What Do Your Kids Know About Money?

Ray’s Take A survey by T. Rowe Price revealed that 77 percent of parents lie to their kids about money-related issues. According to the National Foundation for Credit Counseling, 44 percent of Americans learned the most about handling money from their parents. The Council for Economic Education disclosed that just 14 states require high school students to take a course in personal finance.

No wonder so many people are drowning in debt, with no savings for the future. They learned very little about handling personal finances before entering a world without the job security and pension funds earlier generations enjoyed. From an early age, kids should be taught that money doesn’t just magically come from an ATM. They need to realize every swipe of a credit card comes with a payment obligation. Charitable giving needs to have a place early on. They need to understand the benefits of saving. After all, at only age 17, many of them will be deciding whether to shoulder enormous debt to attend college.

Parents have multiple opportunities to educate in the course of daily life. Every trip to the supermarket is a lesson in comparison shopping and inflation. Monthly bill paying helps kids understand how you budget. Saving in advance for that vacation is much better than putting it on the card and dealing with it later. You don’t have to share all your family’s finances in detail, but making kids aware that you make conscious decisions about saving, investing, and spending will let them know the same will be expected of them.

An allowance lets them start making those decisions now. Make sure they save a regular portion of that allowance for a specific goal. They’ll figure out pretty fast that the less they save, the longer it will take to reach their goal.

Of course, your example is the biggest teacher of all. Set a good one for your kids to emulate. Just be sure they understand how and why you make it work.

Dana’s Take Kids eventually need to learn about money but first make sure they have experienced work and its innate rewards.

My favorite summer reading for parents is “Cleaning House: A Mom’s Twelve-Month Experiment to Rid Her Home of Youth Entitlement” by Kay Wills Wyma. It’s a humorous and true account of a mother who puts her five kids to work at home.

In the family’s journey she sees the pride that work brings to her kids—after lots of initial pushback. She also faces up to the fact that she was the roadblock to their growth. All of her giving and doing for them prevented them from realizing their strengths and talents as individuals. Whether it’s baking for the family or watering the garden, give your children the gift that keeps on giving: the joy of work.

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Why Invest Anyway?

Ray’s Take: There’s only two ways to earn money honestly. One is by working and the other is by investing so your assets work to make money for you. Unless you want to work forever or make so much money working you can’t spend it all, investing is the only way to be financially independent or achieve long-term goals like funding the kid’s college education or buying a vacation home.

Investing is not the same as saving. Money in your savings account is safe, but unlikely to grow much, particularly with currently low interest rates. Investing means taking risk through buying stocks, bonds, mutual funds or other financial products in the expectation that your purchase will increase in value over time.

While there are few guarantees that your investments will increase in value, historically investments grow over time if you make informed choices. A financial adviser can provide you with the guidance. However, if you want to develop your own plan, you can reduce risk by selecting mutual funds over individual stocks.

More importantly, resist get-rich-quick investments, which usually turn out to be anything but; and it’s probably wise to avoid following investment tips from TV’s investment “experts.” After all, they just shared that same tip with millions of other people too. And if it doesn’t work out, they’re hardly accountable to you and are sure to have another tip tomorrow.

Just remember: The sooner you start investing the longer your investments can grow. You’re investing for the long term, so don’t be swayed by market fluctuations. Finally, take full advantage of any 401(k) savings plan that your employer may offer. It’s harder to spend it if it’s pulled out of your check before you ever get it!

Dana’s Take: A lot of things are promoted as investments that don’t really fill the bill. Original art, antiques, jewelry and collectibles are just a few of the things often promoted as investments. Some of these may indeed increase in value – though the opposite is just as possible – but they are not good investment choices for several reasons.

First of all, they are not readily sold when you need the cash. There are always buyers for stock investments, but no one may be interested in purchasing that prized baseball card the day you need to sell. In addition, your primary market for the sale of any of these items is a dealer. Dealers have to buy at lower prices so they can resell at a profit. That means you probably won’t realize much of your investment’s full value.

Purchasing art, antiques, and so forth is fine for your own enjoyment, but don’t consider them a part of your nest egg. If you’re downsizing, now may be the right time to sell those items and invest the proceeds.

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Handling Long-Term Care Costs

Ray’s Take The cost of long-term nursing home care is increasing at a dramatic pace. According to the latest Genworth Financial report, the median annual cost is now $83,950 and has risen 4.5 percent annually over the last five years.

When you consider that 70 percent of 65-year-olds will need long-term care at some point, the odds that this statistic could include you are pretty strong. But needing long-term care does not necessarily mean checking in to the nursing home. Evaluating this risk and preparing for it financially is more complicated.

Many people believe that Medicare will cover nursing care. However, at best Medicare only covers some costs of the first 100 days of rehabilitative nursing care.

The three basic options for paying for long-term care are out-of pocket, Medicaid, or long-term care insurance. Which one is best for you depends on many factors including your assets, whether family members are close enough to help with care, and even your family health history.

Medicaid is available for people who have exhausted just about all of their other resources. You are also limited to certain facilities with available Medicaid beds.

If you have the financial resources, you can simply pay for long-term nursing care. While nursing home stays average 2.5 years, you might require longer and severely deplete any inheritance you might wish to pass on.

Long-term care insurance is another option. In recent years, these policies have become more standardized, but you still need to read the fine print carefully to know what your policy will pay for. Further, the companies can and have raised premiums and/or reduce benefits depending on how things are going for them, not you, so you may not be able to shift as much risk as you hope. But if you want to leave an inheritance or are simply up nights worrying about nursing care, insurance is an option you should seriously consider.

Dana’s Take When aging loved ones need support to live safely and comfortably it impacts the entire family. Discussing options before the need actually arises could smooth the process for everyone.

A senior family member may assume that younger family members will supply the necessary help. However, these family members’ work and family commitments may not allow for the hours needed.

There is also the question of whether to opt for a nursing home or rely on in-home caregivers. The second option can be less expensive and a more comfortable choice for seniors who can perform some life tasks. However, there comes a point when even round-the-clock care isn’t enough.

Talk openly about what your expectations and options are well before the need arises. Advanced care for seniors has an effect on multiple generations in a family. Their voices should all be heard.

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Get Real About Selling Your Home

Ray’s Take Selling your home is one of the biggest financial transactions you’ll probably make. It’s a time to stay cool and realistic. However, most of us have a big emotional investment in our homes alongside a significant financial one. You probably selected it because you loved it, were excited to move in and built special memories there.

Potential buyers only want to know what they’ll get for their money. Your professional real estate broker can point you in the right pricing direction by providing detailed information about home sales in your neighborhood, taking into account size, age and other details.

However, you need to listen. A recent survey revealed that 75 percent of homeowners think their agent’s suggested price is too low. If you’re working with a professional agent, she knows the market better than you do. Overprice your home and it could sit on the market a long time. In frustration, you’ll lower the asking price. Then bargain-hunting buyers will smell an opportunity and make offers that are lower still.

Setting a realistic price generates interest in buyers and other agents. Then it’s all about the marketing. Most buyers house-hunt online first. Including lots of attractive photos of your home inside and out can be a real plus, especially if they brightly show off your home’s best features.

Get a professional home inspection before your home is on the market and take care of any problems in advance. Waiting till later could cost you more or make a deal fall through. Ask your agent for tips on how to stage your home to make it more appealing to buyers. Make sure your home is ready for viewing at all times – it needs to be accessible when buyers are. When we were selling our home in 2008, we moved to an apartment. Young kids have a hard time understanding why they can’t make a mess!

However, if the price you set isn’t realistic in the first place, all the marketing in the world is unlikely to help you sell.

Dana’s Take A lot of people turn to a relative or good friend who is a licensed real estate agent to help them sell their house. The thinking seems to make sense: Why not turn to someone you trust when making a transaction this important?

Well, it might work out sometimes, but there are a lot of potential problems ahead. As the proud homeowner, you might get your feelings hurt when someone you know well says your house is worth less than you thought, or advises you to paint over those lime-green walls or store away cherished memorabilia.

On the other hand, your agent could grow to feel that you are imposing on him with demands for services or concessions that go beyond a professional relationship. Certainly friendships have broken up over less.

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Think Before Giving Money to Children

Ray’s Take It’s natural to want to help out your adult kids or grandkids financially. However, it’s important to keep a close eye on your own financial situation as well as consider how any gifts could change your relationship with the recipients.

Right now the IRS allows up to $14,000 in gifts to anyone in a single year ($28,000 if jointly with your spouse) without incurring gift taxes. And, yes, you pay the taxes for any larger gifts you make. Making gifts like this could help to reduce your estate taxes later. However, before getting too generous, you should consider how the gifting fits in to your overall financial plan.

With help from your tax attorney or financial adviser, determine the level of investments and investment income you need for your own security – keeping in mind the potential costs of long-term care and other risks down the road. When your investment income for a year exceeds what you need, that could be time to make a financial gift to a kid or grandkid.

You should also talk to your adviser about the form those gifts should take. The Uniform Gift to Minors Act and the Uniform Transfers to Minors Act provide two opportunities for minor beneficiaries. These allow for accounts set up in the child’s name, with an adult custodian. They can hold a wide range of securities as well as cash. These have estate tax advantages and a portion of their income is taxed at the child’s tax rate when the child is a minor.

Another possibility is to set aside funds for college through the popular 529 education plans. You can add funds as you are able and willing and the funds can increase tax-free if they are used for higher education.

Finally, remember that the very best gift you can ever give your children and grandchildren is to remain financially independent yourself.

Dana’s Take “The Entitlement Trap” by Richard and Linda Eyre suggests that expecting handouts from family can sap the initiative of kids and adults. Even though you can afford it, consider if your gift will truly help. Think back to your childhood and how such a gift might have affected you. Chances are that if you’re reading this article you made your own way in world, and that’s not a bad thing.

It’s hard to find any fault with helping to fund a grandkid’s college education, but maybe that help should come with some caveats. Perhaps you match the amount the child saves for college or you match any scholarships the child accepts. Make sure the kid has skin in the game in the form of his or her own effort.

After all, every financial gift to a child or grandchild comes with strings attached. You just don’t want to get tangled up in them.

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Ray’s Take Like it or not, eventually most kids are going to have to enter the workplace, so why not let them learn something about the “real world” while school is still their main focus? After all, learning to balance work and other pursuits is central to a successful life.

Every family has different circumstance and every child is unique, however, almost all kids can benefit from doing some sort of paid labor. Maybe it’s as simple as taking care of a neighbor’s pet when the owners are gone or doing a little babysitting. For an older teen it could be a regular time-clock job at a local business. No matter what the job is, kids learn a lot when they work. They have to take responsibility for their work performance to someone other than their parents. They’ll discover the importance of being on time, performing tasks as expected, handling constructive criticism, and dealing with the public.

There are also financial lessons to be learned from a job. It’s a sobering moment when you see what’s left of that first paycheck after taxes and other deductions. Instead of always having his hand out, your son could have his own purchasing power. Or, maybe you have a daughter begging for a car. If she has a job you can help her budget to make her dream come true. Eventually buying that car will create feelings of accomplishment and pride in both of you.

It doesn’t hurt to start developing the people skills that the workplace demands, either. In school you can pick your friends. However, at work you come into contact with a wider range of individuals. Learning early how to better communicate, work together and accomplish shared tasks will pay dividends throughout life.

Dana’s Take There’s no question that teens work, whether they have a paying job or not. Add up hours in the classroom, homework, and performing the extracurricular activities and community service that are vital on college applications and you come up with a pretty big time commitment.

However, that doesn’t mean ambitious, college-bound kids can’t benefit from paid employment as well. The same lessons in responsibility, money and time management, and people skills still apply.

Babysitting is always in demand and teens can study while their little charges are asleep. If your teen’s school year is already filled to bursting, there are still summer jobs like cutting grass or camp counseling. Or your kid could take a more entrepreneurial approach and develop a business tutoring younger kids, running a pet walking service or helping the technically challenged with their computers or phones.

Teens who earn their own money gain a sense of accomplishment and independence that others do not. However, they can also over-extend themselves. If you see that happening, work out together what needs to be cut back. Your teen’s choices may surprise you.

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Investing In House To Sell

Ray’s Take Finally and thankfully, the housing market seems to be making a bit of a comeback. Those years of drought actually created a pretty significant pent-up demand. However, homebuyers still expect more for their money. Exactly what that means varies: some want the biggest house possible and are willing to upgrade. Others want a move-in-ready home. The truth is even people willing to upgrade are more easily sold on a house that already looks great.

The question is, should you invest in renovations to sell your home? A lot depends on your neighborhood and the potential for return on any investment you make. Different neighborhoods attract different kinds of shoppers. This is when the advice of a professional real estate agent who really knows your area is worth a lot. Your agent can advise you on the condition and price of nearby homes most like yours. This can help you determine what your profit potential is and what you could safely (hopefully) invest. They could even suggest waiting to get feedback from potential shoppers on what to improve.

