Personal Banking E-Newsletter - January 2011
Gearing Up for a New Beginning: Retirement
People who are getting ready to wrap up their careers and leave the working world often refer to retirement as "a new chapter" or "the next act" in their lives - and rightly so. As a pre-retiree, you may have even used those analogies yourself, but do you also realize that it's possible to play a leading role in determining how your retirement story will unfold?
An Outline for Success
You can start by plotting out exactly which options, resources and strategies you'll need to take advantage of in the near future. For example, ask yourself the following questions:
"When exactly will I retire?" Have you pinpointed your target retirement age yet? Even a couple of years can make a big difference in your personal savings and the amount of Social Security income you'll receive. For example, depending on your year of birth, you may not be eligible for full Social Security benefits until age 67. What's more, delaying Social Security benefits beyond that age may actually earn you "delayed retirement credits."
"Which accounts will I use and when?" These days, it's not uncommon for pre-retirees to hold retirement assets in several different types of accounts, such as employer-sponsored plans, IRAs, annuities and regular investment accounts. Therefore, you'll probably need to think about which accounts to tap first. Generally speaking, the longer your money can potentially compound in tax-advantaged accounts, the more you may be able to accumulate for retirement overall.
"How much will I need to withdraw?" There is no rule of thumb - such as withdrawing 5% of your balance annually - that fits everyone. Instead, you need to identify your specific cost of living requirements and plan accordingly. But consider this: If you were to withdraw 4% of a $500,000 nest egg each year, it would take more than 40 years to deplete the account (assuming 3% inflation and 6% investment returns annually). But by withdrawing 8% each year, you'd deplete the account in only about 17 years.
So What's the Conclusion?
If you're among the millions of pre-retirees getting ready to turn the page to a new stage of life, the next step is to recalculate your retirement savings goal in order to confirm that you'll be able to address the priorities discussed above. After all, the planning you do now can have an enormous impact on your financial ability to live in financial security for the rest of your life
1Hypothetical example for illustrative purposes only.
© 2010 Standard & Poor's Financial Communications. All rights reserved.
For additional information, please contact Shari Hopkins, CFP®/Financial Consultant, at (608) 784-3904.
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What the New Tax Bill Means to You
The new tax bill will save every American’s from a number of tax hikes that would have begun Jan. 1 and will add more than a year of benefits for those who are long-term unemployed. But there are plenty of other tax perks in the bill, most of which extend breaks already in place. Here's a rundown:
Marginal Tax Rates
Federal income-tax rates, which were lowered under the Bush tax plans of 2001 and 2003 and scheduled to end Dec. 31, will remain in place through 2012. Had Congress and President Obama not reached a compromise on the tax bill, everyone's taxes would have risen Jan. 1. That includes an extension of lowered capital-gains taxes for investors.
Long-term unemployment benefits get extended for 13 months.
Among Obama's concessions to Republicans is a 35% tax levied on an inheritance of $5 million or more. If no estate provision had been passed, wealthy families would have been hit with a 55% tax on an inheritance of $1 million or more beginning Jan. 1, according to the Tax Institute at H&R Block. House Democrats originally balked at the provision, seeking a higher tax on the wealthiest estates.
Social Security Tax Holiday
The so-called payroll tax holiday stays put too, meaning employees who pay 6.2% in Social Security taxes out of each paycheck will pay just 4.2% for the next year on wages up to $106,800.
Making Work Pay
The "Making Work Pay," which was part of the 2009 Recovery Act, expired Dec. 31 and was not renewed. The credit was worth $400 to taxpayers making $75,000 or less ($800 to couples earning under $150,000).
Alternative Minimum Tax
The alternative minimum tax patch continues into 2011 and the exemptions increase slightly, according to Bankrate.com. For married joint filers, the 2011 threshold is at $74,450; it's $48,450 for single or head of household taxpayers and $37,225 for married taxpayers filing separate returns.
Tax Breaks for Families
The $1,000 per child tax credit stays through 2012 rather than reverting to $500 per child. The credits begin to phase out for singles with adjusted gross income of $75,000 and $110,000 for married couples.
