Retirement planning has become an uncertain—and much more stressful—exercise for most Americans. Millions of workers watched their retirement nest eggs decline sharply in value in recent years, and “safe” investments such as money market investments and CDs have continued to offer relatively low short-term interest rates since then. Aside from current market uncertainties, there are other more constant issues to consider, such as inflation and taxes.
Investors planning for retirement need to begin addressing some important questions well in advance of their actual retirement date: How much will retirement cost? How will I pay for it? How much can I spend each year and not run out of money? Can I plan for retirement while also meeting other financial goals, such as educating children and paying off debt?
While it may be necessary to adjust your financial expectations for retirement or even postpone your retirement date, you can still achieve retirement security. But to do so, you’ll want to engage the services of a financial planning expert. Once retained only by the wealthy, financial advisors now assist all types of investors in making decisions about retirement. In fact, perhaps one of the most common reasons for people to begin financial planning is to build a retirement fund.
Countdown to Retirement
Have you begun your countdown to retirement? If so, a financial advisor can help you make a successful transition to the next stage of your financial life. Following are some critical areas to address with your advisor a few years before you expect to retire.
• Determine what retirement will cost. Many people enter retirement without the slightest clue as to what they want to do with their time or whether they have enough money to do it. Will you continue to work part time? Travel? Maintain a second residence? Make improvements to your existing home? Be sure you plan how you’ll spend your time because that decision will have a direct impact on how much retirement will cost you.
• Assess your sources of retirement income. Estimate the income and savings you can rely on during retirement. How much will you receive from Social Security, a company pension, a 401(k) plan, or other employee-sponsored retirement accounts? Contact the Social Security Administration at www.ssa.gov and or your employer’s retirement benefits representatives to obtain a report listing the estimated income from these sources. In addition, you’ll want to confirm amounts in other accounts. Do you have retirement assets accumulating in an IRA or a taxable investment account? If your anticipated income does not equal or exceed your projected expenses, develop a plan to bring these two into alignment.
• Arrive at a spending limit. Once you have a handle on expected income and expenses, calculate how much you can withdraw from your accounts each year without spending down your principal. Your advisor can create various withdrawal scenarios based on forecasted investment returns, inflation expectations and other practical financial planning considerations.
Accounting for Uncertainty
In the past, calculating annual withdrawal amounts was done by means of simple spreadsheet analysis. Fast forward to the present where sophisticated computer forecasting models, have become the preferred tools for dealing with the uncertainty around retirement planning. With more attention being paid to retirement planning, forecasting tools have enjoyed a renewed popularity in investment analysis. In an uncertain world, detailed financial planning tools can help provide peace of mind to investors by addressing some of the toughest retirement planning challenges. But remember, any forecasting tool, no matter how sophisticated, cannot predict the future. What’s more, forecasts are hypothetical, do not reflect actual investment results and are not guarantees of future performance. For this reason, you should think of forecasts as a starting point for discussion with your advisor, not as your ultimate planning solution.
Consult your financial advisor or me if you have any questions.
An array of topics that can affect the growth and sustainability of your current and future assets.
Wednesday, June 22, 2011
Friday, June 3, 2011
Tips for Maintaining a Good Credit Rating
For most Americans, debt is an essential financial tool for achieving a desired lifestyle. Therefore, it is important to establish and maintain a good credit rating if you intend to make substantial debt-financed purchases in the future.
Why Credit Is Important
It is important to establish credit if you plan to buy a home or automobile some day. Credit cards also provide a means of reserving a hotel room or obtaining cash while traveling.
If you are a college student, recent graduate or nonworking spouse, you can begin to establish credit by opening a savings or checking account in your own name. You can then apply for a department store credit card. Having someone else cosign a loan for you will also get you started.
Creating a positive credit history for yourself requires using your credit card intelligently. Following are some dos and don’ts to help you manage credit effectively:
• DO NOT charge more than you can easily pay off in a month or two.
• DO NOT be fooled into paying just the low minimum payment amount listed on a bill. Credit card issuers make money on interest; there is nothing they would like more than to have you stretch out payments.
• DO consistently pay your bills by the due date.
• DO use credit for larger, durable purchases you really need, rather than nondurables, such as restaurant meals that are better paid in cash.
Missing Payments
When you miss a payment, the information goes into your credit report and affects your credit rating. If you are judged a poor credit risk, you may be refused a home mortgage or rejected for an apartment rental. In addition, a prospective employer looking for clues to your character may dismiss your job application if your credit report reflects an inability to manage your finances. In most states, an auto insurer may put you into its high-risk group and charge you 50% to 100% more if your credit record has been seriously blemished within the last five years. Many property insurers also review credit histories before they issue policies.
How Credit Reporting Works
Credit reporting agencies gather detailed information about how consumers use credit. Businesses that grant credit regularly supply credit information to credit agencies that then compile this information into credit reports, which are sold to banks, credit card companies, retailers and others who grant credit.
Your credit report helps others decide if you are a good credit risk. This information should be supplied only to those parties who have a legitimate interest in your credit affairs, including prospective employers, landlords or insurance underwriters, as well as others who grant credit. The Fair Credit Reporting Act (FCRA), the federal statute that regulates credit agencies, requires anyone who acquires your credit report to use it in a confidential manner.
