Retirement, When and When NOT too

Q: How will you know when you're ready to retire? Do you regret retiring too early?

A: When I finish paying off my student loans.

—Jane Haigh
When I cannot do my job well and/or stop having fun doing it.

—George Parkins
When I have enough to live comfortably, travel when I want to and my kids' futures are as secure as I can make them through education. My goal is 55 -- before my 60s, which is too late to enjoy life while I still have the health to do it.

—Jim Klein
Retired at 52. Should have done it sooner. Living off one-sixth my pre-retirement income and loving every minute!

—Charles Thomas
I retired earlier than I had originally planned, at family request. I was worried but now realize it's one of the best decisions I ever made.

If you recognize the signs that you're burned out and your family and friends note you're stressed out, and if your finances are where they should be, it's time.

—Charles Kasakophski
For some people the decision is taken out of their hands. They retire when they lose their jobs. As did I.

—Linda Benzel
Retirement is an obsolete concept. Traditional means of work, career and compensation have evolved dramatically.

I want to continue to make a contribution to the workplace indefinitely, or be self-employed.

—Rhinnie Rohrback
You'll know. You become part of the problem and not part of the solution. Work is no longer an exciting challenge but instead drudgery. The last couple of years of my career were that way. I took the early out with penalties. Never regretted it. Never looked back.

—Pat Galbraith
I retired 31 years ago and have absolutely no regrets. Time becomes much more valuable than money, especially if you have health issues and don't know how long you may be around.

—William Murray

Too Busy to earn more?

Are your investments diversified? Some investments perform better than others in certain situations. For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can help to reduce your risk.

Business Planning

What can you expect to earn on your money? While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Also, keep in mind that just because an investment has done well in the past, there is no guarantee it will do well in the future.

What type of earnings can you expect? Will you get income in the form of interest, dividends or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?

How much risk is involved? With any investment, there is always the risk that you won't get your money back or the earnings promised. There is usually a trade-off between risk and reward: the higher the potential return, the greater the risk. The federal government insures bank savings accounts and backs up U.S. Treasury securities (including savings bonds). Other investment options are not protected.

Are there any tax advantages to a particular investment? U.S. Savings Bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. For special goals, such as paying for college and retirement, tax-deferred investments are available that let you postpone or even eliminate payment of income taxes.

The College Fund(s)!!!

Guide to college savings plans
Creating a plan for college ahead of time will save you both time and money.

In Lesson 11

How much will you need for college?
Glossary
Take
the test
Top things to know
Getting started
What's the best way to invest?
Tax-savvy savings options
What kind of aid is out there?
Want free money from the IRS?
For grads only: Payback time
Money 101 Lessons
Setting priorities
Making a budget
Basics of banking and saving
Basics of investing
Investing in stocks
Investing in mutual funds
Investing in bonds
Buying a home
Controlling debt
Employee stock options
Saving for college
Kids and money
Planning for retirement
Asset allocation
Hiring financial help
Health insurance
Buying a car
Taxes
Home insurance
Life insurance
Estate planning
Auto insurance
401(k)s
1. Saving for your own retirement is more important than saving for college.

Your children will have more sources of money for college than you will have for your golden years, so don't sacrifice your retirement savings.

2. The sooner you start saving, the better.

Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.

3. Stocks are best for your college savings portfolio.

With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.

4. You don't have to save the entire cost of four years of college.

Federal, state, and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.

5. With mutual funds, investing for college is simple.

Investing in mutual funds puts a professional in charge of your savings so that you don't have to watch the markets daily.

6. 529 savings plans are a good way to save for college and they offer great tax breaks.

Qualified withdrawals are now free of federal tax and most plans let you save in excess of $200,000 per beneficiary. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.

7. Tax breaks are almost as good as grants.

You may be able to take two federal tax credits -- the American Opportunity Tax Credit and Lifetime Learning Credit -- in the years you pay tuition.

8. The approval process for college loans is more lenient than for other loans.

Late payments on your credit record aren't automatic grounds for refusal of a college loan.

9. Lenders can be flexible when it's time to repay.

There are still ways to cut costs after you graduate and begin repaying your student loans. For instance, there is often a one-quarter percentage point interest rate decrease if you set up automatic debit, in which monthly payments are automatically taken from your account.