The tax credit of up to $3,000 for dependent care for children under 13 sticks too. If the kids are now in college, the $2,500 "American Opportunity Credit" for the first four years is available for anyone with a salary of $90,000 or less.
Marriage Penalty Relief
Marriage still gets a reprieve. The Bush tax law aimed at fixing the so-called marriage penalty is extended to 2012. Before the 2001 tax changes, married couples got better deductions filing separately rather than in a joint tax return. Since then, the standard deductions for joint filers was double than that for individuals.
Without these, joint filers with taxable incomes at $57,000 and above would have faced a tax increase in 2011, according to the Tax Institute.
A number of additional energy- and business-related tax credits were also extended or expanded, including popular credits for homeowners who make energy-efficient home improvements or buy energy-efficient new homes.
Many Happy (Holiday Purchase) Returns
Online shopping is so convenient! So cheap! Returning those gifts to the cybermall: So expensive! Such a hassle! While there's not much online retailers can do about the required trip to the post office to send back a dud, they are starting to sweeten their return policies, extending the windows and picking up the tab.
A third of all retailers have put a special, more flexible return policy in place for the holidays, according to the National Retail Federation, and online retailers are at the forefront of the trend, says Wayne Hood, a senior research analyst for BMO Capital Markets. Typical enhancements include extending return periods, offering free return shipping, or both. This is yet another bid for customers: Because finding the lowest price is so easy online, stores have had to find other ways to compete. And in categories like shoes, or clothing, where it can be hard to gauge fit, a generous return policy also brings online retailers more in line with local merchants, where returning almost anything requires only a drive to the store.
These holiday return promotions reflect a general loosening of online return policies. Ever since shoe retailer Zappos.com launched in 1999 and made free returns a cornerstone of its services, online stores have been following suit, often starting with a test run over the holidays. Amazon, which has offered an extended holiday return period since 2005, introduced free return shipping this spring on most clothing and accessories. Extending the returns window has had a positive effect for one retailer: After Buy.com extended its return period from 30 to 45 days on most items, and also eliminated restocking fees; customers started placing bigger orders, according to Jeff Wisot, the vice president of marketing for the site.
But even as online returns get easier and cheaper, logistically speaking, stores are making other changes to their policies that can make returns tougher. "They're giving with the right hand and taking away with the left," says Edgar Dworsky, the founder of ConsumerWorld.org, that annually tracks changes in return policies. Although Toys "R" Us recently tripled its online return deadline for most items to 90 days from the date of purchase, the company also banned returns on some opened items, including electronics and video games. (Previously, such items had carried a restocking fee of up to 15%, Dworsky says.) A Toys "R" Us spokeswoman said the changes were made to align in-store and online policies.
The trend is also growing slowly, in contrast with the recent surge of offers for free shipping on all orders, for example, says Luke Knowles, the founder of free-shipping-focused site FreeShipping.org return policies are generally less visible, so they're harder to promote. There's also a potential cost in making returns easier, with sites losing money to cover return shipping fees and eat restocking charges. And what retailer wants to admit you might not like its product? It takes a major player in a given category to push a trend, Knowles says: If Zappos.com hadn't made such a big deal out of its free shipping and free returns; we'd probably all still be paying to send back ill-fitting shoes bought on an impulse, wherever we bought them.
5 Tips for Improving Your New Year
In the New Year, many of us are going to be considering a resolution or two to start off 2011 a little better than we ended 2010. Most resolutions revolve around three topics: improving your health, improving your happiness and improving your finances. It’s very easy to make resolutions about money, but keeping those resolutions can be just as difficult as trying out a new diet. There are some ways to make the process a little easier.
Make Your Resolution As Automatic As Possible
The more you have to think about keeping your resolutions, the more opportunities there are to trip up. If you can make them automatic, it’s much easier to keep up with those resolutions. Luckily, with many financial resolutions there are tools that make automation a simple matter. For example, you can create an automatic transfer from your checking account to your savings account if you want to save money over the course of the year for a certain goal. All you have to do then is check in with your bank account regularly to make sure that you won’t overdraft.