That said, still think for your self. After all, improvements could make your agent’s job easier, but might not provide the return on investment you want. Plus, while your buyer benefits from major renovations, you’re the one who has to put up with the hassles. It’s a financial balancing act and sometimes it’s more effective to set a lower asking price and move on.

If you do decide to renovate to sell – and this certainly can make a major difference in both selling price and time on the market – focus on things that have the most visual impact. These can include fresh, neutral paint; updated kitchen counters; new cabinet fronts or hardware; and other partial improvements rather than complete room renovations.

Whatever investments you make, be sure they are what people are looking for rather than what you like. One anxious home seller chose to replace all the carpet in their home. The first thing the buyer did was tear all that carpet out and replace it with hardwood floors!

Dana’s Take Before you commit to spending big bucks, read up on “staging” your home for selling and roll up your sleeves. Remove personal items like pictures, diplomas, travel souvenirs and the like. You want potential buyers to envision themselves living there, not you. De-clutter aggressively, and that includes storing away some furniture in order to make rooms look bigger.

It goes without saying that your home should be sparkling clean, with spotless windows, gleaming tiles, and flawless grout. Also, stand in front of your house and study it critically. This is the first impression potential buyers have. Does your home look welcoming? Is the lawn trimmed and are the flowerbeds weeded and mulched? These things set expectations about what shoppers will find inside.

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Learn From Insurance Investments

Ray’s Take Insurance companies typically keep a relatively small amount of money in cash in order to pay claims, including a reserve to respond quickly to catastrophes. The rest of their funds they invest for the long term, focusing on options like corporate bonds and real estate holdings.

Insurance companies are effective in matching their assets (premium income) with their liabilities (benefit payments), and always have their eye on the long term. It’s not unusual for them to invest with a 30-year time horizon. They’re not interested in investments with a short-term payoff. Taking this long-term, fairly conservative approach to their investing usually pays off well for them. They are not distracted by short-term gyrations because their focus is so far down the road. Further, investment options that don’t make sense for short-term investors can be successful for long-term investors.

That’s why it would certainly not be a bad idea to think somewhat like an insurance company when saving for your retirement. After all, like insurance companies, you are investing for the long term – saving for a comfortable future that is still hopefully several decades away, and should last for decades after that.

You may not have all the resources and options of a giant insurance company – they can invest in things such as early stage equity investments, low liquidity real estate and preferred stock – but this doesn’t mean you can’t follow the same general principles.

Take a hint from their investing policies and look for investments that match your time line – the further away the goal you are saving for, the more long-term you can think. It certainly is working for them.

Dana’s Take People pay insurance premiums in order to have some protection in case of an emergency or major loss later. That’s because the future is uncertain and it’s best to be prepared.

For that same reason, it’s a good idea to pay “premiums” to your own emergency fund as well. Set aside enough money to get you through at least six months. It should be an account that you can access easily. The object for this money is accessibility and safety.

Once you have this fund, don’t touch it unless an emergency truly exists. It could be a lifestyle saver if your family’s primary wage earner became unemployed or unable to work. It could also make a big difference if your home was made uninhabitable due to fire or extreme weather.

Having this money set aside can help you avoid touching your other savings and investments where you may incur penalty fees or other costs that would only make your financial predicament even worse.

What would you give to avoid a financial mess for your family? Put aside that much each month and consider it peace of mind insurance.

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Take It From 30 Years of Experience

Ray’s Take I started my career as a professional financial planner 30 years ago this month. Just as I do with my clients every year, I think it is important to review what has happened, what has worked and what has not, in order to improve.

When I was developing my skills in the early 1980s for valuing assets and allocating resources, I recall that things were, like now, uncertain at best. We had endured a bruising decade of oil shocks, inflation, and disappointing investment returns in both stocks and bonds during the 1970s.

There was distrust in the federal government and the Federal Reserve and serious discussion that the capital markets might no longer be relevant to ordinary investors. The popular media promoted investing in gold as the only reasonable asset to hold in order to protect value, and gold had delivered fairly good returns for the previous decade.

I learned then that valuation is challenging, and it was best to perform independent research rather than relying on recent experience or the popular trends of the time. By way of perspective, the Dow Jones Industrial Average stood then at 963.99 (now around 15,200), the 30-year long bond yielded 10.6 percent (currently about 3.25 percent) and gold stood at $615.00 an ounce (currently around $1,380.00). You can do the math from there. I further honed my skills with both the Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA) degrees.

Financial planning provides a disciplined framework in order to prioritize and achieve goals. There has been no shortage of distractions, temptations and alluring shortcuts along the way. Some just didn’t work, like “portfolio Insurance.” Others were outright frauds like Madoff and Stanford. I used to wonder why these things kept occurring, but have realized they are what people want to believe, and few have gone broke telling people what they want to hear.

From my 30-year perspective, the one thing I am absolutely certain of is that The Plan is the thing. With a well-crafted, focused and regularly reviewed financial plan, decisions on investments, tax planning, risk management, and estate planning become much clearer. Without a plan it is so much easier to be blown off course, based upon short-term trends and well-crafted marketing strategies.

At the same time this work is very humbling, as I don’t delude myself about how much control we really have over our lives; it’s not as much as we often wish or believe. But that does not mean we shouldn’t try. Stewardship over our gifts and resources is important.

As proud as I am of my 30-year career, I note with interest that my father just celebrated his 60th anniversary as a professional financial planner in our firm, and he still comes into the office every day. At least I feel like I am halfway there!

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Withdraw From Funds With Care

Ray’s Take While you’re allowed to withdraw funds from your tax-qualified plans as early as age 59 1/2, many people delay making withdrawals until they have to, at age 70 1/2. There certainly can be advantages to deferring that tax liability those extra years if there are other assets available for retirement. However, if you fail to make required minimum withdrawals (RMDs) then, the penalties are substantial – a whopping 50 percent tax above the regular income tax.

Fortunately, most banks, brokerage houses and mutual-fund providers notify you in that crucial year, and every year afterwards, letting you know just how much you need to withdraw based on tables provided by the IRS based on your life expectancy.

Why this insistence on making withdrawals? Because funds you have in these accounts have never been taxed and now Uncle Sam is ready for his share. One big exception is Roth IRAs, because those funds were already taxed. Another exception: if you are still working, there is no requirement to withdraw from that company’s 401(k) plan, but you do have to withdraw from any other qualified plans you did not roll over.

If, like many people, you have multiple IRAs or 401(k)s, you do not need to make pro rata withdrawals from each account, however, you do need to withdraw the total RMD. This offers a planning tool for careful investors. You can try to maintain a specific asset allocation by using the annual RMD opportunity to make adjustments rather than letting things be set automatically.

Of course, all these are general guidelines, and the reality must be analyzed on a case-specific basis. If ever there was a time to get professional financial advice, this is it.

Not only do you want to be sure of avoiding that 50 percent penalty, you also need to develop a plan to minimize your tax exposure over the years while still providing you with the funds you need for a comfortable life. One last thing, try to get in the habit of checking your beneficiary designation with every RMD. It’s important.

Dana’s Take While the RMD is mandatory at 70 1/2, remember that is the minimum, not the maximum you can withdraw. You might take a close look at your total financial picture and then consider the costs of the lifestyle you want to maintain before making decisions.

If you want to take advantage of these earlier retirement years to travel extensively but plan to live more quietly later, you might need to access more funds at first. However, if you dream of leaving your descendants a substantial inheritance, you’ll want to be more cautious with your withdrawals.

It will take a lot of calculations, including factoring in inflation and a cushion for the unknown, but planning for your future doesn’t stop with retirement. It lasts as long as you do.

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Consider Retirement Funds Before Job Change

Ray’s Take Job hopping, especially in the early years, is more common than ever. Careers are more evolutionary now, as the days of lifetime jobs seem long gone. However, a lot of retirement savings can wind up lost if care is not taken when changing jobs.

If your current employer matches any part of your contributions to a company 401(k) plan, the timing of a job change could cost you quite a bit depending on how vested you are. If you are close to being fully vested in the program you might miss out on a significant amount of employer-matched funds. It could pay well to check this out before taking a new job. It might even be a negotiating point.

Short of complete desperation, it is critical to avoid simply cashing out of that qualified plan. Twenty percent of the funds would be subtracted for taxes automatically, and you will probably have an additional 10 percent tax penalty for withdrawing early. Plus adding the remainder to the year’s income might put you into a higher tax bracket for an even bigger tax bite. Not only will your final gain be much smaller than the original figure, you’ll also have given your retirement savings a serious setback. It’s simply not worth it. This unfortunate outcome could also occur if you’ve taken a loan from the plan that remains unpaid.

To protect your 401(k), do one of three things: leave it in the plan of your old employer (if allowed), roll it directly into the 401(k) plan of your new employer (if there is no waiting period), or roll it directly into an IRA account. The better choice depends on the quality of the plans available at both employers and what you can find at other financial institutions. There are also a few more favorable options to a 401(k) versus IRA. The important thing is to always have these retirement savings plans transferred directly from one trustee to another. Receiving a check payable to you will cost you – now and later.

Dana’s Take All too often, people considering a job change look at the salary and don’t pay attention to the other benefits, especially if they are young and healthy. That can be a big mistake.

In addition to considering the advantages of the free money from employer contributions to a 401(k) plan, other benefits should be carefully considered, too.

Does the employer provide any subsidy for advanced degrees? Will their health care plan wind up costing you more in monthly contributions or co-pays? Are there perks like free parking, onsite childcare, or other value-added benefits?

Factoring in money-costing or saving advantages like these can change your monthly financial picture just as much as a raise might. Add it all up and that new job may look even better, or not nearly as good.

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Talk About Money Before Taking Vows

Ray’s Take You’re blissfully in love and happily engaged to your soul mate. The future looks idyllic. Unfortunately, that doesn’t mean your fiancé is your ideal financial mate. In fact, a study by professors from The Wharton School and Northwestern University revealed financial opposites tend to be attracted to each other, and those marriages often face significant challenges. With some honest and open discussion in advance, that doesn’t have to happen to you.

One of the biggest issues to honestly address is your individual financial situation, both past and present. What’s your credit score? Are there unpaid debts, back taxes, student loans, child support or other financial obligations to deal with? How about credit card debt? On the other hand, are either or both of you bringing significant assets to the marriage?

Full disclosure is important. Not only does this reveal more about spending habits of your partner, it also opens up discussion of how to address problems and preserve assets. It further opens a dialog on longer-term priorities and goals. Don’t expect to agree on everything. Regardless of what is revealed, the object is to face the facts and work together.

The other really big issue relates to the emotions attached to money – and they are strong and numerous. How your parents dealt with money affects the attitude of each individual, and it will affect your marriage as well. Your feelings about money will impact everything from who pays the bills to your household budget.

Perhaps that’s why there is a growing trend for couples to divide their money into three categories: the lion’s share goes to pay household bills and save for the future, but each partner keeps a small portion to spend or save freely.

You’ve probably discussed children, religion, life styles, and dozens of other topics. Don’t overlook honest discussion about the one topic that will influence all the others – money.

Dana’s Take Another money-related issue should be addressed before marriage is ambition. Typically both parties in a couple have jobs when they marry, but how do career plans for the future fit together?

If one aspires to be a stay-at-home parent, will the other’s income support a whole household? If your fiancé is embarking on a career that will call for 70-hour weeks or extensive travel, is that acceptable? If job advancement requires moving across the country, whose career takes precedent?

You career paths could be something that brings you closer together, but they could also be a source of conflict. By discussing in advance how you envision your future, both within your career and as a couple, you can talk through those issues and plot a course that fulfills both your needs.

However, remember this: Achieving financial affluence is fine, but there are other ways to enrich your life. That’s what really counts.

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Wise Investors Know to Avoid Distractions

Ray’s Take Hopefully you have a financial plan to guide you to your goals, whether they are college for the kids, a vacation home or a secure retirement. However, one of the key indicators as to whether you will be able to achieve those goals is your ability to avoid distractions from your plan.

Financial distractions take all forms, from the excitement of market spurts and the dismay when things go south to changes in your employment, health, or family circumstances. You may also be distracted by hot investment tips or get-rich-quick short cuts. It’s hard not to be, but your ability to focus can be the difference between success and failure.

Financial planning is about taking a steady, disciplined approach to your regular budget and investing efforts. It’s about looking toward the horizon to reach your goals by sticking with your plan and filtering out the day-to-day noise along the path. Sure, you may need to make some alterations along the way, as your family, job and goals evolve. Calmly re-evaluating your situation on a regular basis is an important part of planning your financial future.

