Posted by Mike - Editor at 12:42 PM | Permalink

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.

Posted by Mike - Editor at 11:50 AM | Permalink

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.

Posted by Mike - Editor at 7:15 AM | Permalink

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:

1. Your First Job
   
   

   • 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.
   
   
   



2. Marriage
   
   

   • 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.
   
   
   



3. Children
   
   

   • 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.
   
   
   



4. A Job Loss
   
   

   • 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.
   
   
   



5. A Second Marriage
   
   

   • 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.
   
   
   



6. Retirement
   
   

   • 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.

Posted by Mike - Editor at 7:06 PM | Permalink

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.

Posted by Mike - Editor at 6:54 PM | Permalink

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:

• Eligibility — Employees eligible for their employer's 401(k) plan are also eligible for a Roth 401(k). There are no income limitations for contributing to a Roth 401(k). With a Roth IRA, single taxpayers with adjusted gross income (AGI) less than $95,000 and married taxpayers filing jointly with AGI less than $150,000 can make contributions, regardless of their participation in a qualified retirement plan. Contributions are phased out for married taxpayers filing jointly with AGI between $150,000 and $160,000 and for single taxpayers with AGI between $95,000 and $110,000.
  
  
• Contributions — The contribution limits for the Roth 401(k) are the same as for a regular 401(k) plan. In 2006, you can contribute a maximum of $15,000 plus a $5,000 catch-up contribution for those aged 50 and over, if permitted by your plan. However, your employer may set lower limits than this to comply with nondiscrimination rules. Contributions can be split between a regular and Roth 401(k), as long as total contributions do not exceed the maximum, with funds held in separate accounts. Any matching contributions made by the employer must be made to the regular 401(k) account, so they will be taxable when withdrawn. In 2006, the contribution limits for a Roth IRA are $4,000 plus an additional $1,000 catch-up contribution for individuals age 50 and over. You can make contributions to both a Roth 401(k) and a Roth IRA, as long as you meet the income eligibility rules for the Roth IRA.
  
  
• Required distributions — With a Roth IRA, you are not required to take distributions during your lifetime. Thus, it is typically seen as a good estate planning vehicle for individuals who want to leave tax-advantaged assets to heirs. With a Roth 401(k), annual distributions must be taken after age 70 1/2. However, funds in a Roth 401(k) can be rolled over to a Roth IRA, which would not require distributions.
  
  
• Conversions — Individuals under certain income levels can convert a regular IRA to a Roth IRA, as long as income taxes are paid on the amount that would have been taxable if withdrawn. There is no provision to convert regular 401(k) accounts to Roth 401(k)s.

Like many recent tax provisions, the Roth 401(k) is scheduled to expire after 2010, unless further legislation is passed.

Posted by Mike - Editor at 6:52 PM | Permalink

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:

• Historical prices — It’s often useful to review a stock’s historical prices and trading volume for at least a one-year period. This gives you a feel for price volatility, the pattern of the stock’s movements, and how much interest investors have in the stock.
  
  
• Earnings Per Share (EPS) — EPS equals the company’s net income after taxes divided by the average number of common shares outstanding. You’ll typically want to look for companies with steadily increasing EPS.
  
  
• Price/Earnings (P/E) Ratio — This equals the company’s share price divided by Earnings Per Share, and is generally considered indicative of how the market values a stock. Review the company’s historical P/E ratio, the P/E ratios of other companies in similar industries, and the P/E ratio of the market as a whole. Typically, companies with higher growth rates command higher P/E ratios.
  
  
• Return on Equity (ROE) — ROE equals the company’s net income divided by shareholders’ equity and is viewed as an indicator of how well a company utilizes shareholders’ money.
  
  
• Price-to-book value — This ratio is calculated by dividing share price by book value, which equals a company’s assets less its liabilities, per share. This ratio is typically relevant when evaluating companies with significant assets. Companies with low price-to-book values are often viewed as value stocks.
  
  
• Price-to-cash-flow ratio — This ratio equals a company’s share price divided by cash flow per share. Cash flow equals earnings plus depreciation, amortization, and other non-cash expenses. This ratio can be helpful when evaluating companies with significant noncash expenses.
  
  
• Price-to-sales ratio — This is calculated by dividing share price by annual sales per share and can be useful when evaluating companies with little or no profits.
  