10. Taxpayers with student loans get a tax break.

You may deduct the interest you pay up to $2,500 a year if your modified adjusted gross income is less than $70,000 if you're single or less than $145,000 if you're married filing jointly. The deduction can be taken for the life of the loan.

Are Credit Cards Evil?

Just because many Americans have overdosed on debt doesn't mean using credit cards is a bad idea. In fact, there are times when a credit card is clearly the best choice.

- advertisement -

For starters, you usually get far more purchase protection with a credit card than you do with cash or check. That helps when you buy a $1,000 laptop that suddenly has a damaged screen a week after you walk out of the store and the store manager and the manufacturer insist it's your fault.

Save-the-day features kick in when you travel. Credit cards often include free car rental insurance and some travel insurance, though offers vary with each issuer.

And if a thief picks your pocket, your liability is much lower than with a wad of cash.

Add in miles, rewards points and cash back, along with the interest-free loan if you pay every month, and you'll find a lot of credit card experts using their cards to charge everything they can.

"I try to buy everything with a credit card," says Scott Bilker, author of "How to Be More Credit Card and Debt Smart." "I hate using cash, because if you lose it, it's gone. With credit cards, the bank's money is gone.

"You just have to be careful to use them in your favor. It takes work -- research and phone calls."

Protect yourself with a card
But, you might think, how often will I need purchase protection?

"Some of the severe cases are when the airlines go bankrupt," says Barbara O'Neill, a professor of financial resource management at Rutgers University and the author of "Saving on a Shoestring: How to Cut Expenses, Reduce Debt and Stash More Cash." "Those who pay with a cash or check are out of luck."

The bottom line is you have some very useful legal rights if you shop with a credit card.

"There is a law on the books that says you can dispute if you've purchased something with a credit card," O'Neill says.

It's called the Fair Credit Billing Act, and it covers purchases made by credit card, not debit card, anywhere in the world, as long as the credit card was issued in the United States.

"If it's found to be in your favor, you don't have to pay the charge," she says. And until everything is settled, you don't owe a thing. "You can refuse to pay the charge until the dispute is resolved."

Charging when you're already in debt
All this talk of the good side of credit cards needs a big warning sign. At last count, 61 percent of Americans carried a credit card balance every month, making the "charge-everything" strategy a little risky.

Jing Jian Xiao, professor and director of the Take Charge America Institute for Consumer Financial Education and Research at the University of Arizona, says that "people, in general, even if they're in debt, they keep using credit cards. That's why they're in debt.

"Now, the new trend is that credit cards are for necessities," says Xiao, who studies the behavior of people trying to cut debt. "Before, credit cards were to show status. More people use credit cards for daily expenses. That means that if they don't have money, they just apply for more and borrow more."

Tips to Avoid Foreclosure

If you are unable to make your mortgage payment:

1. Don't ignore the problem.

The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
2. Contact your lender as soon as you realize that you have a problem.

Lenders do not want your house. They have options to help borrowers through difficult financial times.
3. Open and respond to all mail from your lender.

The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notices of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.
4. Know your mortgage rights.

Find your loan documents and read them so you know what your lender may do if you can't make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.
5. Understand foreclosure prevention options.

Valuable information about foreclosure prevention (also called loss mitigation) options can be found online.
6. Contact a HUD-approved housing counselor.

The U.S. Department of Housing and Urban Development (HUD) funds free or very low-cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender, if you need this assistance. Find a HUD-approved housing counselor near you or call (800) 569-4287 or TTY (800) 877-8339.
7. Prioritize your spending.

After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses--cable TV, memberships, entertainment--that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.
8. Use your assets.

Do you have assets--a second car, jewelry, a whole life insurance policy--that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
9. Avoid foreclosure prevention companies.

You don't need to pay fees for foreclosure prevention help--use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD-approved housing counselor will provide free if you contact them.
10. Don't lose your house to foreclosure recovery scams!

If any firm claims they can stop your foreclosure immediately and if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional or a HUD-approved housing counselor.

Planning your Daily Finances

Define your goals. Ask yourself "Why am I investing money?" Maybe you want to save money to purchase a house or to save for retirement. Maybe you would like to have money to pay for your child's education, or just to have a financial cushion to handle unexpected expenses or a loss of income.