Check out the latest edition of "Smart Women Smart Money Smart Life", my book that helps you take charge of your financial future. Whether you are thinking about retirement that is years away or are near the end goal, "Smart Women Smart Money" can help.
In 70 chapters, my book covers topics such as how to take an early job buyout offer, how and when to claim Social Security benefits and how to marry after age 60.
If you need basic estate planning help with wills and health care directives, my book has answers. Managing on your own? Smart Women Smart Money is a place to start. Are you looking for resources and support as you map out your financial next steps? Here ya go....
Watch Smart Money YouTube videos where I discuss my top personal finance tips and topics.
In 70 chapters, my book covers topics such as how to take an early job buyout offer, how and when to claim Social Security benefits and how to marry after age 60.
If you need basic estate planning help with wills and health care directives, my book has answers. Managing on your own? Smart Women Smart Money is a place to start. Are you looking for resources and support as you map out your financial next steps? Here ya go....
Watch Smart Money YouTube videos where I discuss my top personal finance tips and topics.
Farewell to sixtyandsingle.com
Since June 2023, I have neglected sixtyandsingle.com. My reasons are complex but include a cumbersome process for uploading new posts, a lack of readership and my evolving interests related to women and financial literacy.
Therefore, I am officially stepping away.
Instead, check out my continuing SMART MONEY video posts on YouTube by searching Smart Money Julia Anderson MACC.TVCTV/videos. There you will find ongoing commentary (thanks to Portland, Ore. public television channel TVCTV) on financial and economic issues important to consumers, investors and those interested in economic trends.
Thanks so much,
Julia Anderson
Founder and contributor, www.sixtyandsingle.com
If you have ideas for future Smart Money shows, send them to [email protected].
Therefore, I am officially stepping away.
Instead, check out my continuing SMART MONEY video posts on YouTube by searching Smart Money Julia Anderson MACC.TVCTV/videos. There you will find ongoing commentary (thanks to Portland, Ore. public television channel TVCTV) on financial and economic issues important to consumers, investors and those interested in economic trends.
Thanks so much,
Julia Anderson
Founder and contributor, www.sixtyandsingle.com
If you have ideas for future Smart Money shows, send them to [email protected].
Remarrying after 60. It's in the details Part II
www.facebook.com/MACC.TVCTV/videos/631213935572410Remarrying fact: 50 percent of single Americans 65 and older will remarry. This doesn’t count those who cohabitate without marriage. Smart Money co-host Pat Boyle and I (photo) talk about how to do it right. click here
BY JULIA ANDERSON
At a recent fundraiser, I sat next to an 87-year-old retired and widowed minister who introduced me to his new girlfriend. After months of getting to know each other at the senior living center -- and falling in love-- they happily told me that they are merging households but "keeping their financial assets separate."
Another friend who has been widowed for 12 years was this year contacted by a man she knew in the second grade…60 years ago. They had been friends then, he wanted to rekindle that friendship. Guess what! They now are an item and traveling together.
Another widowed friend runs a business with her live-in partner. They don’t plan to marry but have built a house together. Their wills spell out who gets what if one of them dies.
My mother married Howard at age 79. He was 83. They had nine great years together.
Circumstances may be different but one thing isn't changing. People can fall in love in their later years and want to share life, married or unmarried. There are steps, however, that will make it more pleasant and less risky while keeping your kids happy. I recently reviewed those steps on my show, Smart Money with co-host Pat Boyle. click here
For many of us who fall in love after age 60 and wish to share a hopeful future, marriage is important. We want to stand before a judge, minister or rabbi with family and friends and say, “I do” with full knowledge of what richer or poorer or in sickness and in health might mean. For others, just enjoying each other’s company is good enough.
However, a bit of long-term estate planning can make all the difference to your adult children. They may have doubts about who you are marrying or shacking up with. And they may be wondering what happens to their inheritance if you die before your new partner does.
These FIVE STEPS will help avoid worry, now, and confusion later.
Step one: If you plan to marry or live together write up[ a signed and notarized prenuptial agreement that spells out what assets will be held separately by each of you. If you don’t plan to marry but want to live together, a cohabitation agreement can do much the same thing. Such a legal agreement deals with what’s yours, what’s his and what you want to own together.
For example, do you each have tax-deferred retirement funds that when you die should go to your kids rather than to your surviving spouse or partner?
Do you own real estate that will remain separate for your heirs? Is there separate debt? Shared debt?
If one of you sells a house does the house that you plan to live in together remain a separate asset? What will you jointly own such as vehicles or a vacation home that could pass to the surviving spouse?
All these questions can be answered with a prenup or in a cohabitation agreement. Hiring an attorney to help is worth the money.
Here are additional questions:
How does remarrying affect your Social Security benefits if you are collecting widow’s benefits?
How does remarrying affect pension benefits if your marital status changes?
Will you file a joint federal tax return or file separately after marriage?
Step two: Update your separate wills to align with the prenup and/or cohabitation agreement. Also designate who you would want to hold your durable power of attorney if you or your partner/spouse becomes incapacitated. Name the executor of your estate. Update the beneficiary designations on your retirement accounts. This is huge. You don’t want an ex-spouse from 20 years ago inheriting your pension fund!
Step three: If you are in your 60s, buy term life insurance on each other for at least 10 years. This coverage provides a financial cushion for a surviving spouse while the bulk of each estate goes separately to heirs. WARNING: Avoid taking on big new debt together in case one of you unexpectedly dies and his kids want their money.
Step four: Make a list of tangible assets with designated heirs for jewelry, artwork, important furniture. Explain what items you would like your new partner/spouse to continue to enjoy if you precede him in death. Spell out how you would like the rest of your separate tangible assets dispersed at your death and/or his death. This way everyone knows who gets what and when. The list and instructions will bring clarity and peace of mind as you build a new life together.
Step five: Take time after the dust settles to hold a family money meeting. Tell your children about your financial plans, your wills and who is designated with power of attorney for health care decisions and/or financial decisions. Explain the prenup or cohabitation agreement and how it will work when one of you dies. Mention the tangible asset distribution list.
(DO NOT hold this family money meeting after a holiday dinner when everyone has had a few drinks. Instead make it a separate but important meeting where everyone has a chance to ask questions, digest the information.) During this meeting listen to feedback, answer questions but stay in charge. Spell out the plan. Explain that this is how the two of you want things to be settled when one of you dies.
Revisit these plans every three years to make sure your wills and other instructions are up to date. Is Susie still the one you want in charge of your finances when you are in the care facility?
Happy LIFE!!!!
For More: Visit www.sixtyandsingle.com
BY JULIA ANDERSON
At a recent fundraiser, I sat next to an 87-year-old retired and widowed minister who introduced me to his new girlfriend. After months of getting to know each other at the senior living center -- and falling in love-- they happily told me that they are merging households but "keeping their financial assets separate."
Another friend who has been widowed for 12 years was this year contacted by a man she knew in the second grade…60 years ago. They had been friends then, he wanted to rekindle that friendship. Guess what! They now are an item and traveling together.
Another widowed friend runs a business with her live-in partner. They don’t plan to marry but have built a house together. Their wills spell out who gets what if one of them dies.
My mother married Howard at age 79. He was 83. They had nine great years together.
Circumstances may be different but one thing isn't changing. People can fall in love in their later years and want to share life, married or unmarried. There are steps, however, that will make it more pleasant and less risky while keeping your kids happy. I recently reviewed those steps on my show, Smart Money with co-host Pat Boyle. click here
For many of us who fall in love after age 60 and wish to share a hopeful future, marriage is important. We want to stand before a judge, minister or rabbi with family and friends and say, “I do” with full knowledge of what richer or poorer or in sickness and in health might mean. For others, just enjoying each other’s company is good enough.
However, a bit of long-term estate planning can make all the difference to your adult children. They may have doubts about who you are marrying or shacking up with. And they may be wondering what happens to their inheritance if you die before your new partner does.
These FIVE STEPS will help avoid worry, now, and confusion later.
Step one: If you plan to marry or live together write up[ a signed and notarized prenuptial agreement that spells out what assets will be held separately by each of you. If you don’t plan to marry but want to live together, a cohabitation agreement can do much the same thing. Such a legal agreement deals with what’s yours, what’s his and what you want to own together.
For example, do you each have tax-deferred retirement funds that when you die should go to your kids rather than to your surviving spouse or partner?
Do you own real estate that will remain separate for your heirs? Is there separate debt? Shared debt?
If one of you sells a house does the house that you plan to live in together remain a separate asset? What will you jointly own such as vehicles or a vacation home that could pass to the surviving spouse?
All these questions can be answered with a prenup or in a cohabitation agreement. Hiring an attorney to help is worth the money.
Here are additional questions:
How does remarrying affect your Social Security benefits if you are collecting widow’s benefits?
How does remarrying affect pension benefits if your marital status changes?
Will you file a joint federal tax return or file separately after marriage?
Step two: Update your separate wills to align with the prenup and/or cohabitation agreement. Also designate who you would want to hold your durable power of attorney if you or your partner/spouse becomes incapacitated. Name the executor of your estate. Update the beneficiary designations on your retirement accounts. This is huge. You don’t want an ex-spouse from 20 years ago inheriting your pension fund!
Step three: If you are in your 60s, buy term life insurance on each other for at least 10 years. This coverage provides a financial cushion for a surviving spouse while the bulk of each estate goes separately to heirs. WARNING: Avoid taking on big new debt together in case one of you unexpectedly dies and his kids want their money.
Step four: Make a list of tangible assets with designated heirs for jewelry, artwork, important furniture. Explain what items you would like your new partner/spouse to continue to enjoy if you precede him in death. Spell out how you would like the rest of your separate tangible assets dispersed at your death and/or his death. This way everyone knows who gets what and when. The list and instructions will bring clarity and peace of mind as you build a new life together.
Step five: Take time after the dust settles to hold a family money meeting. Tell your children about your financial plans, your wills and who is designated with power of attorney for health care decisions and/or financial decisions. Explain the prenup or cohabitation agreement and how it will work when one of you dies. Mention the tangible asset distribution list.
(DO NOT hold this family money meeting after a holiday dinner when everyone has had a few drinks. Instead make it a separate but important meeting where everyone has a chance to ask questions, digest the information.) During this meeting listen to feedback, answer questions but stay in charge. Spell out the plan. Explain that this is how the two of you want things to be settled when one of you dies.
Revisit these plans every three years to make sure your wills and other instructions are up to date. Is Susie still the one you want in charge of your finances when you are in the care facility?
Happy LIFE!!!!
For More: Visit www.sixtyandsingle.com
CDs take the sting out of inflation. Here's how
According to Forbes magazine, 31 percent of Americans “don’t understand what certificates of deposits are or how they work.” Here’s the definition: A certificate of deposit is a savings account with a fixed interest rate for a fixed amount of time. At the end of the time period, usually six months to 12 months or longer, the depositor gets her original deposit back PLUS earned interest at the fixed rate.
BY JULIA ANDERSON
Twenty-four seven business news channels would have you believing that you must be an active investor, constantly reading market and economic tea leaves. Analysts and pundits talk like you have to be buying and selling daily. As I told a friend, “They’ve got to fill the broadcast time with something.”
The reality is that smart investors are not day trading, they are not buying or selling in a panic or otherwise emotionally reacting to the news of the day. Smart investors sit tight. Unless a company cuts its dividend as Intel Corp. did recently, I don’t sell even if the stock price is down. Dividend reinvestment means you are buying more shares of that company as a discount.
There is, however, a new option for conservative investors. With higher interest rates thanks to the Federal Reserve Bank moves to curb inflation, putting cash into short-term certificates of deposit means your cash holdings are at least keeping up with inflation, well almost.
For example: $10,000 invested in a certificate of deposit for six months at 5 percent interest will generate a return of about $245. A one-year CD at 5 percent will kick off $500 in interest.
In other words, at the end of six months or 12 months, you get back your principle ($10,000) plus interest. It hasn’t been this good for savers for a long time.
And a CD with a value less than $250,000 is insured through the FDIC (Federal Deposit Insurance Agency). If the bank goes belly up, the feds will cover your loss up to a quarter of a million.
To calculate interest rates, visit www.nerdwallet.com, search for its CD calculator web page. Use the calculator to determine your interest rate return based on the amount invested, interest rate paid and term length of the CD.
Why is it important to do something with your cash? In inflationary times as we are now experiencing, the rising cost of goods and services is reducing the purchasing power of your cash at a current rate of 6-8 percent a year. In other words, your $100 now will buy less in the future ($8 less).
Another way to understand the evil of inflation is to know that the goods and services you bought for $100 today, will require $108 to buy the same services next year if costs keep rising.
CDs are a way to at least stay even, well almost even, with inflation while protecting your principal.
Don’t expect to find CDs paying 5 percent at your local bank branch or credit union. The over-the-counter rates will be lower (in the 2-3 percent range) than those you will find through online brokerage businesses and banks.
For example: Wells Fargo is offering a 12-month CD paying only 1.5 percent with a minimum deposit of $2,500., Bank of America is worse with a 1-year CD rate of 0.03 percent on a minimum of $1,000.
Meanwhile, here are higher-rate online offerings:
Marcus by Goldman Sachs - $500 minimum 10-month at 5.05 percent
CapitalOne – No minimum deposit with CD rates from 3.3 percent to 4.30 percent.
Ally Bank (online only) – 4.5 percent on a 12-month CD
Synchrony Bank with no minimum deposit. CD rates range from 2.25 to 5.15 percent.
According to BankRate.com the average national interest rate for CDs is 1.68 percent on a one-year term CD; 1.41 percent on a two-year term. You can see why investing online is a better deal.
Whatever you do, make sure your deposit is covered by the FDIC.
For more:
www.forbes.com/advisor/banking/cds/best-cd-rates/
www.nerdwallet.com, click here.
www.bankrate.com
www.investopedia.com, click here.
Twenty-four seven business news channels would have you believing that you must be an active investor, constantly reading market and economic tea leaves. Analysts and pundits talk like you have to be buying and selling daily. As I told a friend, “They’ve got to fill the broadcast time with something.”
The reality is that smart investors are not day trading, they are not buying or selling in a panic or otherwise emotionally reacting to the news of the day. Smart investors sit tight. Unless a company cuts its dividend as Intel Corp. did recently, I don’t sell even if the stock price is down. Dividend reinvestment means you are buying more shares of that company as a discount.
There is, however, a new option for conservative investors. With higher interest rates thanks to the Federal Reserve Bank moves to curb inflation, putting cash into short-term certificates of deposit means your cash holdings are at least keeping up with inflation, well almost.
For example: $10,000 invested in a certificate of deposit for six months at 5 percent interest will generate a return of about $245. A one-year CD at 5 percent will kick off $500 in interest.
In other words, at the end of six months or 12 months, you get back your principle ($10,000) plus interest. It hasn’t been this good for savers for a long time.
And a CD with a value less than $250,000 is insured through the FDIC (Federal Deposit Insurance Agency). If the bank goes belly up, the feds will cover your loss up to a quarter of a million.
To calculate interest rates, visit www.nerdwallet.com, search for its CD calculator web page. Use the calculator to determine your interest rate return based on the amount invested, interest rate paid and term length of the CD.
Why is it important to do something with your cash? In inflationary times as we are now experiencing, the rising cost of goods and services is reducing the purchasing power of your cash at a current rate of 6-8 percent a year. In other words, your $100 now will buy less in the future ($8 less).
Another way to understand the evil of inflation is to know that the goods and services you bought for $100 today, will require $108 to buy the same services next year if costs keep rising.
CDs are a way to at least stay even, well almost even, with inflation while protecting your principal.
Don’t expect to find CDs paying 5 percent at your local bank branch or credit union. The over-the-counter rates will be lower (in the 2-3 percent range) than those you will find through online brokerage businesses and banks.
For example: Wells Fargo is offering a 12-month CD paying only 1.5 percent with a minimum deposit of $2,500., Bank of America is worse with a 1-year CD rate of 0.03 percent on a minimum of $1,000.
Meanwhile, here are higher-rate online offerings:
Marcus by Goldman Sachs - $500 minimum 10-month at 5.05 percent
CapitalOne – No minimum deposit with CD rates from 3.3 percent to 4.30 percent.
Ally Bank (online only) – 4.5 percent on a 12-month CD
Synchrony Bank with no minimum deposit. CD rates range from 2.25 to 5.15 percent.
According to BankRate.com the average national interest rate for CDs is 1.68 percent on a one-year term CD; 1.41 percent on a two-year term. You can see why investing online is a better deal.
Whatever you do, make sure your deposit is covered by the FDIC.
For more:
www.forbes.com/advisor/banking/cds/best-cd-rates/
www.nerdwallet.com, click here.
www.bankrate.com
www.investopedia.com, click here.
Investing 101: Baby steps for beginners!!!
Investing basics online reading:
www.nerdwallet.com How to Invest in Stocks
www.investopedia.com How to Invest in Stocks: A Beginner’s Guide
www.fidelity.com How to Start Investing
www.bankrate.com Stock market basics: 9 tips for beginners
www.wife.org Investing and Saving
Investing basics books:
“The Women’s Simple Guide to Investing” by Elinor Davison
Motley Fool’s Investment Guide by Tom and David Gardner
“Smart Women Smart Money Smart Life” by Julia Anderson
“One Up on Wall Street,” by Peter Lynch
“A Random Walk Down Wall Street,” by Burton Malkiel
BY JULIA ANDERSON
It is one thing to save but another to invest.
Investing, however, is the only way you will accumulate enough “wealth” to have a comfortable retirement. With markets down (spring 2023) because of rising interest rates, now is the time to become an investor.
Let’s take baby steps with the basics:
What is a company?
A company is a business organization that makes money by selling goods or services. Companies can be public or private.
What is a stock?
Also known as equities or shares. If you buy a stock or a share you are buying a piece of a company. The company issues shares or stock to raise money. Shares go up and down in value depending on how the company’s business is performing. Prices go up if people want to buy more shares and down if more people want to sell the stock. It’s about supply and demand and business performance.
What is the stock market?
The stock market is a basket of stocks offered for trade in a public marketplace. Companies raise money on the stock market by selling ownership stakes to investors. These equity stakes are known as shares of stock. By listing shares for sale on stock exchanges, companies get access to the capital they need to operate and expand their businesses without having to take on debt. In the U.S. there are accounting rules for how companies operate and report earnings and distribute income.
What is a dividend?
A dividend is a reward paid to shareholders for their investment in a company's stock. A dividend usually originates from the company's net profits and is usually paid to shareholders every three months or quarters. A dividend is paid per share of stock, approved by a company board of directors.
What is compound investing?
Compounding is a powerful investing concept. It means earning returns on both your original investment and on payouts that are reinvested in more shares of the company or mutual fund.
You continue to receive returns (dividends) if you own the stock. For compounding to work, you must reinvest your returns back into more stock allowing your investment to grow.
Time is on the side of long-term investors.
EXAMPLE: You start investing in U.S markets at $100 a month while in your 20s. Your average positive return is 12 percent annually, compounded for 40 years. You end up with a $1.17 million nest egg.
A friend, however, doesn’t begin investing until 30 years later at a rate of $1,000 a month for 10 years, averaging the same positive return. The friend will have just $230,000 in savings for retirement at 65. GETTING STARTED EARLY IS ESSENTIAL.
What does history tell us about American stock markets?
History shows us that stock markets are cyclical with repeated patterns of highs and lows. American stock markets have been around since the late 1700s and early 1800s. From 1871 until 2022, U.S. stocks have increased at 4.6 percent a year in value EXCLUDING dividends. If you add in dividend reinvestment, markets have grown annually about 9.1 percent a year.
What is inflation?
Inflation is the rate of increase in prices of a basketful of consumer goods over time. Inflation eats into savings and incomes by decreasing the purchasing power of money. To cool off inflation (rising prices), the Federal Reserve Bank raises lending interest rates to slow the economy. Ideally inflation runs at about 2 percent a year.
What is a mutual fund?
Mutual funds let you pool money with other investors to mutually buy stocks, bonds, and other investments. They are run by professional money managers who decide which securities (stocks, bonds etc.) to buy and when to sell them. Those are actively traded funds and usually have a higher management fee.
Other “index” mutual funds are passive funds that just follow a group of stocks up and down based on the performance of those stocks or bonds etc. Fees are lower because management is minimal.
What is a bond?
A bond is simply when you buy part of a debt. A bond is a loan made to a company or a government that can be traded on the stock market. Examples are bonds issued by school districts to build a new school building or a bond issued by a city or port district to build a road or a new warehouse. Investing in bonds is a more conservative way to invest your money:
You usually invest your money for a limited amount of time.
When the loan (bond) expires you receive back the initial amount you invested. Plus, you receive interest income on the investment.
WARNING: When interest rates are going up as they did in 2022, the value of a bond fund typically goes down. That is because no one wants to buy a bond paying a lower interest rate when they can buy a new bond with a higher interest rate.
The difference between stock shares and bonds? Bonds raise money via debt, stock shares raise money by giving investors a stake in the company’s business operation. Investors are rewarded with dividends.
Bonds pay interest. Bonds are offered with a time window, typically six months, nine months, a year, two years. You know when they will “come due.” Shares pay dividends that continue until you sell the shares or the company board of directors changes the dividend payout.
What is an EXPENSE RATIO?
An expense ratio measures how much of a fund’s assets are used for administrative and other operating costs. An expense ratio is calculated as a percent of your fund assets. Operating expenses reduce the fund’s assets, thereby reducing the return to investors over time. It can be a big factor in how much you can save and invest for retirement over time.
Examples:
Fidelity’s Contrafund is actively managed and has an expense ratio of 0.86 percent. That means for every $10,000 invested in the fund, Fidelity charges $86 dollars a year.
Vanguard has a passively managed fund that replicates the S&P 500. No one is managing this fund which just goes up and down with the shares in the S&P 500. The expense ratio on this fund is 0.03 percent, which means Vanguard charges just $3 per year.
Ideally, investors are looking for funds that charge 1 percent or less per year.
Is NOW (spring 2023) a good time to invest?
Yes, especially if you are young. Start now, stick with a plan. Ignore short-term market gyrations. Put as much as you can into deferred tax plans such as a 401(k), Individual Retirement Account or a Roth Individual Retirement Account – LET THE EARNINGS REINVEST OVER TIME TO BUILD A NEST EGG.
But let’s be REAL. With rising interest rates because of inflation, we may be in for slower U.S. and global economic growth, ups and downs in stock markets and more complicated challenges for investors. Ignore all this.
Why do we need to invest, not just save?
It is one thing to SAVE MONEY and another thing to INVEST MONEY. You can save money out of your paycheck, put it in a savings account at the bank for a rainy day. Investing requires more than that.