However, there’s a big difference between regular reappraisals and knee-jerk reactions to market reports, China’s G.D.P., the price of oil and other short-term variations. Look at the performance of your portfolio and each of its allocations over five or 10 years instead of day to day or month to month. This gives you a clearer indicator of where you stand.

If you can avoid reacting to the many distractions that come into your life, and stick with a steady, reasonable financial plan, you’re well down the road to success. After decades as a financial planner, it’s the clearest indicator I’ve seen for the difference between an individual achieving his or her financial goals and churning with the times to little effect.

Dana’s Take I am terrible about multitasking and ending up with half-finished projects all over the house – not very productive. It’s so hard to stay with just one task at a time. The same holds true for investing – it can be boring and frustrating to stick with your financial plan. The payoff, however, is pretty wonderful.

Borrowing money is a red flag that you may be straying from your financial plan. Even if it’s rationalized as an “investment,” taking a loan from a bank or 401(k) can set you back years from your goal.

There are no shortcuts to financial security. Like the tortoise and the hare – slow and steady wins the race. Ignore get-rich-quick shortcuts. Like the tortoise, plod along the road to financial security.

It’s a challenge to remain focused, but if you stay on track with your financial plan you’re on your way to “No worries, mate.”

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Consider Norwegian Approach

Ray’s Take Modern Portfolio Theory argues it’s essential to determine the right mix of investments for your portfolio so your level of risk tolerance is balanced with opportunities gained. A portfolio of 60 percent stocks and 40 percent bonds has long been considered a standard.

Whether this is balance is right for you depends on your age, additional assets and other financial factors – your financial adviser can better advise you. However, it is not a bad starting point for many retired investors.

Once you’ve made that determination, the challenge becomes maintaining your desired portfolio balance. That’s where many people could learn from Norway. Norway’s enormous Government Pension Fund Global invests 60 percent in stocks, 35 percent in bonds, and 5 percent in real estate. That’s it. They’re also highly diversified, with shares in almost 9,000 different companies. They maintain this mix in a steadfast way.

Right now they’re getting attention for their approach’s success in a difficult market. Good for them. However, if you follow their basic investment plan it could be good for you, too.

When the value of stocks in their portfolio goes up, making them higher than 60 percent, stocks are sold to bring that proportion back down. When stock prices go down so they total less than 60 percent, the Norwegians are buying to raise that level.

Thanks to this ironclad discipline, Norway only buys when stock prices are relatively low and only sells when they are relatively high, utilizing the same method with bonds. By adhering to their 60/35/5 balance, they keep the damaging emotions of greed and fear from undermining their investment strategies.

There’s one important difference between a retiree and Norway. Pension plans have an indefinite life with new workers added while older ones pass on. Retirees get older each year. You might refine this approach with investments like international stocks, developing markets, and multiple bond sectors, etc.; and include life expectancy assumptions but the discipline is still the same.

Norway’s cool, unemotional approach to investing could be a good one to consider.

Dana’s Take Norway’s method of investing sounds pretty straightforward, but taking that unemotional approach can be a lot harder than it sounds.

When stocks are on the rise, it’s hard to go ahead and sell some. After all, if you wait a day or a week or a month, they could go higher still. It’s natural to hope a positive trend will keep flowing your way, even if it’s not the best investment strategy.

What’s more, you could get too caught up in the day-to-day ups and downs of the market. Buying and selling frequently is a path filled with danger for the average investor. If you can truly keep your cool, and only rebalance your portfolio at regular and infrequent times, good for you. Otherwise, look to a professional financial adviser for help.

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Should You Delay Drawing Social Security?

Ray’s Take Persistent high unemployment and more than a decade of volatile stock markets have many people anxious to draw Social Security as early as possible even if they are shy of full retirement age. Some are so anxious about the system they want to get what they can before it goes bust. No one has a crystal ball, but more often than not, this is not the best plan.

If you plan to still work at age 62, 64 or beyond, it can work against you to draw payments during those years. These would likely be your highest income years, able to boost payments later if you’re not drawing now. Plus, you will pay taxes on part of your Social Security payments, so it’s a double loss.

Beyond that, there are myriad things to consider when deciding when to file for Social Security: Do you need the money now? How much have you saved for retirement? How about spousal benefits? Should you file early but defer payments? Should one spouse get payments while the other waits? How would payments affect the spouse who lives longest?

Remember, annual cost-of-living adjustments that raise monthly benefits are a percentage of those payments – the lower the payments you start with, the smaller the increases. Longevity risk is a much greater concern for most people than they realize. Now that corporate pensions have given way to 401(k) accounts and the like, Social Security’s lifetime income stream with inflation adjustments is a significant resource.

It’s a very complicated decision and requires long and careful consideration. You can find some help at the Social Security Administration’s website, though the many options presented might confuse you even more.

This is one time when the help of a trusted financial advisor or personal accountant could be invaluable. You need an informed decision, because you have only 12 months to change your mind, and the rest of your life to live with the decision you’ve made.

Dana’s Take Baby Boomers may experience the double whammy of not drawing the Social Security promised plus living far longer than imagined. Our other challenge will be downshifting from an inflated lifestyle to a more modest one.

Seniors today lived through the Great Depression and appreciate how to conserve resources. Today’s generation of supersized spenders will have to work hard to transition into “making something out of nothing.”

Ray advises newly married couples to start living on one income to prepare for the day when they might need to live on one income. Those of us approaching retirement age could practice living on a slashed income.

Start planning today for how to live smaller for longer. Would that mean a home with one bathroom instead of four? Perhaps the savings you realize now can be socked away for those golden years.

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Dream Home Nightmares

Ray’s Take As the real estate market recovers, more families are pulling out their dream home plans. They would be wise to watch that classic movie, “Mr. Blandings Builds His Dream Home.”

Cost overruns are almost a given. It’s largely a question of just how high those overruns rise, and when to pull the plug. There are so many potential pitfalls. In addition to asking if you can afford the home, you need to ask if your marriage is strong enough to survive the project.

However, with exceptional and detailed preparation, you might keep your dream house from becoming a financial and family nightmare. It starts with knowing everything about the building site – zoning ordinances, soil, flood zone, easements, etc. – and making sure your plan is suitable.

Working with your architect, come up with as detailed specifications as possible. The more specific you make the plans and materials now, the less likely you’ll want expensive change orders later. Plus, your financing needs to be in place before ground is broken, complete with a plan for over-runs.

Then there’s the contract with the builder – a reputable builder you’ve carefully vetted. There’s a lot of money at stake here, so be sure you understand every contract line.

Once building begins, visit the site often with the builder. Be hands on and keep track of details. If you eliminate something, be sure it is documented. The same goes for any additions. Ask questions and monitor bills. Make decisions promptly, as delays can cost money.

Stay on top of things, and as your home nears completion, maybe you won’t be in the same position as the very real person who inspired that movie. His budget was $11,000 (this was the 1930s) the house came in at $56,000. Just multiply that by 10 to bring things to 2013 costs.

Dana’s Take More than one marriage has fallen apart while that supposed dream home was being built. The idea of building a new home is exciting, but there’s a lot of hard work that goes into it, too.

Obviously, communication is key for partners building a home. However, it’s more than agreeing on a budget and kitchen size. There needs to be cohesion over the division of the myriad jobs necessary to see a new home to completion.

From picking out details like cabinet handles and light switch covers to keeping a constant eye on worksite activity, there’s a lot to be done. Deciding up front who will do what and how you’ll keep each other in the loop is crucial.

Your builder and all the contractors need to know you are a united force and on the same page when it comes to important – and even minor – decisions. If you aren’t, not only will your house not turn out as desired, you may develop cracks in your relationship as well.

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Take Time to Budget Your Vacation

Ray’s Take It’s that time when people start looking forward to summer vacations. Unfortunately, all too often, the aftermath of those vacations turns out to be more than just wonderful memories – a blown budget and burdensome debt.

This year, develop a vacation budget now to help avoid the impulsive spending that comes with thinking, “It’s OK – I’m on vacation.”

Every vacation breaks down into three major cost areas: transportation, lodging and activities. Think about what type of vacation you want – beach time, foreign exploration, family visits, etc. – and determine which area is going to take the most of your budget and how you can reduce expenses in other areas. Different people value each part differently. There’s no “right” or “wrong” amounts to spend, unless they add up to more than you can afford.

For example, you can save in New York City by seeing museums instead of musicals. Or, instead of a fancy beach resort, search online for apartment rentals. They are sometimes less expensive than hotel rooms, and give you extra living space plus a kitchen. You can usually substantially reduce meal expenses by opting for local restaurants than eating at a hotel, and enjoy a more authentic dining experience.

However, often the biggest budget buster in a vacation is not the cost of getting there or lodging – that’s typically determined by you in advance. The problem is the “Why not?” factor once you arrive. Fancier meals, extra beverages and loads of souvenirs – all these purchases add up quickly. We hold the line on this through all-inclusive resorts like Club Med or group trips with Road Scholar. The up-front price tag looks a bit daunting, but it usually works out better than “a la carte.” Others find setting a daily budget and sticking to it helps – when the day’s money is spent, that’s it. Either approach can keep things from spiraling out of control.

Dana’s Take Family vacations are such a big-ticket budget item that family harmony is important to maximizing return on investment. For every moment of sulking on a trip, Mom and Dad see dollars flying out the window. Improve buy-in before the trip by including kids in planning the itinerary.

Ask kids to research activities in your chosen city. Trip Advisor, Cruise Critic (even if you’re not cruising), Virtual Tourist and Fodor’s are a good start.

Allow each child to propose activities, including cost estimates. When you work out the itinerary, balance kid-chosen outings with parent choices. Insert plenty of downtime—good family time is more about quality than quantity.

Once on the trip, the kids will look forward to their portions of the trip and hopefully be more patient with Mom and Dad’s plans. Including the kids in planning will pump up the value for your holiday, resulting in a more enjoyable and less stressful experience for everyone.

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Disconnecting Could Mean a Richer Life

Ray’s Take Every time you go out to lunch you see it: everyone’s smart phones are right there on the table, ready for texting, talking, checking emails, or some quick research. What happened to simply staying connected to the ones right there in front of you?

Mobile phones, Internet connections and television cable bills are eating up an increasing amount of our paychecks. Are the rewards actually worth that substantial – and growing – investment?

Many families are shelling out $200, $300 or substantially more each month to maintain all these electronic connections, which means there are many opportunities to cut costs.

Have you compared your mobile plan with the actual number of minutes you use? You may not be using nearly as much as you’re paying for. While Internet connectivity at home has become almost a necessity, have you considered using this system for telephone calls from your home using VoIP technologies, some of which are free? This could dramatically reduce the number of minutes your cell phone eats up. You can also use your high-speed Internet to stream much of the programming on television instead of paying hefty cable bills.

However, the other costs of super-connectivity should concern you, too. Face-to-face communications provide you with much more information than any email ever can. It’s no wonder people often misunderstand the tone of an email. They have no access to the facial expressions and body language that speak volumes. At least with your cell phone, you can gain some information from vocal intonation. When the human component is missing it’s easy to get the wrong message.

When you spend time engaged in-person, you learn more about the other person as well as about yourself. Your growth in understanding leads to more fulfilling relationships – in business and in your personal life. What you learn could enrich your life in more ways than one. Isn’t that worth the extra effort?

Dana’s Take The Nielson Company claims that American teens are on average sending an extraordinary 2,779 text messages a month – each.

I would venture that if parents socked away and invested the money we might have spent on phones and data plans for our children, we could save a year’s college tuition for each child.

Where teens and driving are involved, the other potential savings is far more precious: your child’s life. If we, as adults, can’t refrain from calling and texting while driving, can we realistically expect a teen to have that kind of restraint?

If you’ve ever heard a kid’s phone pinging with texts every 30 seconds while they try to complete homework, you’ve seen the other cost of phones – distraction.

Next time you’re looking for budget cuts, cut the cord on kids’ cell phones.

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Are Foreclosures or Short Sales Worth It?

Ray’s Take This is in many ways a fantastic time to be looking for a new home. In addition to historically low mortgage rates, there are a lot of distressed properties on the market – homes for sale as foreclosures or short sells. There are plenty of bargains to be had, but also plenty of risks and financial pitfalls along the way.

A foreclosure is usually unoccupied and owned by the bank that holds the mortgage. Short sales are usually still occupied. In this case the bank has agreed to let the owner sell the house for less than the amount owed since the owner can’t make the monthly payments. Foreclosure sales can happen quickly, but short sells may take months to finalize.

If you are thinking about purchasing a distressed property, the process is different from typical home sales. Get pre-approved for your mortgage, as the really good deals tend to move quickly. You also need to have a solid grasp on what nearby comparable homes are selling for to recognize a good price.

