Emigrant Bank, sponsor of the popular EmigrantDirect Savings Account raised their interest rate today to 4.25%.
This interest rate increase follows the lead of INGDirect which raised their rate last week. Both Emigrant and ING are listed as two of our Favorites in our Banking Center. Expect the other major online banks like VirtualBank and EverBank to follow suit.
The 2006 Entertainment Book is offering a $25 Restaurant Certificate good at over 6,000 restaurants across the country as well as an additional $10 discount on new purchases of the book between now and February 28th.
The Entertainment Book is one of our favorite money saving tools, particularly for dining out. We use it ourselves and easily save up to $200 per year on dining in both conventional sit-down restaurants as well as fast-food outlets. The only problem is remembering to take it with you so you don't miss out on other savings opportunities. In addition to the Entertainment Book, visit our Expenses Center for other money saving ideas.
As you encounter major life events, different financial matters will be of primary concern. For instance, your financial concerns when you start your first job will be very different from your concerns as you approach retirement age. Below are six tips to consider as you encounter major life events:
• Establish solid financial habits, since the habits you develop now will set the financial tone for the rest of your life. Start by setting up record-keeping systems, monitoring your cash flow, and developing a workable budget.
• Before you get accustomed to spending your entire paycheck, start saving at least 10% of your gross income. A good place to start is with your 401(k) plan at work. If you can’t save the maximum amount permitted by the plan, at least save enough to take full advantage of any employer matching.
• Review all benefits offered by your employer, taking advantage of all that are appropriate for your circumstances. Many benefits are offered free or can be paid with pretax dollars.
• Update all personal documents. Review your estate planning documents, asset ownership, and beneficiary designations to make sure they reflect your wishes for the distribution of your assets to your spouse.
• Track your expenses for a month. Tracking your expenses will give you an idea of where your money is spent, so you can decide how to spend money in the future. It will also highlight areas where the two of you differ regarding finances. You can then set a written budget to guide your spending. You may want to consider using specialized budgeting software. ManagingMoney.com has an excellent selection of personal budget software to assist you in tracking your expenses.
• Decide on joint or separate bank accounts. Some couples prefer pooling all funds, believing it helps create a feeling of unity. Others, however, have difficulty losing their financial autonomy, especially if they have been on their own for many years.
• Split financial responsibilities. One person may be more suited for certain tasks due to their background or time availability. However, the other spouse should not give up total control and should always be aware of financial decisions being made.
• Name a guardian for your children. If you and your spouse both die without naming one, the courts will appoint a guardian and will also supervise your children’s property. To assist you in formalizing a legal guardian for your children, consider ManagingMoney.com’s Legal Center. Our Legal Center provides a variety of personal legal solutions such as Wills and Trusts.
• Purchase sufficient life insurance to provide for your children until they are adults. Determine how much is needed for living expenses, hobbies, medical expenses, and college. Also ensure you have adequate disability income insurance, so your family’s lifestyle won’t be disrupted if you incur an injury or illness. To obtain quotes for your life insurance and disability insurance needs, go to ManagingMoney.com’s Insurance Center.
• Save for college. Many people have difficulty saving the entire amount needed to fund a college education. However, there are other sources available, such as borrowing and financial aid. Thus, your goal may be to accumulate 30%, 50%, or some other percentage of the total cost. Take a look at education savings accounts and section 529 plans, both of which have significant tax advantages. Take a look at the College Education Savings Program offered through ManagingMoney.com.
• Teach money basics to your children. In a society that has difficulty managing money, teaching your children good money skills is a lesson that will benefit them for a lifetime.
• Don’t just accept your employer’s severance package. Try to negotiate for more severance pay or for an extension of health insurance benefits. If your employer won’t cover health insurance, check into COBRA coverage and pay the premiums yourself.
• Update your resume. Take advantage of any career counseling opportunities offered by your former employer. Look into the possibility of a career change if you have difficulty finding a job. Consider taking courses to update your job skills or to qualify for another job.