To have enough money to retire comfortably you will need to be not just a SAVER, but an INVESTOR. That means putting your long-term savings in U.S. stocks and bonds and bank certificates that will generate income over time. The earnings from those investments must be reinvested in a tax-deferred account…. usually through a workplace savings plan like a 401k or on your own with an Individual Retirement Account or Roth Individual Retirement Account.
Over 25 or 30 years the compound reinvested earnings will build a retirement NEST EGG. The sooner you get started investing and reinvesting those earnings, the better. Don’t wait until your 30s or 40s. That makes it so much harder to get where you need to be financially.
In recent Smart Money YouTube episodes, we have covered the basics. Click here.
All information provided at SMART MONEY and Sixtyandsingle.com is for informational purposes only. We make no representations as to the accuracy, completeness, suitability, or validity of any information here and will not be liable for any errors or omissions in this information or any damages arising from its display or use.
www.nerdwallet.com How to Invest in Stocks
www.investopedia.com How to Invest in Stocks: A Beginner’s Guide
www.fidelity.com How to Start Investing
www.bankrate.com Stock market basics: 9 tips for beginners
www.wife.org Investing and Saving
Investing basics books:
“The Women’s Simple Guide to Investing” by Elinor Davison
Motley Fool’s Investment Guide by Tom and David Gardner
“Smart Women Smart Money Smart Life” by Julia Anderson
“One Up on Wall Street,” by Peter Lynch
“A Random Walk Down Wall Street,” by Burton Malkiel
BY JULIA ANDERSON
It is one thing to save but another to invest.
Investing, however, is the only way you will accumulate enough “wealth” to have a comfortable retirement. With markets down (spring 2023) because of rising interest rates, now is the time to become an investor.
Let’s take baby steps with the basics:
What is a company?
A company is a business organization that makes money by selling goods or services. Companies can be public or private.
What is a stock?
Also known as equities or shares. If you buy a stock or a share you are buying a piece of a company. The company issues shares or stock to raise money. Shares go up and down in value depending on how the company’s business is performing. Prices go up if people want to buy more shares and down if more people want to sell the stock. It’s about supply and demand and business performance.
What is the stock market?
The stock market is a basket of stocks offered for trade in a public marketplace. Companies raise money on the stock market by selling ownership stakes to investors. These equity stakes are known as shares of stock. By listing shares for sale on stock exchanges, companies get access to the capital they need to operate and expand their businesses without having to take on debt. In the U.S. there are accounting rules for how companies operate and report earnings and distribute income.
What is a dividend?
A dividend is a reward paid to shareholders for their investment in a company's stock. A dividend usually originates from the company's net profits and is usually paid to shareholders every three months or quarters. A dividend is paid per share of stock, approved by a company board of directors.
What is compound investing?
Compounding is a powerful investing concept. It means earning returns on both your original investment and on payouts that are reinvested in more shares of the company or mutual fund.
You continue to receive returns (dividends) if you own the stock. For compounding to work, you must reinvest your returns back into more stock allowing your investment to grow.
Time is on the side of long-term investors.
EXAMPLE: You start investing in U.S markets at $100 a month while in your 20s. Your average positive return is 12 percent annually, compounded for 40 years. You end up with a $1.17 million nest egg.
A friend, however, doesn’t begin investing until 30 years later at a rate of $1,000 a month for 10 years, averaging the same positive return. The friend will have just $230,000 in savings for retirement at 65. GETTING STARTED EARLY IS ESSENTIAL.
What does history tell us about American stock markets?
History shows us that stock markets are cyclical with repeated patterns of highs and lows. American stock markets have been around since the late 1700s and early 1800s. From 1871 until 2022, U.S. stocks have increased at 4.6 percent a year in value EXCLUDING dividends. If you add in dividend reinvestment, markets have grown annually about 9.1 percent a year.
What is inflation?
Inflation is the rate of increase in prices of a basketful of consumer goods over time. Inflation eats into savings and incomes by decreasing the purchasing power of money. To cool off inflation (rising prices), the Federal Reserve Bank raises lending interest rates to slow the economy. Ideally inflation runs at about 2 percent a year.
What is a mutual fund?
Mutual funds let you pool money with other investors to mutually buy stocks, bonds, and other investments. They are run by professional money managers who decide which securities (stocks, bonds etc.) to buy and when to sell them. Those are actively traded funds and usually have a higher management fee.
Other “index” mutual funds are passive funds that just follow a group of stocks up and down based on the performance of those stocks or bonds etc. Fees are lower because management is minimal.
What is a bond?
A bond is simply when you buy part of a debt. A bond is a loan made to a company or a government that can be traded on the stock market. Examples are bonds issued by school districts to build a new school building or a bond issued by a city or port district to build a road or a new warehouse. Investing in bonds is a more conservative way to invest your money:
You usually invest your money for a limited amount of time.
When the loan (bond) expires you receive back the initial amount you invested. Plus, you receive interest income on the investment.
WARNING: When interest rates are going up as they did in 2022, the value of a bond fund typically goes down. That is because no one wants to buy a bond paying a lower interest rate when they can buy a new bond with a higher interest rate.
The difference between stock shares and bonds? Bonds raise money via debt, stock shares raise money by giving investors a stake in the company’s business operation. Investors are rewarded with dividends.
Bonds pay interest. Bonds are offered with a time window, typically six months, nine months, a year, two years. You know when they will “come due.” Shares pay dividends that continue until you sell the shares or the company board of directors changes the dividend payout.
What is an EXPENSE RATIO?
An expense ratio measures how much of a fund’s assets are used for administrative and other operating costs. An expense ratio is calculated as a percent of your fund assets. Operating expenses reduce the fund’s assets, thereby reducing the return to investors over time. It can be a big factor in how much you can save and invest for retirement over time.
Examples:
Fidelity’s Contrafund is actively managed and has an expense ratio of 0.86 percent. That means for every $10,000 invested in the fund, Fidelity charges $86 dollars a year.
Vanguard has a passively managed fund that replicates the S&P 500. No one is managing this fund which just goes up and down with the shares in the S&P 500. The expense ratio on this fund is 0.03 percent, which means Vanguard charges just $3 per year.
Ideally, investors are looking for funds that charge 1 percent or less per year.
Is NOW (spring 2023) a good time to invest?
Yes, especially if you are young. Start now, stick with a plan. Ignore short-term market gyrations. Put as much as you can into deferred tax plans such as a 401(k), Individual Retirement Account or a Roth Individual Retirement Account – LET THE EARNINGS REINVEST OVER TIME TO BUILD A NEST EGG.
But let’s be REAL. With rising interest rates because of inflation, we may be in for slower U.S. and global economic growth, ups and downs in stock markets and more complicated challenges for investors. Ignore all this.
Why do we need to invest, not just save?
It is one thing to SAVE MONEY and another thing to INVEST MONEY. You can save money out of your paycheck, put it in a savings account at the bank for a rainy day. Investing requires more than that.
To have enough money to retire comfortably you will need to be not just a SAVER, but an INVESTOR. That means putting your long-term savings in U.S. stocks and bonds and bank certificates that will generate income over time. The earnings from those investments must be reinvested in a tax-deferred account…. usually through a workplace savings plan like a 401k or on your own with an Individual Retirement Account or Roth Individual Retirement Account.
Over 25 or 30 years the compound reinvested earnings will build a retirement NEST EGG. The sooner you get started investing and reinvesting those earnings, the better. Don’t wait until your 30s or 40s. That makes it so much harder to get where you need to be financially.
In recent Smart Money YouTube episodes, we have covered the basics. Click here.
All information provided at SMART MONEY and Sixtyandsingle.com is for informational purposes only. We make no representations as to the accuracy, completeness, suitability, or validity of any information here and will not be liable for any errors or omissions in this information or any damages arising from its display or use.
Buying a used car? What to know in 2023
Smart Money's Pat Boyle and Julia Anderson interview Vince Powell of Powell Motors Inc., Portland, Ore.
BY JULIA ANDERSON
Smart Money co-host Pat Boyle and I had a great conversation this week with Vince Powell of Powell Motors Inc., a second-generation car dealer in Portland,Ore. Vince brought us up to date on the 2023 new and used car market. Here’s what we learned:
New car production in the U.S. is mostly over the supply chain difficulties of 2022 when carmakers could not build cars because of shortages of computer chips and other components. With those roadblocks disappearing, manufacturers are again making cars and trucks and getting them to dealer lots. As more supply of new vehicles comes online, prices should drop, but not much. Ford Motor Co. this week forecast that prices will be down 5 percent from last year. According to Kelley Blue Book, the average new car price in 2023 is $48,094. That's UP from $37,876 in 2021.
Vince Powell explained that with more new cars and trucks to buy, buyer demand for used vehicles has softened. That’s good news for buyers who saw used car prices jump 45 percent in the two years from 2020 to late 2022. Now used car inventory is growing and prices were down nearly 9 percent in late 2022 from a year earlier. Cars.com predicts a 10 percent to 20 percent drop in used-car prices from 2022.
Unfortunately, this also means that trade-in values may drop. They were down nearly 11 percent in December. But trade-in values are still up from two years ago: $5,626 in 2020, now $9,316 in early 2023. Indicator: It is now taking 46 days for the average used car to sell, vs. 30 days a year ago.
Powell said that buyers a few years ago could find a “good” used car in the $6,000 to $10,000 range. Now, buyers looking for a good used car are paying more in the $10,000-plus range. These are the cars with relatively low-mileage and good maintenance that everyone wants including auto dealers who want to re-sell them.
When shopping for a used car here are questions to ask the seller:
Why are you selling this car? Beware, if the seller can’t give you a clear answer.
Can I get a mechanic’s inspection? If no, walk away.
Does the seller have a free and clear car title? Ask about accident and repair history.
Use CARFAX.com to check out used car ownership and maintenance history.
Do you see rust? Rust means poor maintenance, possible problems.
How do the tires look? Uneven wear means the car may have alignment problems.
Smart Money YouTube interview with Vince Powell, CEO of Powell Motor Co. Click here.
Looking ahead:
Vince expects the car market to continue to stabilize after three years of disruption because of Covid effects and supply chain issues. Higher interest rates may slow car sales somewhat, but buyers should get a break on prices.
Smart Money co-host Pat Boyle and I had a great conversation this week with Vince Powell of Powell Motors Inc., a second-generation car dealer in Portland,Ore. Vince brought us up to date on the 2023 new and used car market. Here’s what we learned:
New car production in the U.S. is mostly over the supply chain difficulties of 2022 when carmakers could not build cars because of shortages of computer chips and other components. With those roadblocks disappearing, manufacturers are again making cars and trucks and getting them to dealer lots. As more supply of new vehicles comes online, prices should drop, but not much. Ford Motor Co. this week forecast that prices will be down 5 percent from last year. According to Kelley Blue Book, the average new car price in 2023 is $48,094. That's UP from $37,876 in 2021.
Vince Powell explained that with more new cars and trucks to buy, buyer demand for used vehicles has softened. That’s good news for buyers who saw used car prices jump 45 percent in the two years from 2020 to late 2022. Now used car inventory is growing and prices were down nearly 9 percent in late 2022 from a year earlier. Cars.com predicts a 10 percent to 20 percent drop in used-car prices from 2022.
Unfortunately, this also means that trade-in values may drop. They were down nearly 11 percent in December. But trade-in values are still up from two years ago: $5,626 in 2020, now $9,316 in early 2023. Indicator: It is now taking 46 days for the average used car to sell, vs. 30 days a year ago.
Powell said that buyers a few years ago could find a “good” used car in the $6,000 to $10,000 range. Now, buyers looking for a good used car are paying more in the $10,000-plus range. These are the cars with relatively low-mileage and good maintenance that everyone wants including auto dealers who want to re-sell them.
When shopping for a used car here are questions to ask the seller:
Why are you selling this car? Beware, if the seller can’t give you a clear answer.
Can I get a mechanic’s inspection? If no, walk away.
Does the seller have a free and clear car title? Ask about accident and repair history.
Use CARFAX.com to check out used car ownership and maintenance history.
Do you see rust? Rust means poor maintenance, possible problems.
How do the tires look? Uneven wear means the car may have alignment problems.
Smart Money YouTube interview with Vince Powell, CEO of Powell Motor Co. Click here.
Looking ahead:
Vince expects the car market to continue to stabilize after three years of disruption because of Covid effects and supply chain issues. Higher interest rates may slow car sales somewhat, but buyers should get a break on prices.
Secure 2.0: A plus for younger workers, and for baby boomers
SECURE ACT 2.0 key takeaways:
- Workers will be able to add an emergency savings account to their 401(k) accounts. 2024
- Employers launching new 401(k) and 403(b) plans will be required to automatically enroll eligible workers 2025
- Employers will be able to match student loan payments inside a retirement account 2024
- The age to start taking RMDs increases from 73 in 2023 and to 75 in 2033.
- The penalty for failing to take an RMD will decrease to 25 percent of the RMD amount.
- Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
- Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.
BY JULIA ANDERSON
Part of the giant $1.7 trillion spending bill passed by Congress just before Christmas 2022 is a set of rule changes that will make it easier to Americans to save for retirement and manage their nest eggs in retirement.
The rule changes build on earlier legislation from 2019 called the Secure Act, which was meant to incentivize Americans to stash money inside tax-deferred accounts such as 401(k) retirement savings accounts. The additional rule changes are being called Secure Act 2.0.
While the changes are mostly good news, there is still a problem. According to the U.S. Census Bureau, only 41 to 51 percent of American workers are participating in an employer-based 401(k) account or other tax-deferred retirement account.
That’s particularly alarming when 68 percent of employed Americans are covered and could be participating. Vanguard analysis shows that the average balance in a 401(k) is a meager $129,157. Congress knows that more needs to be done to get Americans saving for retirement. The Secure Act(s) help but do not solve the problem.
The new rule changes include:
For younger workers:
Starting in 2024, employers will be able to “match” employee student loan payments with matching payments to a retirement account. This provides an incentive to save for the long-term while paying off educational loans.
Starting in 2024, defined contribution retirement plans (such as a 401(k) will be permitted to add an emergency savings account to employer-sponsored plans. Contributions would be limited to $2,500 a year and could be eligible for an employer match. Such plans would help people save for emergencies, make tax- and penalty-free withdrawals rather than using expensive credit card debt to cover unexpected emergencies.
Employers launching new 401(k) and 403(b) plans will be required to automatically enroll eligible workers starting with a contribution rate of 3 percent a year with increasing going forward. Workers must opt out of the plan, rather than opting in. Employees who change jobs will more easily be able to roll a retirement account into a new account when they change jobs rather than cashing out a plan. This “portability” will help lower income people preserve long-term savings.
The rules also change for employer matching for after-tax Roth accounts. Tax experts admit this option may take time to sort out and set up through payroll systems. Previously, matching only went into pre-tax accounts.
For older workers and retirees
Other changes in the Secure Act 2.0 are intended to help older workers save more for retirement and better manage their money in retirement.
Starting this month (January 2023), owners of retirement accounts will not be required to start taking RMDs (Required Minimum Distributions) from those accounts until age 73. That’s up from age 72 in prior legislation. By 2033, the RMD age increases to 75. D (In case you wondered, this change primarily benefits the wealthy who do not need to live on RMDs but would rather hold on to and grow their money tax-deferred.)
Penalties for failing to take an RMD in the year required will drop from 50 percent of the amount not taken to 25 percent. There also are rule changes related to annuity payments that I am not going to get into and which mostly benefit the giant financial investment industry, not individuals.
Starting Jan. 1, 2025, individuals ages 60 through 63 will be able to make catch-up contributions up to $10,000 per year in an employer-based plan. The catch-up amount for those 50 and older is already $7,500. Detail: If you earn more than $145,000 a year, catch-up contributions at age 50 or older must go into an after-tax Roth account. Those earning less than $145,000 will be exempt from the Roth requirement.
Change un 529 plan rules and charitable giving
Grandparents holding 529 plans: After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary subject to annual Roth contribution limits and other rules.
Changes in charitable giving regulations expand options for using a qualified charitable distribution from a tax-deferred plan such as an IRA. Previously, QCDs could only be granted to a specific qualified charity. (Typically, a taxpayer who can afford to use this option will be working with a tax-expert to thread the needle. I will leave it at that.)
While these are positive steps to help more Americans save for retirement, more must be done to create additional long-term saving incentives and to in general improve financial literacy. It doesn’t help that federal regulators let cryptocurrency exchanges get out in front of regulations. The conspiracy theorists are happy to spread mistrust in our regulated (rule of law) capitalist system.
SOCIAL SECURITY WARNING
Congress also knows that because of the baby boomer population bulge there will be fewer people working people contributing to the Social Security Administration payroll system but more Americans collecting benefits.
By about 2037, payroll taxes are forecast to cover about 76 percent of scheduled benefits. In other words, a beneficiary currently collecting $25,000 a year in Social Security benefits will see that pay out reduced to $18,750. That’s unless the age for claiming benefits, currently at 62, is raised and/or payroll taxes are increased to cover the gap between funding and pay-outs.
Meanwhile, we can thank Congress for the steps taken with the Secure Act and Secure Act 2.0. More needs to be done.
FOR MORE:
Forbes -"Secure Act 2.0: Will it help you save for Retrement?" click here
Fidelity: Secure 2.0: Rethinking retirement savings from RMDs to Student debt click here
U.S. Bank: How new legislation could change the way you save for retirement click here
- Workers will be able to add an emergency savings account to their 401(k) accounts. 2024
- Employers launching new 401(k) and 403(b) plans will be required to automatically enroll eligible workers 2025
- Employers will be able to match student loan payments inside a retirement account 2024
- The age to start taking RMDs increases from 73 in 2023 and to 75 in 2033.
- The penalty for failing to take an RMD will decrease to 25 percent of the RMD amount.
- Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
- Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.
BY JULIA ANDERSON
Part of the giant $1.7 trillion spending bill passed by Congress just before Christmas 2022 is a set of rule changes that will make it easier to Americans to save for retirement and manage their nest eggs in retirement.
The rule changes build on earlier legislation from 2019 called the Secure Act, which was meant to incentivize Americans to stash money inside tax-deferred accounts such as 401(k) retirement savings accounts. The additional rule changes are being called Secure Act 2.0.
While the changes are mostly good news, there is still a problem. According to the U.S. Census Bureau, only 41 to 51 percent of American workers are participating in an employer-based 401(k) account or other tax-deferred retirement account.
That’s particularly alarming when 68 percent of employed Americans are covered and could be participating. Vanguard analysis shows that the average balance in a 401(k) is a meager $129,157. Congress knows that more needs to be done to get Americans saving for retirement. The Secure Act(s) help but do not solve the problem.
The new rule changes include:
For younger workers:
Starting in 2024, employers will be able to “match” employee student loan payments with matching payments to a retirement account. This provides an incentive to save for the long-term while paying off educational loans.
Starting in 2024, defined contribution retirement plans (such as a 401(k) will be permitted to add an emergency savings account to employer-sponsored plans. Contributions would be limited to $2,500 a year and could be eligible for an employer match. Such plans would help people save for emergencies, make tax- and penalty-free withdrawals rather than using expensive credit card debt to cover unexpected emergencies.
Employers launching new 401(k) and 403(b) plans will be required to automatically enroll eligible workers starting with a contribution rate of 3 percent a year with increasing going forward. Workers must opt out of the plan, rather than opting in. Employees who change jobs will more easily be able to roll a retirement account into a new account when they change jobs rather than cashing out a plan. This “portability” will help lower income people preserve long-term savings.
The rules also change for employer matching for after-tax Roth accounts. Tax experts admit this option may take time to sort out and set up through payroll systems. Previously, matching only went into pre-tax accounts.
For older workers and retirees
Other changes in the Secure Act 2.0 are intended to help older workers save more for retirement and better manage their money in retirement.
Starting this month (January 2023), owners of retirement accounts will not be required to start taking RMDs (Required Minimum Distributions) from those accounts until age 73. That’s up from age 72 in prior legislation. By 2033, the RMD age increases to 75. D (In case you wondered, this change primarily benefits the wealthy who do not need to live on RMDs but would rather hold on to and grow their money tax-deferred.)
Penalties for failing to take an RMD in the year required will drop from 50 percent of the amount not taken to 25 percent. There also are rule changes related to annuity payments that I am not going to get into and which mostly benefit the giant financial investment industry, not individuals.
Starting Jan. 1, 2025, individuals ages 60 through 63 will be able to make catch-up contributions up to $10,000 per year in an employer-based plan. The catch-up amount for those 50 and older is already $7,500. Detail: If you earn more than $145,000 a year, catch-up contributions at age 50 or older must go into an after-tax Roth account. Those earning less than $145,000 will be exempt from the Roth requirement.
Change un 529 plan rules and charitable giving
Grandparents holding 529 plans: After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary subject to annual Roth contribution limits and other rules.
Changes in charitable giving regulations expand options for using a qualified charitable distribution from a tax-deferred plan such as an IRA. Previously, QCDs could only be granted to a specific qualified charity. (Typically, a taxpayer who can afford to use this option will be working with a tax-expert to thread the needle. I will leave it at that.)
While these are positive steps to help more Americans save for retirement, more must be done to create additional long-term saving incentives and to in general improve financial literacy. It doesn’t help that federal regulators let cryptocurrency exchanges get out in front of regulations. The conspiracy theorists are happy to spread mistrust in our regulated (rule of law) capitalist system.
SOCIAL SECURITY WARNING
Congress also knows that because of the baby boomer population bulge there will be fewer people working people contributing to the Social Security Administration payroll system but more Americans collecting benefits.
By about 2037, payroll taxes are forecast to cover about 76 percent of scheduled benefits. In other words, a beneficiary currently collecting $25,000 a year in Social Security benefits will see that pay out reduced to $18,750. That’s unless the age for claiming benefits, currently at 62, is raised and/or payroll taxes are increased to cover the gap between funding and pay-outs.
Meanwhile, we can thank Congress for the steps taken with the Secure Act and Secure Act 2.0. More needs to be done.
FOR MORE:
Forbes -"Secure Act 2.0: Will it help you save for Retrement?" click here
Fidelity: Secure 2.0: Rethinking retirement savings from RMDs to Student debt click here
U.S. Bank: How new legislation could change the way you save for retirement click here
Advice for widows: Before and after the death
Pat Boyle, Julia Anderson, Pam Wolle and Rosemary Reynolds (L-R) on Smart Money, TVCTV in Beaverton, Ore.
BY JULIA ANDERSON
Right now, three of my friends are living one day at a time through the slow deaths of the husbands. Their spouses are lovely, bright, and lively men with a lifetime of success in marriage and career. Their strong wives are there for them as they face decline.