Take the time to develop a relationship with a real estate agent that is working on behalf of a bank. These agents specialize in foreclosures and can sometimes provide you with information about new homes in foreclosure as soon as they occur. The biggest thing to keep in mind when considering distressed properties is that they are sold “as is.” You won’t be able to renegotiate the price to cover needed repairs. With distressed homes, you are responsible.

Remember, your new dream home is someone else’s broken dream, and some people take their misfortune out on the house they are losing. There could be costly repairs that aren’t readily visible. You need to be extremely careful with inspections and have extra financial resources on hand to cover the unexpected.

Buying a distressed home could be a dream or a nightmare – the difference depends on whether you do your homework.

Dana’s Take Buying a distressed home could put a lot of stress on you, too. With short sales you could wait months to learn if your offer is accepted. When a foreclosure is a particularly good deal, you could find yourself competing with other buyers, which will probably drive the price up. In either situation, you’re responsible for any repairs the home may need.

Before you venture down this path, educate yourself. That means looking at all the negatives just as hard as at the positives. If you’re a couple, make sure you both understand what you are getting into and agree on things like the price range and the degree of renovations and repairs you can handle.

The better you prepare, the readier you will be for the inevitable setbacks and frustrations. It could make all the difference to your success.

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Explore Alternatives to Banks

Ray’s Take In decades past you built a relationship with your bank and, more importantly, your banker. After so many mergers, that’s become harder to do. Generation low interest rates have banks piling up fees on their customers as well as limiting services It might be worthwhile to at least consider options other than the neighborhood brick-and-mortar bank.

One option is credit unions. At credit unions the customers are the owners. These nonprofit institutions have no shareholders or outside owners expecting a return on their investment. This means credit unions sometimes pay higher interest rates on savings and charge lower interest rates on loans. In addition, they often have fewer and lower fees for services.

One limiting factor is you must find a credit union to accept you as a member/owner. They often limit services to certain employee groups or to people residing in specific areas. However, don’t be discouraged. Sometimes relatives or even friends of existing members can be included as members. A quick online search would let you know if any credit unions in your area are right for you.

When evaluating credit unions, be sure they have the range of services you want, ATM availability, and are NCUA insured (the credit union equivalent of the FDIC). If you have a child away at school you need to “help” from time to time, a regional or national bank with lots of branches might come in handy.

You might also consider online banking as a way to reduce banking fees. Institutions like Capital One 360 can offer fee savings and better interest rates because their automated services help reduce overhead. They also offer advanced technologies for easy and immediate online bill paying.

In fairness to the banks, they didn’t cause the historic low rates. But if you’ve grown increasingly disenchanted with the costs and relative services of traditional banking, in addition to the revolving door of owners, officers and tellers, it might be time to investigate the alternatives.

Dana’s Take Ray and I were recently lamenting the loss of interest income from our money market account. We used to earn a pretty penny on that account and now it’s closer to a penny. The same goes for savings accounts.

It could take a couple of years of economic recovery before that type of interest income returns. In the meantime, consumers are particularly vulnerable to scams – especially seniors who counted on interest income from CDs.

So when you’re considering alternatives to traditional banks, do your homework. Make sure that deposits are insured by the federal government and find out what the limits are. In an effort to earn a few more percentage points, don’t risk your nest egg.

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Review Your Will Regularly

Ray’s Take Let’s assume you’ve done the right thing and have a will in place. That is a good start, but it’s not enough. You need to regularly review your will to make sure it stays in line with your intentions and the law. Congress continues to kick the can down the road on important income tax and transfer payments, but we now have pretty good guidance on estate tax laws both federally and in Tennessee.

One big area that demands attention would be family changes like a new child or different marital status. Moving to a new state is an important reason to review your will, as laws regarding inheritances and taxes could vary. Owning real estate in multiple states is another good reason to double check things.

Even if nothing changed, it’s good to meet with your family attorney to assure your will still works as intended. Older “formula” tax planning wills particularly need review. Don’t forget that beneficiary designations on retirement plans, insurance and annuity contracts are not covered by your will, and those choices need to be looked at.

Other changes could call for adjustments, too: Realizing newly acquired wealth, anticipated inheritance, the physical or mental incapacity of a relative or other beneficiary, selling or buying a business, grandchildren children coming of age, or your own retirement, adjustments may need to be made. A guardian or trustee choice when your kids are young may not still be the best bet when the kids grow to teens.

You may also have changed your mind, and want to add a newfound relative or eliminate once important bequests. Later in life you may develop a connection to some charity or other organization that you want to support after your death. Pull out your will, see your lawyer and keep things current. Doing this regularly, and after any major change, will go a long way toward avoiding potential problems.

Dana’s Take While reviewing your will, take the time to make changes that might guide your heirs in the disbursal of family treasures. You may have told your oldest daughter she will inherit that diamond pin, but if it isn’t in your will she may not get it. That could cause a family rift.

Ask your heirs if they have any particular interest in any of your possessions. If you agree with their desires, put them in your will. Not only will they be pleased you remembered their interest, it will also help eliminate potential squabbles after you are gone.

Take things a step further and add family history to their inheritance. Tuck notes describing the where, why, when and who of important objects and attach them to their back or bottom. It’s a good way to share family stories and strengthen ties between generations to come.

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Don’t Dwell on Market Downturn

Ray’s Take In my 30 years of investment management, I’ve found there is always someone predicting another market downturn. Eventually they’ll be right. After all, historically, there’s been a bear market about every three years. Should you be concerned? Not overly, unless your decisions make a market downturn even more painful.

Downturns are simply a fact of life in investing. They’re part of the deal. Over time – and with the right mix of investments – they are overcome by the upswings. However, fear and greed can turn a bump in the road to wealth development into a mountain of loss.

Unfortunately, too many investors buy when stock prices are high and then sell in a panic when prices drop. They don’t plan it that way, but that’s the way it seems to work out. After avoiding the market, Main Street investors are now flooding back in just as prices are reaching multiyear highs. This is the usual pattern. Unfortunately, it’s also typical for these same investors to sell in a panic, and at a loss, when the market starts heading down. That’s the worst possible combination. Buying high and selling low is not the path to wealth.

If you aren’t following the guidance of an experienced and credentialed financial adviser, at least don’t react in fear when the inevitable market downturn occurs. That only makes things worse. Instead, stick with your plan: Hold a diversity of investments, including stocks, bonds, international, blue chips, etc. Research the companies or funds you invest in instead of following hot tips. Have enough money readily accessible for six months to a year of living expenses. And, stay calm.

Plan for the inevitable instead of being hurt by it.

Dana’s Take With daily and even hourly reports on financial markets, it’s easy to get caught up in the drama of the minute instead of focusing on long-term goals.

Sometimes the best thing an investor can do is simply close eyes and ears and go about business as usual. Not only could this be substantially better for one’s peace of mind, it might not be a bad thing for that portfolio, either.

It’s doubly hard to make smart investing decisions when emotional triggers, spurred along by television financial gurus, are pushing you to buy or sell. Investing is not an area where you should value your gut feelings over cold facts and thoughtful reasoning.

If you have a diversified investment portfolio that minimizes risk, but find you are still starting to fret over dire market predictions, it might be best to just tune out. A quick Internet search shows the same predictions are being made by someone every single year. Usually they’re wrong. Eventually they’re right. Either way, the less you let outside forces and your emotional responses influence your decisions, the better off you’ll be, mentally and probably financially, too.

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Savings Isn’t Only Pillar of Successful Retirement

Ray’s Take I’m always emphasizing the importance of saving for retirement. However, you need more than a savings plan if you want to improve your odds for a more fulfilling “third act” of life. You also need to have a plan for what you actually want to do with your time.

After all, that list of home projects isn’t endless, and there’s only so much golf one can play. Religious, civic and charity interests can be fulfilling, but can become consuming if not set within the boundaries of a plan. It’s not uncommon for retirees to find that retirement isn’t nearly what they had hoped for.

It’s not enough to say you will “enjoy doing nothing” or “find plenty to do.” Studies show that people who plan on taking up new interests after 65 often don’t follow through. The chance of finding fulfillment in new activities and interests in retirement depends on developing those interests earlier in life. Otherwise you could wind up bored and depressed.

It’s important that your retirement plans also include a strong social component. Start building new social networks before retirement to replace those at work. Volunteer programs offer ideal opportunities for this in almost every field of interest.

This phase of life is nothing short of a new identity, and those don’t happen overnight. Actually, we prefer not to call it retirement. We call it financial independence. At that point you can even still work, but no longer because you have to!

If it turns out you don’t really enjoy doing what you planned, make a change! Try something else. You’ll still have time to find the activities and friendships that will enrich your retirement and make for a very fulfilling life.

Dana’s Take There’s an old saying about retirement: Twice the husband but half the money. There’s no doubt that retirement causes major identity and role shifts. It’s even been said that the first two years of retirement are like the first two years of marriage. It’s a time of change, compromise, and forging new relationships.

While the majority of retired couples work things out – 60 percent of couples claim their relationship ultimately improved – don’t count on things taking care of themselves automatically.

Talk about your retirement hopes and dreams now, and about the role each partner is expected to play. Keep in mind that the upcoming generations of retirees don’t have many role models on how to make this work. Boomers represent the first generation where many women gained a lot of their identity and self esteem from their careers, just like their husbands.

If the transition to post-work roles is rockier than expected, consult a Certified Marriage and Family Therapist to help you find a new balance that works for both of you.

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Do You Need Life Insurance?

Ray’s Take For most people, life insurance decisions depend on two things: 1) whether anyone depends on your income to support their standard of living, and 2) whether you have enough other assets that could provide what is needed.

Life insurance can be an important tool to achieve personal goals. How much and what kind you need depends on those goals. It’s all a question of math, what you want to achieve, and what you can afford.

If the goal is to maintain the same standard of living for dependents but only for a set period of time – say, until minor children should finish college – figure out how much money that would take, adjust for inflation and an estimated capital growth rate, and that’s the amount of life insurance you need.

If the goal is to cover needs without depleting the capital your life insurance creates, that’s another, significantly higher, number. In that case, you would want your benefit level to deliver an average annual distribution of cash flow that would cover a year’s expenses. Typically, this is figured at about four or five percent. For example, if you wanted your life insurance policy to replace a $50,000 annual income adjusted for inflation, you would need at least $1 million in coverage.

You may have other assets that could be used to maintain your dependent’s lifestyle, however you may not want to see those assets liquidated, whether they’re a vacation home or less liquid farm land. Then your life insurance policy should provide funds that would protect those assets from being sold. There are a few other scenarios that can drive the insurance decision, but they should be goal driven. Your CFP or CLU can help with the analysis.

Most people don’t have unlimited resources. So it’s usually a question of balancing goals and assets. Life insurance is an effective tool for you to use, not something that’s absolute.

Dana’s Take Most people focus on the primary wage earner when determining life insurance needs. However, you may also want to consider life insurance for a spouse who earns far less or is a full-time homemaker.

While there may not be much income that needs replacing, there are sure to be extra services that would need to be purchased should this spouse pass away. These can include childcare, housekeeping, transportation and other expenses.

Depending on the age and number of minor children, those numbers could add up quickly. If you haven’t had to pay for any of those services before, you could be shocked at how high they can be.

Find out what those services cost and consider an additional life insurance policy that will cover them. While money can never replace a spouse, at least it can help reduce the uncertainty and expenses related to a tragic change in your family’s circumstances.

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Is College Really Worth the Cost?

Ray’s Take The struggle recent graduates have had finding jobs has many people wondering if college is still worth the expense. According to some reports, it is. Consider this recent finding by the Lumina Foundation and Georgetown University’s Center on Education: The unemployment rate for college graduates is 6.8 percent, but it’s nearly 24 percent for those with only a high school diploma.

That’s just part of the story, however. Other reports indicate that a huge percentage of recent graduates are actually underemployed – working at jobs where no college degree is required. In fact, when you add their numbers to the unemployed, it takes in half of all new graduates.

However, this could be a short-term hiccup caused by a sluggish economy. College graduates still tend to earn some $1.3 million more than those without a degree over their lifetimes.

On average, college degrees are worth it, but not all degrees are equal. Considering how college costs have soared, what you study and where you study it factor in more significantly than ever. Where just getting that degree used to be enough to open doors, now it’s what you actually learned that matters. According to a book by Richard Arum and Josipa Roksa, more than a third of college graduates actually gain no measurable skills from their college education. These grads were counting on the value of that diploma alone to launch their career. That’s simply not enough anymore.

College is still vastly important to building a career that leads to financial security. However, it’s important that college students not only commit large sums of money, they must also commit themselves to gaining the knowledge and skills the marketplace needs.

Dana’s Take That Lumina/Georgetown study Ray referenced turned up another interesting statistic: Many associate’s degrees produce better average earnings than some bachelor’s degrees. Even a vocational educational certificate can produce higher wages, especially if that training is in science, technology, engineering or mathematics. Plus, the student loan burden is much lighter.