The following information is likely to appear in your credit report:
• Your name, address, Social Security number and marital status. Your employer’s name and address and an estimate of your income may also be included.
• A list of parties who have requested your credit history in the last six months.
• A list of the charge cards and mortgages you have, how long you have had them and their repayment terms.
• The maximum you are allowed to charge on each account; what you currently owe and when you last paid; how much was paid by the due date; the latest you have ever paid; and how many times you have been delinquent.
• Past accounts, paid in full, but are now closed.
• Repossessions, charge-offs for bills never paid, liens, bankruptcies, foreclosures and court judgments against you for money owed.
• Bill disputes.
Be Credit Smart
Like other areas of your life, your credit history requires maintenance. Even if you pay your debts on time, do not assume that your credit rating is flawless. Mistakes do occur.
FCRA entitles you to review information in your credit file. If you have been denied credit, the company denying credit must let you know and give you the name and address of the credit agency making the report. Once you have this information, you can send a letter to the agency and you will receive the information in your credit file, at no cost, within 30 days.
Obtain a copy of your credit report periodically and check it for accuracy. Federal law entitles you to a free credit report from each of the three national credit reporting companies—Equifax, Experian and TransUnion—once a year. To get yours, visit annualcreditreport.com. (Keep in mind that other websites claiming to offer “free” credit reports may charge you for another product or service if you accept a “free” report.) If you wish to dispute any information in your file, write the agency and ask them to verify it. Under the law, they are required to do so within a “reasonable time,” usually 30 days. If the agency cannot verify the information, it must be deleted from your file.
Consult your financial advisor, or me, if you have any questions.
Why Credit Is Important
It is important to establish credit if you plan to buy a home or automobile some day. Credit cards also provide a means of reserving a hotel room or obtaining cash while traveling.
If you are a college student, recent graduate or nonworking spouse, you can begin to establish credit by opening a savings or checking account in your own name. You can then apply for a department store credit card. Having someone else cosign a loan for you will also get you started.
Creating a positive credit history for yourself requires using your credit card intelligently. Following are some dos and don’ts to help you manage credit effectively:
• DO NOT charge more than you can easily pay off in a month or two.
• DO NOT be fooled into paying just the low minimum payment amount listed on a bill. Credit card issuers make money on interest; there is nothing they would like more than to have you stretch out payments.
• DO consistently pay your bills by the due date.
• DO use credit for larger, durable purchases you really need, rather than nondurables, such as restaurant meals that are better paid in cash.
Missing Payments
When you miss a payment, the information goes into your credit report and affects your credit rating. If you are judged a poor credit risk, you may be refused a home mortgage or rejected for an apartment rental. In addition, a prospective employer looking for clues to your character may dismiss your job application if your credit report reflects an inability to manage your finances. In most states, an auto insurer may put you into its high-risk group and charge you 50% to 100% more if your credit record has been seriously blemished within the last five years. Many property insurers also review credit histories before they issue policies.
How Credit Reporting Works
Credit reporting agencies gather detailed information about how consumers use credit. Businesses that grant credit regularly supply credit information to credit agencies that then compile this information into credit reports, which are sold to banks, credit card companies, retailers and others who grant credit.
Your credit report helps others decide if you are a good credit risk. This information should be supplied only to those parties who have a legitimate interest in your credit affairs, including prospective employers, landlords or insurance underwriters, as well as others who grant credit. The Fair Credit Reporting Act (FCRA), the federal statute that regulates credit agencies, requires anyone who acquires your credit report to use it in a confidential manner.
The following information is likely to appear in your credit report:
• Your name, address, Social Security number and marital status. Your employer’s name and address and an estimate of your income may also be included.
• A list of parties who have requested your credit history in the last six months.
• A list of the charge cards and mortgages you have, how long you have had them and their repayment terms.
• The maximum you are allowed to charge on each account; what you currently owe and when you last paid; how much was paid by the due date; the latest you have ever paid; and how many times you have been delinquent.
• Past accounts, paid in full, but are now closed.
• Repossessions, charge-offs for bills never paid, liens, bankruptcies, foreclosures and court judgments against you for money owed.
• Bill disputes.
Be Credit Smart
Like other areas of your life, your credit history requires maintenance. Even if you pay your debts on time, do not assume that your credit rating is flawless. Mistakes do occur.
FCRA entitles you to review information in your credit file. If you have been denied credit, the company denying credit must let you know and give you the name and address of the credit agency making the report. Once you have this information, you can send a letter to the agency and you will receive the information in your credit file, at no cost, within 30 days.
Obtain a copy of your credit report periodically and check it for accuracy. Federal law entitles you to a free credit report from each of the three national credit reporting companies—Equifax, Experian and TransUnion—once a year. To get yours, visit annualcreditreport.com. (Keep in mind that other websites claiming to offer “free” credit reports may charge you for another product or service if you accept a “free” report.) If you wish to dispute any information in your file, write the agency and ask them to verify it. Under the law, they are required to do so within a “reasonable time,” usually 30 days. If the agency cannot verify the information, it must be deleted from your file.
Consult your financial advisor, or me, if you have any questions.
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