In their 70s, two of these men are grappling with Alzheimer’s disease. The third has Parkinson’s. Their afflictions keep their spouses on a short tether, engaged in doctors’ visits, home care and day-to-day – sometimes minute-to-minute – management.
The end is clear. These men will almost certainly die before their wives. In fact, half of all American women over age 65 are single and on their own, emotionally, and financially because they have lost a spouse to death or divorce. This life-changing loss may happen in their 60s as it did for a couple of my friends because of cancer. And even more likely in their 70s.
With all this in mind, my Smart Money public television co-host, Pat Boyle, and I each invited a close widowed friend to join us on the show to talk about widowhood. It was a powerful conservation where they shared their experiences and their advice for women newly widowed or those who soon will be widowed. Below is their wisdom. (To view the show click here.)
What to do before the death of your spouse:
Update your health insurance coverage for your spouse during the annual open enrollment period that typically starts Nov. 1 through mid-December. In the face of serious illness, a less expensive Medicare Advantage plan will NOT be what you need going forward. Talk to your doctor’s office and to a health care insurance coverage specialist. Ask for advice on the best, most comprehensive coverage in the face of our spouse’s illness. A more expensive monthly payment may save you thousands and thousands of dollars in the longer run.
Adjust ownership of all tangible assets – vehicle titles, real estate, deeds, bank accounts and insurance policies. Make sure that the ownership transfer of these assets is seamless and low stress at his death.
Know as much as you can about all your finances – investments, Individual Retirement Accounts, savings, real estate holdings and credit card debt. Make sure you know how are they managed and by whom.
Review your household income and expenses prior to death. Then do a forecast on income and expenses post death. What changes when you spouse is gone? Look at income and expenses.
Also, look at your net worth – that’s assets minus debt. What might change down the road?
Get copies of your legal marriage certificate filed at the county courthouse. Make copies because Social Security and others will want to know that you were legally married.
With your spouse, make his funeral arrangements prior to his death so that you don’t overpay or are pressured by funeral directors or family to spend more than you want.
Don’t be afraid to ask questions of your spouse or your financial, legal and bank advisers. Widowhood does not mean that you are a victim.
Wisdom for widows, post death
Make lists, use "sticky" notes. You may think you are ready for the loss and the grief that will accompany the death of your spouse, but likely it will take months, maybe years to adjust. Lists will help you stay on track and avoid forgetting important to-do's, Grief and the shock of your loss may generate “fuzzy” thinking.
Don’t forget to pay your monthly bills.
Notify Social Security of the death as soon as possible. You otherwise may have to pay back automatic benefit payments. You will need a legal death certificate.
Make several copies of the death certificate.
Set up a face-to-face appointment at your nearest Social Security office to consider benefit options as a widow. Bring a legal copy of the death certificate and a copy of your marriage license. To receive widow’s benefits you must have been married 10 years or more.
Make NO big financial decisions for at least one year. Don’t sell your house, don’t change your routine but instead let things settle down, let your mind and soul recover. It will become clear what moves to make after time passes. Don’t jump into a reverse mortgage on your house, for example.
Don’t be afraid to constantly ask questions as issues arise. Being a widow does not mean being a victim. If you don’t get the answers you want, keep asking, keep researching.
Right now, three of my friends are living one day at a time through the slow deaths of the husbands. Their spouses are lovely, bright, and lively men with a lifetime of success in marriage and career. Their strong wives are there for them as they face decline.
In their 70s, two of these men are grappling with Alzheimer’s disease. The third has Parkinson’s. Their afflictions keep their spouses on a short tether, engaged in doctors’ visits, home care and day-to-day – sometimes minute-to-minute – management.
The end is clear. These men will almost certainly die before their wives. In fact, half of all American women over age 65 are single and on their own, emotionally, and financially because they have lost a spouse to death or divorce. This life-changing loss may happen in their 60s as it did for a couple of my friends because of cancer. And even more likely in their 70s.
With all this in mind, my Smart Money public television co-host, Pat Boyle, and I each invited a close widowed friend to join us on the show to talk about widowhood. It was a powerful conservation where they shared their experiences and their advice for women newly widowed or those who soon will be widowed. Below is their wisdom. (To view the show click here.)
What to do before the death of your spouse:
Update your health insurance coverage for your spouse during the annual open enrollment period that typically starts Nov. 1 through mid-December. In the face of serious illness, a less expensive Medicare Advantage plan will NOT be what you need going forward. Talk to your doctor’s office and to a health care insurance coverage specialist. Ask for advice on the best, most comprehensive coverage in the face of our spouse’s illness. A more expensive monthly payment may save you thousands and thousands of dollars in the longer run.
Adjust ownership of all tangible assets – vehicle titles, real estate, deeds, bank accounts and insurance policies. Make sure that the ownership transfer of these assets is seamless and low stress at his death.
Know as much as you can about all your finances – investments, Individual Retirement Accounts, savings, real estate holdings and credit card debt. Make sure you know how are they managed and by whom.
Review your household income and expenses prior to death. Then do a forecast on income and expenses post death. What changes when you spouse is gone? Look at income and expenses.
Also, look at your net worth – that’s assets minus debt. What might change down the road?
Get copies of your legal marriage certificate filed at the county courthouse. Make copies because Social Security and others will want to know that you were legally married.
With your spouse, make his funeral arrangements prior to his death so that you don’t overpay or are pressured by funeral directors or family to spend more than you want.
Don’t be afraid to ask questions of your spouse or your financial, legal and bank advisers. Widowhood does not mean that you are a victim.
Wisdom for widows, post death
Make lists, use "sticky" notes. You may think you are ready for the loss and the grief that will accompany the death of your spouse, but likely it will take months, maybe years to adjust. Lists will help you stay on track and avoid forgetting important to-do's, Grief and the shock of your loss may generate “fuzzy” thinking.
Don’t forget to pay your monthly bills.
Notify Social Security of the death as soon as possible. You otherwise may have to pay back automatic benefit payments. You will need a legal death certificate.
Make several copies of the death certificate.
Set up a face-to-face appointment at your nearest Social Security office to consider benefit options as a widow. Bring a legal copy of the death certificate and a copy of your marriage license. To receive widow’s benefits you must have been married 10 years or more.
Make NO big financial decisions for at least one year. Don’t sell your house, don’t change your routine but instead let things settle down, let your mind and soul recover. It will become clear what moves to make after time passes. Don’t jump into a reverse mortgage on your house, for example.
Don’t be afraid to constantly ask questions as issues arise. Being a widow does not mean being a victim. If you don’t get the answers you want, keep asking, keep researching.
4 "Money Books" for kids (and parents) from toddlers to college
BY JULIA ANDERSON
Want to help your kids and/or your grandkids get smarter about money? Many would like to but how? Lecturing about credit card debt, rattling on about saving for the long term or bad spending habits doesn’t work. People don’t like lectures.
What does work? Below are four kids’ “money” books that might help. We reviewed them recently on my public television show, Smart Money but I also am sharing our thoughts, here.
If you search Amazon.com for books to help kids get started with saving, managing, and investing money, you will be overwhelmed. I chose these four not because they are the absolute best but that they offer four approaches to coaching kids and their parents on money – earning money, setting goals, saving, and planning for the long-term
Two of the books are truly directed at kids with lots of tips and illustrations while two others are geared more to parents who want to get their kids started on the right money path. Here they are:
No. 1 “How to Money” by Jean Chatzky in collaboration with several people. This book is as Jean puts it, “Your ultimate visual guide to the basics of finance.” She starts with a big question: What Do You Want from Your Life?
Directed at young adults, high school age and older. The book offers chapters on the best use of an allowance, starting your own business as a teenager and ways to turn your free time into a money-making opportunity.
There are chapters on how to budget, how to set money goals and spend money, and why credit is important. Part 5 of the book looks to the future – why and how to get an education, how to outline a career and manage a paycheck.
WHAT I LIKED ABOUT THIS BOOK: Chapters are easy to navigate and well-labeled. The information is presented in easy-to-understand short segments. The Book is WELL ILLUSTRATED with lots of entry points to explain concepts. Jean, a long-time national financial writer, asks a basic question of her readers – “What Do You Want To Be When You Grow Up?” She suggests putting together a list of 5 things you enjoy doing and what majors would allow you to turn those passions into a career. $16.22 in paperback at Amazon. click here
No. 2. “I WANT MORE PIZZA – Real World Money Skills for High School, College and Beyond” by Steve Burkholder. This book offers real world money skills for high school and college kids and older. The author cleverly divides this book into pizza “slices” rather than chapters:
Slice No. 1: You. Your goals, priorities, and action. Think about your goals and write them down
Slice No. 2: Saving – how to save by making saving your priority. Budgeting. Use auto-save at the bank, for instance. You can’t afford not to save, says author Burkholder.
Slice No. 3: Growing your savings by investing and using compound growth. Put your saved money to work. Burkholder explains savings accounts, T-Bills, CDs, and mutual funds.
Slice No. 4: Debt, credit cards and paying for college. Use studentaid.ed.gov to research scholarship opportunities.
What I liked about this book: “I Want More Pizza” is jammed-packed with all the basics of getting off to a good financial start. Written for TEENAGERS (not about them) this book is a first-person money coach. Inside there’s room for notes as you work through the “slices” (chapters.). Steve’s bottom line: Never GIVE UP!!!
Available for $8.95 paperback at Amazon.com click here.
No. 3. “Smart Money Smart Kids: Raising the Next Generation to Win with Money,” by Dave Ramsey and his daughter, Rachel Cruze. This is an extensive 250-plus page book directed toward parents who want to get their kids off to a good start with money by establishing family money traditions, by offering tips to help little kids understand the concept of delayed reward and the mantra that work “is NOT a four-letter word.” Rachel includes first-person accounts of how she learned to manage her money, set up a business while in high school and how she got throught college without huge debt.
Dave and Rachel teach parents how to introduce DELAYED REWARD to young children. How to teach younger kids about work using family chores, discipline, and responsibility. How to help them understand that money comes from work.
With older high school kids, Dave and Rachel recommend they start their own business. They lay out a plan to how to get started by brain storming ideas. The book covers spending money wisely, saving wisely. Saving, they say, teaches patience, something we could use more of.
Debt is a big topic for Dave Ramsey…he hates credit cards and the burden of debt. His view is that there is no good debt. Dave and Rachel talk about kids and credit cards. They warn about kids going off to college and being offered credit cards and taking on huge student debt.
College: They discuss how to finance a college education without taking on debt. They talk about 529 savings accounts and education savings accounts. They discuss choosing a school…public or private. Choosing a major, winning scholarships. Working while going to school.
WHAT I LIKED MOST ABOUT THIS BOOK: Lots of good advice for parents who want to help their children get a good financial start to their lives from an early age. At the back of the book is a STUDENT BUDGET OUTLINE that I really like. How to help a college-bound student get a handle on expenses. How to look ahead. Available on sale at Amazon for $13.21 hardcover. Click here.
No. 4: “Smart Girl’s Guide MONEY: how to make it, save it and spend it,” by Nancy Holyoke. Part of the American Girl series.
This book is a hands-on guide to money for girls in the 10- to 14-year-old range. Geared to younger girls who are old enough to read, who might start their first job or set up a savings account. The book is well illustrated and has IMPACT. I liked this book for lots of reasons including a couple of pages that deal with “money emotions.” --- Greed, anxiety, guilt, confidence, jealousy, pride generosity etc. This book is inclusive and fun to explore.
Topics include allowances as a privilege, not a right. How to have a money talk with your parents regarding expenses, saving and spending. Making money: Going into business, getting a job,
There are quizzes throughout that ask young readers to identify their “money style.” In other words, how gullible might they be to “money pitches.” Another quiz helps determine spending styles, and another helps them determine “what kind of shopper” they are.
WHAT I LIKED ABOUT THIS BOOK: This is a hands-on book for young girls that will help them find out who they are when it comes to money. The book is well illustrated and easy to access with great tips for building good money habits. It concludes with 101 Moneymaking Ideas for Girls. I loved that.
These books are meant to help young people understand the value of good money management. They all emphasize that while money can’t buy happiness, but having it and a plan for saving, investing, and spending it does make life better. At Amazon in paperback for $11.99. click here.
Want to help your kids and/or your grandkids get smarter about money? Many would like to but how? Lecturing about credit card debt, rattling on about saving for the long term or bad spending habits doesn’t work. People don’t like lectures.
What does work? Below are four kids’ “money” books that might help. We reviewed them recently on my public television show, Smart Money but I also am sharing our thoughts, here.
If you search Amazon.com for books to help kids get started with saving, managing, and investing money, you will be overwhelmed. I chose these four not because they are the absolute best but that they offer four approaches to coaching kids and their parents on money – earning money, setting goals, saving, and planning for the long-term
Two of the books are truly directed at kids with lots of tips and illustrations while two others are geared more to parents who want to get their kids started on the right money path. Here they are:
No. 1 “How to Money” by Jean Chatzky in collaboration with several people. This book is as Jean puts it, “Your ultimate visual guide to the basics of finance.” She starts with a big question: What Do You Want from Your Life?
Directed at young adults, high school age and older. The book offers chapters on the best use of an allowance, starting your own business as a teenager and ways to turn your free time into a money-making opportunity.
There are chapters on how to budget, how to set money goals and spend money, and why credit is important. Part 5 of the book looks to the future – why and how to get an education, how to outline a career and manage a paycheck.
WHAT I LIKED ABOUT THIS BOOK: Chapters are easy to navigate and well-labeled. The information is presented in easy-to-understand short segments. The Book is WELL ILLUSTRATED with lots of entry points to explain concepts. Jean, a long-time national financial writer, asks a basic question of her readers – “What Do You Want To Be When You Grow Up?” She suggests putting together a list of 5 things you enjoy doing and what majors would allow you to turn those passions into a career. $16.22 in paperback at Amazon. click here
No. 2. “I WANT MORE PIZZA – Real World Money Skills for High School, College and Beyond” by Steve Burkholder. This book offers real world money skills for high school and college kids and older. The author cleverly divides this book into pizza “slices” rather than chapters:
Slice No. 1: You. Your goals, priorities, and action. Think about your goals and write them down
Slice No. 2: Saving – how to save by making saving your priority. Budgeting. Use auto-save at the bank, for instance. You can’t afford not to save, says author Burkholder.
Slice No. 3: Growing your savings by investing and using compound growth. Put your saved money to work. Burkholder explains savings accounts, T-Bills, CDs, and mutual funds.
Slice No. 4: Debt, credit cards and paying for college. Use studentaid.ed.gov to research scholarship opportunities.
What I liked about this book: “I Want More Pizza” is jammed-packed with all the basics of getting off to a good financial start. Written for TEENAGERS (not about them) this book is a first-person money coach. Inside there’s room for notes as you work through the “slices” (chapters.). Steve’s bottom line: Never GIVE UP!!!
Available for $8.95 paperback at Amazon.com click here.
No. 3. “Smart Money Smart Kids: Raising the Next Generation to Win with Money,” by Dave Ramsey and his daughter, Rachel Cruze. This is an extensive 250-plus page book directed toward parents who want to get their kids off to a good start with money by establishing family money traditions, by offering tips to help little kids understand the concept of delayed reward and the mantra that work “is NOT a four-letter word.” Rachel includes first-person accounts of how she learned to manage her money, set up a business while in high school and how she got throught college without huge debt.
Dave and Rachel teach parents how to introduce DELAYED REWARD to young children. How to teach younger kids about work using family chores, discipline, and responsibility. How to help them understand that money comes from work.
With older high school kids, Dave and Rachel recommend they start their own business. They lay out a plan to how to get started by brain storming ideas. The book covers spending money wisely, saving wisely. Saving, they say, teaches patience, something we could use more of.
Debt is a big topic for Dave Ramsey…he hates credit cards and the burden of debt. His view is that there is no good debt. Dave and Rachel talk about kids and credit cards. They warn about kids going off to college and being offered credit cards and taking on huge student debt.
College: They discuss how to finance a college education without taking on debt. They talk about 529 savings accounts and education savings accounts. They discuss choosing a school…public or private. Choosing a major, winning scholarships. Working while going to school.
WHAT I LIKED MOST ABOUT THIS BOOK: Lots of good advice for parents who want to help their children get a good financial start to their lives from an early age. At the back of the book is a STUDENT BUDGET OUTLINE that I really like. How to help a college-bound student get a handle on expenses. How to look ahead. Available on sale at Amazon for $13.21 hardcover. Click here.
No. 4: “Smart Girl’s Guide MONEY: how to make it, save it and spend it,” by Nancy Holyoke. Part of the American Girl series.
This book is a hands-on guide to money for girls in the 10- to 14-year-old range. Geared to younger girls who are old enough to read, who might start their first job or set up a savings account. The book is well illustrated and has IMPACT. I liked this book for lots of reasons including a couple of pages that deal with “money emotions.” --- Greed, anxiety, guilt, confidence, jealousy, pride generosity etc. This book is inclusive and fun to explore.
Topics include allowances as a privilege, not a right. How to have a money talk with your parents regarding expenses, saving and spending. Making money: Going into business, getting a job,
There are quizzes throughout that ask young readers to identify their “money style.” In other words, how gullible might they be to “money pitches.” Another quiz helps determine spending styles, and another helps them determine “what kind of shopper” they are.
WHAT I LIKED ABOUT THIS BOOK: This is a hands-on book for young girls that will help them find out who they are when it comes to money. The book is well illustrated and easy to access with great tips for building good money habits. It concludes with 101 Moneymaking Ideas for Girls. I loved that.
These books are meant to help young people understand the value of good money management. They all emphasize that while money can’t buy happiness, but having it and a plan for saving, investing, and spending it does make life better. At Amazon in paperback for $11.99. click here.
Smart Money wins national recognition from NATOA
BY JULIA ANDERSON
I am thrilled to announce that Smart Money, a show I co-host with Pat Boyle on public television in Beaverton, Ore. has won national recognition from NATOA (National Association of Telecommunications Offices and Advisers), a Virginia-based industry organization.
Our show taped earlier this year called "11 Things I Would Tell Myself About Money" was submitted to judges in the NATOA organization for evaluation based on effective communication with attention to details in a clear and comprehensive way.
Pat did a great job of interviewing me about all the "money" lessons I have learned over my life.
We received an Honorable Mention in the "talent" category for our "warm and welcoming" informal style and our "informative" content. "Nice informal manner. Easy going but informative style helps make the subject matter less intimidating," said the judges. " Good job." For the link to the show, click here.
Judges also mentioned the great TVCTV studio lighting and camera work. Thanks TVCTV team! We competed against programming in Washington state, Texas, Minnesota, and Massachusetts.
Smart Money has been a monthly feature on TVCTV cable channels in Portland, Ore. for more than five years with a potential viewership of over 1 million. The show also is uploaded to YouTube.
This means so much to me because my passion in retirement is all about financial literacy, especially for women!! Smart Money is my ongoing opportunity to help viewers think about their money futures while managing their daily money challenges. Thank you, NATOA for this recognition.
Here's the link to our award-winning show: Click here.
I am thrilled to announce that Smart Money, a show I co-host with Pat Boyle on public television in Beaverton, Ore. has won national recognition from NATOA (National Association of Telecommunications Offices and Advisers), a Virginia-based industry organization.
Our show taped earlier this year called "11 Things I Would Tell Myself About Money" was submitted to judges in the NATOA organization for evaluation based on effective communication with attention to details in a clear and comprehensive way.
Pat did a great job of interviewing me about all the "money" lessons I have learned over my life.
We received an Honorable Mention in the "talent" category for our "warm and welcoming" informal style and our "informative" content. "Nice informal manner. Easy going but informative style helps make the subject matter less intimidating," said the judges. " Good job." For the link to the show, click here.
Judges also mentioned the great TVCTV studio lighting and camera work. Thanks TVCTV team! We competed against programming in Washington state, Texas, Minnesota, and Massachusetts.
Smart Money has been a monthly feature on TVCTV cable channels in Portland, Ore. for more than five years with a potential viewership of over 1 million. The show also is uploaded to YouTube.
This means so much to me because my passion in retirement is all about financial literacy, especially for women!! Smart Money is my ongoing opportunity to help viewers think about their money futures while managing their daily money challenges. Thank you, NATOA for this recognition.
Here's the link to our award-winning show: Click here.
Financial infidelity: What it is and how to overcome it
BY JULIA ANDERSON
In Washington state there are an estimated 24,500 divorces each year, 13,500 in Oregon. That’s about 3.5 divorces per 1,000 population and higher than the national average of 2.3 per 1,000. All those divorce rates are down nearly by half from 20 years ago, but divorce lawyer Juliet Laycoe says it is not necessarily good news. That’s because fewer couples are marrying in the first place. She thinks the break-up rate among couples living together with or without marriage is higher.
This leads us to our topic – "financial infidelity."
A leading cause of divorce, financial infidelity can take many forms. Not being honest about how much credit card debt you may be racking up, is an obvious example. Dishonesty when it comes to illegal drug use, or gambling addiction. Squirreling away cash is secret accounts. They all fall under the financial infidelity label.
In a recent Smart Money show, Laycoe related the story of a husband who was buying stuff he didn't need. To cover up the purchases he rented a storage use, filling it with computers, electronic equipment, and other items. His wife began divorce proceedings because they weren’t paying their household bills. She couldn't understand where the money was going. By looking into bank account statements the storage unit rental fees were uncovered. This led to a conversation about unrestrained spending.
The good news in this case is the husband got help for his bi-polar mental condition. With medication and counseling the couple reconciled.
Financial infidelity is surprisingly common among couples. A survey by the National Endowment for Financial Education said a significant percentage (43 percent or 2 in 5) of spouses admitted to not being totally honest about money. It might mean hiding purchases, not disclosing a cash refund, hiding bills, or running up credit card debt.
“When you comingle finances in a relationship, you’re consenting to cooperation and transparency in your money management. Regardless of the severity of the act, financial infidelity can cause tremendous strain on couples – it leads to arguments, a breakdown of trust, and in some cases separation or even divorce,” said Billy Hensley president and CEO of NEFE in a late 2021 article.
In no-fault divorce states, especially, (where you don’t have to have a reason for the divorce) assets and debt are weighed out equally. That means someone’s secret $60,000 of credit card debt is shared equally in a divorce, as was the case of a friend of mine. While the couple may have assets of $300,000, the $60,000 in debt is subtracted from the assets. That leaves the divorcing couple to share the remaining assets.
Whether or not a state has community property laws in place seems to not matter that much when it comes to shared assets and shared debt in a divorce, Laycoe said. “Financial infidelity does not occur in an open and honest relationship,” Laycoe said.