For many young people, attending a community college could be a better way to start their higher education. To start with, these colleges are typically less than half the cost of a four-year university. If a student realizes he or she wants to change their area of study (and many of them do), the financial setback is not nearly as great.

Of course, these shorter educational programs can still lead to a bachelor’s degree at a four-year university. Many times that is the case. The difference is that the student moving on most likely has a better understanding of a chosen career and a stronger commitment to achievement. Plus a smaller financial burden to bear. That makes an accredited, reputable community college a money-smart choice for many families and their high school grads.

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Count On Rising Health Care Costs

Ray’s Take Think you have your retirement plan figured out? Here’s a sobering report: Fidelity Investments recently predicted that a 65-year-old couple that retired in 2012 would pay $240,000 for health care over the remainder of their lives. Those are expenses in addition to costs covered by Medicare under existing legislation, which could change.

Typically, Medicare covers just over half of a retiree’s health care needs. Retirees are still responsible for deductibles, some co-insurance costs, dental, vision and long-term care, as well as premiums for Medicare Parts B and D.

All these costs are growing substantially too. That projected health care cost for a 65-year-old couple rose a full 6 percent from just the year before. Imagine that level of increase year after year!

Even with the additional coverage of supplemental insurance, health care costs are substantial. Many retired couples are surprised to realize that their supplemental insurance premiums are their largest regular expense.

While you can cut retirement expenses by living in a smaller home or taking fewer trips, you can’t eliminate necessary medical care. It’s vital to prepare for health care costs that will continue to rise – and be increasingly more important to you as you age.

What can you do? To start, try not to retire until you are fully eligible for Medicare, otherwise you might be spending tens of thousands annually for just basic health care insurance. When you do retire, shop around for different insurance options to supplement Medicare. It might be that the retirement insurance plan offered by your former employer is not the best option available. Even once you’ve picked a plan, review it against other options on a regular basis as coverage and costs can change.

Most of all, be sure to factor rising health care costs into your retirement plans. With longer life spans and cost increases that regularly outpace inflation, you don’t want health care needs to leave you in a precarious financial position.

Dana’s Take While you don’t have any real control over increasing health care costs, you do have control over your own physical condition. If you start your retirement in relatively good health you may be able to avoid some of the costs associated with chronic conditions like high blood pressure or diabetes.

Physical fitness is every bit as important to your retirement years as financial fitness. It could be that investing in a gym or personal trainer now could make a substantial difference in your medical expenses in the decades to come.

Just like saving money, it takes discipline and time to make a real change for the better in your lifestyle. However, it might be even more rewarding: not only is there potential for reducing your health care costs, you’ll also be in better shape to truly enjoy your retirement years.

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You Can Still Save for Retirement

Ray’s Take It may feel as if those gray hairs are multiplying faster than your 401(k). Or maybe your career or other life experience has thrown you curve balls that ate through your savings. Either way, it’s not too late to save for a more comfortable future!

Remember that old lesson about compound interest? Banks may not pay much now, but with the right investments that principal still works to your advantage. Invest $1,000 a month starting now and you could amass more than $450,000 in 20 years, given a 6 percent annual return. That is over $200,000 more than you actually put away. Work with a financial adviser to get the right mix of investments to balance growth and risk to get you where you want to go.

Think you can’t save that much? You might be surprised. Putting more money in your retirement plan can actually cut your tax bill right now, making the same dollars stretch further. If your employer matches any of your 401(k) contributions, that’s “free” money you can save that doesn’t take a penny away from today’s expenses.

If you’re past 50, you can save even more money – and further reduce taxes – with “catch-up” contributions of up to $5,500 on top of the $17,000 (in 2012) federal rules allow you to put away. That’s a good advantage for those who have delayed saving for retirement.

There are also numerous cost-cutting moves you can make: postponing a car purchase, downsizing vacation plans, shopping car and home insurance options, cutting back on cell or cable plans, and many more opportunities. The more you reduce your liabilities now, the greater your savings potential. You have more control over your expenditures than anything else, you just have to decide to do it.

However, you need to be realistic if your retirement savings are quite low and you’re already past 40. That magic age 65 may not be realistic and it’s very inconvenient to be old and broke. Adjust your spending and savings now – and your plans for the future – accordingly.

Dana’s Take I have a solution for parents who have not saved enough for their own retirement: spend less on your children. The kids may be frustrated at first, but you will all be better off.

In Sally Koslow’s book “Slouching Toward Adulthood: Observations from the Not-So-Empty Nest,” the author concludes that adolescence now ends around age 28. That is roughly 10 years later than in my grandparents’ generation.

One big difference between those generations is parental financial support. In the past, kids and teens had jobs. If they went to Europe at 17, it was with the Army, not on a class trip.

As parents, we are stunting the development of our children by doing too much for them. Take care of your own financial independence and your children will follow.

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Set Goals to Make Saving Easier

Ray’s Take I’m always emphasizing the importance of saving. However, saving without specific goals in mind with their time horizons is extremely hard to do. There are just too many distractions in this world – too many well-trained marketers with different agendas. Goal setting is an essential step in the planning process. It’s the primary motivating factor. After all, if you haven’t identified any goals, what’s driving you to save? Just as important, how do you know when you’ve saved enough?

Goals also give you a sense of progress. As your savings grow you can see how much closer you are to reaching them. They also help you make everyday lifestyle decisions that help you achieve them: do you want to go to that movie or save toward a new computer? Is a night on the town more important than getting closer to buying a new car? Without stated savings goals, you miss much of the motivation to forego instant pleasure.

It’s best to set both short- and long-term goals. Short-term goals should be reachable in a year or two. That way you can enjoy the benefits of responsible saving along the way. Short-term goals could be a new TV, vacation or appliance. Long-term goals could include a home, retirement or college for the kids.

With your life partner, draw up a list of goals, divide them into short and long-term and then prioritize. Determine a timetable for achieving your goals. If that TV you want is $600 and you want it in five months, you need to save $150 a month. To determine what rate you need to save at to achieve more expensive, long-term goals, it helps to consult a financial adviser who can help you factor investment growth and inflation adjustments into your savings plan.

Once you’ve set your goals, keep your list handy for easy reference. When your savings goals are top of mind, it’s far easier – and more rewarding – to save.

Dana’s Take In his memoir “Angela’s Ashes,” author Frank McCourt describes his mother’s household goals. Their family was desperately poor and a long-term goal was to actually have sheets for the family bed. Certainly puts things into perspective, doesn’t it?

When savings goals seem unattainable, perhaps it means that our goals are too grand or undefined.

Start with a concrete and achievable number at first, like saving the equivalent of one month’s living expenses in an emergency fund. At the outset, secure the support of all family members and perhaps assign a portion of the goal to each family member. Otherwise, a splurge can destroy savings progress and set up a vicious blame game. Gradually build that fund until it reaches six months of living expenses.

It’s a new year and a great time to start the family on a savings goal. Focus on successes along the way and start the savings habit.

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True Cost of Vacation Homes

Ray’s Take You’re on vacation with your family. Everyone is relaxed and having a great time, so you think: Why don’t we quit “renting” our vacation and buy a vacation home here? What could be better than having a place to build family memories for years?

It sounds like a great idea. It might even be a great idea, but not for many of us. Even now, when the price of vacation homes has dropped, they’re still a luxurious expense.

It’s not just the mortgage expense. There could be hundreds of dollars in monthly costs for utilities, lawn care and security. Then there are property taxes, insurance and maintenance plus the costs of getting there and back. It all adds up!

Of course, you could recoup some of the cost by renting out your vacation home when you aren’t using it. However, that comes with its own additional expenses – rental agents and increased maintenance due to wear and tear. Bottom line: even with rental income, you’ll still be paying plenty.

Before you fall in love with the idea of a vacation home, get out that calculator and add it all up. If the numbers work, you feel confident about all your income streams, and you aren’t sacrificing your retirement security, maybe it will be OK. But remember also that vacation preferences can change. If you really wanted to be in the mountains but keep going to the beach because you need to get your money’s worth, how relaxing is that vacation?

Before you make the jump, try one more calculation. Divide the annual projected cost of your vacation home by the number of days you expect to spend there. That’s the cost of your future vacations per day. What could you do with that amount of money if you simply rented someone else’s vacation home instead?

Dana’s Take Of course you can build up wonderful family memories in a vacation home, but it’s just as easy to strengthen family bonds during any type of vacation together. Whether it’s camping or cruising, a car trip or a plane ride, spending time together is a plus for any family.

We recently took our kids out west, sharing some of America’s most magnificent scenery with them. Not only did we share eye-popping scenery like the Grand Canyon, we also shared stories about the history of this country.

Afterwards you can make the memories indelible by creating a memory book. It’s pretty easy to download photos online into a memory book format. Let each family member add captions of what he or she liked most and the funniest moments. With digital memory books, you can order duplicate copies for family members. When it’s delivered, stash souvenir maps, brochures and ticket stubs inside.

You’ll have a wonderful record that you can return to again and again. Plus, your children can share it with their own kids later.

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Tight Credit is Your Friend

Ray’s Take Credit is tighter than it used to be. Loans are harder to come by. That’s good news as far as I’m concerned. Many people are still longing for those “glory days” when credit was easy for anything we wanted. Well, they didn’t end well for most people.

Americans already carry vast amounts of debt: $13.5 trillion in mortgage debt, $1 trillion in student loan debt, and over $850 billion in credit card debt. That last figure represents an average of $15,587 per indebted household, and over 46 percent of U.S. households are carrying a credit card balance. The scariest thing of all – these numbers are significantly down from the previous year, yet 43 percent of American households still spend more money than they earn.

Anytime you borrow money you’re automatically paying more for whatever you purchase. Get a moderately priced car on a five-year loan and you’ve just added thousands to the purchase price. Buy a pair of shoes on sale with your credit card and, if you carry a balance, before you’re through paying for them those shoes will cost you much more than full price.

It’s probably not your plan, but every time you use credit to purchase anything, you’re basically saying, “I’ll pay you even more money later if you’ll give me what I want right now.” That’s obviously not a good idea.

That’s why tight credit is your friend. It pushes you to skip impulse purchases and save for what you want. It drives you to build a rainy day fund. Best of all, it can lead to the exceptional satisfaction that comes when you make that big purchase and you know you don’t owe a dime on it.

Dana’s Take No one ever woke up in the morning with a big grin and said, “Oh, boy, I’m so glad I’m in debt!” Borrowed money is always a burden – financially and emotionally. Every time a bill arrives in the mail or through the Internet it creates stress in your life.

Debt is a choice and just like with drugs, “just say no” to debt. If you can’t do it for yourself, then do it for your children. Show them that if you don’t have the cash, you wait to make a purchase. Share with them the gratification of saving.

There are valid reasons for incurring some debts. A home mortgage can defend against future increases in housing costs. A student loan could lead to a lifetime of higher earnings. However, most of the time when we go into debt it’s simply a matter of seeking instant gratification.

If we want our kids to control their impulses, then we have to control ours. Our grandparents used to save for the things they wanted and we can, too. It’s an old-fashioned family value that feels just as good today as it did back then.

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Consider a Revocable Living Trust

Ray’s Take The main advantage touted for having a Revocable Living Trust (RLT) is to avoid probate, but its strengths go far beyond that.

An RLT is a legal document created by an individual to hold all or part of his or her assets. Typically the owner of these assets is also the Trustee, retaining complete control over how these assets are handled and along with the having ability to make changes to the Trust as needed. Trust directives can even extend beyond the grave.

RLTs don’t have to go through probate, which not only eliminates any of the delays or costs associated with this process but also preserves privacy; assets transferred through the trust remain confidential.

Another advantage of RLTs is that these trusts cover three phases of the donors existence: alive and well, alive but unwilling or unable to serve, and after death. By identifying a successor Trustee to takeover management of the Trust’s assets when the original Trustee is unable to do so, a lot of uncertainty is avoided.

Additional advantages include the ability to segregate assets into community property and individual property gained before a couple marries, to control the spending of any guardians of minor children, and there are even some tax minimization applications.

RLTs aren’t just for the very rich. They can also be extremely beneficial for a family where real estate is owned in another state, avoiding multiple probates.

However, it is crucial to obtain the services of an estate-planning attorney to form an RLT. Plus, there is significant record keeping involved, property must be retitled and there are related expenses. Your financial adviser can tell you if an RLT would benefit you and suggest the next steps you take. It’s certainly worth looking into.

One last thing: Probate is not necessarily a bad thing – some sort of evil to always be avoided. It’s just a method of being sure what you say in your will actually gets done. An RLT is just another option.

Dana’s Take Ray and I flew to California for our anniversary a few years ago. Little did we know that, on the way, the pilot’s windshield cracked mid-flight. As we watched the fire trucks circling below our plane, all we could think about was our children at home in Memphis. Lucky for them, we had already met with an attorney and planned for their security. Lucky for us, the emergency landing went well.