Take a look at your goals before you jump into the New Year and see where you can make the process automatic and painless. Whether you can make the whole thing automatic will depend on your resolution (and possibly on your financial habits), but if you can only make part of carrying out your resolution automatic, it will still help you keep to your goals.
Double Check for Realistic Goals
A common issue with resolutions is that it’s easy to set a big goal, but much harder to actually reach those goals. Run the numbers on what you want to do. It’s okay if you will have to stretch, a resolution that’s easy to keep isn’t much of a resolution, but you should be able to actually meet your goal. If even stretching isn’t going to even get you within reaching distance of your goal, scaling down a little makes sense.
You may have goals that you can reach in a couple of ways. If you’re setting aside money, for instance, you can reduce your spending or earn more money. Take those alternative options into account when checking if your resolutions will be attainable. After all, your impossible resolution may be very doable once you combine all the options available to you.
Break Down Daily Expectations
Especially if your resolution is going to require a stretch, breaking down exactly what you need to do every day can be a big help. What’s the minimum you need to do daily to reach your goal? Is there a certain amount of money you have to save every 24 hours in order to meet the final total? Writing that down and putting it somewhere you’ll see every day can help keep you on track.
Most big resolutions fail because it’s not just enough to say ‘I’m going to build up an emergency fund of $5,000.’ You have to have a path to get to that end result, and for something that big, that means chipping away at it a little each day.
Have an End Point, If You Can
Open-ended resolutions are tough to fulfill. Telling yourself you’re going to cut your spending to a certain point indefinitely means that there’s no relief in sight. It’s much easier to hold out and complete a project when you can see the end, telling yourself that success is only a tiny bit farther away is a great motivator. There’s a similar concern with diets. Many people make resolutions regarding their diets but don’t offer themselves an end point or a relief valve. After doing something un-enjoyable, like sticking to a diet, for weeks at a time, you may need a break, even if it’s just a little one.
Give yourself something to look forward to, and it doesn’t even have to be a direct reward. Your feelings of accomplishment may be enough, but if you don’t have a way of knowing that you’ve reached your goal, it can be tough to feel like you accomplished anything. You need an end point to your resolution to be able to know if you stuck to it.
Start Your Resolution Today
When you think about it, the first of January is an arbitrary date to make a change in your life. If you’re thinking about your resolutions for the New Year now, you might as well start them immediately. At the very least, you’ll have some time to figure out what’s working and what’s not with the strategies you use to transform that resolution to reality. At the best, you can avoid one of the biggest problems with the entire concept of a new year’s resolution. Think about how a resolution for a new diet works: the resolution gets made at the end of a month filled with parties, eating poorly and generally bad habits. Breaking out of those bad habits after spending a month reinforcing them is incredibly difficult, setting many people up for failure.
Many of us face similar problems with financial resolutions. If you give gifts in December, the odds are good that you’ve screwed up your budget a bit at some point or otherwise engaged in some poor financial behavior. That makes starting a new resolution that much harder in January. If you can get your resolution started now and keep it through December, your resolution might become a habit and the beginning of the New Year hasn’t even arrived yet.
Unfriend Social Media Scammers
Social-media web sites, such as Facebook, Twitter and LinkedIn, have become fertile hunting grounds for bad guys phishing for your ID, angling for your money or hoping to redirect you to malicious sites. Be on the lookout for these three scams:
You get a message from a friend saying that his wallet has been stolen while traveling, and he needs you to wire him money. Because the message seems to come directly from someone you know, you might be tempted to help. But if you receive one of these messages, get in touch with your friend -- offline -- to find out what's really going on.
This scam first showed up in e-mails, and the social-media version works in a similar way: A hacker hijacks your social-media identity and then contacts your friends, usually through a private message, status update or chat message. Because hackers typically send the same message to several friends, you can usually identify the scheme based on the simplicity of the request. "Scammers try to keep their messages generic," says Chester Wisniewski, of Sophos, a data-protection firm. "They won't answer any kind of question that is off the beaten path."
