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September 29, 2008

Getting Your Money's Worth with Online Dating Services

With the busy lifestyles of most singles these days, it's oftentimes difficult for them to find the time to date. Unfortunately, due to their packed schedules, many choose to remain single rather than take the time to find that special someone. If you find yourself in such a situation and feel you don't have time to meet someone special, there is no reason to settle for loneliness. The solution to your problem may be to sign up for an online dating service. Despite what many people think, online dating services can offer a fun and convenient way for you to meet a companion. Unlike outdated dating services, online dating services enable you to have a positive dating experience. You set your particular preferences, which means that you'll only be sent perspective dates that meet your criteria.

There are a few ways to ensure that you get your money's worth when dealing with a dating service. First of all, you should be sure and check each and every response. If not, you could possibly miss out on meeting the person you've been looking for. If you receive a response from someone that doesn't seem interesting, you should still respond. Sometimes first impressions can be negative, but if you give the person a chance, you may be pleasantly surprised.

Another way to make sure that you get your money's worth when using a dating service is to read the fine print. Some of the more popular dating services like eHarmony.com or Match.com offer a money-back guarantee that if you use their service you will find someone special. This isn't a guarantee that things will work out after you've entered into a relationship with someone, but simply that you'll meet at least one person who is supposedly "compatible" with you.

Unfortunately, since internet dating means that you're not initially meeting the perspective date in person, there are many people that pose as other people. This is done by either posting a picture of someone other than themselves, for instance, as well as in many other ways. It should be easy, however, to determine if a person is serious or not, and most likely if you're on a paid dating site, you're less likely to encounter such people. One way to protect you from being involved in anything fraudulent is to follow the site's safety tip, and forward any complaints to the appropriate person in charge of the site. When meeting someone from an online dating site for the first time, it's important to meet in a public place. Never go to someone's house or allow them to pick you up before you've gotten to know them.

Before you make the final decision to pay for a dating service, you need to make sure that you plan on making the most of the whole situation. If after 6 months you haven't met anyone you're even remotely compatible with and you've put in as much effort as possible, perhaps its' time to reevaluate things. Maybe you're looking for the perfect person when in actuality, the perfect person doesn't exist. A person with a few acceptable faults can still be a great companion--and even possibly be your soul mate.

September 26, 2008

Unclaimed Cash: Does Your State Owe You Money?

With the economy in its current negative state, just about everyone could use some extra money to help pay off some bills. Some people may feel silly for sitting around, wishing for "unexpected" checks to show up in the mail, but believe it or not, it's not as farfetched as some people may think. Money from one or more sources may be owed to you, money that you may have forgotten you were entitled to, or even money that you never had any knowledge of. What happens is a company, oftentimes a bank, insurance company, former employer, etc. realizes years later that you are entitled to receive a certain amount of money for whatever reason. If the agency is unable to contact you at your last known address, eventually, because of state laws, the money must be turned over to the state. Unclaimed items aren't limited to cash, as there may be unclaimed property as well.

The first thing that you need to do if you believe that money may be owed to you from the past is to search the directory for your state. A great site like missingmoney.com is an ideal place to start. There are numerous other sites, and a simple Google search should enable you to locate these helpful sites. It's also wise to search the IRS's website to find out if they're holding any undeliverable tax refunds from the past. If you moved frequently in the past and can't quite remember receiving an income tax refund even though you filed, chances are that the IRS if holding money for you and all you have to do is follow the instructions given on the site and they'll send you a check.

Depending on the state you're in, it may be difficult to determine if the person who is owed money is actually you or someone with the exact same name. Other state websites are precise, and have the name of the person owed money, their last known address, the amount of the check or property, as well as who owes it. If you're not fortunate enough to live in a state that has all of the necessary information that will inform you if it's your claim or not, then filling out a claim form is certainly worth a try. Even if it turns out you're not the actual person owed money, at least you won't always wonder about it.

If you are lucky enough to find your name on a site that says you're owed money, there is a pretty simple claim process that you must go through. First of all, you'll have to print out a claim form and get it notarized, attesting that everything is true on the document. You may also be required to send in a copy of your driver's license, social security card, as well as a complete list of addresses that you've lived at over the years. If your claim is completed properly and is accepted, you should receive either a letter stating that you will receive the money and the amount, or you'll just receive the check. Usually, though, because of processing, it may take approximately 3 - 4 months to receive the money you may have discovered.