• While this may be a time when you’ll need to dip into your emergency cash reserve, use the money carefully, since you don’t know how long you’ll be without a job. Look for ways to cut your living expenses and avoid nonessential expenses like vacations, clothing, and entertainment.
• Prepare formal estate planning documents to carry out your wishes. Even with a will, your spouse can typically override its terms and elect to receive a statutory percentage. To prevent this, you usually need a prenuptial or nuptial agreement. ManagingMoney.com’s Legal Center has Premarital Agreements which includes both the Agreement and Financial Statements.
• Review beneficiary designations and life insurance amounts. It’s not unusual to forget to update beneficiary designations for retirement accounts, individual retirement accounts, and life insurance policies. Also review your life insurance amounts, since you may need more to help ensure all heirs are treated equitably.
• Discuss your plans with your spouse and children. Openly discussing your plans before death may prevent disagreements among heirs after your death.
• Before retiring, review your finances carefully to ensure you have adequate funds. You may want to consider part-time employment, both to supplement your income and to occupy your time.
• If you retire before age 65, obtain health insurance until you’re eligible for Medicare.
• Plan for long-term-care needs through the use of insurance or savings.
• Before retirement, make any necessary changes to your debt structure. For instance, you may want to refinance your mortgage, purchase a new car with a loan, or open a home-equity line of credit for future needs.
• Review your estate plan. Consider a living will, health-care proxy, and durable power of attorney.
The subject of income taxes is one that most people would prefer to ignore. However, since income taxes are a significant expense for most taxpayers, you should come to grips with some basics about taxes:
Although paying taxes is not an enjoyable task, in ManagingMoney.com's Tax Center we have tried to make this process easier for you. In our Tax Center you can start a new tax return, amend an existing tax return, or download individual tax forms.
Effective January 1, 2006, 401(k) plans now have the option to offer Roth 401(k)s. The Roth 401(k) is patterned after the Roth Individual Retirement Account (IRA) — contributions are made from after-tax earnings that grow tax free and qualified distributions are withdrawn tax free. However, there are also some significant differences between Roth 401(k)s and Roth IRAs:
Like many recent tax provisions, the Roth 401(k) is scheduled to expire after 2010, unless further legislation is passed.
With thousands of stocks to choose from, developing a systematic approach to evaluating stocks can make it easier to make your selections. The first step is to narrow the options from the thousands of possible choices to ones most likely to meet your objectives. That typically involves screening companies based on criteria important to you. For instance, if you are interested in growth stocks, you might look for earnings growth over a certain percentage. Or for value stocks, you might look for companies with low price/earnings ratios or low price-to-book values.
Once you’ve narrowed the list, evaluate each company’s financial information, comparing it to industry and market information. Some factors to consider include:
ManagingMoney.com’s Investment Research Center has a wealth of information to assist you in the process of analyzing stocks. We offer an excellent selection of Independent Stock and Industry research reports along with access to the internet’s largest database of Earnings conference calls.
However, the decision to purchase a stock shouldn't be made solely from a review of financial ratios. You should also evaluate subjective factors, such as the quality of management, prospects for the company’s industry, and where the company stands in relation to competitors.
How much will you need to live a comfortable retirement? It's a question that can't be answered without giving serious thought to how you really want to spend your retirement.
Retirement is no longer viewed as a time to slow down, but is now considered a new beginning in life. Thus, your current living expenses may have little to do with your retirement expenses. However, keep in mind that retirement often proceeds in stages, with different spending trends in each stage. The three basic phases are:
To help you visualize your retirement so you can estimate retirement expenses, consider these questions:
Answering these questions should give you a clearer picture of what your retirement will be like.
A common rule of thumb when planning for retirement is to save 10% of your gross income during your working years. Since this rule of thumb has been around for a long time, it's logical to question whether it's still an appropriate guideline.