As for unmarried couples who are living together, Laycoe recommends a “co-habitation agreement” that spells out who owns what property and who pays for what as well as who gets what in a break-up. This is similar to a pre-nuptial agreement for couples who do marry.
A fair financial settlement in a divorce is a huge part of the negotiation, especially for women who may face financial hardship on their own. How can a divorce attorney go about making sure a settlement in fair?
Laycoe said that in complicated cases where large assets are at stake, hiring a forensic accountant may be required to sleuth out undisclosed accounts and purchases, or stashed cash.
“In most cases it is just a matter of looking at pay stubs and account deposits,” she said. “You add up money coming in and look at where it is going. That’s how we discovered the undisclosed rental unit fees, for instance,” she said.
The NEFE polling showed that two out of five people were aware of financial infidelity in a relationship. “This highlights the need for greater communication and a deeper understanding of who your partner is financially,” NEFE CEO Hensley said.
How to prevent financial infidelity:
Establish financial transparency and trust by frequently reviewing household bills and income.
Review financial statements – bank statements, retirement accounts.
Regularly discuss shared financial goals.
Work together to achieve common financial objectives.
Communicate – share your money worries, goals.
Consider financial counseling to strengthen trust if there’s an issue.
Stay honest even if the truth will hurt.
For more:
Check out my Smart Money on YouTube featuring Juliet Laycoe where we talk about financial infidelity.
"Overcoming Financial infidelity," click here.
"2 in 5 Americans Admit to Financial Infidelity Against Their Partner," click here.
"How to Avoid financial Infidelity in Your relationship," click here.
"Divorce Wisdom: Smart Strategies for Anyone Contemplating or Experiencing Divorce," by Juliet Laycoe. click here.
In Washington state there are an estimated 24,500 divorces each year, 13,500 in Oregon. That’s about 3.5 divorces per 1,000 population and higher than the national average of 2.3 per 1,000. All those divorce rates are down nearly by half from 20 years ago, but divorce lawyer Juliet Laycoe says it is not necessarily good news. That’s because fewer couples are marrying in the first place. She thinks the break-up rate among couples living together with or without marriage is higher.
This leads us to our topic – "financial infidelity."
A leading cause of divorce, financial infidelity can take many forms. Not being honest about how much credit card debt you may be racking up, is an obvious example. Dishonesty when it comes to illegal drug use, or gambling addiction. Squirreling away cash is secret accounts. They all fall under the financial infidelity label.
In a recent Smart Money show, Laycoe related the story of a husband who was buying stuff he didn't need. To cover up the purchases he rented a storage use, filling it with computers, electronic equipment, and other items. His wife began divorce proceedings because they weren’t paying their household bills. She couldn't understand where the money was going. By looking into bank account statements the storage unit rental fees were uncovered. This led to a conversation about unrestrained spending.
The good news in this case is the husband got help for his bi-polar mental condition. With medication and counseling the couple reconciled.
Financial infidelity is surprisingly common among couples. A survey by the National Endowment for Financial Education said a significant percentage (43 percent or 2 in 5) of spouses admitted to not being totally honest about money. It might mean hiding purchases, not disclosing a cash refund, hiding bills, or running up credit card debt.
“When you comingle finances in a relationship, you’re consenting to cooperation and transparency in your money management. Regardless of the severity of the act, financial infidelity can cause tremendous strain on couples – it leads to arguments, a breakdown of trust, and in some cases separation or even divorce,” said Billy Hensley president and CEO of NEFE in a late 2021 article.
In no-fault divorce states, especially, (where you don’t have to have a reason for the divorce) assets and debt are weighed out equally. That means someone’s secret $60,000 of credit card debt is shared equally in a divorce, as was the case of a friend of mine. While the couple may have assets of $300,000, the $60,000 in debt is subtracted from the assets. That leaves the divorcing couple to share the remaining assets.
Whether or not a state has community property laws in place seems to not matter that much when it comes to shared assets and shared debt in a divorce, Laycoe said. “Financial infidelity does not occur in an open and honest relationship,” Laycoe said.
As for unmarried couples who are living together, Laycoe recommends a “co-habitation agreement” that spells out who owns what property and who pays for what as well as who gets what in a break-up. This is similar to a pre-nuptial agreement for couples who do marry.
A fair financial settlement in a divorce is a huge part of the negotiation, especially for women who may face financial hardship on their own. How can a divorce attorney go about making sure a settlement in fair?
Laycoe said that in complicated cases where large assets are at stake, hiring a forensic accountant may be required to sleuth out undisclosed accounts and purchases, or stashed cash.
“In most cases it is just a matter of looking at pay stubs and account deposits,” she said. “You add up money coming in and look at where it is going. That’s how we discovered the undisclosed rental unit fees, for instance,” she said.
The NEFE polling showed that two out of five people were aware of financial infidelity in a relationship. “This highlights the need for greater communication and a deeper understanding of who your partner is financially,” NEFE CEO Hensley said.
How to prevent financial infidelity:
Establish financial transparency and trust by frequently reviewing household bills and income.
Review financial statements – bank statements, retirement accounts.
Regularly discuss shared financial goals.
Work together to achieve common financial objectives.
Communicate – share your money worries, goals.
Consider financial counseling to strengthen trust if there’s an issue.
Stay honest even if the truth will hurt.
For more:
Check out my Smart Money on YouTube featuring Juliet Laycoe where we talk about financial infidelity.
"Overcoming Financial infidelity," click here.
"2 in 5 Americans Admit to Financial Infidelity Against Their Partner," click here.
"How to Avoid financial Infidelity in Your relationship," click here.
"Divorce Wisdom: Smart Strategies for Anyone Contemplating or Experiencing Divorce," by Juliet Laycoe. click here.
Congress is going to help more Americans save for retirement with the Secure Act 2.0
By JULIA ANDERSON
Later this year, Congress likely will pass the Secure Act 2.0 in an attempt to get more Americans saving for retirement. At the same time the bill gives retirees more time to take money out.
This is a big deal because only 50 percent of American households use a retirement account. That is unchanged in the past 20 years. Even more depressing is that heads of households between ages 35 and 44 are actually LESS likely now to own a retirement account than 20 years ago.
The bill basics:
If passed later this year out of the Senate, the Secure Act 2.0 would expand enrollment in tax-deferred retirement accounts by offering a tax credit up to $500 to enrollees who elect to enroll in an auto-enrollment retirement savings program. The tax credit applies the first three years of participation.
More employers will be required to AUTOMATICALLY enroll new employees in a retirement savings plan with a 3 percent payroll deduction level that ticks up annually until it reaches 10 percent. Employees must opt out of the plan, rather than opt in. It also allows part-time workers to participate in a 401(k) plan. That would benefit many women who juggle family and a part-time job.
If passed, the bill would raise catch-up contribution limits for people 62, 63 and 64: The contribution limit goes from $6,500 a year to $10,000 a year for this age group. But the additional contributions must be in after-tax Roth IRA contributions.
The bill improves and simplifies a SAVER’S TAX CREDIT for medium and low-income households starting in 2027. This provision increases the number of people who qualify to save in an employers’ retirement account.
For those near retirement, the bill again raises the age when people would be required to start withdrawing money from their retirement accounts from a current 72 to 75 by 2033.
Small businesses would receive more incentives for launching retirement plans. Student borrowers would get extra assistance with loans.
EXAMPLE: According to Forbes magazine: A married couple earning $50,000 a year and saving $4,000 annually in a retirement account would get a $400 tax credit in addition to matching money from an employer and a tax deduction on their federal taxes for the money saved.
OUTLOOK: Secure Act 2.0 is expected to be taken up in the U.S. Senate after the August 2022 recess and then become part of a larger end-of-year spending bill or it could remain a stand-alone bill and pass on its own.
NEGATIVES of this bill: Critics say this bill does not do enough: It doesn’t tackle why more Americans are doing nothing to save for retirement. Some see a universal coverage plan as a better solution. Something like a Social Security account for long-term savings rather than leaving it to individual employers to find account managers and set up programs.
Meanwhile, workers can go long stretches without having access to a retirement savings plan because they lose a job, or work for an employer without a retirement plan. Also people switch jobs and take out their money. Money leaking out of existing retirement accounts is a problem. The bill does nothing to address that.
My summary touches the surface of the reform bill. For more:
Kiplinger, click here.
Forbes, click here.
WSJ "How to get Americans to Save for Retirement" - click here.
Later this year, Congress likely will pass the Secure Act 2.0 in an attempt to get more Americans saving for retirement. At the same time the bill gives retirees more time to take money out.
This is a big deal because only 50 percent of American households use a retirement account. That is unchanged in the past 20 years. Even more depressing is that heads of households between ages 35 and 44 are actually LESS likely now to own a retirement account than 20 years ago.
The bill basics:
If passed later this year out of the Senate, the Secure Act 2.0 would expand enrollment in tax-deferred retirement accounts by offering a tax credit up to $500 to enrollees who elect to enroll in an auto-enrollment retirement savings program. The tax credit applies the first three years of participation.
More employers will be required to AUTOMATICALLY enroll new employees in a retirement savings plan with a 3 percent payroll deduction level that ticks up annually until it reaches 10 percent. Employees must opt out of the plan, rather than opt in. It also allows part-time workers to participate in a 401(k) plan. That would benefit many women who juggle family and a part-time job.
If passed, the bill would raise catch-up contribution limits for people 62, 63 and 64: The contribution limit goes from $6,500 a year to $10,000 a year for this age group. But the additional contributions must be in after-tax Roth IRA contributions.
The bill improves and simplifies a SAVER’S TAX CREDIT for medium and low-income households starting in 2027. This provision increases the number of people who qualify to save in an employers’ retirement account.
For those near retirement, the bill again raises the age when people would be required to start withdrawing money from their retirement accounts from a current 72 to 75 by 2033.
Small businesses would receive more incentives for launching retirement plans. Student borrowers would get extra assistance with loans.
EXAMPLE: According to Forbes magazine: A married couple earning $50,000 a year and saving $4,000 annually in a retirement account would get a $400 tax credit in addition to matching money from an employer and a tax deduction on their federal taxes for the money saved.
OUTLOOK: Secure Act 2.0 is expected to be taken up in the U.S. Senate after the August 2022 recess and then become part of a larger end-of-year spending bill or it could remain a stand-alone bill and pass on its own.
NEGATIVES of this bill: Critics say this bill does not do enough: It doesn’t tackle why more Americans are doing nothing to save for retirement. Some see a universal coverage plan as a better solution. Something like a Social Security account for long-term savings rather than leaving it to individual employers to find account managers and set up programs.
Meanwhile, workers can go long stretches without having access to a retirement savings plan because they lose a job, or work for an employer without a retirement plan. Also people switch jobs and take out their money. Money leaking out of existing retirement accounts is a problem. The bill does nothing to address that.
My summary touches the surface of the reform bill. For more:
Kiplinger, click here.
Forbes, click here.
WSJ "How to get Americans to Save for Retirement" - click here.
Back in the Smart Money studio! New format, new topics
BY JULIA ANDERSON
Busy times.
We returned to the public television studio this month to tape our Smart Money shows. The set-up now allows co-host Pat Boyle and I to work together from a studio desk but continue to interview our experts remotely using zoom. We talked with Tiffany Couch, a forensic accountant about preventing employee theft. We spoke with Randal Wyatt about Taking Ownership PDX, a program he started last year to help people of color remain in their Portland-area homes by offering free repair services.
Here's a link to the interview with Tiffany Couch, founder and CEO of Acuity Forensics - click here. She is the author of The Thief in Your Company" click here.
The link to our Smart Money interview with Randal Wyatt at Taking Ownership PDX: click here. For more information about this program or to donate, visit, www.takingownershipPDX.com or www.takingownershipPDC.org.
Meanwhile, the second edition of my book, “Smart Women Smart Money Smart Life” is available at Amazon.com, click here.
I continued to be gratified by the growing interest in financial literacy. Florida’s legislature recently passed a bill requiring that financial literacy be taught in public schools. Other states -- 54 bills in 26 states -- are considering similar bills. click here for more information
The Federal government is considering changes to regulations affecting long-term retirement savings programs. The changes would allow older Americans to put more money into their 401(k) tax-deferred savings and raise the age of required withdrawals. The bill passed out of the U.S. House of Representatives in March with a vote of 414 to 5. The legislation could become part of a larger bill later this year. Click here for more.
We are seeing a big turnaround in the regional and national economy is under way with strong job growth and increasing business revenue. Rising business operating costs and the negative impact of inflation on household basics such as food and gasoline are the negatives. Interest rates on loans for houses and cars are going up. For a look at inflation: click here.
Busy times.
We returned to the public television studio this month to tape our Smart Money shows. The set-up now allows co-host Pat Boyle and I to work together from a studio desk but continue to interview our experts remotely using zoom. We talked with Tiffany Couch, a forensic accountant about preventing employee theft. We spoke with Randal Wyatt about Taking Ownership PDX, a program he started last year to help people of color remain in their Portland-area homes by offering free repair services.
Here's a link to the interview with Tiffany Couch, founder and CEO of Acuity Forensics - click here. She is the author of The Thief in Your Company" click here.
The link to our Smart Money interview with Randal Wyatt at Taking Ownership PDX: click here. For more information about this program or to donate, visit, www.takingownershipPDX.com or www.takingownershipPDC.org.
Meanwhile, the second edition of my book, “Smart Women Smart Money Smart Life” is available at Amazon.com, click here.
I continued to be gratified by the growing interest in financial literacy. Florida’s legislature recently passed a bill requiring that financial literacy be taught in public schools. Other states -- 54 bills in 26 states -- are considering similar bills. click here for more information
The Federal government is considering changes to regulations affecting long-term retirement savings programs. The changes would allow older Americans to put more money into their 401(k) tax-deferred savings and raise the age of required withdrawals. The bill passed out of the U.S. House of Representatives in March with a vote of 414 to 5. The legislation could become part of a larger bill later this year. Click here for more.
We are seeing a big turnaround in the regional and national economy is under way with strong job growth and increasing business revenue. Rising business operating costs and the negative impact of inflation on household basics such as food and gasoline are the negatives. Interest rates on loans for houses and cars are going up. For a look at inflation: click here.
My interview on Portland's KATU Channel 2 show, AM Northwest
|
"It is never too late to start managing your money," Julia Anderson, author, journalist and television host.
A big thank you to Helen Raptis, host of AM Northwest at Portland’s KATU Channel 2 for profiling me and my newly updated 2022 book, “Smart Women Smart Money Smart Life.” Helen is such a good interviewer and gets right to the heart of things: - Mistakes women make when planning (or not planning) for retirement. - Lessons we learned from Covid-19 (a whole chapter in my 2022 book). - Mistakes I made with my own money over my work life. - Why women were hit hard by Covid-19 layoffs and shutdowns. Here’s a link to the interview: https://katu.com/amnw/am-northwest-books-authors/smart-women-smart-money-smart-life-03-01-2022 Thanks again to the crew at KATU's AM Northwest for arranging this interview. JULIA |
The pandemic hurt women the most. Here are Jacent Wamala's tips on how to catch-up, create a new "money mindset"
BY JULIA ANDERSON
In so many ways, American working-age women took the biggest hit from the pandemic. They stayed home to take care of children going to school online. They lost jobs in services industries -- hospitality, childcare, and retailing. The economic pain in the short-term was real in lost household income. In the long-term it might be worse because women, more than men, lost a step with their retirement savings plans.
What can women do to catch-up?
Recently, we interviewed Jacent Wamala on Smart Money, our public television show. She shared her money management tips for women, specifically women of color.
Jacent Wamala paid off $90,000 of accumulated debt in three years. Sure, she did the usual things – reduced her spending, stopped using credit cards etc. But her biggest change-up was finding a NEW and BETTER PAYING job. Wamala told us that she spent three months looking for that better-paying job, as well as coming up with money strategy to pay down her debt. The cool thing is that she shared her “money mindset” journey on Instagram.
She used Instagram because she “wanted to share information, tools and techniques that would enable more women to create FINANCIAL FREEDOM and FLEXIBILITY in their lives faster.” Amen!!!
Her posts are a hit.
Wamala, a private-practice psychologist in Las Vegas, now has 22,500 Instagram followers who saw how she dealt with debt by sharing her “jacentsgems.” She has been interviewed on the Today Show and by Psychology Today and the New York Times. She’s writing a book, leads speaking engagements and has established her “Wealth-Wellness University.”
She regularly posts jacentsgems on Spotify and Instagram to inspire millennial women to take charge of their money and their financial future. Her Instagram posts are filled with inspiration, common sense, and tips on how to take small (but committed) steps to change your money habits. While she speaks to her millennial generation her message resonates with all women who want to change the way they manage their money.
Her message certainly hit the right note with me. She asked her clients to “become more genuine and honest with themselves.”
That is precisely how women of all ages are going to recover from the pandemic. How they will build back a money strategy and have the retirement that they deserve. For me, honesty means thinking about the future realistically. Finding a better-paying job with health benefits and a 401(k)-retirement plan makes absolute sense, especially when employers are looking for reliable, intelligent workers. What’s the point of going back to the old job that was fun but offered no advancement and didn't pay much?
I see Jacent as the Suze Orman of the millennial generation. She’s personable, intelligent, and NOT a financial adviser. That’s a plus. She speaks to the psychological barriers we place in front of ourselves. She doesn’t have to have all the financial investment answers.
Her message is about getting your mind set on a better financial future – short-term and long-term. Goals for her clients are twofold: Money freedom and money flexibility.
Here are money management tips from Jacent Wamala:
- Transform the way you see yourself when it comes to money by tracking your daily spending and saving habits. Keep a journal. Evaluate your list in terms of what is “healthy” and what is not.
- Transform your mindset by using daily “gratitude chants.” Do these gratitude chants throughout your day to see yourself in a positive way with the ability to control your life. “Listen to the information that reminds you of your ability to succeed,” Wamala says.
- Commit to your project. It will take time. Ask how you are going to turn your NEW money mindset into a long-term habit. Wamala says start with just a week. Work up to the change. She said it takes a minimum of 21 days to build a new habit. Build accountability into your plan by telling someone about your mission.
- Surround yourself with people who have the mindset that you want. This may be her most important tip. These are friends who will "cheer you on," she says.
To make this happen she encourages followers to: “Re-curate” their feeds, form accountability groups, get a coach, set up a game plan and accept that the changes will come slowly."
She offers support at her website wamalawellness.com, on YouTube and with podcasts called “Wealth and Wellness with Money Mindset Coast Jacent Wamala.
To review: Financially rescue yourself from the pandemic by changing your mindset. Get a better-paying job like Jacent Wamala did, find re-training opportunities to qualify for better-paying work, get rid of your debt burden and take charge of your money to have the life you deserve!!
For more:
New York Times, click here.
Instagram, click here. YouTube click here.
5-Step Financial Plan to kick off 2022
BY JULIA ANDERSON
Yes, we are living in a whacky time with inflation taking a bite out of household budgets, stock markets in volatile territory and the Federal Reserve Bank deciding when to raise interest rates. All these factors will affect how we manage our money. Here are 5 money tips to get the year off right!
No. 1 Keep up your long-term savings plan: No matter your income put money into a savings plan. This can be once a week, once a month. Just do it. Build an emergency fund so you don’t have to use credit cards if something bad happens. Put enough money into your employer’s 401(k) retirement program to at least earn the company matching money. Or start your own tax-deferred Individual Retirement Account or a Roth IRA. Plan out your retirement investment strategy, and don’t be too conservative.
No 2. Look over your household budget. Find ways to reduce expenses. Sure, gas prices are up, how about taking public transportation to your job or work from home? Save on food costs at the grocery store by buying in bulk, avoiding prepared items, and sticking with lower-cost fresh items. Budget management takes takes concentration and effort but worth it if you can cut costs. In fact, review all your fixed costs – insurance, mortgage, medical bills, Internet and TV subscriptions. Lower the temperature on your water heater to save energy costs?
No. 3. Get a NEW AND BETTER JOB: Employers are desperately looking for reliable committed employees --- railroads are hiring, manufacturing is hiring, retail and hospitality are hiring. A new job is the best way to increase household income by finding a position with higher pay. Don’t worry if you don’t have prior experience. Many employers will give you the technical training. All they want is someone who will show up every day and do the job.
No 4. Invest for the long-term. Don’t be afraid of the stock market. Stocks remain the best place to save and invest for the LONG TERM. U.S. markets have done well in the past three years and are likely to cool off as higher interest rates go up. Remember U.S. markets deliver ON AVERAGE a 7 to 10 percent return (every year for the past 50 years). If you are under 30, start saving for retirement now. Time is money. The rewards are huge if you start early!!
No 5. Kick your credit cards to the curb. Pay off anything you put on a credit card at the end of the month. If you have carry-over credit card debt with high (18-20 percent interest fees) pay it off as soon as possible. Put the money saved into your savings and investment plan.
ONE MORE TIP: Covid-19 taught us ALL that we need a Will and designated healthcare directives. Easy and cheap to do online. Download a form that pertains to your state. Fill it out and get it notarized at a bank for free. Give the documents to your family.
Yes, we are living in a whacky time with inflation taking a bite out of household budgets, stock markets in volatile territory and the Federal Reserve Bank deciding when to raise interest rates. All these factors will affect how we manage our money. Here are 5 money tips to get the year off right!
No. 1 Keep up your long-term savings plan: No matter your income put money into a savings plan. This can be once a week, once a month. Just do it. Build an emergency fund so you don’t have to use credit cards if something bad happens. Put enough money into your employer’s 401(k) retirement program to at least earn the company matching money. Or start your own tax-deferred Individual Retirement Account or a Roth IRA. Plan out your retirement investment strategy, and don’t be too conservative.
No 2. Look over your household budget. Find ways to reduce expenses. Sure, gas prices are up, how about taking public transportation to your job or work from home? Save on food costs at the grocery store by buying in bulk, avoiding prepared items, and sticking with lower-cost fresh items. Budget management takes takes concentration and effort but worth it if you can cut costs. In fact, review all your fixed costs – insurance, mortgage, medical bills, Internet and TV subscriptions. Lower the temperature on your water heater to save energy costs?
No. 3. Get a NEW AND BETTER JOB: Employers are desperately looking for reliable committed employees --- railroads are hiring, manufacturing is hiring, retail and hospitality are hiring. A new job is the best way to increase household income by finding a position with higher pay. Don’t worry if you don’t have prior experience. Many employers will give you the technical training. All they want is someone who will show up every day and do the job.
No 4. Invest for the long-term. Don’t be afraid of the stock market. Stocks remain the best place to save and invest for the LONG TERM. U.S. markets have done well in the past three years and are likely to cool off as higher interest rates go up. Remember U.S. markets deliver ON AVERAGE a 7 to 10 percent return (every year for the past 50 years). If you are under 30, start saving for retirement now. Time is money. The rewards are huge if you start early!!
