with reading two really good books for beginning investors, Kathy Kristof’s “Investing 101” and Eric Tyson’s “Personal Finance for Dummies.” But here’s a summary of what you’ll learn:

Get started investing as soon as possible, even if you don’t quite know what you’re doing. You’ll learn along the way, and you really can’t make up for lost time.

Invest mostly in stocks. Stocks over time offer the best return of any investment class, and provide you the inflation-beating gains you’ll need for a comfortable retirement.

Don’t try to beat the market. Few do consistently. Most people just waste a lot of money. Instead, opt for mutual funds or exchange traded funds that try to match the market, rather than beat it.

Keep fees low, low, low. Wall Street loves to slather them on, but fees kill returns. Here’s an example: An annual IRA contribution of $5,000 can grow to about $1 million over 40 years if you net a 7 percent average annual return. If you net 6 percent, that lowers your total by a $224,000. That’s a heck of a lot to pay for a 1 percentage point difference in fees.

If you have a workplace retirement plan such as a 401(k), that’s where you should start investing. If you don’t, then an IRA you open yourself is the next best thing.

So here’s a prescription for getting started: Open an IRA at Vanguard, which prides itself on its low expenses. Send them a check for $1,000 (the minimum to get started with an IRA). Choose a target date retirement fund that’s close to the year when you expect to retire (in this reader’s case, that would be the Vanguard Target Retirement 2050). Target date funds take care of everything: asset allocation, investment choices, rebalancing over time for a more conservative mix as you approach retirement age. You can get the $20 annual account fee waived if you sign up for online access and opt for electronic delivery of account documents.

There you go–you’re on your way.