Even if you aren't able to find your own name on any of the unclaimed property/money sites, perhaps you could search for a deceased relative's name. If you do happen to locate the name of a departed relative on one of the sites, you must either be listed as the deceased's beneficiary or person appointed to handle their estate. Proper documentation will be required before any money or property is released to you.

Everyone would love to receive some unexpected cash, so if there is any minute possibly that some long forgotten company never cashed out your vacation pay and sent you the final check, or a utility company from years earlier owes you money from a deposit that you paid, you should by all means check your state's database. And of course if you've lived in more than one state over the years, you need to check the database from each state. You never know what will happen, and you may be well on your way to filling your pockets with some extra cash.

September 24, 2008

What is the Smartest Money Doing?

Warren Buffett is one of the richest men in America. His investment expertise has put billions in his own pockets and made many millionaires out of those who invested in his primary investment vehicle, Berkshire Hathaway (NYSE: BRK-A). Buffett's track record of successful gains while avoiding big losses is among the best in the world. So what is Warren Buffett buying now? He's buying investment banks. That's right, in the middle of what may be the worst banking crisis in the last 75 years, the man who is arguably the greatest living stock-picker is putting his money in investment banking. According to Bloomberg, he is purchasing $5 billion in perpetually preferred stock in Goldman-Sachs (NYSE: GS). This preferred stock has a guaranteed 10% annual dividend. That means Warren Buffett will make a half billion dollars every year that he holds this investment if the value of the shares don't change at all. Of course, Goldman-Sachs maintains the option to buy the shares back from Buffett at any time - so long as they add a 10% kicker on top of the current value.

But wait, there's more. Buffett is also getting another $5 billion worth of warrants to buy ordinary shares of Goldman-Sachs at $115/ share. By the way, the shares closed Tuesday at $125.05 or 8% more than the amount Buffett would have to pay if he exercised his warrants. Remember also that Goldman-Sachs has traded above $169/ share as recently as September 8th, but has been hammered like most other financials as the banking crisis has unfolded. Warren Buffett is credited with many pearls of investment wisdom, among them is this quote: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Right now, there is certainly plenty of fear when it comes to the financial sector. So it certainly makes sense that Buffett would be the first one to start buying.

Now don't get us wrong, he's not buying willy-nilly just because other people are running away. He is picking the babies from the bath water. There are financial stocks that are healthy and which will weather this storm and continue to make large profits for many years. Warrant Buffett has never been a short-term investor. He has said, "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." Clearly, there are some large banks for which, as Buffett also put it, "the only time to buy these is on a day with no 'y' in it." The trick is to separate the wheat from the chaff. One way to do that is to watch what successful investors like Warren Buffett do. Read that carefully, don't follow what other investors say, follow what they do with their own money. It is not unheard of for Wall Street "insiders" to tout a company's virtues as they sell it in order to get the price they want from people who listen to their advice. Investment personality Jim Cramer admitted as much in an interview with The Street.com, calling the practice widespread and saying it was practiced on a daily basis by most successful fund managers.

Follow instead successful long-term investors. These people buy good companies and hold onto them while their good business practices reap profits. Increasing profit over time eventually means higher stock prices, no matter what happens in the short term.

Credit Monitoring Services: Are They Worth The Money?

Everyone knows that having good credit is absolutely necessary. If your credit is poor, you will be judged harshly, and denied the credit that you may need in order to finance a house or car in the future, or even get approved for a credit card. Unfortunately, with identity theft on the rise, it's difficult to know what exactly is on our credit reports at all times. One way to keep constant track of what goes on with your credit is subscribe to one of the many credit monitoring services. These agencies charge you a monthly or quarterly fee to constantly keep track of what goes on with your credit report from all 3 major credit bureaus.

There are many credit monitoring services to choose from, and oftentimes your bank or credit card company will refer you to a particular one that they are affiliated with. Most will allow you to use the service for the first 30 days for free, or the first two months for $1, then pay $9.99 - $12.99 a month. For your convenience, you're given the option to have the fee automatically charged to their credit card or checking account, enabling most people to barely miss the small fee, if at all. The monthly fee allows you full daily or monthly access to all three of your credit reports, as well as your credit score, which is important as well. These services are quite thorough, and will send you immediate alerts to inform you if there has been even the slightest change in your credit report. If someone makes an inquiry, updates information about any open account (or a closed one), you will be contacted right away. You will even be contacted if your credit scores change by even one point, which is quite useful, especially if you're trying to maintain or improve your credit.