No 5. Kick your credit cards to the curb. Pay off anything you put on a credit card at the end of the month. If you have carry-over credit card debt with high (18-20 percent interest fees) pay it off as soon as possible. Put the money saved into your savings and investment plan.
ONE MORE TIP: Covid-19 taught us ALL that we need a Will and designated healthcare directives. Easy and cheap to do online. Download a form that pertains to your state. Fill it out and get it notarized at a bank for free. Give the documents to your family.
There are 3 types of women investors. Who are you?
“The biggest risk of all is not taking one,” -- Mellody Hobson, American businesswoman and board chairwoman of Starbucks Corp. (1969 - )
BY JULIA ANDERSON
Type No. 1: Women who are confident investors, who understand investing basics like reinvesting stock dividends, interest rates and fund management fees. They appreciate investing for the long-term, managing their own money by saving and spending wisely, and they know what they are doing even when markets slide, and interest rates go up. These women have a significant and growing nest egg into their 70s.
Type No. 2: A second group of women (the majority) know they must save and invest for the future but don’t have the confidence to do it on their own. They turn to a financial adviser for help and meet with her or him once or twice a year to see how their accounts are doing. Or they may attend a once-a-year meeting hosted by their employer where they listen to updates from an outside rep from the company managing their 401(k). This group may be too cautious with their nest egg.
Type No. 3: There’s a third group that can’t be bothered with saving, either from fear or hopelessness. Investing is too complicated, they say. Besides they don’t think they earn enough for it to matter. They believe that they can’t afford to save and besides their employer does not offer a retirement savings plan.
Their mantra? “I am just going to keep working until I die.” They use credit cards for short-term purchases and save money to pay for short-term things like the next family vacation or a grandchild’s birthday. In their minds they are doing the best they can. These women don’t have a nest egg.
There are steps each of these groups can take to save and better invest money for the long-term, for their retirement. Maybe, they won’t have to bag groceries in their 70s.
Smart Women Smart Money TIPS for each group:
Let’s begin with Group No. 3: Those who are not saving and expect to work until they drop.
Tips: Lower your household expenses! Do that by sharing housing costs with someone, renting out a back room or getting rid of your car with its related expenses. Look for all the ways to reduce your ongoing expenses. Once you’ve lowered those expenses put the newly found money (however small that amount is) inside a tax-deferred saving account – an IRA or Roth IRA. You can do this on-line for free. Get someone to help you.
Some states offer programs that painlessly siphon money from your paycheck to such a state-sponsored account. If your employer has a 401(k) program save enough out of your paycheck to get the employer “matching” money.
Talk with your family about your financial future. If you have grown children, tell them where you are financially and where you want to go. They can help.
Increase your income. Look for a new job that pays more. If you need better qualifications sign-up for job-training opportunities that will give you a pay increase. Ask for a raise, ask for training on the job. Learn new skills. Put yourself first. Look for ALL opportunities to grow your income while cutting your expenses.
When you start your own tax-deferred account invest in an inexpensive stock index mutual fund. Then make regular contributions. Reinvest the dividends. Over time you will be surprised how the miracle of compound interest (dividends) will grow the value of the account. If interest rates move higher, put money into a (safer) certificate of deposit through your bank or credit union.
If you have a spouse/partner talk with them about what your financial life will be like when they die. Marrying is better than living together because Social Security will provide widow’s benefits, if you have been married for 10 years or more. This happens even if you’re divorced. Set up an online account at the Social Security Administration website www.ssa.gov. Call them, check out what your benefit will be depending on your age when retire. The longer you wait the greater the benefit up to age 70.
Group No. 2 Tips: If you need retirement saving, planning and investment advice, get help. Just make sure you know how much that help will cost. I still don’t know what the management fees were on my 401(k) account at work. If I could do it over, I would demand fee information.
When you are choosing an adviser, your first question should be, “How do you make your money, what are your fees on this account?” Anything more than an annual 0.75 percent is TOO HIGH.
When markets are going up it is easy to discount management fees because they are better disguised. But fees can reduce the long-term growth of a retirement account by thousands of dollars. Secondly, don’t let them “churn” your account by moving you in and out of investments. They may be making extra money on those transactions. (See my separate chapter on How to Hire a Financial Adviser).
Don’t let your adviser put you into an investment product that you don’t understand…annuities fall into this category for me. So does private long-term health insurance coverage and life insurance. If a return on your investment sounds too good to be true, it is.
Even though you are using someone else to manage your money, take time to track stock markets, interest rates and economic trends. You must be able to ask good questions and know where the economy is going. Read up on investing. How can that hurt?
Group No. 1 Tips: Confident investors enjoy staying up on day-to-day financial news. They enjoy checking on their investments and most of all they know that staying the course is essential to long-term rewards. Sometimes even for the most seasoned investor that’s hard to do. That is why having trusted friends might help. When the urge to SELL overwhelms you, talk to someone before pushing the button.
Avoid becoming tangled in the financial affairs of children and grandchildren. Being co-dependent is not good for anyone. Easy to say, hard to do when you love them.
If you are on your own be sure you have a will and have designated someone with power of attorney to manage your affairs if you can’t. Consider using a bank trust department to manage your money while you are still living and to settle your estate when you die. Your heirs will thank you.
No matter what type of investor you are, there are ways to take charge of your money. Who cares more about it than you do? - Julia
BY JULIA ANDERSON
Type No. 1: Women who are confident investors, who understand investing basics like reinvesting stock dividends, interest rates and fund management fees. They appreciate investing for the long-term, managing their own money by saving and spending wisely, and they know what they are doing even when markets slide, and interest rates go up. These women have a significant and growing nest egg into their 70s.
Type No. 2: A second group of women (the majority) know they must save and invest for the future but don’t have the confidence to do it on their own. They turn to a financial adviser for help and meet with her or him once or twice a year to see how their accounts are doing. Or they may attend a once-a-year meeting hosted by their employer where they listen to updates from an outside rep from the company managing their 401(k). This group may be too cautious with their nest egg.
Type No. 3: There’s a third group that can’t be bothered with saving, either from fear or hopelessness. Investing is too complicated, they say. Besides they don’t think they earn enough for it to matter. They believe that they can’t afford to save and besides their employer does not offer a retirement savings plan.
Their mantra? “I am just going to keep working until I die.” They use credit cards for short-term purchases and save money to pay for short-term things like the next family vacation or a grandchild’s birthday. In their minds they are doing the best they can. These women don’t have a nest egg.
There are steps each of these groups can take to save and better invest money for the long-term, for their retirement. Maybe, they won’t have to bag groceries in their 70s.
Smart Women Smart Money TIPS for each group:
Let’s begin with Group No. 3: Those who are not saving and expect to work until they drop.
Tips: Lower your household expenses! Do that by sharing housing costs with someone, renting out a back room or getting rid of your car with its related expenses. Look for all the ways to reduce your ongoing expenses. Once you’ve lowered those expenses put the newly found money (however small that amount is) inside a tax-deferred saving account – an IRA or Roth IRA. You can do this on-line for free. Get someone to help you.
Some states offer programs that painlessly siphon money from your paycheck to such a state-sponsored account. If your employer has a 401(k) program save enough out of your paycheck to get the employer “matching” money.
Talk with your family about your financial future. If you have grown children, tell them where you are financially and where you want to go. They can help.
Increase your income. Look for a new job that pays more. If you need better qualifications sign-up for job-training opportunities that will give you a pay increase. Ask for a raise, ask for training on the job. Learn new skills. Put yourself first. Look for ALL opportunities to grow your income while cutting your expenses.
When you start your own tax-deferred account invest in an inexpensive stock index mutual fund. Then make regular contributions. Reinvest the dividends. Over time you will be surprised how the miracle of compound interest (dividends) will grow the value of the account. If interest rates move higher, put money into a (safer) certificate of deposit through your bank or credit union.
If you have a spouse/partner talk with them about what your financial life will be like when they die. Marrying is better than living together because Social Security will provide widow’s benefits, if you have been married for 10 years or more. This happens even if you’re divorced. Set up an online account at the Social Security Administration website www.ssa.gov. Call them, check out what your benefit will be depending on your age when retire. The longer you wait the greater the benefit up to age 70.
Group No. 2 Tips: If you need retirement saving, planning and investment advice, get help. Just make sure you know how much that help will cost. I still don’t know what the management fees were on my 401(k) account at work. If I could do it over, I would demand fee information.
When you are choosing an adviser, your first question should be, “How do you make your money, what are your fees on this account?” Anything more than an annual 0.75 percent is TOO HIGH.
When markets are going up it is easy to discount management fees because they are better disguised. But fees can reduce the long-term growth of a retirement account by thousands of dollars. Secondly, don’t let them “churn” your account by moving you in and out of investments. They may be making extra money on those transactions. (See my separate chapter on How to Hire a Financial Adviser).
Don’t let your adviser put you into an investment product that you don’t understand…annuities fall into this category for me. So does private long-term health insurance coverage and life insurance. If a return on your investment sounds too good to be true, it is.
Even though you are using someone else to manage your money, take time to track stock markets, interest rates and economic trends. You must be able to ask good questions and know where the economy is going. Read up on investing. How can that hurt?
Group No. 1 Tips: Confident investors enjoy staying up on day-to-day financial news. They enjoy checking on their investments and most of all they know that staying the course is essential to long-term rewards. Sometimes even for the most seasoned investor that’s hard to do. That is why having trusted friends might help. When the urge to SELL overwhelms you, talk to someone before pushing the button.
Avoid becoming tangled in the financial affairs of children and grandchildren. Being co-dependent is not good for anyone. Easy to say, hard to do when you love them.
If you are on your own be sure you have a will and have designated someone with power of attorney to manage your affairs if you can’t. Consider using a bank trust department to manage your money while you are still living and to settle your estate when you die. Your heirs will thank you.
No matter what type of investor you are, there are ways to take charge of your money. Who cares more about it than you do? - Julia
The Pandemic: What we learned (again)
“With women controlling more and more assets, this growing financial power represents anything but a niche market,” – Charles Schwab Asset Management
BY JULIA ANDERSON
Women interested in money management, long-term investing and building a retirement portfolio should see 2020’s pandemic stock market ups and downs as a great lesson (again). As one analyst put it recently in the Wall Street Journal," it felt like something different, but it wasn’t.”
He meant that when Covid-19 infections swept the world, shutting down the global economy, killing the travel industry, closing restaurants, and most everything else, it felt like something new, something awful. Panic set in, investors felt the fear and stocks sold off in March 2020 by 34 percent. That’s a bear market.
But 2020 taught us that what feels new is mostly not. Here are the lessons we relearned.
Lesson No. 1
Seasoned investors stay the course. Those who sold off stock investments in the 2020 panic were then faced with a tough decision – when to buy back in? Many did not! Several friends told me that they were bailing out of stocks. They were scared by what might happen next. As one said, “I want to be able to sleep at night.” Fear was in the air as we hunkered down, buttoned up and began hoarding toilet paper and hand sanitizer.
But what happened? This bear market sell-off was short-lived. Like other market selloffs. It ended, sooner than later as the federal government cranked up the money printing press and began rescuing the economy.
While “all bear markets are inherently different, the common thread is that they always end,” said Peter Lazaroff in a WSJ report. “Investors must be willing to lose money on occasion – sometimes a lot of money – to earn the average long-term return that attracts most people to stocks in the first place…. if you can be a buyer in times of fear, your chances of earning above average returns improve,” he said.
Starting in late March 2020, the S&P 500 began a recovery that has continued into 2021. By the end of 2020, stocks were up 16.26 percent over 2019. That’s well above the annual average return of around 7-10 percent.
Hanging in there was among several lessons learned again by investors in 2020. In fact, buying when others are selling is almost guaranteed to reward the long-term investor.
Lesson No. 2
An emergency fund is a great idea. A survey of investment managers by the Wall Street Journal ranked putting cash into an emergency fund as a top priority money tip. An emergency fund means that the blow of an unexpected layoff can be modified. Emergency money will save you from expensive credit card debt until unemployment checks kick in and you can figure out what to do next. At least six months of cash. Everyone tells us this.
Lesson No. 3
You need a will and health care directives. At sixtyandsingle.com we have preached this forever. Since Covid-19 began taking lives, it is even more clear that people need a will no matter what age they might be. A will spells out how you want your assets distributed at your death. It makes sure your beneficiary designations are up to date on a 401(k)-retirement savings plan. A will can tell your heirs how you want your belongings distributed. This is a long-term but urgent item on your to-do list. Make a will! Also add health care directives that designate someone to make health-care-related decisions for you, if you are incapacitated.
Lesson 4
Stay flexible with retirement planning.
According to Maddy Dychtwald, co-founder of Age Wave in San Francisco, an estimated 81 million Americans will see their retirement timing affected by the pandemic. In other words, they won’t retire when they originally planned. People are putting off retirement for an average of about three years, an Age Wave survey says. Working longer into your 60s is not a bad thing…more time to recover, save and invest, more time to put off taking Social Security and more time to enjoy the job. Many women I know are working because they love the action and see no reason to stop.
Lesson 5
Markets go up and they go down. Surveys show that women can be more easily scared out of stock markets and are generally more conservative investors. They hate seeing the value of their investments decline when markets sell off. They tend to put more of their savings in low-earning money market funds at a time when they should be in equities. “A diversified portfolio that you can stick with regardless of the market environment should be the cornerstone of everyone’s investment strategy,” Jeff Mills, chief investment officer of Bryn Mawr Trust, told the WSJ.
The year 2020 taught us AGAIN that nothing stays bad forever. We learned that what might feel new and scary is really a variation on what we’ve seen before. Disciplined investors hang in there for the long haul by riding out the declines and benefitting from recoveries. The world does NOT end.
BY JULIA ANDERSON
Women interested in money management, long-term investing and building a retirement portfolio should see 2020’s pandemic stock market ups and downs as a great lesson (again). As one analyst put it recently in the Wall Street Journal," it felt like something different, but it wasn’t.”
He meant that when Covid-19 infections swept the world, shutting down the global economy, killing the travel industry, closing restaurants, and most everything else, it felt like something new, something awful. Panic set in, investors felt the fear and stocks sold off in March 2020 by 34 percent. That’s a bear market.
But 2020 taught us that what feels new is mostly not. Here are the lessons we relearned.
Lesson No. 1
Seasoned investors stay the course. Those who sold off stock investments in the 2020 panic were then faced with a tough decision – when to buy back in? Many did not! Several friends told me that they were bailing out of stocks. They were scared by what might happen next. As one said, “I want to be able to sleep at night.” Fear was in the air as we hunkered down, buttoned up and began hoarding toilet paper and hand sanitizer.
But what happened? This bear market sell-off was short-lived. Like other market selloffs. It ended, sooner than later as the federal government cranked up the money printing press and began rescuing the economy.
While “all bear markets are inherently different, the common thread is that they always end,” said Peter Lazaroff in a WSJ report. “Investors must be willing to lose money on occasion – sometimes a lot of money – to earn the average long-term return that attracts most people to stocks in the first place…. if you can be a buyer in times of fear, your chances of earning above average returns improve,” he said.
Starting in late March 2020, the S&P 500 began a recovery that has continued into 2021. By the end of 2020, stocks were up 16.26 percent over 2019. That’s well above the annual average return of around 7-10 percent.
Hanging in there was among several lessons learned again by investors in 2020. In fact, buying when others are selling is almost guaranteed to reward the long-term investor.
Lesson No. 2
An emergency fund is a great idea. A survey of investment managers by the Wall Street Journal ranked putting cash into an emergency fund as a top priority money tip. An emergency fund means that the blow of an unexpected layoff can be modified. Emergency money will save you from expensive credit card debt until unemployment checks kick in and you can figure out what to do next. At least six months of cash. Everyone tells us this.
Lesson No. 3
You need a will and health care directives. At sixtyandsingle.com we have preached this forever. Since Covid-19 began taking lives, it is even more clear that people need a will no matter what age they might be. A will spells out how you want your assets distributed at your death. It makes sure your beneficiary designations are up to date on a 401(k)-retirement savings plan. A will can tell your heirs how you want your belongings distributed. This is a long-term but urgent item on your to-do list. Make a will! Also add health care directives that designate someone to make health-care-related decisions for you, if you are incapacitated.
Lesson 4
Stay flexible with retirement planning.
According to Maddy Dychtwald, co-founder of Age Wave in San Francisco, an estimated 81 million Americans will see their retirement timing affected by the pandemic. In other words, they won’t retire when they originally planned. People are putting off retirement for an average of about three years, an Age Wave survey says. Working longer into your 60s is not a bad thing…more time to recover, save and invest, more time to put off taking Social Security and more time to enjoy the job. Many women I know are working because they love the action and see no reason to stop.
Lesson 5
Markets go up and they go down. Surveys show that women can be more easily scared out of stock markets and are generally more conservative investors. They hate seeing the value of their investments decline when markets sell off. They tend to put more of their savings in low-earning money market funds at a time when they should be in equities. “A diversified portfolio that you can stick with regardless of the market environment should be the cornerstone of everyone’s investment strategy,” Jeff Mills, chief investment officer of Bryn Mawr Trust, told the WSJ.
The year 2020 taught us AGAIN that nothing stays bad forever. We learned that what might feel new and scary is really a variation on what we’ve seen before. Disciplined investors hang in there for the long haul by riding out the declines and benefitting from recoveries. The world does NOT end.
Financial literacy for women: A Columbian newspaper profile provides context to my mission!
My mother, Helen Rose, in her prime circa 1970s.
I am excited to share a link to a recent profile appearing in The Columbian newspaper written by Erin Middlewood. Erin captured the core mission of my ongoing campaign to improve financial literacy, especially for women. From the beginning, I have worked to change the way American women think about retirement, plan and save for retirement.
There's a reason: Women live longer but often end up on their own financially with meager retirement savings.
The Columbian story captures the experiences and rewards I have drawn on throughout my life to gain investing confidence -- from my earliest years raising 4-H steers on the family farm to my mother's enthusiasm for investing using her motto, "Buy What You Know," and then to my own retirement transition in my 60s.
Here's The Columbian link: https: www.columbian.com/news/2021/sep/19/former-newspaper-editor-helps-women-learn-financial-literacy/ The online version of the profile does not include a sidebar called Julia's Tips. Here they are, along with my added comments.
1. Invest early. Start before you are out of high school.
2. Don't be shy about asking for a raise. Working twice the hours in a job won't win you a raise, asking for a raise, will.
3. Pay yourself first (that is automatically direct money to savings and investments before other expenses). It's painless, if the money comes out before the paycheck hits your checking account.
4. Understand the power of compound interest and dividend reinvestment. Time is on your side. Starting early gives your investments more time to grow.
5. Embrace investing's trade-offs of risk and reward. U.S. markets will give you ON AVERAGE a 9-10 percent increase every year. Even if the share price goes down or market collapse, the dividend will still be there.
6. Use tax-deferred accounts to build your nest egg. Building wealth tax-deferred is the only way to save enough for retirement.
7. Don't panic and sell when the markets go down. Investors can't time markets. Don't try to jump in and out and in. You will miss the rebound.
8. Learn by doing. Set up your own Individual Retirement Account through an online brokerage firm. It's cheap and you will learn as you go. Read a couple of books: "One Up on Wall Street," "A Random Walk Down Wall Street."
9. Understand the difference between saving and investing. If you are just stashing money in a savings account, you are losing ground to inflation, which eats away at your buying power. Markets/stocks/mutual funds are where you have to be.
10. Never borrow from your 401(k) or other tax-deferred account. Your retirement comes first, not your kid's education or buying a house.
11. Avoid too much debt. Credit card fees are expensive and evil. Get rid of them.
12. Ask about management fees and commissions on your investments. Any management fee over 1 percent is too much. Over time, management fees (otherwise known as an expense ratio) erode your long-term savings goals by tens of thousands of dollars in unearned reinvestment.
Thanks, Erin for a great story. JULIA
There's a reason: Women live longer but often end up on their own financially with meager retirement savings.
The Columbian story captures the experiences and rewards I have drawn on throughout my life to gain investing confidence -- from my earliest years raising 4-H steers on the family farm to my mother's enthusiasm for investing using her motto, "Buy What You Know," and then to my own retirement transition in my 60s.
Here's The Columbian link: https: www.columbian.com/news/2021/sep/19/former-newspaper-editor-helps-women-learn-financial-literacy/ The online version of the profile does not include a sidebar called Julia's Tips. Here they are, along with my added comments.
1. Invest early. Start before you are out of high school.
2. Don't be shy about asking for a raise. Working twice the hours in a job won't win you a raise, asking for a raise, will.
3. Pay yourself first (that is automatically direct money to savings and investments before other expenses). It's painless, if the money comes out before the paycheck hits your checking account.
4. Understand the power of compound interest and dividend reinvestment. Time is on your side. Starting early gives your investments more time to grow.
5. Embrace investing's trade-offs of risk and reward. U.S. markets will give you ON AVERAGE a 9-10 percent increase every year. Even if the share price goes down or market collapse, the dividend will still be there.
6. Use tax-deferred accounts to build your nest egg. Building wealth tax-deferred is the only way to save enough for retirement.
7. Don't panic and sell when the markets go down. Investors can't time markets. Don't try to jump in and out and in. You will miss the rebound.
8. Learn by doing. Set up your own Individual Retirement Account through an online brokerage firm. It's cheap and you will learn as you go. Read a couple of books: "One Up on Wall Street," "A Random Walk Down Wall Street."
9. Understand the difference between saving and investing. If you are just stashing money in a savings account, you are losing ground to inflation, which eats away at your buying power. Markets/stocks/mutual funds are where you have to be.
10. Never borrow from your 401(k) or other tax-deferred account. Your retirement comes first, not your kid's education or buying a house.
11. Avoid too much debt. Credit card fees are expensive and evil. Get rid of them.
12. Ask about management fees and commissions on your investments. Any management fee over 1 percent is too much. Over time, management fees (otherwise known as an expense ratio) erode your long-term savings goals by tens of thousands of dollars in unearned reinvestment.
Thanks, Erin for a great story. JULIA
My book, "Smart Women Smart Money Smart Life" is on
sale at Amazon for $11.99. click here.
sale at Amazon for $11.99. click here.
Staying in the market while preparing for a downturn.
Step one: check your emotions
"Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves." -- Peter Lynch
BY JULIA ANDERSON
Investors who remained in the U.S. stock market after the Covid 19 selloff in March 2020 can be happy, maybe proud of their ride-it-out strategy. Markets dropped 30 percent last before making one of the fastest recoveries in history. Values have more than doubled from the bottom.