Lawyers get a bad rap, but a good estate-planning attorney can provide immeasurable peace of mind for you and your family. Ask your financial adviser to recommend an experienced estate-planning attorney and make an appointment – even if you are young and healthy and feel great.

Your spouse, children and grandchildren will love you even more for having contingency plans in place before something unexpected happens.

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Invest in Your Career

Ray’s Take The days of lifetime employment until retirement are gone for good – just like that traditional gold watch. Today, companies merge and splinter or boom and bust constantly. It’s no longer enough to be well prepared at the start of your career with a good education, you have to keep up your skills to remain valuable.

Just like with your financial plan, you should have long-term goals for your career. Decide where you want to be in five, 10 and 15 years. Put it in writing. Then determine what you need to do to achieve that goal.

You may need to pursue an advanced degree, or get special certification. You can seek out professional seminars to gain updated information and learn new skills. At the very least read industry publications and books that can advance your knowledge – and your career.

Keep in mind the skills needed for almost every job constantly evolve, so even if your career plans are not ambitious you still need to enhance your desirability as an employee. Droves of fresh college graduates hunger for jobs just like yours. Their health care and retirement benefits costs are much lower than yours. You need to always be able to bring more value to your company – or another one – than they can.

To heighten your ability to land a new job when you need to, keep yourself visible. Don’t just join professional organizations, become active in them. Not only will this broaden your sphere of influence, you will also have the chance to impress potential future employers with your abilities. Good managers keep a “bench” of qualified potential employees who may one day become available. You need to do the same with potential employers.

Your career probably is the single most valuable economic asset you have. Invest in it and you can see returns that far outweigh any other financial investment you could ever make.

Dana’s Take Consider your social network presence part of your resume – whether you are seeking a job or not.

When your blog or Facebook posts reflect your professionalism and ability, that’s great. However, if you tend toward political rants or crude comments, it can turn out to be quite detrimental.

What you put on the Internet is open to anyone else who connects. That includes employers, associates, potential employers, and headhunters. You may think, “No one knows about my blog.” However, all it might take is a simple Google of your name to reveal your blog, Facebook page, Twitter account and more.

On top of that, anything you’ve put up may have been shared or linked to multiple times, creating a web of your presence.

It might not matter. It could be beneficial. It could put a stop to a possible job offer. Look at your social media posts like an employer would. What do you see?

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Is Going Green Worth It?

Ray’s Take No matter what your position on global warming, going green and using fewer natural resources still makes sense. Why not preserve as much quality of the air, water, and earth as possible for our grandchildren? It’s another form of saving for the future. Plus, a lot of times it can save you money as well.

A Harris poll revealed that concern for the environment is actually on the decline from 43 percent in 2009 to a mere 34 percent. In classic Maslow Needs Hierarchy fashion, it seems that other concerns are more top-of-mind these days. However, whenever you make greener lifestyle choices, you’re not just having an impact on the world today – the positive repercussions extend indefinitely.

That’s why many public and commercial buildings are now being constructed with substantial investments in green technology. These investments are as much about reducing energy costs as they are about presenting a greener face. The initial cost may be a bit more expensive, but the savings will only grow as time passes and power rates increase.

The same thing can apply to your home. Storm windows, energy efficient appliances, insulation – things like these reduce your energy consumption and your utility bills. They are investments that pay back over time. It’s easy to balk at that upfront cost and there’s no guarantee that the savings will be worth the cost. But if you pay too much you may have wasted a little money. If you pay too little you may have wasted all of your money.

It doesn’t cost anything to get aggressive about recycling everything you can, either. It’s more sensible to reuse paper, metals, and plastics rather than create yet another eyesore landfill.

Of course, one of the biggest green things you can do is simply consume less. Skip that shopping trip and you’ll save substantial dollars beyond the gas. Re-use and refurbish rather than purchase new. This is not only good for the environment, it’s also great for your bottom line.

Dana’s Take “Waste not, want not” describes one form of environmental stewardship. We have antiques now because the generations before us didn’t shop at Target. They purchased pieces for fine craftsmanship and cared for them like family treasures.

In her blog, The Zero Waste Home, blogger Bea Johnson will blow your mind with how she and her family buy very little and live very well. They travel to France in the summer and she wears her husband’s dress shirt as a dress, pants, top, and beach cover-up. While her family’s lifestyle is extreme, it shows how to make better use of what we already have.

Take note of the purchases in your life that last decades. Which stores sell products that last and which don’t?

Sometimes doing the right thing for the environment takes a little work. As the song goes, “It’s Not Easy Being Green,” but it’s certainly worth the effort.

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It Might Be Time to Refinance … Again

Ray’s Take Here’s a surprising fact: the average American homeowner refinances their mortgage every four years.

Right now might be a good time to do just that, even if it feels like you just did it. We have some of the lowest mortgage interest rates of the past 50 years or so. Consider pulling out the calculator to determine how much refinancing your home could save you each month as well as over time.

To determine if refinancing is right for you, look at all the associated costs, like points, fees, appraisals, etc. If you can recover all those costs with the savings you’ll realize from refinancing within 24 months, it might be time for you to refinance.

If you have an adjustable-rate mortgage, you should probably look even harder at refinancing and switching to a fixed-rate mortgage. With mortgage rates as low as they are right now, it’s much easier to imagine them going up than down. Having a fixed rate reduces the risk of your monthly note rising beyond your means.

If you are lucky enough to still have significant equity in your home but you’re carrying a lot of credit card debt, you may even consider taking out a larger loan than you now have – but only if you use the extra cash to eliminate that high and non-tax-deductible credit card debt. Be sure you do a bit of “plastic surgery” right after or you might find yourself back in the same spot in a few years.

When you look at refinancing, consider different loan lengths, too. A 15-year loan will cost a bit more each month but should save you thousands of dollars in interest over the course of the loan.

Finally, take into consideration how much longer you intend to stay in your present home. If you see a move any time in the next four or so years, refinancing might save you a few dollars, but it might not be worth the hassle.

Crunch the numbers and see where you stand. It might be time to refinance – again.

Dana’s Take One thing to think about when you’re considering refinancing is how close you are to retirement age. Heading into retirement with years of mortgage payments still due can really put a strain on the monthly budget. In fact, it could postpone retirement indefinitely. Or, it might force you to downsize considerably, even if the housing market isn’t good or you don’t want to make the move.

Many retirees find that they spend more when they no longer have a job to keep them busy. From longer vacations to health care to treats for the grandkids – it all costs. Not having a mortgage payment could make the difference.

So, think twice before opting for another 30-year mortgage. Do what it takes to pay off your debts and feel years younger!

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Is Your Pension Plan Safe?

Ray’s Take While most companies have abandoned pension plans for 401(k) programs, there are still countless employees counting on their pension plan to fund their retirement years. The question is: Will that pension plan still be around when the time comes?

It’s a legitimate concern. The same Great Recession that took a massive bite out of individual investments did the same thing to pension funds. Plans sponsored by 1,500 of the biggest companies in the country went from a $60-billion surplus to a $409-billion deficit in just one year. While the picture has improved since then, it’s still cause for concern.

There is a government safety net to take over failing pensions. The Pension Benefit Guaranty Corporation (PBGC) insures participating pension plans. The bad news is that it had to take over 134 underfunded pension plans in 2011 alone that covered some 57,000 individuals. And, that’s just in one year.

With pressures like that, the PBGC is experiencing funding problems of its own, just like Social Security. By law, it already has pension benefit caps in place that reduce payments to some. There’s every reason to think that as more pension plans fail and the PBGC is forced to take them over, those caps could go significantly lower and impact even more people.

It’s not just market fluctuations affecting pension plans, however. Longevity risk is hurting them, too. Average life expectancies continue to rise. That means pension payout levels are becoming higher than the fund originally expected and planned for. Even a small increase in longevity can create solvency issues for a pension plan.

Social Security pensions are facing all these same problems, too. Some changes will eventually be made to this program as well. It’s just a question of how much, to whom, and when.

Add all this together and you can clearly see that when it comes to financial security for your future the tide is shifting to more personal responsibility.

Dana’s Take Inflation has been relatively low the last decade or so, but it still exists. Over time, it will have a major effect on the amount of money you need to live comfortably in retirement.

Look at it this way, if you retire at age 65, you could quite possibly live 30 more years. Now think for a moment what a loaf of bread cost 30 years ago, or a gallon of gas, or a movie ticket. I’m no financial planner but my guess is that most those prices have gone up – a lot.

With so many people receiving early retirement packages from their companies these days, there’s never going to be a better time than now to bite the bullet and make a plan. If facing that future overwhelms you, hire someone to help.

A little less money in your pocket today could make your life better at a time when you have the fewest options.

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Is Your Pension Plan Safe?

Ray’s Take While most companies have abandoned pension plans for 401(k) programs, there are still countless employees counting on their pension plan to fund their retirement years. The question is: Will that pension plan still be around when the time comes?

It’s a legitimate concern. The same Great Recession that took a massive bite out of individual investments did the same thing to pension funds. Plans sponsored by 1,500 of the biggest companies in the country went from a $60-billion surplus to a $409-billion deficit in just one year. While the picture has improved since then, it’s still cause for concern.

There is a government safety net to take over failing pensions. The Pension Benefit Guaranty Corporation (PBGC) insures participating pension plans. The bad news is that it had to take over 134 underfunded pension plans in 2011 alone that covered some 57,000 individuals. And, that’s just in one year.

With pressures like that, the PBGC is experiencing funding problems of its own, just like Social Security. By law, it already has pension benefit caps in place that reduce payments to some. There’s every reason to think that as more pension plans fail and the PBGC is forced to take them over, those caps could go significantly lower and impact even more people.

It’s not just market fluctuations affecting pension plans, however. Longevity risk is hurting them, too. Average life expectancies continue to rise. That means pension payout levels are becoming higher than the fund originally expected and planned for. Even a small increase in longevity can create solvency issues for a pension plan.

Social Security pensions are facing all these same problems, too. Some changes will eventually be made to this program as well. It’s just a question of how much, to whom, and when.

Add all this together and you can clearly see that when it comes to financial security for your future the tide is shifting to more personal responsibility.

Dana’s Take Inflation has been relatively low the last decade or so, but it still exists. Over time, it will have a major effect on the amount of money you need to live comfortably in retirement.

Look at it this way, if you retire at age 65, you could quite possibly live 30 more years. Now think for a moment what a loaf of bread cost 30 years ago, or a gallon of gas, or a movie ticket. I’m no financial planner but my guess is that most those prices have gone up – a lot.

With so many people receiving early retirement packages from their companies these days, there’s never going to be a better time than now to bite the bullet and make a plan. If facing that future overwhelms you, hire someone to help.

A little less money in your pocket today could make your life better at a time when you have the fewest options.

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Consider a Family Limited Partnership

Ray’s Take A Family Limited Partnership (FLP) can not only be a good idea for reducing estate taxes, it can also bring a number of other advantages.

FLPs are primarily useful to those with extensive real estate investments or family-owned businesses to pass on to the next generation as opposed to stocks, bonds, and similar financial investments. Basically, it converts property interest ownership into partnership interest ownership.

Typically, the general partners (GP) in a FLP are the older generation. They manage the partnership like a holding company. The limited partners (LP) are usually the members of the generation who would inherit but, at least initially, have no direct control over assets in the FLP.

One of the primary advantages of an FLP is the ability to gift partnership interests to LPs while still maintaining full control of that interest. This can reduce the taxable estate of the senior/GP family members, plus the interest transferred to the donees can be discounted. Transfers from GP to LP within the partnership are also eligible for annual gift tax exclusion.

Beyond this, establishing an FLP can ease the transition of a business or other complex assets from experienced hands to the next generation. It not only enhances planning for management succession by allowing the GPs to retain control of assets to limit problems due to inexperience, it also helps to assure estate tax savings that could otherwise undermine continued ownership. Engaging the next generation in this more limited way initially can allow them an understanding of the management without full throttle responsibility.

FLPs are not for everyone, however. Beyond the necessary legal services, qualified appraisal services are required to determine the discount value of partnership interests. This makes FLPs more expensive than some other estate-planning tools. However, the advantage that comes from discounting the assets of an FLP – along with the transitional benefits – can make it well worth the cost. Ask your attorney or financial advisor to learn more.

Dana’s Take Family Limited Partnerships are usually used by immediate family members. As we all know, anytime you’re dealing with family, a host of emotional issues come to bear along with the financial ones.

In addition to evaluating the dollar costs associated with establishing and maintain a FLP. It’s important to consider relationship costs as well. Talk to every family member who will be included in a FLP to make sure they all thoroughly understand why this is advantageous.

Make sure an estate planner meets with all parties to answer questions. After that meeting, give the family time to discuss the options and bring up any further concerns or preferences.