It's not unheard of for your credit report to contain errors, and is actually more common than consumers realize. According to a study performed in California, 71% of credit reports contain errors, and 25 % of those errors were serious enough to cause credit denials. For most people this is upsetting and unacceptable. A credit monitoring service can prevent you from being denied credit--or even a job--because of inaccurate information that could be unknowingly lowering your credit score. By being a member of a credit monitoring service you can catch these errors as they occur, allowing you to correct them immediately, before they can negatively impact your life.

Obviously, due to all the advantages of using a credit monitoring service it would probably be a terrific idea to subscribe, and if you're planning on applying for a mortgage or purchasing a car within the next few months, you'll definitely want to take advantage of what these services have to offer. Before applying for the loan in order to finance your house or car, you'll be able to easily scrutinize your credit report and locate and resolve any issues before even applying for the loan. Just one late payment or unpaid creditor can drastically reduce your credit score, and if you're able to catch this right away, you can easily pay off the item, and if the information is inaccurate, correct the problem. So, if having good credit is important to you and you want to take charge of your credit reports, subscribing to a credit monitoring service may be one of the best investments you'll ever make.

September 22, 2008

Cable Television versus Satellite: Which is Really the Best Deal?

With traditional televisions soon becoming obsolete, many people who don't already have some type of cable or satellite service will be forced to subscribe to one, unless they opt for a special converter box. If you will soon face the decision of whether to subscribe to cable or satellite service, one important determining factor will probably be the cost. According to the outlandish commercials advertising cable service for the popular Comcast Cable, cable service is superior to satellite as far as price and service. When it comes to pricing, there really isn't a big difference in cable and satellite service. Both services offer similar packages and channels for about the same price. The more channels you want, of course the more money you'll pay. Satellite service typically offers some of the premium movie channels as part of a lower-priced package, as opposed to cable, but otherwise there is no big difference in prices. You can always choose to take advantage of the specials that cable and satellite providers offer for new customers, and save a great deal initially.

Whenever a new customer subscribes to satellite service with either Direct TV or Dish Network, a credit check is performed. If your credit is decent, you will receive free equipment and installation, while paying as low as $30/month for a basic package. On the other hand, if your credit is not so great, you will have to pay a minimum of $200 up front, with a credit or debit card, and then the company will refund the money over a 2-year period of time by giving you a small credit each month. If your credit isn't so great or if you simply don't have the money to pay upfront, you may want to choose a different alternative.

Another issue dealing with satellite service is weather related. Satellite service is notorious for being interrupted during a heavy rain and/or storm. Now while cable service has been known to be interrupted during certain storms, it's a proven fact that cable can withstand more extreme weather conditions than satellite service can. So, if you live in an area where inclement weather occurs frequently, you may want to subscribe to cable service instead of satellite.

If you're strongly leaning toward satellite service, you may want to think twice before making a final decision unless the technician can install the dish in an inconspicuous location. Just about everyone has seen the cumbersome satellite dishes, which can really make your home appear more like a landing for aliens. Many landlords, especially those with apartment buildings, don't allow their tenants to have satellite service, because they don't want the unsightly apparatus causing their properties to appear less attractive.

It's ultimately up to you which service you decide to choose, cable or satellite, and it all boils down to exactly what type of service you desire. You must remember that you can always opt for a converter box if you choose not to pay for television service at all. The converter box will cost between $40 and $70, but the federal government is allowing up to 2 coupons per household, worth $40 each, which can offset the price of the box. All you have to do is call 1-888-DTV-2009 for more information.

September 20, 2008

Steps to a Financially Healthy Marriage

Money is one of the great battlegrounds of marriage. It's the factor responsible for the most divorces, and according to a survey by Money magazine, the subject married couples argue about more than any other topic except one (that honor is reserved for household chores).

Financial stress can come from many sources, but one of the most difficult is when one spouse is a spender and the other a saver. We come into marriage with attitudes toward money deeply engrained in our psyche, and they're not easily changed. But don't despair -- if you find yourself engaged in a struggle with a spouse who is your opposite when it comes to saving and spending, there are steps you can take to achieve balance and harmony.

1. Agree to be a team. You got married to spend your lives together, so it shouldn't be difficult to start with this understanding, even if it may seem hard to reconcile with your money behavior. To be a team, you have to act like a team, and that starts by giving up individual possessiveness about money: there should be no "your money" and "my money." It needs to be "our money."