Now here we are in the fall of 2021. Investors can celebrate another 20 percent to the upside thanks to rock bottom interest rates, economic stimulus packages including cash pumped into jobless benefits, rent moratoriums and strong consumer demand for goods and services.
Can this go on? Can markets climb higher?
Headwinds are gathering but traders show no signs of abandoning ship. Analysts with a longer-term outlook expect market growth to slow from what we have experienced in the past 18 months. But no one is saying we are headed for a crash.
But at some point, there must be a correction. It could be triggered by a bump up in interest rates from the Federal Reserve Bank, a return of Covid lockdowns that push jobless rates up, continued supply chain choke points that stifle GDP growth or some catastrophe that we’ve not thought of.
That’s why I have devised a plan to protect my portfolio in case of a downturn as the Federal Reserve begins to look at raising rates, as stimulus money dries up and we get a little more back to normal, whatever that might be. We are getting back to normal, right?
Here’s the challenge: How do you prepare for a downturn while continuing to earn dividends and build your nest egg? Here's an age-based strategy.
Let’s start with those fully retired, those in early retirement and those at 60 near retirement:
Over 60? In the decade of your 60s, things change. You may retire, you may lose a spouse. You may sell your house and move. Likely you will continue to work part-time, but you may start claiming Social Security benefits and/or drawing money out of your retirement tax-deferred nest egg.
Making these moves requires planning. How will you keep growing your nest egg as you make these transitions? The stock market is still your friend offering the best returns over time.
Plenty of spread sheets will show you income curves related to types of investments – stocks, bonds, money market accounts or some combination. Don’t get too conservative. Don’t sit on the sidelines because you are afraid of seeing your nest egg lose value. Your money must keep earning money. Keep most in stocks paying dividends inside your tax-deferred account but have enough in cash so you can sleep at night if there’s sell off.
In your 70s, the IRS will require you to begin withdrawing money from your tax-deferred portfolio. These Required Minimum Distributions or RMDs will be taxed as ordinary income.
Here’s a strategy to anticipate an economic slowdown. Convert enough of your nest egg to cash to cover the Required Minimum Withdrawals for the next 18 to 24 months. Leave the rest in dividend paying stocks. That way, if there’s a sellout, you don’t have to sell anything at a discount. Meanwhile, your quarterly dividend money gets reinvested in more shares of the stocks or mutual funds that you own.
Now for the younger crowd:
If you are age 18 to 30, just keep chucking money into your 401(k) at work or an Individual Retirement Account, Roth IRA or all three. Don’t be bothered by a sell off. All that means is that U.S. stocks are on sale. Your long-term investment money will buy more shares in a mutual fund or individual dividend-paying stock than when markets were up. Count on an average 100-year stock market return of 8 to 10 percent a year. You are a long way from retirement. You will get where you need to go if you stick with the plan.
If you are 30 to 50 years old, do the same as the above-mentioned younger group. The money you are putting into retirement savings is not going anywhere. Make sure that your retirement money is not emergency money. You have that money stashed somewhere else. This is not money squirreled away for the next vacation or to buy a new house.
If interest rates go up, consider putting new cash into a money market fund at 2 percent or more outside of a deferred plan. You want to stay ahead of inflation with long-term investments. Inflation can bite. Saving is important but earning money on your savings is more important.
At 50, retirement begins to loom. Are you on track to have a big enough nest egg at age 65, 70 to live on? You may face an early buyout or a layoff. Do you still want to be in the stock market? Yes, if you are job-secure and can count on working until your mid-60s. If there are clouds on the horizon, you may need to make an early withdrawal from a deferred account. Then some of it should be in cash so you don’t sell during a market sell-off. Withdrawing money from an IRA or 401(k) should be the very last thing you do. There are penalties for that.
Meanwhile, build an emergency outside your deferred accounts with enough cash to pay your bills for a year. That way you can stay in the market with your retirement money through the ups and downs without having to sell something when markets or a stock is down.
Remember: Fear and greed drive markets. Many investors can’t stand the heat of a selloff. They bailout at or near the bottom of a market downturn and then fail to get back in time to take advantage of the eventual turnaround. Investors, especially women, “need help in developing emotional discipline,” says national financial columnist Chuck Jaffee. I agree. But how to do that?
Think about your MONEY PLAN in advance. Remain confident that doing nothing, staying the course IS A PLAN! If markets crater it is NOT the end of the world, the value of your portfolio will recover. History proves it. Have a talk with yourself in advance about how to handle a sell-off.
After a breath-taking 30 percent Covid induced decline in March 2020, the recovery began almost immediately. A year later, the Dow Jones was up 80 percent from 12 months earlier and has been hitting fresh new highs all summer. My sympathies to those investors who bailed out and are now on the sidelines wondering what to do.
What’s ahead? Most experts predict that a sell off is coming after the spectacular 2021 ride to record stock market values. On the plus side, the Fed will likely keep interest rates low in the face of the Delta covid variant. That keeps money in stock markets. The U.S. economy is in better shape that most of the rest of the world. The nation’s labor market is adding jobs. Consumers are consuming. All these indicators point to further increases in stock values if corporate earnings stay positive. Passage of a federal Transportation Bill will help.
On the negative (selloff side) markets may be “over-bought” and need a breather. A slight increase in interest rates could trigger market declines. There could be another unexpected disaster… covid variant, terrorist attack, weather-related difficulty. Supply systems could remain stuck. Computer chip shortages could mean trouble for manufacturers. Unemployment could remain elevated with slowing job recovery. And there’s a certain taste for speculation in markets with the crypto craze, high flying tech stocks and speculative Ponzi-like pressures that are putting younger investors at big risk.
There’s a lot to ponder, to worry about. Don’t ignore these worries, analyze them, and have a plan. Remember: The average annualized rate of return for U.S. stock markets is about 8-10 percent. Embrace that fact but keep some cash on the side.
BY JULIA ANDERSON
Investors who remained in the U.S. stock market after the Covid 19 selloff in March 2020 can be happy, maybe proud of their ride-it-out strategy. Markets dropped 30 percent last before making one of the fastest recoveries in history. Values have more than doubled from the bottom.
Now here we are in the fall of 2021. Investors can celebrate another 20 percent to the upside thanks to rock bottom interest rates, economic stimulus packages including cash pumped into jobless benefits, rent moratoriums and strong consumer demand for goods and services.
Can this go on? Can markets climb higher?
Headwinds are gathering but traders show no signs of abandoning ship. Analysts with a longer-term outlook expect market growth to slow from what we have experienced in the past 18 months. But no one is saying we are headed for a crash.
But at some point, there must be a correction. It could be triggered by a bump up in interest rates from the Federal Reserve Bank, a return of Covid lockdowns that push jobless rates up, continued supply chain choke points that stifle GDP growth or some catastrophe that we’ve not thought of.
That’s why I have devised a plan to protect my portfolio in case of a downturn as the Federal Reserve begins to look at raising rates, as stimulus money dries up and we get a little more back to normal, whatever that might be. We are getting back to normal, right?
Here’s the challenge: How do you prepare for a downturn while continuing to earn dividends and build your nest egg? Here's an age-based strategy.
Let’s start with those fully retired, those in early retirement and those at 60 near retirement:
Over 60? In the decade of your 60s, things change. You may retire, you may lose a spouse. You may sell your house and move. Likely you will continue to work part-time, but you may start claiming Social Security benefits and/or drawing money out of your retirement tax-deferred nest egg.
Making these moves requires planning. How will you keep growing your nest egg as you make these transitions? The stock market is still your friend offering the best returns over time.
Plenty of spread sheets will show you income curves related to types of investments – stocks, bonds, money market accounts or some combination. Don’t get too conservative. Don’t sit on the sidelines because you are afraid of seeing your nest egg lose value. Your money must keep earning money. Keep most in stocks paying dividends inside your tax-deferred account but have enough in cash so you can sleep at night if there’s sell off.
In your 70s, the IRS will require you to begin withdrawing money from your tax-deferred portfolio. These Required Minimum Distributions or RMDs will be taxed as ordinary income.
Here’s a strategy to anticipate an economic slowdown. Convert enough of your nest egg to cash to cover the Required Minimum Withdrawals for the next 18 to 24 months. Leave the rest in dividend paying stocks. That way, if there’s a sellout, you don’t have to sell anything at a discount. Meanwhile, your quarterly dividend money gets reinvested in more shares of the stocks or mutual funds that you own.
Now for the younger crowd:
If you are age 18 to 30, just keep chucking money into your 401(k) at work or an Individual Retirement Account, Roth IRA or all three. Don’t be bothered by a sell off. All that means is that U.S. stocks are on sale. Your long-term investment money will buy more shares in a mutual fund or individual dividend-paying stock than when markets were up. Count on an average 100-year stock market return of 8 to 10 percent a year. You are a long way from retirement. You will get where you need to go if you stick with the plan.
If you are 30 to 50 years old, do the same as the above-mentioned younger group. The money you are putting into retirement savings is not going anywhere. Make sure that your retirement money is not emergency money. You have that money stashed somewhere else. This is not money squirreled away for the next vacation or to buy a new house.
If interest rates go up, consider putting new cash into a money market fund at 2 percent or more outside of a deferred plan. You want to stay ahead of inflation with long-term investments. Inflation can bite. Saving is important but earning money on your savings is more important.
At 50, retirement begins to loom. Are you on track to have a big enough nest egg at age 65, 70 to live on? You may face an early buyout or a layoff. Do you still want to be in the stock market? Yes, if you are job-secure and can count on working until your mid-60s. If there are clouds on the horizon, you may need to make an early withdrawal from a deferred account. Then some of it should be in cash so you don’t sell during a market sell-off. Withdrawing money from an IRA or 401(k) should be the very last thing you do. There are penalties for that.
Meanwhile, build an emergency outside your deferred accounts with enough cash to pay your bills for a year. That way you can stay in the market with your retirement money through the ups and downs without having to sell something when markets or a stock is down.
Remember: Fear and greed drive markets. Many investors can’t stand the heat of a selloff. They bailout at or near the bottom of a market downturn and then fail to get back in time to take advantage of the eventual turnaround. Investors, especially women, “need help in developing emotional discipline,” says national financial columnist Chuck Jaffee. I agree. But how to do that?
Think about your MONEY PLAN in advance. Remain confident that doing nothing, staying the course IS A PLAN! If markets crater it is NOT the end of the world, the value of your portfolio will recover. History proves it. Have a talk with yourself in advance about how to handle a sell-off.
After a breath-taking 30 percent Covid induced decline in March 2020, the recovery began almost immediately. A year later, the Dow Jones was up 80 percent from 12 months earlier and has been hitting fresh new highs all summer. My sympathies to those investors who bailed out and are now on the sidelines wondering what to do.
What’s ahead? Most experts predict that a sell off is coming after the spectacular 2021 ride to record stock market values. On the plus side, the Fed will likely keep interest rates low in the face of the Delta covid variant. That keeps money in stock markets. The U.S. economy is in better shape that most of the rest of the world. The nation’s labor market is adding jobs. Consumers are consuming. All these indicators point to further increases in stock values if corporate earnings stay positive. Passage of a federal Transportation Bill will help.
On the negative (selloff side) markets may be “over-bought” and need a breather. A slight increase in interest rates could trigger market declines. There could be another unexpected disaster… covid variant, terrorist attack, weather-related difficulty. Supply systems could remain stuck. Computer chip shortages could mean trouble for manufacturers. Unemployment could remain elevated with slowing job recovery. And there’s a certain taste for speculation in markets with the crypto craze, high flying tech stocks and speculative Ponzi-like pressures that are putting younger investors at big risk.
There’s a lot to ponder, to worry about. Don’t ignore these worries, analyze them, and have a plan. Remember: The average annualized rate of return for U.S. stock markets is about 8-10 percent. Embrace that fact but keep some cash on the side.
How I became a confident investor
"Risk comes from not knowing what you're doing." - Warren Buffett, investor.
BY JULIA ANDERSON
My parents trained me by example to manage money and think long-term. Living on a farm, they had me working little jobs (pulling weeds in the bean field) and saving for college when I was 8 years old. As a teenager, 4-H beef projects gave me early “business” experience with the basics of profit and loss, record-keeping and expense management. My seven years of 4-H beef projects paid for college.
A college degree in education and journalism gave me career opportunities that fit my interests.
Investing in dividend-paying stocks was painless. My mother began giving me small amounts of stock (10 shares of IBM) when I was in my 30s. She saw nothing complicated or mysterious about buying stock for the long-term and reinvesting the quarterly dividends. She loved seeing her net worth grow. She was a confident investor.
Early on she taught me the “Miracle of Compound Interest,” earnings from both stock investments and certificates of deposit at the credit union. Growing a long-term nest egg, saving, and investing are a key part of my financial plan. I became a confident investor by sticking to what I understood.
I never passed up free money. I made sure that I saved enough inside my 401(k) plan at work to win the employer matching money. With an eye on the long-term, I picked moderately aggressive investment funds.
I started my own self-managed Individual Retirement Account and separate stock account. I learned by doing. I didn’t wait until retirement to start managing my investments. At retirement, I moved my 401(k) money to an online self-managed brokerage account where management fees are low and there's no charge when I buy or sell something.
I sought out mentors. My mother was the first. She shopped for bargains at the store, was careful with credit cards, looked for the best CD savings rates even if it meant changing banks. She bought shares in companies that she understood (McDonalds). My mentors were themselves confident investors. Money advice came from people who were not selling me something or charging a management fee. For me, it's simple -- Reinvest earnings – dividends or interest. Don't get into something that you don't understand. Check out management fees and commissions.
When I retired, I expected to be in charge of my money. I learned the basics sooner than later so I had the confidence to manage my money and make reasonable trade-offs between risk and financial reward.
I could have planned better for unexpected challenges. I did not expect to divorce at age 60. I lived through it, kept the house, and soldiered on. It has worked out. My advice -- plan for the worst, expect the best. Have your own money. As they say at WIFE.org, "A Man is Not a Financial Plan." A spouse may become seriously ill or die. You may divorce. Meanwhile, you may inherit assets from your mother or aunt. Have a plan for how those assets will be managed. Have a plan for how you would manage on your own.
Look ahead to retirement by knowing what your expenses will be and how much income you will have. (See worksheets on this website). Don’t ignore Social Security as an important income stream in retirement. I claimed benefits at 64. That was too early.
My 80/20 (stocks vs cash) investment strategy has served me well. I continue to trust that the U.S. stock market will over time deliver an annual average return of about 10 percent. I keep management fees low. I don’t try to “time” the market by getting in and out. I don’t panic when markets sell off. The U.S. stock market and the American-based companies it represents with its regulated capitalistic environment will reward those who are patient. I believed that as a kid. I still believe it. I am confident about the future.
BY JULIA ANDERSON
My parents trained me by example to manage money and think long-term. Living on a farm, they had me working little jobs (pulling weeds in the bean field) and saving for college when I was 8 years old. As a teenager, 4-H beef projects gave me early “business” experience with the basics of profit and loss, record-keeping and expense management. My seven years of 4-H beef projects paid for college.
A college degree in education and journalism gave me career opportunities that fit my interests.
Investing in dividend-paying stocks was painless. My mother began giving me small amounts of stock (10 shares of IBM) when I was in my 30s. She saw nothing complicated or mysterious about buying stock for the long-term and reinvesting the quarterly dividends. She loved seeing her net worth grow. She was a confident investor.
Early on she taught me the “Miracle of Compound Interest,” earnings from both stock investments and certificates of deposit at the credit union. Growing a long-term nest egg, saving, and investing are a key part of my financial plan. I became a confident investor by sticking to what I understood.
I never passed up free money. I made sure that I saved enough inside my 401(k) plan at work to win the employer matching money. With an eye on the long-term, I picked moderately aggressive investment funds.
I started my own self-managed Individual Retirement Account and separate stock account. I learned by doing. I didn’t wait until retirement to start managing my investments. At retirement, I moved my 401(k) money to an online self-managed brokerage account where management fees are low and there's no charge when I buy or sell something.
I sought out mentors. My mother was the first. She shopped for bargains at the store, was careful with credit cards, looked for the best CD savings rates even if it meant changing banks. She bought shares in companies that she understood (McDonalds). My mentors were themselves confident investors. Money advice came from people who were not selling me something or charging a management fee. For me, it's simple -- Reinvest earnings – dividends or interest. Don't get into something that you don't understand. Check out management fees and commissions.
When I retired, I expected to be in charge of my money. I learned the basics sooner than later so I had the confidence to manage my money and make reasonable trade-offs between risk and financial reward.
I could have planned better for unexpected challenges. I did not expect to divorce at age 60. I lived through it, kept the house, and soldiered on. It has worked out. My advice -- plan for the worst, expect the best. Have your own money. As they say at WIFE.org, "A Man is Not a Financial Plan." A spouse may become seriously ill or die. You may divorce. Meanwhile, you may inherit assets from your mother or aunt. Have a plan for how those assets will be managed. Have a plan for how you would manage on your own.
Look ahead to retirement by knowing what your expenses will be and how much income you will have. (See worksheets on this website). Don’t ignore Social Security as an important income stream in retirement. I claimed benefits at 64. That was too early.
My 80/20 (stocks vs cash) investment strategy has served me well. I continue to trust that the U.S. stock market will over time deliver an annual average return of about 10 percent. I keep management fees low. I don’t try to “time” the market by getting in and out. I don’t panic when markets sell off. The U.S. stock market and the American-based companies it represents with its regulated capitalistic environment will reward those who are patient. I believed that as a kid. I still believe it. I am confident about the future.
Early in a divorce: Take a deep breath, take is slow
BY Julia Anderson
Divorce is often a financial setback for a woman. Statistics prove it.
After a divorce, women have less household income. They must juggle a job and family responsibilities, if they have children under 18. Their pay for an equivalent amount of work may be lower. They may be qualified for lesser paying jobs. All these factors make it more difficult for women manage their finances, let alone save for the long-term, for retirement.
When I appeared recently with my friend, Juliet Laycoe, on her Facebook live program, we talked about how important getting a “good” divorce settlement is and how it sets up your financial future for years to come. Laycoe is a divorce attorney, book author (Divorce Wisdom) and social media host.
She asked me as a financial guru to discuss how best to manage the early stages of a divorce.
Bottom line: Divorce is hell: Your emotions swing from grief to anger. There’s stress and deep anxiety. The tendency is to want it over as quickly as possible. A good attorney will advise you to SLOW THINGS DOWN.
You may not be thinking straight under the stress of a divorce. It is best to take a deep breath, get outside counseling and look to the long-term.
My Early in a Divorce TIPS:
Reminder yourself that this divorce will have a big impact on your long-term financial future. Let your attorney advise you on a long-term strategy. If your spouse is initiating the divorce, you may have more leverage. Play it cool. Ask for half of any pension payout that eventually would come to your ex-husband. Ask for half of his 401(k). Don’t count on child support. Half of divorced women are not getting child support.
Look carefully ahead at your FUTURE household budget. What will your income be, once the divorce is final? Add up your household expenses. Then look at income. Can you cover your expenses? If not, what changes can you make? Start establishing your own credit with a credit card in your own name. Get your own checking account. Keep your job skills up to date, add new job skills.
Polish up your employment resume. You are going to have to work, manage kids, pay for groceries. Can you find a better paying, full-time job. A good resume is important. Network with your friends on how to write good one. Think of yourself as an independent contractor…. with employers. What do you bring to the job they want you to do?
Get counseling, not just financial counseling. A good counselor can bring clear thinking to your future, what you want and how to make it happen. In the beginning, I was going to pack a bag and just leave. My therapist helped me realize I was just running when I needed to stay put, take a deep breath, and negotiate from a position of strength, not injury. Staying put was a GREAT financial decision.
Make saving a part of your financial plan. If you get a lump sum settlement from your divorce put the money to work for the long-term in a self-directed IRA. Make sure you are taking advantage of your employer’s 401(k) tax-deferred savings plan with matching. Build an emergency fund, so you don’t have to turn to high-interest credit cards.
Keep the faith. It may feel like the deck of cards has been thrown in the air but not yet landed. They will. Over time your future will become more clear, new doors will open, your heart will heal or at least mend a bit. Don’t try to rush through this terrible time in your life just to get away from the bad feelings, the anxiety and anger. Let it spin out slowly.
Click here to a link to a Smart Money show with Laycoe as our guest.
Divorce is often a financial setback for a woman. Statistics prove it.
After a divorce, women have less household income. They must juggle a job and family responsibilities, if they have children under 18. Their pay for an equivalent amount of work may be lower. They may be qualified for lesser paying jobs. All these factors make it more difficult for women manage their finances, let alone save for the long-term, for retirement.
When I appeared recently with my friend, Juliet Laycoe, on her Facebook live program, we talked about how important getting a “good” divorce settlement is and how it sets up your financial future for years to come. Laycoe is a divorce attorney, book author (Divorce Wisdom) and social media host.
She asked me as a financial guru to discuss how best to manage the early stages of a divorce.
Bottom line: Divorce is hell: Your emotions swing from grief to anger. There’s stress and deep anxiety. The tendency is to want it over as quickly as possible. A good attorney will advise you to SLOW THINGS DOWN.
You may not be thinking straight under the stress of a divorce. It is best to take a deep breath, get outside counseling and look to the long-term.
My Early in a Divorce TIPS:
Reminder yourself that this divorce will have a big impact on your long-term financial future. Let your attorney advise you on a long-term strategy. If your spouse is initiating the divorce, you may have more leverage. Play it cool. Ask for half of any pension payout that eventually would come to your ex-husband. Ask for half of his 401(k). Don’t count on child support. Half of divorced women are not getting child support.
Look carefully ahead at your FUTURE household budget. What will your income be, once the divorce is final? Add up your household expenses. Then look at income. Can you cover your expenses? If not, what changes can you make? Start establishing your own credit with a credit card in your own name. Get your own checking account. Keep your job skills up to date, add new job skills.
Polish up your employment resume. You are going to have to work, manage kids, pay for groceries. Can you find a better paying, full-time job. A good resume is important. Network with your friends on how to write good one. Think of yourself as an independent contractor…. with employers. What do you bring to the job they want you to do?
Get counseling, not just financial counseling. A good counselor can bring clear thinking to your future, what you want and how to make it happen. In the beginning, I was going to pack a bag and just leave. My therapist helped me realize I was just running when I needed to stay put, take a deep breath, and negotiate from a position of strength, not injury. Staying put was a GREAT financial decision.
Make saving a part of your financial plan. If you get a lump sum settlement from your divorce put the money to work for the long-term in a self-directed IRA. Make sure you are taking advantage of your employer’s 401(k) tax-deferred savings plan with matching. Build an emergency fund, so you don’t have to turn to high-interest credit cards.