You might see an update from a friend inviting you to take a quiz, view a "shocking" video or sign up for a free offer. Clicking on the link directs you to an application that asks for personal information -- phone number, Social Security number, or social-media user name and password -- before you can access the content.
Don't take the bait. Providing information could leave you with a stolen identity, surprise charges on your phone bill or a hacked social-media account. The application could also use your account to send the bogus content to others -- which is probably how your friend unintentionally shared it with you.
Before you click through, read user reviews of the application or search the Web to find out whether an application is legitimate. If a rogue app does access your account, social-media resource Mashable.com recommends that you remove it from your social-media site's application settings and then delete any messages it may have posted from your account.
URL shorteners such as Bit.ly or TinyURL.com are popular ways to share long links on social-media sites. But a shortened URL can hide a link's true destination, sometimes directing users to a malicious Web site or damaging content.
To protect yourself, Wisniewski suggests installing a URL expander for your browser; Internet Explorer and Firefox both offer options. URL expanders allow you to preview the actual URL of a shortened link before you click. If you do click on a link that takes you to a suspicious site, avoid installing any programs or providing personal information, and make sure your antivirus software is enabled and up-to-date.
Smart Choices for Riding out the Recession
Unless you're one of the people who lived through the Great Depression, chances are you'll remember 2010 as one of your worst years, at least as far as your finances were concerned. What does that mean for this year?
Time to regroup. To make smart choices. To control what you can control as far as your savings, investments, job and home are concerned. Here's how:
In Case of Emergency
Layoffs were huge last year, and the U.S. unemployment rate has jumped significantly. Most of us are in danger of being forced to cut back. If you only have a three-month emergency cushion, try to boost it to six.
"There is some interesting research about having an emergency savings account, and what that does for you from a mental health point of view. It makes you feel much more comfortable, and allows you to deal with emergencies if your hours are cut down or you lose your job," said Ted Beck, CEO of the National Endowment for Financial Education.
Where does the money come from? Use the Web to get the most from couponing. If you joined a car pool to save money when gas was $4 a gallon, don't quit now. Have cash transferred automatically to savings each time you get paid.
Watch the Rates
Particularly on your mortgage. If your rate is 6 percent or higher and your credit is good, you may want to refinance. "It may or may not make sense ... but if you have good credit and equity, lenders are willing to provide you with options. It doesn't hurt to call," said Rita Cheng, a financial adviser in Maryland.
Buy Your First Home
If you have enough cash to make a 10 percent or 20 percent down payment, this could be your opportunity to buy at a fantastic price. You'll need a solid credit score of 720 or more to get the best rates. Start by browsing the real estate section of the Daily News, looking at homes in the best school districts (because those tend to hold their value) and visiting open houses. Be sure to pay your bills on time and whittle away any credit card balances.
If you're going to buy, be realistic. Try not to allow the price of owning the home, including mortgage payment, insurance, taxes, utilities and maintenance (which can cost 1 percent to 2 percent of the value of the property annually), to exceed 35 percent of your take-home pay.
Be on the Lookout
Even if your job is relatively secure, this is a time in which everyone needs to be looking. That means you should be meeting people you know from prior jobs for coffee, making sure your presence on websites like Facebook and LinkedIn makes a good first impression, and updating your resume so it's ready to e-mail on a moment's notice.
Of course, do this while remaining diligent at work. Face time is important in this economy. When you do something great, take credit in a suitable way.
Get your kids in on the savings act. There are so many ways your kids can help you get and stay on the right financial footing, while learning to become financially responsible. You don't have time for coupons? Get your kids to do it—and offer them a percentage of the savings. Money they have is money you don't have to spend on them. Also, consider assigning them chores you might pay other people to do.
How do you cope financially with the worst economy in recent history? Regroup, make smart choices and control of your savings, investments, job security and home mortgage, Jean Chatzky says.
Article Source: http://www.oprah.com/money/Riding-Out-the-Recession/6