2. Agree on your goals. Start your teamwork by articulating your long-term goals: they're the most important and the easiest to agree upon. Long-term goals might include living the lifestyle you want in retirement and educating your children. Be sure to be specific. A goal isn't a dream, like "a comfortable retirement" or "a good school for the kids." Articulating specific long-term goals involves knowing how much those dreams are going to cost and precisely when they will occur. You need dates and dollar figures.

Once you've reached an agreement on your long-term goals, try to set the same kind of specific plans for your intermediate- and short-term goals, like your next vacation and your savings and retirement account balances for the end of the year.

3. Practice full disclosure. Being a team means each of you is empowered to act on behalf of the other with implicit approval. That requires that each of you have full command of the facts: how much money you make, how much you owe, and how much you spend. Share the balances in any individual accounts you may hold, like checking and credit cards. You need to be completely honest with each other, even if you make a mistake now and then.

4. Budget and pay bills together. Create a monthly budget (spreadsheets are ideal for this) that compares the total of your bills and expected out-of-pocket expenses with every penny of incoming and available cash. Include an itemized list of your debts and scheduled payment amounts, as well as your asset accounts and their balances.

Thoroughness is a key determinant of your success, so don't overlook anything, especially significant one-time expenses like gifts or big nights out. Create a catch-all category of out-of-pocket expenses called "miscellaneous" for the little things you might forget -- or those that are small and hard to pin down.

Pay your bills at the same time at the same place, and then update your budget spreadsheet as you do. This means revisiting your monthly budget at least once a month. Print out two copies and keep them somewhere you can each easily glance at whenever the need arises.

5. Update your checkbook(s). One way spenders rationalize their behavior is by keeping themselves in the dark -- unaware -- of how much they really have to spend. If you're going to be faithful to the budgeting process in Step 4, you have to keep careful track of your cash on hand, and that means being sure your checkbook entries are up to date.

6. Agree on spending rules. You and your spouse need to agree on how much you can spend on purchases without consulting the other. Beyond this preset amount, you should talk about the purchase in advance and adjust your budget spreadsheet accordingly.

7. Create a financial plan. Everybody should have a professionally prepared plan, but for couples with polarized spending and saving habits, it's especially important. Apart from the fact that a professional can provide the expertise and tools you may lack, he/she will serve as an impartial third party to help you defuse your money debates.

September 19, 2008

When Should You Pay Back Your Social Security Benefits

Deciding when to start Social Security benefits is an important decision. While full retirement age for Social Security benefits is gradually increasing from age 65 to age 67, you can still start benefits at age 62. However, your benefit will be permanently reduced by 20.8% to 30%, depending on your year of birth. Wait until age 70, and your benefit will increase by 3.5% to 8% annually, again depending on your year of birth.

Thus, the amount of your benefit can change dramatically, depending on when you start drawing benefits. However, you can undo your decision by filing form 521, "Request for Withdrawal of Application," with the Social Security Administration (SSA). You must pay back any benefits you received, but you do not have to pay interest or inflation adjustments on that amount. The form asks for your reason for withdrawing your application, so that the SSA can assess whether you understand the implications of your decision.

When does it make sense to consider withdrawing your application? Suppose you retire at age 62 and decide by age 64 that you really don't enjoy retired life. You can pay back your Social Security benefits for those two years, work for six more years, and then reapply at age 70, receiving a substantially higher benefit than you received at age 62.

Or suppose you retire at age 62 with reduced benefits. You didn't consider the fact that when you die, your spouse will receive 100% of your benefit provided he/she is over full retirement age. Now that you are 70, you wish you had waited for the higher benefit, so your spouse would have more income after your death. You can file the application, repay all benefits received, and then immediately reapply for Social Security benefits, receiving a much higher benefit amount.

But does it make financial sense to repay all benefits when you have received them for several years? In essence, you are purchasing an annuity with inflation protection by doing this. One way to evaluate your decision is to first determine how much your benefit will increase, including additional income your spouse may receive after your death. Then, find out how much an annuity from a private company would cost for that incremental income. If paying back your Social Security benefits costs less than purchasing an annuity, it's worth considering.