  
• Payout ratio — This ratio is calculated by dividing dividends per share by earnings per share and indicates the percentage of profits the company is distributing to shareholders.
  
  
• PEG ratio — This ratio equals a company’s P/E ratio divided by its expected earnings growth rate and is generally useful when evaluating growth stocks.

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.

Posted by Mike - Editor at 6:48 PM | Permalink

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:

1. Active phase: When the retiree is in good health and actively pursuing travel and hobbies. This is typically the most expensive retirement phase.
   
   
2. Passive phase: When the retiree's energy starts to wane. Life starts to slow down, and living expenses typically decrease.
   
   
3. Final phase: When medical conditions often result in subsistence living. This is typically a more expensive time than the passive phase due to increased medical expenses, but as long as proper medical arrangements have been made, may not be as expensive as the active phase.

To help you visualize your retirement so you can estimate retirement expenses, consider these questions:

• When do you want to retire? Will you realistically have the resources to retire at that age?
  
  
• Do you plan to stay in your current home, trade down to a smaller one, or move to a different city? If you plan to move, is the cost of living more or less expensive than your present city? Have you made extended trips to the new location during different seasons to make sure you'll enjoy living there?
  
  
• Will your mortgage be paid off by retirement? What about other debts?
  
  
• Will you continue to work after retirement? If so, will you work part-time or full-time? Where will you work and how much can you expect to earn? Do you have any hobbies or interests that can be turned into paying jobs? Are you planning to start a business after retirement?
  
  
• How will you spend your free time? What hobbies will you pursue? How often and where will you travel? How much will all these activities cost?
  
  
• How will you pay for medical costs? Will your employer provide health insurance, or will you need to purchase insurance to supplement Medicare coverage?
  
  
• Do you have any medical conditions that are likely to impact your quality of life in retirement? What would you do if you became physically disabled? Would your spouse take care of you, would you move in with your children, or would you go to a nursing home? How will you provide for long-term-care costs?
  
  
• How much of your income will be provided by personal investments, including 401(k) investments? Are you confident you can invest so those investments will last your entire retirement? How much of an investment loss could you tolerate without changing your retirement lifestyle?
  
  
• What would happen financially if your spouse dies? If you die, would your spouse be able to support himself/herself financially?

Answering these questions should give you a clearer picture of what your retirement will be like.

Posted by Mike - Editor at 6:46 PM | Permalink

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:

• Fewer individuals are covered by defined-benefit plans. The 10% guideline anticipated that a retiree would receive a defined-benefit pension as well as Social Security benefits. But now, only 20% of the work force is covered by a defined-benefit plan (Source: InvestmentNews, May 9, 2005), with 80% of the work force without a pension.
  
  
• The Social Security system will face increasing pressure in the future. Due to the unprecedented number of baby boomers who will be retiring in the near future, there will be fewer workers to pay the benefits for each retiree. In 1950, 16 workers were paying for each retiree's benefits. Currently, there are 3.3 workers supporting each retiree, which is expected to drop to only 2 workers for each retiree in 40 years (Source: Social Security Administration, 2005). By 2042, unless changes are made to the system, benefits will need to be reduced by 27% to equal revenues collected (Source: Social Security Administration, 2005).
  
  
• Life expectancies are continuing to increase. Average retirement ages have been decreasing while life expectancies have been increasing. Today, at age 65, the average life expectancy is 82 years for a man and 85 years for a woman, compared to 78 years for a man and 81 years for a woman in 1950 (Source: The Wall Street Journal, July 20, 2005). Thus, the average retiree has fewer years to accumulate savings, and those savings must last for a longer period of time.
  
  
• Plans for retirement have changed. Another commonly heard retirement planning rule of thumb is that you'll need 70% of your preretirement income after retirement. However, that guideline assumes a relatively inactive retirement lifestyle. Increasingly, retirees view retirement as a time to travel extensively or engage in expensive new hobbies. Thus, more and more retirees are finding little change in their income needs after retirement.
  
  
• Stock yields are expected to be modest in the foreseeable future. Historically, stock yields as measured by the Standard & Poor's 500 have averaged 10.4% annually over the period from 1926 to 2004.* But with price/earnings ratios at historically high levels, dividend yields at historically low levels, and economic growth uncertain, even those average returns are in question for the foreseeable future.

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.

Posted by Mike - Editor at 6:41 PM | Permalink

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.

Posted by Mike - Editor at 7:14 AM | Permalink