For many, it may be a moot question since overall personal savings don't come close to that 10% figure. Personal savings as a percentage of disposable income are hovering at historically low levels, 0.9% in 2004 (Source: The Regional Economist, July 2005). There is some debate over how much significance to place on the decline in the personal savings rate, since it only measures what percentage of disposable income is saved each year. It does not factor in changes in wealth attributable to gains in investments and real estate. But the same methodology was used in the 1960s, 1970s, and 1980s, when the personal savings rate was in the 8% to 10% range (Source: The Wall Street Journal, July 20, 2005).
Despite overall trends, you still control how much to save for your retirement. So, is 10% a good guideline? Several trends suggest that a 10% savings rate is probably on the low side:
All these trends point to the fact that future retirees will be responsible for providing more of their income for a longer period of time. Thus, you should consider higher, not lower, savings amounts. A recent study concluded that workers who start saving in their 20s should save 10% to 15% of their gross income for their entire working life. Wait until your 30s, and you should save 15% to 25% of your annual income. Those who wait until their 40s will need to save 25% to 35% of their income (Source: U.S. News & World Report, 2005).
If that seems like too much to save, just think about how many years you expect to work compared to how many years will be spent in retirement. Assume you start working at age 22, work until age 62, and then die at age 82. Thus, you work 40 years and are retired for 20 years — for every two years you work, you need to support yourself for one year in retirement. If your retirement expenses don't go down and you don't have a defined-benefit pension, you'll need to save significant sums to support yourself for that length of time. One study found that to replace just 70% of your preretirement income, you would need to save 14% of your income every year during that 40-year period (Source: Barron's, September 5, 2005).
Contrast that situation with a typical scenario in 1950. At that time, the average retiree worked 47 years before retiring for nine years. Thus, that person worked over five years to support one year of retirement, which required annual savings of 6% of income.
For many people, then, the answer may be to extend their working years. In the above example, if you wait until age 70 rather than age 62 to retire, you will work for 48 years and be retired for 12 years. This would require annual savings of 7% to replace 70% of your preretirement income.
While preretirees may not have the mathematics down pat, many are realizing that working longer, rather than retiring earlier, may be the only way to ensure they don't run out of retirement funds. Almost all recent surveys of baby boomers indicate that the majority expect to work at least part-time during retirement. One recent survey found that 80% expect to work during retirement (Source: Money, August 2005).
These stark realities don't mean you can't retire, just that you need to plan carefully. Thus, you should start saving as much as possible, as soon as possible, for your retirement. Waiting even a few years to start saving can significantly increase the amount you need to save. Start saving now by visiting ManagingMoney.com’s Banking Center where you can search and apply online for high-yielding, FDIC insured Savings Accounts. Many of these Savings Accounts have Automatic Savings Plan features that allow you to automatically have a fixed amount of money regularly transferred to your high-interest savings accounts. Or, whenever you have extra money in your bank checking account, you can easily transfer money into your savings account.
Trying to gauge whether your retirement savings are on track? While there's nothing like going through a thorough analysis, you can take a quick look by adding up all your retirement assets and multiplying that balance by 4% or 5%. This withdrawal percentage should ensure that your retirement assets last at least 30 years (Source: U.S. News & World Report, 2005).
* Source: Stocks, Bonds, Bills, and Inflation 2005 Yearbook, Ibbotson Associates. The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. Investors cannot invest directly in an index. Past performance is not a guarantee of future results. Returns are presented for illustrative purposes only and are not intended to project the performance of a specific investment.
INGDirect, the sponsors of the popular Orange Savings Account raised their interest rate on new deposits to 4.75% today. The battle for online Savings Account deposits continues to heat up, with the two main contestants being...
EmigrantDirect and INGDirect. We expect this trend to continue as the Banking Industry moves to the Internet. In addition, interest rates in general have moved higher recently as the economy continues to show strength. As a result, the banks need to keep raising rates in order to attract depositors. Look for the other online competitors like Everbank to probably follow within the next few weeks.
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