September 18, 2008

Some Perspective on the Current Financial Crisis

The current housing and banking crises are both unique and severe. Billions of dollars of wealth have disappeared over the last year, in some cases in just a matter of days. Companies that have been household names have gone bankrupt with others on the verge of failing as this article is being written. Make no mistake; these are scary times with both professionals and the public wondering if their money is safe. Is this the end of the U.S. financial system?

Although we cannot predict the future and suspect that anything is possible, history suggests that this is just another crisis like so many others that will eventually pass until a new crisis is born to take over the headlines.

If one looks at history, the two past crises that probably most resemble this one would be the Latin American debt crisis in the 1980's and the Savings and Loan crisis in the late 80's and early 90's. During the Latin American crisis most major U.S. banks had made large loans based in U.S. dollars to Latin American countries. When these respective countries' currencies dropped relative to the dollar they were unable to pay back the debts. At the time the Latin American indebtedness was in excess of $314 billion. The default on this debt threatened the solvency of the entire U.S. banking system. Suffice to say, this would have been unacceptable. To make a long story short, some creative financing called Brady Bonds was implemented that essentially took the bad loans off the banks' books and provided liquidity and payment of principal and interest helping both the lender and borrower.

In the Savings and Loan crisis, real estate was the culprit. Sound familiar? S&Ls had most of their capital tied up in long-term, fixed-rate mortgages, many of them to questionable borrowers, while their customers started withdrawing funds to invest in the new higher-yielding money market funds. Their solvency quickly eroded and the assets of the insurer, the FSLIC, were inadequate. Wikipedia estimates the total loss was in excess of $160 billion with the taxpayer paying roughly $124 billion of the total. Over 1,000 S&Ls went out of business. To get the bad loans off the banks' books and to once again provide liquidity the Resolution Trust Corporation was created in 1989. A recession subsequently followed but the country survived and our stock market eventually moved to new highs before the next crisis struck.

The United States Treasury was founded during crisis, so this is nothing new. Alexander Hamilton, our first Secretary of the Treasury in 1789, lobbied that the federal government should be responsible for the states' debts that were accumulated to fund the Revolutionary War. Even though our democracy was fragile and practically bankrupt, he wanted the world to know that the United States' word was good and that we would always honor our debts.

The same is true today. Yes, we have a large national debt, but by taking over Fannie and Freddie and helping troubled companies, like AIG, the government is once again announcing to the world that America stands by its debts. If it eventually requires the taxpayer to ultimately be responsible for some of the debt, so be it. Americans will pay it and move on with the process of creating the freest country and most dynamic economy the world has ever known.

Although the Latin American debt crises and the Savings and Loan crisis resemble this one, the list of other crises is quite large. This country has also been through the Great Depression (the result of which was the creation of the FDIC), two World Wars, the 1987 Stock Market Crash, the internet bubble bursting, and most recently, September 11th. Just 7 years ago a trillion dollars of wealth was destroyed, airlines were going bankrupt, and close to 3,000 people died. The economy and stock market then proceeded to go to new historical highs. We suspect this country will make it through the current crisis and emerge even stronger.

September 15, 2008

What Has Happened to Savings in America?

What has happened to Savings in America? A number of factors may be affecting America's shrinking savings rate such as: the wealth effect, declining interest rates, and easier credit options. What can we do? Consider the following:

• America's personal savings rate, defined as savings divided by disposable income, has been falling steadily for more than two decades and is among the lowest in the industrialized world (Source: Federal Reserve Bank of St. Louis Review, November/December 2007).

• According to the U.S. Commerce Department's Bureau of Economic Analysis (BEA), Americans spent more than they saved in 2005, for the first time since the Great Depression (Source: Bankrate.com, March 2006).

• In a recent survey, nearly two-thirds of Americans admitted they don't save enough, and more than a third said they often (11%) or sometimes (25%) spend more than they can afford (Source: Pew Research Center Publications, January 2007).

In the mid-1980s, the savings rate stood at more than 10%. As of March of this year, it was a measly 0.4% (Source: Employee Benefit Research Institute, March 2008). These and a host of other data point to a disturbing reality: America is experiencing a savings crisis that threatens its economic future.

Savings are the source of capital investment in new products and services that increase productivity and contribute directly to economic growth. As domestic sources have dwindled, U.S. business and government alike have had to rely on foreign sources of capital, resulting in a growing outflow of billions of dollars a year in the form of interest and dividend payments. Instead of the world's banker, the U.S. has become the world's largest debtor, with a growing trade deficit and a weakening dollar that threaten a shrinking economy, rising unemployment, and lower standard of living.