Keep the faith. It may feel like the deck of cards has been thrown in the air but not yet landed. They will. Over time your future will become more clear, new doors will open, your heart will heal or at least mend a bit. Don’t try to rush through this terrible time in your life just to get away from the bad feelings, the anxiety and anger. Let it spin out slowly.
Click here to a link to a Smart Money show with Laycoe as our guest.
Will your next car be electric? We talk to an expert
BY JULIA ANDERSON
Nik Miles knows a thing or two about cars, the automotive industry and where it’s headed.
With electric vehicles grabbing headlines and some two-thirds of Americans now open to buying electric, we thought it was time to talk to Miles, a nationally known “car guy” and principle at ourautoexpert.com.
Smart Money co-host, Pat Boyle, and I covered the basics with Miles: -- How to buy an electric car, what’s out there and when to buy. Click here for the video on YouTube presented by TVCTV public television in Beaverton, Ore.
The landscape is changing so fast that it is hard for buyers, dealers, and reviewers like himself to keep up with new offerings, new technology and performance enhancements, he said.
Battery technology improvements are the big driver.
“We are seeing advances in battery ranges in the 250-mile range and are starting to see 300-mile ranges before recharging,” Miles said. “It’s crazy how fast the technology is going.”
Next year (2022), he expects there will be at least 100 electric vehicle brands and models on the market from lower-cost commuter cars to high-end luxury models tempting the rich.
Moving to electric
Ford Motor Co. now says that 40 percent of its vehicles will be electrified by 2030. Next year, Ford will start making an all-electric F-150 truck called the Ford F-150 Lightning. The company will start production in late 2022 of its first fully electric cargo van. You can order its Mustang Mach-E, right now. Priced at $42,895.
A Nissan Leaf sells right now for between $31,670 and $40,520. That’s before the possible $7,500 federal tax credit on the purchase. (See below) The Chevrolet Bolt EV is priced at $40,000.
Cadillac will be in production in late 2022 with the Cadillac LYRIQ, an electric luxury sedan. BMW will soon offer the BMWiX, a fully electric “sport activity vehicle.” Volvo said it will be all-electric by 2030.
Toyota, long in the hybrid business with its Prius, will be out with its first all-electric SUV soon. The company intends to sell 5.5 million electrified vehicles worldwide by 2025.
“Toyota is clearly the market leader with the most hybrids out there,” Miles said. He expects Toyota to do it right when it makes its move into electric.
After more than 100 years of gas- and diesel-power engines and gas stations to go with them, it is no surprise that interested buyers may be a bit overwhelmed by the new technology and its reliability.
Here are THREE TIPS on buying electric from Nik Miles at ourautoexpert.com.
Tip No. 1: Don’t buy, lease!!! The technology is advancing so fast that an electric car you buy today or even tomorrow will be out of date with old technology in two or three years. The resale value will be questionable. “When your lease is up, you won’t be stuck owning an outdated vehicle,” Miles said.
Tip No. 2: Don’t go out looking at what’s electric. Instead, thoughtfully (my words) consider what you need in a vehicle. What fits your lifestyle. Then look at how much money you can spend.
“After all that, start looking at electric cars,” he said. “Do it the other way around (looking first) and you end up with something that doesn’t work for you.”
Tip No. 3: Test drive and test drive some more. “Test drive everything you can get your hands on,” Miles said. “Test driving doesn’t cost you anything. It will make a big difference.”
COST:
Because our interview with Miles was to pick his brain on the basics of electric vehicles, we left a lot of questions unanswered. Cost could have been a big topic. Research again will pay-off. At www.fueleconomy.gov, the U.S. Dept. of Energy provides a table showing federal tax credits available by brand and model, if you buy hybrid or all-electric.
For example, you get up to a $7,500 federal tax credit when you buy a 2021 Ford Mustang Mach-E Premium AWD. But there are quotas and other considerations to gain these tax credits. Automakers are allotted 200,000 buyers per eligible EV buyer. When that number of buyers have used up the credits, they’re gone for the rest of the year.
Bottom line on cost: You can get into an electric vehicle for a little as $7,500, if you buy used. Or go for a luxury car such as the Tesla long-range Model 3 with a battery range of 353 miles for $50,190. There is a lot more coming to address every price category and user preference.
BATTERY CHARGING:
This is another area deserving in-depth buyer research. How will you charge your electric car battery and how long will it take? Must you invest in upgraded 220-volt or 240-volt outlets at home to get a full charge in a reasonable amount of time? How much will all that cost? Will cold weather affect battery range and performance? We didn’t talk with Miles about any of this.
He observed that the door on the electric car market is only just beginning to open. “We are in the pre-fireworks stage of electrics, he said.
A big unanswered question: How reliable is the nation’s power grid? Can existing electric power companies, their generating capacity and infrastructure supply enough power to juice up all these electric batteries every night? What happens if we begin experiencing more brownouts and blackouts like those that already have occurred in California. Will we be walking to work?
Electric car technology is just getting started. Exciting but a lot to think about before you buy. Thanks, Nik!
Nik Miles knows a thing or two about cars, the automotive industry and where it’s headed.
With electric vehicles grabbing headlines and some two-thirds of Americans now open to buying electric, we thought it was time to talk to Miles, a nationally known “car guy” and principle at ourautoexpert.com.
Smart Money co-host, Pat Boyle, and I covered the basics with Miles: -- How to buy an electric car, what’s out there and when to buy. Click here for the video on YouTube presented by TVCTV public television in Beaverton, Ore.
The landscape is changing so fast that it is hard for buyers, dealers, and reviewers like himself to keep up with new offerings, new technology and performance enhancements, he said.
Battery technology improvements are the big driver.
“We are seeing advances in battery ranges in the 250-mile range and are starting to see 300-mile ranges before recharging,” Miles said. “It’s crazy how fast the technology is going.”
Next year (2022), he expects there will be at least 100 electric vehicle brands and models on the market from lower-cost commuter cars to high-end luxury models tempting the rich.
Moving to electric
Ford Motor Co. now says that 40 percent of its vehicles will be electrified by 2030. Next year, Ford will start making an all-electric F-150 truck called the Ford F-150 Lightning. The company will start production in late 2022 of its first fully electric cargo van. You can order its Mustang Mach-E, right now. Priced at $42,895.
A Nissan Leaf sells right now for between $31,670 and $40,520. That’s before the possible $7,500 federal tax credit on the purchase. (See below) The Chevrolet Bolt EV is priced at $40,000.
Cadillac will be in production in late 2022 with the Cadillac LYRIQ, an electric luxury sedan. BMW will soon offer the BMWiX, a fully electric “sport activity vehicle.” Volvo said it will be all-electric by 2030.
Toyota, long in the hybrid business with its Prius, will be out with its first all-electric SUV soon. The company intends to sell 5.5 million electrified vehicles worldwide by 2025.
“Toyota is clearly the market leader with the most hybrids out there,” Miles said. He expects Toyota to do it right when it makes its move into electric.
After more than 100 years of gas- and diesel-power engines and gas stations to go with them, it is no surprise that interested buyers may be a bit overwhelmed by the new technology and its reliability.
Here are THREE TIPS on buying electric from Nik Miles at ourautoexpert.com.
Tip No. 1: Don’t buy, lease!!! The technology is advancing so fast that an electric car you buy today or even tomorrow will be out of date with old technology in two or three years. The resale value will be questionable. “When your lease is up, you won’t be stuck owning an outdated vehicle,” Miles said.
Tip No. 2: Don’t go out looking at what’s electric. Instead, thoughtfully (my words) consider what you need in a vehicle. What fits your lifestyle. Then look at how much money you can spend.
“After all that, start looking at electric cars,” he said. “Do it the other way around (looking first) and you end up with something that doesn’t work for you.”
Tip No. 3: Test drive and test drive some more. “Test drive everything you can get your hands on,” Miles said. “Test driving doesn’t cost you anything. It will make a big difference.”
COST:
Because our interview with Miles was to pick his brain on the basics of electric vehicles, we left a lot of questions unanswered. Cost could have been a big topic. Research again will pay-off. At www.fueleconomy.gov, the U.S. Dept. of Energy provides a table showing federal tax credits available by brand and model, if you buy hybrid or all-electric.
For example, you get up to a $7,500 federal tax credit when you buy a 2021 Ford Mustang Mach-E Premium AWD. But there are quotas and other considerations to gain these tax credits. Automakers are allotted 200,000 buyers per eligible EV buyer. When that number of buyers have used up the credits, they’re gone for the rest of the year.
Bottom line on cost: You can get into an electric vehicle for a little as $7,500, if you buy used. Or go for a luxury car such as the Tesla long-range Model 3 with a battery range of 353 miles for $50,190. There is a lot more coming to address every price category and user preference.
BATTERY CHARGING:
This is another area deserving in-depth buyer research. How will you charge your electric car battery and how long will it take? Must you invest in upgraded 220-volt or 240-volt outlets at home to get a full charge in a reasonable amount of time? How much will all that cost? Will cold weather affect battery range and performance? We didn’t talk with Miles about any of this.
He observed that the door on the electric car market is only just beginning to open. “We are in the pre-fireworks stage of electrics, he said.
A big unanswered question: How reliable is the nation’s power grid? Can existing electric power companies, their generating capacity and infrastructure supply enough power to juice up all these electric batteries every night? What happens if we begin experiencing more brownouts and blackouts like those that already have occurred in California. Will we be walking to work?
Electric car technology is just getting started. Exciting but a lot to think about before you buy. Thanks, Nik!
Inflation: The enemy of long-term investors, especially women
BY JULIA ANDERSON
The Campbell Soup Co. is raising prices on an array of grocery store items by fall.
Crude oil prices are hitting three-year highs, boosting the gasoline pump price by 95 cents a gallon from a year ago.
As restaurant operators struggle to hire and retain workers the cost of eating out has skyrocketed. Yes, from home construction materials to automobiles, prices are rising.
These increases on a market-basket of goods and services tracked by the U.S. Department of Labor are running at an estimated overall 6 percent a year. Our cost-of-living is going up. In other words, we have an INFLATION problem.
After more than two decades of keeping inflation at bay, we all are talking about it and what to do about it.
Economists say a bit of inflation in the range of 2 percent a year is OK, but 4-percent, 6-percent, 8-percent a year is a hardship especially on retired people with fixed incomes and on women who tend to save less and are more conservative investors.
Inflation is the invisible enemy that eats into your buying power and your long-term savings and investment strategy. Here’s why:
Let’s say you save $1,000 in a bank savings account. If the cost-of-living increases by 2 percent over the next 12 months, the buying power of that $1,000 drops by $20 to $980. That’s because as prices increase it will take more money to buy the same stuff.
Twenty dollars may not seem like a big deal, but if the cost-of-living increases at 2 percent a year for 10 years, the buying power of your $1,000 drops to $800. In other words, your $1,000 of savings takes a 20 percent hit over those 10 years.
Here’s another way to look at inflation and how it undermines investors. You have $200,000 in a tax-deferred savings plan such as an Individual Retirement Account or a 401(k) through your job. You lose sleep at night when stock markets go down, so you have your money in “safe” money market funds. You just can’t stand seeing your retirement savings drop in value if markets retreat.
The inflation problem
The problem? Money market and bank accounts are paying you nothing on the savings. The Federal Reserve Bank is keeping interest rates low, near zero, to stimulate the economy as it rebounds from the Covid-19 pandemic. Unfortunately, inflation at 6 percent this year is outpacing your savings by a lot. Your money is “safe,” but you actually are losing money on the safe savings. If it keeps up, your $1,000 will lose $60 of purchasing power in just the next 12 months.
Meanwhile that $200,000 retirement account is losing buying power, too, unless its value grows at least even with the inflation rate. Better yet your long-term investments should be gaining on inflation.
To review, over 10 years with little or no interest income on your $200,000 money market account, you effectively lose $40,000 of buying power if the inflation rate holds at around 2 percent. If the cost-of-living jumps to 6 percent a year over ten years, you lose $120,000 or 60 percent of your buying power on the $200,000.
Beating inflation requires confidence
This is where risk vs. reward comes in. In the current financial environment where ordinary bank savings, money market accounts and certificates of deposit are paying little or nothing in interest, you must look for other ways to “GROW” your investments. It is counter-intuitive but safe money in a bank with no interest is not safe.
If you are working, use the 60/40 ratio of stock investments vs bonds or other holdings. Stock index funds work best because they spread the risk and are low-cost. Management fees should be under 1 percent on the value of the fund. Use the fund dividends paid quarterly to reinvest by buying more fund shares. Over time you will be happily rewarded by the “miracle of compound interest” growth in the value of your savings investments.
Diversify by spreading your investments over several growth categories – real estate investment trusts, shorter-duration bonds, Treasury Inflation-Protected Bonds, or individual dividends-producing blue-chip stocks. So, research to determine long-term performance and management fees.
Looking ahead
The Federal Reserve is betting that the inflation surge we are seeing will abate as the economy gets back to normal, never mind the billions of dollars being delivered by the government to pump things up.
If you don’t have the confidence to do this on your own, hire a financial consultant for a one-hour session to advise you. Or take your nest egg to an adviser to manage. Just make sure you know how much in fees you are paying them for the privilege.
Keep in mind that some inflation around 2 percent a year is normal. Historically over the past 20 years that’s about what we’ve been seeing. Also remember that being too conservative with your savings is a liability. You must accept some risk to earn the rewards.
Historically, U.S. equities (stocks and stock funds) have generated an average 5 percent to 7 percent return annually. They must form the bedrock of your long-term financial plan.
FOR MORE:
Warren Buffett's tip for beating inflation. click here.
Dividend Investor's Guide to Beating the 2021 Inflation Rate, Forbes, click here.
Worried about surging inflation? Here's 3 ways to protect your wallet from taking a big hit. Bankrate.com click here.
The Campbell Soup Co. is raising prices on an array of grocery store items by fall.
Crude oil prices are hitting three-year highs, boosting the gasoline pump price by 95 cents a gallon from a year ago.
As restaurant operators struggle to hire and retain workers the cost of eating out has skyrocketed. Yes, from home construction materials to automobiles, prices are rising.
These increases on a market-basket of goods and services tracked by the U.S. Department of Labor are running at an estimated overall 6 percent a year. Our cost-of-living is going up. In other words, we have an INFLATION problem.
After more than two decades of keeping inflation at bay, we all are talking about it and what to do about it.
Economists say a bit of inflation in the range of 2 percent a year is OK, but 4-percent, 6-percent, 8-percent a year is a hardship especially on retired people with fixed incomes and on women who tend to save less and are more conservative investors.
Inflation is the invisible enemy that eats into your buying power and your long-term savings and investment strategy. Here’s why:
Let’s say you save $1,000 in a bank savings account. If the cost-of-living increases by 2 percent over the next 12 months, the buying power of that $1,000 drops by $20 to $980. That’s because as prices increase it will take more money to buy the same stuff.
Twenty dollars may not seem like a big deal, but if the cost-of-living increases at 2 percent a year for 10 years, the buying power of your $1,000 drops to $800. In other words, your $1,000 of savings takes a 20 percent hit over those 10 years.
Here’s another way to look at inflation and how it undermines investors. You have $200,000 in a tax-deferred savings plan such as an Individual Retirement Account or a 401(k) through your job. You lose sleep at night when stock markets go down, so you have your money in “safe” money market funds. You just can’t stand seeing your retirement savings drop in value if markets retreat.
The inflation problem
The problem? Money market and bank accounts are paying you nothing on the savings. The Federal Reserve Bank is keeping interest rates low, near zero, to stimulate the economy as it rebounds from the Covid-19 pandemic. Unfortunately, inflation at 6 percent this year is outpacing your savings by a lot. Your money is “safe,” but you actually are losing money on the safe savings. If it keeps up, your $1,000 will lose $60 of purchasing power in just the next 12 months.
Meanwhile that $200,000 retirement account is losing buying power, too, unless its value grows at least even with the inflation rate. Better yet your long-term investments should be gaining on inflation.
To review, over 10 years with little or no interest income on your $200,000 money market account, you effectively lose $40,000 of buying power if the inflation rate holds at around 2 percent. If the cost-of-living jumps to 6 percent a year over ten years, you lose $120,000 or 60 percent of your buying power on the $200,000.
Beating inflation requires confidence
This is where risk vs. reward comes in. In the current financial environment where ordinary bank savings, money market accounts and certificates of deposit are paying little or nothing in interest, you must look for other ways to “GROW” your investments. It is counter-intuitive but safe money in a bank with no interest is not safe.
If you are working, use the 60/40 ratio of stock investments vs bonds or other holdings. Stock index funds work best because they spread the risk and are low-cost. Management fees should be under 1 percent on the value of the fund. Use the fund dividends paid quarterly to reinvest by buying more fund shares. Over time you will be happily rewarded by the “miracle of compound interest” growth in the value of your savings investments.
Diversify by spreading your investments over several growth categories – real estate investment trusts, shorter-duration bonds, Treasury Inflation-Protected Bonds, or individual dividends-producing blue-chip stocks. So, research to determine long-term performance and management fees.
Looking ahead
The Federal Reserve is betting that the inflation surge we are seeing will abate as the economy gets back to normal, never mind the billions of dollars being delivered by the government to pump things up.
If you don’t have the confidence to do this on your own, hire a financial consultant for a one-hour session to advise you. Or take your nest egg to an adviser to manage. Just make sure you know how much in fees you are paying them for the privilege.
Keep in mind that some inflation around 2 percent a year is normal. Historically over the past 20 years that’s about what we’ve been seeing. Also remember that being too conservative with your savings is a liability. You must accept some risk to earn the rewards.
Historically, U.S. equities (stocks and stock funds) have generated an average 5 percent to 7 percent return annually. They must form the bedrock of your long-term financial plan.
FOR MORE:
Warren Buffett's tip for beating inflation. click here.
Dividend Investor's Guide to Beating the 2021 Inflation Rate, Forbes, click here.
Worried about surging inflation? Here's 3 ways to protect your wallet from taking a big hit. Bankrate.com click here.
Why a capital gains increase hurts us all
BY JULIA ANDERSON
Those of us who are retired should pay attention to the proposed tax increases on capital gains income being promoted both by states (Washington state) and by the Biden Administration.
Even though President Biden says his capital gains tax increase will only affect the wealthy, not you, don’t believe it. Any change in tax law affects markets top to bottom, changes investment strategies and could generally dampen enthusiasm for capital investment at all levels.
Retirees are living on investment savings --- CDS, stocks and bonds -- and income generated by U.S. stock markets and underlaying resilient economy. For the past ten years, it has been a good ride, up 13.6 percent a year. Our portfolios are looking healthy.
Here’s the deal. Even though only those with $400,000 of capital gains “profit” or more annually would pay higher capital gains taxes up to 43.4 percent (double the current rate), the higher tax rate will hurt markets…our markets.
Capital gains tax (15 percent for middle income investors, 20 percent for the wealthy) have been used by government for decades to deliberately create incentives for investors who put money into new business ventures and into corporate stock. This tax strategy supports new enterprise, grows overall employment, and strengthens the general economy. Middle-income retirees benefit from this economic momentum. When these stocks are sold, up to now, we pay a lower income tax on the gain (or profit). Here’s a chart:
2021 capital gains tax rates:
15 percent for those with taxable income of $40,451 to $441,450.
20 percent for those with taxable income $441,451 and more
2021 ordinary federal income tax rates - married, filing jointly.
12 percent for those with taxable income from $19,751 to $80,250
22 percent for those with taxable income of $80,251 to $171,050
Raising capital gains taxes punishes businesses seeking capital investment to support expansion. At the same time, higher capital gains tax punishes investors by reducing income. That means fewer of their discretionary dollars are spent on housing, cars, consumer goods, dining out -- all the sectors that need support as we recover from the pandemic. The higher tax puts a damper on the entire U.S. economy.
Meanwhile, wealthy Americans are already strategizing for how to avoid higher capital gains taxes. Wharton School of Business researchers conclude that tax avoidance could cut $900 billion from the estimated $1 trillion the Biden Administration says it will collect in new capital gains tax money to pay for infrastructure and more. Do they think the wealthy are stupid? An easy alternative for them? Tax-exempt municipal bonds.
By the way, money coming out of your tax deferred retirement (401(k) and IRAs) accounts is taxed as ordinary income at a rate commensurate with your federal income tax bracket. An increased capital gains tax applies only to income from shares invested outside of a retirement plan.
Expert analysis in numerous studies on capital gains taxes, however, says that a rise in the capital gains tax rate reduces wage growth by dampening investment in corporations looking for new capital to expand. At the same time, the tax reduces revenue growth for governments simply because people will be more reluctant to sell stock and thus pay the higher tax. According to the Congressional Budget Office for each 1 percent increase in the capital gains rate, there is a 1.2 percent reduction in tax realizations (collections). That’s because rich investors will hold on to investments longer and look for other ways to avoid taxes.
There are other aspects in the Biden tax proposal that have estate planners and their clients worried. Those include changes in inheritance tax regulations that will make it harder to pass on farms and businesses to a new generation. But that deserves a separate column.
Many states also have capital gains taxes or are implementing them. California leads the pack with a rate of 13.3 percent. Among other top five capital gains tax states are Hawaii, (11 percent), New jersey, (10.75 percent), Oregon, (9.9 percent) and Minnesota, (9.8 percent).
Washington state’s Legislature has approved a bill (2021) that creates a new capital gains flat tax of 7 percent on the long-term gain from the sale of stocks, bonds, and other high-end assets more than $250,000 for both individuals and couples. For details, click here.
The tax exempts real estate, retirement accounts, agricultural land, and family-owned small businesses. It still is a new tax on income in a state that up to now has not had an income tax.
Meanwhile, the Biden administration is proposing a top tax rate on capital gains of 43.4 percent, up from the current 23.8 percent. That means on every $10,000 of stock sold, the tax would total $4,340, up from $2,380 with the lower rates. The editorial board of the Wall Street Journal calls the idea, “the dumbest way” to raise taxes.
The bandwagon to raise capital gains taxes is pitched as a tax on “rich people” who should “pay their fair share.” This ignores that fact that the top 50 percent of all taxpayers already pay 97 percent of all federal individual income tax. The top 1 percent pay 40.1 percent. The bottom 90 percent of taxpayers combined pay 28.6 percent of all federal income tax. In 2019, 46.6 percent of U.S. households with an annual income of between $40,000 and $50,000 paid NO income taxes at all. Click here.
The Biden Administration says only 500,000 taxpayers would be affected by the proposed tax. The issue is not about who pays but the longer-term impact on markets in terms of slower investment and slower economic growth that will affect us all.
It’s politics, not common-sense economics that is driving the capital-gains campaign. Tax incentives related to capital gains have been on the books for more than 50 years. They work.