To make a FLP a success both as a property management tool and as an estate-planning tool, clear and open communication between the generations is vital. Blood may be thicker than water, but the less spilled over family feuds the better.

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Splitting Bills Without Splitting Hairs

Ray’s Take If anyone in your household has a problem with how bill paying is divided, it’s a problem for everyone. Resentments that build up over finances have a way of poisoning other aspects of a relationship. If you’re both willing to compromise and aware of your emotional responses to money, you should be able to work it out.

The three most common ways of dividing up expenses when there are two incomes are: each person pays a proportion of the total bills based on their relative salaries, simply split everything in half, or assign responsibility for certain bills to each partner.

Beyond bill paying, some couples find their finances work better if they combine all their funds in joint accounts, while some keep everything separate, and others do a little of each. There’s no best way, just the way that works best for you and your partner.

What’s far more important than the system of bill paying a couple settles on is realizing that they are in it together and however you account for it, it’s still just one pot of money that they both contribute to.

The push and pull of the fair division of monthly expenses and the dispersal of pocket money shouldn’t overshadow long-term goals and planning. Ultimately, the two of you need to have a plan that looks into the distant future – toward college funds and retirement.

Devote more attention to saving and investing in order to achieve these important life goals instead of worrying about absolutely parity in how money is spent. Focusing on your future together is certainly a lot more rewarding, both emotionally and financially.

When you spend more time and energy on the “big picture,” it helps give you perspective that helps you avoid getting bogged down by the minutia of who paid for what. As you see your savings grow, you’ll gain a joint sense of accomplishment. That’s what really matters when it comes to money.

Dana’s Take William Faulkner wrote: “The past is never dead. It’s not even past.” The ghosts of your parents’ money struggles may be haunting your relationship today.

Anxiety, anger, or denial about money may be anchored in your family’s past, sometimes going back generations. While some follow in their parents’ footsteps, others react by doing the opposite. Either way, the past is steering the present.

Did your folks argue about money or not discuss it at all? Who controlled the purse strings? Did mom and dad hide spending from each other? Did one parent take control of finances and leave the other in the dark?

Just looking at our families’ values and money habits can open up the conversation.

If money arguments persist you may need a neutral third party to cool things down. Schedule with a Certified Marriage and Family Therapist or hire a Certified Financial Planner. Either one may help you move forward toward your goals.

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Think Twice Before Pre-Paying A Mortgage

Ray’s Take With savings interest about nil and the stock market still volatile, a lot of people are wondering about paying off their mortgage early. For some, this may be a good idea, as we have all discovered a healthy respect for debt, but for other homeowners, there may be better options for extra cash.

For example, it’s far wiser to pay off any other debts first – particularly credit card debt. After all, credit card interest is typically at least 10 percentage points higher than mortgage debt. That’s a huge difference!

You would probably be much better off investing in a retirement account as well. At the very least, you should be trying to max out contributions to your 401(k). Not only do investments in IRAs and 401(k)s have tax advantages, they have historically delivered returns higher than any savings you may gain from paying off your mortgage early.

Finally, it’s important to have money set aside for possible emergencies, such as losing your job or unexpected health issues. You should have at least six months of monthly expenses where you can easily access the funds, like a money market account. Twelve months would be even better.

If you are debt free, saving for retirement, and have your emergency fund well supplied, you might consider pre-paying on your mortgage. However, since mortgage interest rates are currently so low and you can usually deduct mortgage interest, paying off a mortgage early simply doesn’t save you much money – possibly as little as three percent. Another way to look at it is that you are increasing your real estate asset allocation. Maybe a good move – maybe not.

One exception could be for those nearing or in retirement who still have a mortgage. If you’re in the final years of a 30-year mortgage, the tax advantages of interest deduction have diminished significantly. By removing one significant monthly payment, more money could go toward basic needs.

It’s a lot to consider. So, before you decide to make those extra, early mortgage payments, think twice. That might not be your best option investment-wise.

Dana’s Take Paying off a mortgage is a dream come true. The best way to accomplish that goal is to start small on that first home purchase.

Once upon a time, a “starter home” was big enough for a couple and later, a few kids. Sometimes people kept that home for a lifetime. My mother-in-law grew up with two brothers in a house with one bathroom. All three kids finished college with no student loans. Get the picture?

Today, I see McMansions with a Little Tikes play set in the yard. When a couple is just starting out, I’m not sure that being tied to a monster mortgage is the best use of resources. That kind of debt requires non-stop employment and guarantees nonstop stress.

If the goal of buying a home is “happily ever after,” keep that first cottage simple and realize your dreams.

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Are You Recession Proof?

Ray’s Take People make all kinds of predictions about the economy and someone is bound to be right, for good or for bad. If those predicting another recession actually get it right, are you prepared to ride it out?

An important part of financial planning is preparing for potential setbacks like a pay cut, job loss or health setbacks. Making lifestyle changes now to better secure your future is the best course to follow. Even if another recession doesn’t come around, you’ll still be more prepared for any other curve balls life might throw at you.

If yours is a two-income family, that gives you an advantage: if one of you is laid off, there’s still a paycheck coming in. However, you can also use that advantage right now. Try to live as much as possible on one salary and save the other to build up an emergency fund capable of covering all your expenses for 12 months. These funds should be easy to access and in addition to your regular retirement savings.

If you have any debt, pay it off. The last thing you need when tough times come is pre-existing debt weighing you down. Along these same lines, put off any major expenditures – like a car or big vacation – you might finance. Save for them, you’ll enjoy them much more if they’re pre-funded.

This might also be a good time to examine your spending patterns and see where you can cut back. From eating more home-cooked food to axing premium cable channels to eliminating morning coffee stops, there are probably some fairly painless ways to stretch your budget.

If you prepare and this possible recession does not happen, you’ve just made important strides toward your future economic independence; and that’s always a good thing.

One last thing – recessions are part of the deal. You don’t have capitalism and get equity returns without them and no one has repealed the business cycle. Prepare for them, deal with them and be grateful for the benefits that the system as a whole provides.

Dana’s Take Too many recent college grads are folding shirts in department stores. In a recession it’s more important than ever to invest in an education that will equate with earnings in the workplace. That’s why I applaud the Tennessee Higher Education Commission (THEC) for publishing data comparing first year earnings for graduates of different degree programs and schools in the state. Anyone considering paying for – or borrowing for – higher education would benefit from visiting www.collegemeasures.org.

This eye-popping data spell out earnings for graduates of each branch of the University of Tennessee, University of Memphis and community colleges. Fields of study appear to have the biggest impact on earnings, with engineering, technology and health care hitting the jackpot.

Using resources wisely is the best way to survive a recession. Education, when carefully chosen, can be a useful tool for getting ahead in a floundering economy.

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Does Your Net Worth Really Matter?

Ray’s Take Do you know your net worth? Mathematically it’s the dollar amount by which your assets exceed your liabilities. It can be a nice number to know and it’s important to keep tabs on it. However, it’s not all that important in and of itself. What is important is how closely you are on track to reaching your long-term financial goals.

Realizing that net worth number can be much more difficult than calculating it. There are costs associated with turning pretty much all net worth assets into cash; whether it’s the capital gains tax on selling stock or the Realtor’s fees when you sell a house. Plus, qualified plan money is all pre-tax.

What is truly important is what you do with your net worth. Maybe you have all your money in a bank savings account. It certainly isn’t earning much interest there, which means it’s not doing a very good job of enhancing your cash flow or keeping up with inflation. It’s basically just sitting there. Perhaps safety or liquidity is your current “worry,” but is it the most important issue in achieving your long-term goals?

If you were to make a long-term plan, that asset may need to work harder. Money itself is just a tool. Without a plan it’s impossible to know what is a “good” or “bad” investment.

By shifting your focus away from the amount of your net worth onto formulating a plan, you will be less likely to be distracted by your true enemies – fear and greed. That’s what financial advisers are all about: finding the right balance of risk and growth to improve your cash flow in order to achieve your goals.

After all, the value of your net worth is just a number. What matters is what it can do for you as the bills come in. A million dollars might provide you with $50,000 to live on for 20 years. But what will you do when year 21 begins? It’s the cash flow your net worth assets generate that will take you years into the future, and that’s what everyone needs to remember.

Dana’s Take Check your net worth. If you keep your head in the sand about finances, at least see if your assets exceed your liabilities. Check on the valuation of your home, if you own one. It may need to be adjusted for today’s true market values. The same goes for cars.

Chances are that if your lifestyle keeps up with the Joneses, not much black ink may remain on the bottom line. Especially if you’ve been paying multiple tuitions and the expenses of teenagers, the accounts may be drained.

Face it now and start making choices that will brighten your financial picture. Maybe Junior can get a job and pay his own expenses, including a car.

Sharing your net worth numbers with the family might be a wakeup call for everyone to get real about money.

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Does Your Net Worth Really Matter?

Ray’s Take Do you know your net worth? Mathematically it’s the dollar amount by which your assets exceed your liabilities. It can be a nice number to know and it’s important to keep tabs on it. However, it’s not all that important in and of itself. What is important is how closely you are on track to reaching your long-term financial goals.

Realizing that net worth number can be much more difficult than calculating it. There are costs associated with turning pretty much all net worth assets into cash; whether it’s the capital gains tax on selling stock or the Realtor’s fees when you sell a house. Plus, qualified plan money is all pre-tax.

What is truly important is what you do with your net worth. Maybe you have all your money in a bank savings account. It certainly isn’t earning much interest there, which means it’s not doing a very good job of enhancing your cash flow or keeping up with inflation. It’s basically just sitting there. Perhaps safety or liquidity is your current “worry,” but is it the most important issue in achieving your long-term goals?

If you were to make a long-term plan, that asset may need to work harder. Money itself is just a tool. Without a plan it’s impossible to know what is a “good” or “bad” investment.

By shifting your focus away from the amount of your net worth onto formulating a plan, you will be less likely to be distracted by your true enemies – fear and greed. That’s what financial advisers are all about: finding the right balance of risk and growth to improve your cash flow in order to achieve your goals.

After all, the value of your net worth is just a number. What matters is what it can do for you as the bills come in. A million dollars might provide you with $50,000 to live on for 20 years. But what will you do when year 21 begins? It’s the cash flow your net worth assets generate that will take you years into the future, and that’s what everyone needs to remember.

Dana’s Take Check your net worth. If you keep your head in the sand about finances, at least see if your assets exceed your liabilities. Check on the valuation of your home, if you own one. It may need to be adjusted for today’s true market values. The same goes for cars.

Chances are that if your lifestyle keeps up with the Joneses, not much black ink may remain on the bottom line. Especially if you’ve been paying multiple tuitions and the expenses of teenagers, the accounts may be drained.

Face it now and start making choices that will brighten your financial picture. Maybe Junior can get a job and pay his own expenses, including a car.

Sharing your net worth numbers with the family might be a wakeup call for everyone to get real about money.

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Don’t Buy Into TV Financial Programs

Ray’s Take Programs offering insider investment tips and advice on financial strategy abound on television. You might occasionally learn a valuable nugget to apply to your own unique financial needs, but a study by Case Western Reserve University showed that investors who followed televised recommendations actually lost money over the six months following.

There are several reasons why television is not a wise source for investment advice. First of all, the primary goal for these programs is to attract the biggest possible audience in order to sell advertising. Those so-called financial experts are there for entertainment value at least as much as investment smarts. They will never be accountable to you for your results.

Secondly, the sheer volume of tips and advice televised financial shows have to offer up day after day leads to a lot of conflicting information. What is right and what is wrong? Neither the on-camera talking heads nor the unseen producers really care, they just want to keep their programs lively to build audiences. If they get lucky and get it right, it’s an opportunity to tout their success. If they get it wrong – there’s always the next program ahead.

Finally – and most importantly – a lot of the information shared revolves around predictions on how certain stocks or industries will perform in the short term – even in the next week. Making investments based on hot topics and predictions like these can wind up costing the average investor dearly. You could easily fall into the trap of buying at the highest price and, later, selling at a loss based on a “tip.” Worse yet, you are wasting valuable time and energy on distractions rather than focusing on a long-term sustainable financial plan.

If you just want to be entertained, stay tuned in. However, if you want thoughtful advice about your investments, turn off the noise, or go to an independent professional financial adviser who will focus on your best financial interest instead of higher ratings.

Dana’s Take Why limit turning off the television to programs about money and investing? The more your television is turned off, the more you can actively engage your body and mind instead of sitting there being passively entertained.

Books, games, conversations and walks are all excellent alternatives to vegging out in front of the flat screen. You might be surprised to find that less television can actually improve your mood and sense of wellbeing.

Consider television news: By incorporating dramatic music and powerful graphics, news broadcasts are designed to increase your anxiety level. To keep you tuned in and ratings high, television newscasters use their larger-than-life personalities to present news in the most sensational light possible.