What's Behind It All?

Economists point to a number of factors that are driving America's shrinking savings rate, including:

The wealth effect. Beginning in the early 1990s, American household wealth skyrocketed as a result of booms in the stock and real estate markets. It's an economic axiom that when household assets increase rapidly, people perceive less need to save while their appetites for spending increase.

Declining interest rates. After peaking in 1980 to 1981, interest rates began a long decline, fueling the economy by encouraging borrowing and spending while gradually discouraging saving. The prime rate, at 21.5% in 1980, fell to 4.0% in 2003, and 30-year mortgage rates declined from an average high of 16.63% in 1981 to 5.83% in 2003 (Source: The Wall Street Journal, 2008). Meanwhile, rates on six-month certificates of deposit slid from a high of 17.98% in 1981 to a scant 1.02% in 2003, and even now are hovering below 3% (Source: Federal Reserve, 2008).

Easier credit and ways to borrow. Creative financing mechanisms, including zero-down, interest-only, and adjustable-rate mortgages; home equity lines of credit; and the securitization of debt, made it easier for consumers to borrow money to buy anything from homes for investment to cars, vacations, jewelry, and the latest in digital consumer electronics.

These were only the latest developments in a 63-year period of virtually unbroken U.S. prosperity that has reshaped America from a nation of savers to a nation of shoppers. Even policymakers recognize that the consumer is responsible for upward of 70% of all spending in the U.S. economy and is largely responsible for fueling GDP growth since the fall-off in capital spending early in this decade.

The concern, however, is that in the midst of these mechanical disincentives to save, two-plus generations of Americans have forgotten how to postpone immediate gratification. Now that we have entered an extended period where assets may no longer grow at the same rate as consumers have recently become accustomed, the fear is that the saving habit may not return to fuel needed investment in our economic future.

What Can We Do?

Some of what needs to be done to stimulate American personal saving has recently been accomplished, but there's more to do. Some steps that would help turn the decline in personal savings around include:

Continue to encourage automatic 401(k) enrollment. The U.S. Pension Protection Act of 2006 made it easier for companies to enroll workers in 401(k) retirement saving plans without their prior permission. Instead of deciding to opt in to these tax-advantaged payroll savings plans, employees have the choice of opting out. Employers can determine a minimum contribution rate of up to 10% of pretax income, mandate higher contribution levels over time, and direct the investment of employee contributions. The plans are growing in popularity with employers: a survey found that 23% of 401(k) sponsors are automatically enrolling participants, compared to 14% a year earlier (Source: Deloitte Annual Benchmarking Survey, 2008).

Publicize the split tax refund option. IRS regulations were updated for 2007 to allow taxpayers receiving a refund via electronic deposit to target up to three different accounts, including savings and IRAs. Observers note, however, that many people still aren't aware of the opportunity, which requires filing IRS Form 8888 with their return.

Expand the Savers' Tax Credit. Enacted in 2001, this provision offers taxpayers who earn $50,000 or less up to a $2,000 tax credit for contributions to an IRA, 401(k), or other employer-sponsored retirement plan. Originally slated for extinction after 2005, the federal Savers' Tax Credit was made permanent by the 2006 Pension Protection Act. It also indexed income limits to inflation, a previous shortcoming that contributed to only five million taxpayers taking advantage of it in 2005. Advocates call for expanding the credit to create refunds for lower-income savers who don't have a tax liability.

Create automatic payroll-based IRAs. The Retirement Made Simpler Coalition, backed by the American Association of Retired Persons and the Financial Industry Regulatory Authority (FINRA), advocates the creation of automatic workplace IRAs for the 57% of American workers who aren't covered by a 401(k) plan (Source: The New York Times, April 27, 2008). As with automatic 401(k) plans, employers would enroll participants automatically, but enable them to opt out. Investment management would be contracted to private sector financial institutions, which would maintain no-frills accounts making maximum use of electronic technology. Once account balances reached a predetermined amount, participants could roll over to full-service accounts at providers of their own choice.

Introduce government-matching contributions. Among the most radical proposals to stimulate saving comes from The Brookings Institution, a nonprofit public policy research center and economists from MIT. They urge the federal government to scrap tax deductions for contributions to traditional IRAs and 401(k) plans in favor of universal 30% government-matching contributions. They argue that the proposal would be tax-revenue neutral, but stimulate greater savings among low- and middle-income households, who benefit less from tax deductions than high-income taxpayers.