Those of us who are retired should pay attention to the proposed tax increases on capital gains income being promoted both by states (Washington state) and by the Biden Administration.
Even though President Biden says his capital gains tax increase will only affect the wealthy, not you, don’t believe it. Any change in tax law affects markets top to bottom, changes investment strategies and could generally dampen enthusiasm for capital investment at all levels.
Retirees are living on investment savings --- CDS, stocks and bonds -- and income generated by U.S. stock markets and underlaying resilient economy. For the past ten years, it has been a good ride, up 13.6 percent a year. Our portfolios are looking healthy.
Here’s the deal. Even though only those with $400,000 of capital gains “profit” or more annually would pay higher capital gains taxes up to 43.4 percent (double the current rate), the higher tax rate will hurt markets…our markets.
Capital gains tax (15 percent for middle income investors, 20 percent for the wealthy) have been used by government for decades to deliberately create incentives for investors who put money into new business ventures and into corporate stock. This tax strategy supports new enterprise, grows overall employment, and strengthens the general economy. Middle-income retirees benefit from this economic momentum. When these stocks are sold, up to now, we pay a lower income tax on the gain (or profit). Here’s a chart:
2021 capital gains tax rates:
15 percent for those with taxable income of $40,451 to $441,450.
20 percent for those with taxable income $441,451 and more
2021 ordinary federal income tax rates - married, filing jointly.
12 percent for those with taxable income from $19,751 to $80,250
22 percent for those with taxable income of $80,251 to $171,050
Raising capital gains taxes punishes businesses seeking capital investment to support expansion. At the same time, higher capital gains tax punishes investors by reducing income. That means fewer of their discretionary dollars are spent on housing, cars, consumer goods, dining out -- all the sectors that need support as we recover from the pandemic. The higher tax puts a damper on the entire U.S. economy.
Meanwhile, wealthy Americans are already strategizing for how to avoid higher capital gains taxes. Wharton School of Business researchers conclude that tax avoidance could cut $900 billion from the estimated $1 trillion the Biden Administration says it will collect in new capital gains tax money to pay for infrastructure and more. Do they think the wealthy are stupid? An easy alternative for them? Tax-exempt municipal bonds.
By the way, money coming out of your tax deferred retirement (401(k) and IRAs) accounts is taxed as ordinary income at a rate commensurate with your federal income tax bracket. An increased capital gains tax applies only to income from shares invested outside of a retirement plan.
Expert analysis in numerous studies on capital gains taxes, however, says that a rise in the capital gains tax rate reduces wage growth by dampening investment in corporations looking for new capital to expand. At the same time, the tax reduces revenue growth for governments simply because people will be more reluctant to sell stock and thus pay the higher tax. According to the Congressional Budget Office for each 1 percent increase in the capital gains rate, there is a 1.2 percent reduction in tax realizations (collections). That’s because rich investors will hold on to investments longer and look for other ways to avoid taxes.
There are other aspects in the Biden tax proposal that have estate planners and their clients worried. Those include changes in inheritance tax regulations that will make it harder to pass on farms and businesses to a new generation. But that deserves a separate column.
Many states also have capital gains taxes or are implementing them. California leads the pack with a rate of 13.3 percent. Among other top five capital gains tax states are Hawaii, (11 percent), New jersey, (10.75 percent), Oregon, (9.9 percent) and Minnesota, (9.8 percent).
Washington state’s Legislature has approved a bill (2021) that creates a new capital gains flat tax of 7 percent on the long-term gain from the sale of stocks, bonds, and other high-end assets more than $250,000 for both individuals and couples. For details, click here.
The tax exempts real estate, retirement accounts, agricultural land, and family-owned small businesses. It still is a new tax on income in a state that up to now has not had an income tax.
Meanwhile, the Biden administration is proposing a top tax rate on capital gains of 43.4 percent, up from the current 23.8 percent. That means on every $10,000 of stock sold, the tax would total $4,340, up from $2,380 with the lower rates. The editorial board of the Wall Street Journal calls the idea, “the dumbest way” to raise taxes.
The bandwagon to raise capital gains taxes is pitched as a tax on “rich people” who should “pay their fair share.” This ignores that fact that the top 50 percent of all taxpayers already pay 97 percent of all federal individual income tax. The top 1 percent pay 40.1 percent. The bottom 90 percent of taxpayers combined pay 28.6 percent of all federal income tax. In 2019, 46.6 percent of U.S. households with an annual income of between $40,000 and $50,000 paid NO income taxes at all. Click here.
The Biden Administration says only 500,000 taxpayers would be affected by the proposed tax. The issue is not about who pays but the longer-term impact on markets in terms of slower investment and slower economic growth that will affect us all.
It’s politics, not common-sense economics that is driving the capital-gains campaign. Tax incentives related to capital gains have been on the books for more than 50 years. They work.
Women need good credit, sooner (maybe) than they think
BY JULIA ANDERSON
Don’t wait until you are widowed at 67 to build a credit history. When you lose a spouse to death or divorce, (or have never married in the first place) you may find credit harder to get unless you've been building your own credit profile over the years.
Good credit means it will be easier to get a new credit card, buy a car with a loan or refinance your mortgage with a lower interest rate. The pandemic has been a set-back.
Last year, some women lost income, increased debt, and put less into savings. All of this can undermine your credit standing. According to Experiena.com, a major online credit score service, 2.7 million women left the workforce in 2020 as compared with 1.7 million men. Female participation in the workforce is now the lowest since 1988, the report said.
Married or single, women need a good credit history. It is another aspect of planning for the unexpected…a death, a divorce, a serious accident, or illness that can affect finances and the ability to borrow.
What is good credit?
Establishing good credit means that you pay bills on time. It means not taking on more debt than you should related to your income. Good credit means not having filed for bankruptcy in the past seven years, not having been foreclosed on or had a debt sent to a collection agency.
Lenders use your income and your bill-paying history to establish your credit score, which in turn helps determine if you are a good credit risk and likely to pay back a loan over time.
Financially independent women know that a good credit score helps not only with purchases, but also with determining insurance rates or renting an apartment.
Yes, you can live without a credit score but that might mean carrying around a lot more cash or going through a bigger hassle is securing a loan.
What is a credit score?
There is no one credit score, but a higher score or scores usually means it will be easier to get a loan or rent an apartment. National credit services tabulate your score gleaned from several sources - credit card companies, banks and other lenders. Getting a high credit score means borrowing money, then paying in back on time.
“Any credit score depends on the data used to calculate it, and may differ depending on the scoring model, the source of your credit history, the type of loan product, and even the day when it was calculated,” says the federal Consumer Financial Protection Bureau. “Most credit scores range from 300-850.”
The good news is that in 2021, men and women now share the save average national credit score of 705. “This is a 1-point increase for women from 2019 and about a 10-point increase for both groups from 2015,” said Experian.com, an online credit rating service.
How to build good credit
Establishing good credit takes time, maybe several years, as you create a bill-paying record. Here are tips from the federal Consumer Financial Protection Bureau for how “get and keep a good credit score.”
Pay your your bills and your loans back on time, every time.
Don’t get close to your credit limit on a credit card or other loan. Only apply for the credit you need. (According to Consumer Financial Protection, if you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed for the worse.) Keep your credit card debt below 30 percent of your limit.
To avoid high interest rate charges, pay off your credit card(s) each month.
Fact-Check your credit scores. (You are entitled to a free credit report every 12 months from each of the three major consumer reporting companies – Equifax, Experian, and TransUnion. To do that visit AnnualCreditReport.com or call 877 322 8228 to get a report)
Avoid web sites that offer free credit report assistance. For most, it’s free, only if you buy their products.
Unlike Dave Ramsay, I believe there is “good” debt but that is debt you can pay off on time. I never believed lenders who told me that based on my income I could afford xxxx amount of mortgage debt. For me, the amount was about half what they said I could borrow.
Establish credit card in your own name, separate from a joint family account. While married, I’ve kept my own name on credit cards and my home mortgage loan. When refinancing your home mortgage, do it in your own name, separate from a new married partner. Otherwise, he becomes joint 50 percent owner on the title.
In a divorce, make sure your spouse’s aggressive attorney does not put a lien on your house without notice. Then this attorney forgets to remove the lien in the divorce settlement. Only three years later do you find out about the lien when you can’t refinance your loan unless it is removed. That means tracking down your ex-spouse, a frustrating and painful experience.
A recent survey by creditsesame.com, an online card and loan tracking service, showed that 55 percent of women say, “they were never taught the best ways to manage credit and about a quarter would give themselves a failing grade when it comes to their current understanding of credit scores.” Tell your granddaughters about the good and bad of credit cards and about how to get and keep good credit.
What to do if you have BAD credit
Credit counseling can help if you have bad credit, are behind with bill paying or have defaulted on a loan. Credit counseling services can help you organize a debt management plan to pay down debt. Some of these services are free, some are not. Read the fine print before signing an agreement.
For more: GO TO consumerfinance.gov, then search for credit counseling services. Topics include how to choose a credit counselor, counseling service fees and agreements. Or search YouTube for my Smart Money piece on credit and credit counseling services. Click here.
It wasn’t long ago (early 1970s) that women could not apply for a loan in their own name, not gain a credit card in their own name without a male co-signer or make larger down payments on mortgage.
The 1974 Equal Credit Opportunity Act prohibited creditors from such discrimination based on race, color, religion, national origin, sex, age, and marital status. It took years of lawsuits and complaints for lenders to comply. I know because in the late 1980s when divorcing, I asked my bank to reissue my credit card using my new name. It refused. I was shocked. I had the same job, the same credit history and same savings and checking accounts.
I then applied to a national Mastercard issuer, got a new card, and changed banks.
A Quote: “If you have debt, I’m willing to bet that general clutter is a problem for you too.” -- Suze Orman, American financial advisor, book author and podcast host. (1951 - )
Don’t wait until you are widowed at 67 to build a credit history. When you lose a spouse to death or divorce, (or have never married in the first place) you may find credit harder to get unless you've been building your own credit profile over the years.
Good credit means it will be easier to get a new credit card, buy a car with a loan or refinance your mortgage with a lower interest rate. The pandemic has been a set-back.
Last year, some women lost income, increased debt, and put less into savings. All of this can undermine your credit standing. According to Experiena.com, a major online credit score service, 2.7 million women left the workforce in 2020 as compared with 1.7 million men. Female participation in the workforce is now the lowest since 1988, the report said.
Married or single, women need a good credit history. It is another aspect of planning for the unexpected…a death, a divorce, a serious accident, or illness that can affect finances and the ability to borrow.
What is good credit?
Establishing good credit means that you pay bills on time. It means not taking on more debt than you should related to your income. Good credit means not having filed for bankruptcy in the past seven years, not having been foreclosed on or had a debt sent to a collection agency.
Lenders use your income and your bill-paying history to establish your credit score, which in turn helps determine if you are a good credit risk and likely to pay back a loan over time.
Financially independent women know that a good credit score helps not only with purchases, but also with determining insurance rates or renting an apartment.
Yes, you can live without a credit score but that might mean carrying around a lot more cash or going through a bigger hassle is securing a loan.
What is a credit score?
There is no one credit score, but a higher score or scores usually means it will be easier to get a loan or rent an apartment. National credit services tabulate your score gleaned from several sources - credit card companies, banks and other lenders. Getting a high credit score means borrowing money, then paying in back on time.
“Any credit score depends on the data used to calculate it, and may differ depending on the scoring model, the source of your credit history, the type of loan product, and even the day when it was calculated,” says the federal Consumer Financial Protection Bureau. “Most credit scores range from 300-850.”
The good news is that in 2021, men and women now share the save average national credit score of 705. “This is a 1-point increase for women from 2019 and about a 10-point increase for both groups from 2015,” said Experian.com, an online credit rating service.
How to build good credit
Establishing good credit takes time, maybe several years, as you create a bill-paying record. Here are tips from the federal Consumer Financial Protection Bureau for how “get and keep a good credit score.”
Pay your your bills and your loans back on time, every time.
Don’t get close to your credit limit on a credit card or other loan. Only apply for the credit you need. (According to Consumer Financial Protection, if you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed for the worse.) Keep your credit card debt below 30 percent of your limit.
To avoid high interest rate charges, pay off your credit card(s) each month.
Fact-Check your credit scores. (You are entitled to a free credit report every 12 months from each of the three major consumer reporting companies – Equifax, Experian, and TransUnion. To do that visit AnnualCreditReport.com or call 877 322 8228 to get a report)
Avoid web sites that offer free credit report assistance. For most, it’s free, only if you buy their products.
Unlike Dave Ramsay, I believe there is “good” debt but that is debt you can pay off on time. I never believed lenders who told me that based on my income I could afford xxxx amount of mortgage debt. For me, the amount was about half what they said I could borrow.
Establish credit card in your own name, separate from a joint family account. While married, I’ve kept my own name on credit cards and my home mortgage loan. When refinancing your home mortgage, do it in your own name, separate from a new married partner. Otherwise, he becomes joint 50 percent owner on the title.
In a divorce, make sure your spouse’s aggressive attorney does not put a lien on your house without notice. Then this attorney forgets to remove the lien in the divorce settlement. Only three years later do you find out about the lien when you can’t refinance your loan unless it is removed. That means tracking down your ex-spouse, a frustrating and painful experience.
A recent survey by creditsesame.com, an online card and loan tracking service, showed that 55 percent of women say, “they were never taught the best ways to manage credit and about a quarter would give themselves a failing grade when it comes to their current understanding of credit scores.” Tell your granddaughters about the good and bad of credit cards and about how to get and keep good credit.
What to do if you have BAD credit
Credit counseling can help if you have bad credit, are behind with bill paying or have defaulted on a loan. Credit counseling services can help you organize a debt management plan to pay down debt. Some of these services are free, some are not. Read the fine print before signing an agreement.
For more: GO TO consumerfinance.gov, then search for credit counseling services. Topics include how to choose a credit counselor, counseling service fees and agreements. Or search YouTube for my Smart Money piece on credit and credit counseling services. Click here.
It wasn’t long ago (early 1970s) that women could not apply for a loan in their own name, not gain a credit card in their own name without a male co-signer or make larger down payments on mortgage.
The 1974 Equal Credit Opportunity Act prohibited creditors from such discrimination based on race, color, religion, national origin, sex, age, and marital status. It took years of lawsuits and complaints for lenders to comply. I know because in the late 1980s when divorcing, I asked my bank to reissue my credit card using my new name. It refused. I was shocked. I had the same job, the same credit history and same savings and checking accounts.
I then applied to a national Mastercard issuer, got a new card, and changed banks.
A Quote: “If you have debt, I’m willing to bet that general clutter is a problem for you too.” -- Suze Orman, American financial advisor, book author and podcast host. (1951 - )
Should you pay off your mortgage? Pros and cons
BY JULIA ANDERSON
Retirees are told to pay off their mortgage before they leave their jobs or at least soon after. But should you? Does it make financial planning sense? Here’s my analysis of why and why not to put a bunch of cash into paying off mortgage debt.
Pluses first. You eliminate a big monthly loan payment expense, which increases your monthly income. Your net worth goes up with the debt out of the way. You don’t have to worry about rising interest rates, if you have a variable or adjustable-rate loan that could take a bigger bite out of your income, if the Fed raises interest rates.
It feels good to pay off the house loan and be debt-free as you move into retirement.
But where will the cash come from to make this move? Will it leave you “cash poor” in case you face a financial emergency such as an early retirement buyout, a major illness or accident or an unexpected need to car or one for your grandchild?
Paying off a mortgage is more complicated that it might first appear. YOU WILL NEED A CALCULATOR AND POSSIBLY AT TAX ACCOUNTANT TO DECIDE WHAT’S BEST FOR YOU.
Retirees are told to pay off their mortgage before they leave their jobs or at least soon after. But should you? Does it make financial planning sense? Here’s my analysis of why and why not to put a bunch of cash into paying off mortgage debt.
Pluses first. You eliminate a big monthly loan payment expense, which increases your monthly income. Your net worth goes up with the debt out of the way. You don’t have to worry about rising interest rates, if you have a variable or adjustable-rate loan that could take a bigger bite out of your income, if the Fed raises interest rates.
It feels good to pay off the house loan and be debt-free as you move into retirement.
But where will the cash come from to make this move? Will it leave you “cash poor” in case you face a financial emergency such as an early retirement buyout, a major illness or accident or an unexpected need to car or one for your grandchild?
Paying off a mortgage is more complicated that it might first appear. YOU WILL NEED A CALCULATOR AND POSSIBLY AT TAX ACCOUNTANT TO DECIDE WHAT’S BEST FOR YOU.
Why NOT paying off a mortgage may be the right way to go
With interest rates at historic lows, carrying a mortgage loan with a cheap 2.5 percent rate is not expensive. A 30-year fixed loan on $150,000 at less than 3 percent costs less than $1,000 in a monthly payment. On a $350,000 loan the monthly cost is $2,000 or less per month. It’s cheap money. You might want to put your cash to work elsewhere.
You get a deduction on your federal income tax for interest you pay annually on the loan. That reduces your taxable income, but only if you itemize your deductions. On the other hand, you no longer are making those interest payments, which will save you thousands over the life of the loan.
You might do better by investing the cash you would use to pay off the loan. Over the past 10 years, portfolios invested 60 percent in stocks and 40 percent in bonds have averaged roughly a 10 percent annualized return. With a $100,000 initial investment plus $1000 more a year invested over 10 years in stocks, your nest egg will grow to $276,905. However, there are NO guarantees this track record will continue if interest rates go higher.
Once money is sunk into a house it is “illiquid.” In other words, you can NOT easily tap the equity in your house in an emergency. But this could be a forced savings plan if you are not a saver.
Again, THERE ARE PLUSES: You are debt free. You eliminate a big monthly expense. You don’t have to worry about rising interest rates if you have a variable or adjustable loan. You are more financially secure without the debt.
You get a deduction on your federal income tax for interest you pay annually on the loan. That reduces your taxable income, but only if you itemize your deductions. On the other hand, you no longer are making those interest payments, which will save you thousands over the life of the loan.
You might do better by investing the cash you would use to pay off the loan. Over the past 10 years, portfolios invested 60 percent in stocks and 40 percent in bonds have averaged roughly a 10 percent annualized return. With a $100,000 initial investment plus $1000 more a year invested over 10 years in stocks, your nest egg will grow to $276,905. However, there are NO guarantees this track record will continue if interest rates go higher.
Once money is sunk into a house it is “illiquid.” In other words, you can NOT easily tap the equity in your house in an emergency. But this could be a forced savings plan if you are not a saver.
Again, THERE ARE PLUSES: You are debt free. You eliminate a big monthly expense. You don’t have to worry about rising interest rates if you have a variable or adjustable loan. You are more financially secure without the debt.
Next Steps Before You Pay Off Your Mortgage Loan
Understand the trade-offs between paying off the loan and eliminating your mortgage payment vs. the tax write-off benefit and/or investing your cash elsewhere for the long-term. Run some scenarios comparing household income expense and savings, if you pay off the loan and the changes in your tax profile, if you pay off the loan. How much will you save in loan interest payments? Interest saved on a $350,000 loan even at 2.5 percent will total nearly $148,000. Calculate your savings if you refinanced the mortgage loan: the monthly payment on a $350,000 30-year fixed loan at 2.5 percent will be about $1,382. That compares to $1,878 a month on a 5 percent loan over 30 years.
How will you use the “new” money if you eliminate the loan payment? Will you still have cash for unexpected emergencies?
Get a tax professional to help you.
Look at how you would invest the cash that you might use to pay off the loan but instead invest it for the long haul. What kind of earnings can you expect over the next 10 or 15 years. Will you still have cash for emergencies? Build up an emergency fund (in cash) to cover household expenses for at least six months. Could you set a future date to payoff your loan?
Meanwhile, DO NOT tap your long-term tax advantaged retirement funds – 401(k) or IRA - to pay off your mortgage loan. You will need that tax-deferred nest egg for the long haul. Taking money out early undermines your compound reinvestment wealth-building strategy.
Consider making “early” payments on your mortgage loan instead of an outright payoff. You can pay down the loan quicker, reducing the time to pay off the loan. Invest the rest of your money a 60/40 stock-bond fund.
Don’t take an unexpected tax hit by selling investments to assemble the cash to pay off a mortgage. Those sales could bump you into a higher income tax bracket… 24 percent vs. 32 percent on taxable income (using current tax law).
How will you use the “new” money if you eliminate the loan payment? Will you still have cash for unexpected emergencies?
Get a tax professional to help you.
Look at how you would invest the cash that you might use to pay off the loan but instead invest it for the long haul. What kind of earnings can you expect over the next 10 or 15 years. Will you still have cash for emergencies? Build up an emergency fund (in cash) to cover household expenses for at least six months. Could you set a future date to payoff your loan?
Meanwhile, DO NOT tap your long-term tax advantaged retirement funds – 401(k) or IRA - to pay off your mortgage loan. You will need that tax-deferred nest egg for the long haul. Taking money out early undermines your compound reinvestment wealth-building strategy.
Consider making “early” payments on your mortgage loan instead of an outright payoff. You can pay down the loan quicker, reducing the time to pay off the loan. Invest the rest of your money a 60/40 stock-bond fund.
Don’t take an unexpected tax hit by selling investments to assemble the cash to pay off a mortgage. Those sales could bump you into a higher income tax bracket… 24 percent vs. 32 percent on taxable income (using current tax law).
Celebrate!!!
If you pay off your mortgage, celebrate your decision. Your net worth increases, your income goes up and you are debt-FREE! You will always wonder if you made the right call but stay focused on how good you will feel if there’s a stock market crash or interest rates go up. Going forward: Take the “new” money in the amount of your former mortgage payment and stash it in a savings or investment account…. a PAINLESS MOVE that will build long-term wealth.
FOR MORE:
AARP - Paying off your mortgage. click here
AARP mortgage calculator. click here
WSJ “Should Retirees Pay Off Their Mortgage or Invest the Money?” click here.
Bankrate.com "Does it make sense to pay off your mortgage early? click here
Dave Ramsay: "Why Should I pay off the Mortgage?" click here
Bloomberg (For those 40 and under) “The Opportunity Costs of Paying Off Your Mortgage Early,” click here.
AARP - Paying off your mortgage. click here
AARP mortgage calculator. click here
WSJ “Should Retirees Pay Off Their Mortgage or Invest the Money?” click here.
Bankrate.com "Does it make sense to pay off your mortgage early? click here
Dave Ramsay: "Why Should I pay off the Mortgage?" click here
Bloomberg (For those 40 and under) “The Opportunity Costs of Paying Off Your Mortgage Early,” click here.