Turning to newspapers and the Internet for your news instead of TV can significantly dial down the drama yet keep you just as informed. Just making this one change could have a positive impact on your outlook, and that’s certainly not a bad thing.

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High Credit Scores Not How You Win

Ray’s Take What’s your credit score? I say, “Who cares!“ A great credit score simply means you have successfully borrowed and repaid a lot of money. Which in turn means you are great at loading on debt. That’s not exactly a goal to aspire to.

Your credit score says absolutely nothing about your financial security or success in achieving your financial goals. It doesn’t take into account your income, net worth, retirement accounts, investments, or your ability to live within your means. It’s a metric for lenders that focuses mainly on your payment history and the amount you owe; with the length of your credit history, the types of credit or loans you use, and how much new credit you have recently sought all playing a role in the total score.

If you are one of the many obsessing about your credit score, you are worried about the wrong thing. Handle your money correctly by staying within your budget and saving for the future and your credit scores will most likely always be just as good as they need to be. After all, it’s the person who is $100,000 in debt (but making regular, on-time payments) that has a great score. Is that really who you want to be? I hope not.

In fact, a good credit score can lead you to make some decisions that are actually very bad for you. Just because your score indicates you could get a $400,000 loan on a house doesn’t mean you should actually borrow the money – your budget or lifestyle might not accommodate the payments. By the same token, a new credit card with a very high credit limit just means that some lender is looking forward to charging you outrageous interest if you don’t pay off the balance on schedule at the end of the month.

Set up a budget, pay off your debt, and save money. Let the lenders worry about your credit score. You’ve got more important financial matters to attend to.

Dana’s Take If you have a bad credit score, it’s because you have been late with payments and have maxed out your credit cards. Those are two clear signs that other things are not right with your overall financial picture. That credit score is the least of your problems.

Pay down the debt you have as quickly as you can, and never think about your credit score again. Instead, focus your attention on what you actually have in savings and investments instead of what you can borrow. The more you build your net worth, the better off you are.

Borrowing is what “they” want you to do because that is where their profits come from. But savings and investments pay you – and that’s all to your future benefit.

It’s just too bad there isn’t a savings score out there. That’s something that would be really useful!

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Smart Investing Made Hard

Ray’s Take As if the complexities of stocks, bonds, and other investment options weren’t challenging enough, our own bodies can push us into poor financial decisions. The study of neuroeconomics – a discipline that encompasses economics, biology, and psychology – has determined that our brains simply aren’t hard-wired to make rational decisions involving risk. And, investing is all about risk management in one form or another.

For example, studies show that investing in foreign markets excites the fear center of the brain simply because “foreign” feels less familiar. This is in spite of the fact that foreign stocks are less correlated with domestic stocks and actually reduce overall risk. On the flip side of the coin, people feel the least fear when investing in the company where they work. Neither investment decision is based on rational thought or dispassionate analysis, yet it’s often feelings like these that shape portfolios. Even though your rational brain may be telling you it’s not a good idea to invest a lot of money where you work – too many eggs in one basket – your gut feelings are pushing you to do just that.

Then there is “irrational exuberance,” a phrase coined by Alan Greenspan to describe the dotcom bubble. When you make a stock purchase or other investment that surges in value – whether by luck or skill – you get a rush of adrenalin that increases your confidence and pushes you to take even greater risks. There were plenty of times in humanity’s history when that extra boost of confidence was useful for survival, but not when it comes to making investment decisions.

There’s even evidence that certain genes work against us: People with longer serotonin transporter genes tend to be more impulsive than individuals with shorter ones.

The goal with investing is not to experience a rush thanks to a strong-performing investment, nor is it to feel all safe with familiar investments that don’t arouse fear. The goal of investing is for your money to earn money at a reasonable return while reducing risk through diversification.

However, when the very things that make you human work against wise investment decisions, what can you do? Ask your financial adviser.

Dana’s Take Emotions like anxiety and depression can drive “retail therapy.” Ironically, some people spend money when feeling stressed about excess debt – a vicious cycle.

The Internet and smartphones make it even easier to soothe uncomfortable feelings with instant purchases. By the time the merchandise arrives, the mood has passed but the balance remains on your credit card.

Any behavior we pursue in order to avoid feelings can lead to addiction. Is spending causing you problems at home? Have you tried to stop but can’t?

The first step toward recovery is to admit that you have a problem. Talk to the people you’re hurting with your spending and seek help.

Before emotional spending costs you the people you care about the most, ask for help.

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Sign Up for Your Co.’s 401(k) Plan

Ray’s Take The most important thing to know about 401(k) retirement savings accounts is pretty simple: Do it, and participate to the maximum you possibly can. Don’t wait and don’t quit.

After all, 401(k) accounts lower your taxable income, are often matched in all or in part by free money from your employer and happen automatically so you don’t have to remember to make deposits. That’s three good reasons why 401(k)s are one of the most popular retirement plans available. If that money isn’t included in your paycheck, it’s a lot tougher to spend.

However, you have to enroll in order to benefit. Don’t limit yourself to the amount your employer is willing to match, either. Depending on your employment situation, you could have the option of contributing up to $17,000 to your 401(k) in 2012, and that maximum amount is expected to go up each year. Even if that amount is beyond your means, remember that the more you sock away in one of these accounts, the lower your federal income tax on earned income will be now, and the larger and faster your retirement nest egg can grow.

If your employer offers target-date retirement investment options, this can be a good choice for younger savers. These funds include investment options selected by a professional plan provider based on the year in which you hope to retire – your target date.

The mix of investments changes as you age to help you reach your retirement goal; however, as you grow older, you should also look at additional diversification options.

Even job changes don’t need to impact your 401(k) savings plan. You can simply roll it over into your new employer’s plan and let it continue to grow there. Just be sure to have the check written out to the new plan and not to your name as there are penalties (and taxes) from withdrawing from this type of retirement plan early.

Dana’s Take Our grandparents’ generation could count on a lifelong employer and a guaranteed pension. That kind of financial security sounds like a dream today. As parents, we must prepare our children for a world where pensions – and possibly Social Security – are extinct.

First, the word “retirement” may need to be retired. The concept was based on cushy pensions and depression-era savings habits. A more relevant term today might be “long life” planning and savings.

For younger kids, the image of a camel may help illustrate the concept. Just as a camel carries his own water supply for survival, adults must provide for when they no longer work.

Educate teens to expect that if they are working, they need to save from the first paycheck.

Also, teach by example that 401(k) and long-term savings are not a grownup piggy bank but a life preserver for lifelong security.

Star Trek’s Mr. Spock said it best, “Live long and prosper.”

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Financial Records: Shred Or Keep?

Ray’s Take Many people save all their financial records, quickly accumulating boxes and boxes of paper, and then find it nearly impossible to locate the one piece of information they need. My mom recently helped a friend move out of her home of 50 years, and found that she kept canceled checks for utility bills that dated back to the 1960s! She was afraid to get rid of them, thinking she might need them someday. I think there are a lot of files and boxes of financial records out there.

The two main reasons to keep financial records are for tax support or to provide proof of purchase or payment. In addition, government issued official documents – passports, social security cards, birth certificates, etc. – should always be preserved and carefully stored.

It’s best to keep tax returns and supporting documents for seven years as the IRS can challenge your returns up to six years back. Records of sold investments and real estate need to be preserved for the same time as they relate to your taxes, too. Checks and bank statements should be kept three years, unless you’re comfortable knowing your bank keeps those records available online.

Non-deductible bills and credit card statements can be shredded as soon as you check them and the next statements arrive. However, you should save receipts for expensive purchases to prove their value in case they become lost or damaged.

Other data to save includes IRA records, W-2 forms (unless you already receive Social Security benefits), titles to homes and vehicles, active insurance policies and home improvement receipts for determining your house basis when you sell.

Ultimately, use common sense – not to mention an orderly system of storage – when determining what to keep and what to shred.

Dana’s Take Properly storing important financial documents is just as important as keeping them. After all, if you can’t put your hands on them when needed, they aren’t doing you much good.

A safety deposit box is a good idea for your most important papers, with a fireproof home safe offering the next best option. Desk drawers or filing cabinets simply don’t provide the best security, plus files stored at your home face the same risks from natural disasters as everything else in your house.

You might want to consider scanning the documents you need to save, then loading those scans onto storable media data such as DVDs or flash drives; and storing all your important financial information in a secure location outside your home. You can even consider an online storage site if you know how to encrypt your files to keep them private. Just ask your tax advisor before tossing the originals.

However you keep your financial documents, keep them organized and review them regularly – there’s no reason to hold the warranty for a laptop that has long ago been recycled.

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Credit Card Companies Want You in Debt

Ray’s Take The very last thing a credit card company wants is a customer who carefully pays their balance in full and on time and avoids having to pay any of their interest and small print penalties and fees. The companies that issue credit cards usually have the words “for profit” in their charters, and they want you in debt – the deeper the better. They certainly are successful at keeping us that way: the average American family carries some $8,000 in credit card debt, and they’re paying some of the highest interest rates that legally exist.

That conveniently small minimum payment you see printed on every credit card statement is a visual enticement to get and keep you in debt. It practically begs you to put off payment in full until that raise, bonus, or whatever comes around. Of course, by then the double-digit interest will have mounted up substantially and the credit card company will have you looking at a debt that could take years to pay off, adding on more and more high interest all the while. Before you know it, the interest you have incurred far exceeds your actual purchases.

Then there are all the fees you can incur: not just the annual fees but late fees – for paying just one day late, you’re paying over-your-credit-limit fees, cash withdrawal fees and foreign transaction fees. Credit card companies also have the right to change your interest rate. If you take a misstep you can count on your interest rate going up – not only on your new purchases but on your entire balance.

Credit cards are a necessary modern convenience. How you handle them is up to you. You should be sure you have the money to pay for the charge before the card ever comes out of your wallet. They can provide perks and convenient accounting or lead you into a life of indentured servitude. Credit card companies didn’t grow to be a multibillion-dollar industry by simply facilitating purchase transactions. They grew huge by getting and keeping people in debt.

Dana’s Take If you have children or teens, they are watching your money habits. If their parents never use cash, they won’t expect to either. Cash gives children, teens (and adults) a better sense of where their money is going. It’s also a math lesson for younger kids in how to make change.

Start the money conversation at any age. If you have credit cards, include your kids and teens in the bill paying process. They will better understand the full payment cycle. Tell them how you feel about credit, even mistakes you may have made. Help them understand that “credit” really means debt. Maybe even refer to the plastic cards as debt cards.

Debit cards still look like plastic money to kids. If they’re old enough, ask them to help you balance your checking account. They will see that every swipe of the card is money out of the family piggybank.

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Think Twice Before Getting Reverse Mortgage

Ray’s Take Anytime you see celebrities promoting a financial product on television, it should give you pause. The past few years everyone from James Garner to the Fonz has hyped the advantages of a reverse mortgage, so take warning.

A reverse mortgage can be helpful to retired people with few resources, but should only be considered as a last resort; and it is definitely not a good option for younger retirees.

A reverse mortgage is a special type of home loan that lets qualifying individuals over age 62 turn home equity into cash received either as monthly payments, a line of credit, or a combination of the two. Unlike regular loans, there are no monthly payments toward principal or interest. However, both principal and interest do come due in full when you sell or no longer live in your home. That’s the catch.

The amount you owe on a reverse mortgage grows over time, with interest charged on the outstanding balance. Debt increases with every payment you receive. Plus, there can be substantial costs up front and sometimes monthly fees. It all adds up to more debt.

While most reverse mortgages are structured to prevent you from eventually owing more for your home than it is worth, a housing bust like the one we’ve recently experienced could change that. Then add to all this the fact that you still have to pay property tax, utilities, and home insurance, including hazard and flood.

These loans were designed for house-rich but cash-strapped older people who have no other options. However, 20 percent of these reverse mortgages are now being taken out by seniors aged 62 to 64; and nearly half of all the borrowers seriously thinking about a reverse mortgage are under 70.

Most of these loans require counseling before signing on. That’s a good thing, because with a reverse mortgage you could run out of money and be left with nothing.

Dana’s Take Reverse mortgages sound too good to be true. After all, how can something with the word “mortgage” in it be a good thing financially? Let’s hope Bernie Madoff and Stanford Financial have taught us caution.

Retirees have suffered a financial one-two punch in the last decade, with shrinking investment income and declining home values. Many members of “The Greatest Generation” enjoy the security of owning their homes outright. Giving a financial institution claim to that entire asset sounds risky.

Consult an independent financial adviser to make a balanced financial plan before signing away your largest asset. The guy on the commercial may not be around to pick up the pieces if things don’t turn out as advertised. Your brick and mortar today may be worth more than their promises for tomorrow.

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