Americans' rapidly declining rates of savings aren't just bad for the nation's economy -- they're bad for your future, too.

September 12, 2008

Rolling Over Pension Plan Assets to a Roth IRA

Starting January 1, 2008, the Pension Protection Act of 2006 permits proceeds from qualified retirement plans, including 401(k), 403(b), and 457 plans, to be rolled over directly to a Roth individual retirement account (IRA). In the past, the proceeds had to be rolled over to a traditional IRA and then from the traditional IRA to a Roth IRA. Guidance was recently released by the Internal Revenue Service on how to apply this provision.

The Roth conversion rules still apply to these rollovers. Thus, in 2008 and 2009, your modified adjusted gross income (AGI) cannot exceed $100,000 to convert, not including any income resulting from the conversion. Amounts converted must be included in income if taxable when withdrawn (i.e., contributions and earnings in deductible IRAs and earnings in nondeductible IRAs), but are exempt from the 10% early withdrawal penalty. Starting in 2010, all taxpayers can convert, regardless of their income.

When converting from a traditional IRA to a Roth IRA, you cannot convert just the nontaxable portion of your traditional IRA. You must assume that a pro-rata portion of both the taxable and nontaxable IRA funds are being converted. With a rollover from a qualified retirement plan to a Roth IRA, however, you do not have to use the pro-rata rule. Thus, if a portion of your plan contains nontaxable funds, you can convert only that portion to a Roth IRA, putting the taxable portion in a regular IRA (if your plan allows you to split your funds for distribution purposes). This strategy would not require the payment of any income taxes following the conversion.

If you have some nontaxable funds in your retirement plan, but the plan does not allow split distributions, you have a couple of options:

• Transfer all of the funds to a regular IRA and then convert a portion of the balance to a Roth IRA. This requires the use of the pro-rata rules, so you will owe some income taxes on the conversion.

• Request a check payable to you. You can deposit the check and then write two checks -- one to the Roth IRA in the amount of your nontaxable funds and another for the balance to a regular IRA. However, the plan will be required to withhold 20% of the taxable amount for income taxes, which you will have to provide from personal funds to keep the entire balance invested. You will then get that money back when you file your tax return.

If you transfer the funds to a Roth IRA and find out that you are not eligible to do so (this would only be a concern in 2008 and 2009), you can recharacterize the funds to a traditional IRA. The funds cannot go back to the retirement plan. A recharacterization eliminates any tax consequences from converting to a Roth IRA. You can also recharacterize if you decide you do not want to pay the income taxes or your account value decreased after conversion, so that you owe income taxes on more than your account is currently worth. You have until October 15 of the year following the year of the conversion to recharacterize.

Nonspouse plan beneficiaries can also roll over inherited retirement plan balances to an inherited Roth IRA, even though they cannot roll over an inherited traditional IRA to an inherited Roth IRA. The rollover is only possible if the plan permits nonspouse beneficiary rollovers, and it must be a direct transfer to the Roth IRA. Once the assets are rolled over, the beneficiary must take required minimum distributions starting in the year following the original owner's death, even though it is a Roth IRA, since the beneficiary is not the owner or the owner's spouse. However, the distributions can be taken income-tax free. The beneficiary will have to pay income taxes on the taxable portion of the plan assets, but he/she will be entitled to the deduction for income in respect of a decedent, which will help offset some of the cost.

Typically, a Roth conversion makes the most sense when funds will not be deducted from the Roth IRA for a significant length of time. Since a nonspouse beneficiary must start taking distributions in the year following the original owner's death, he/she should carefully analyze whether it makes sense to convert. The younger the nonspouse beneficiary is, the more benefit he/she receives from the conversion, since distributions are made over the beneficiary's life expectancy.

September 10, 2008

Bankruptcy: Is it a Good Idea?

If you're considering filing bankruptcy, whether Chapter 7, which is total liquidation, or Chapter 13, where you repay your debts through the courts, chances are you're at the end of your rope when it comes to your finances. You are probably experiencing a great deal of stress caused by being unable to pay your bills and the fact that your credit score is steadily declining. There is no reason to stress, though, because there is help available for your situation. If you need help deciding whether or not bankruptcy is the right thing to do, there are several things that you need to take into consideration first. Deciding to file bankruptcy isn't a decision that can be made over night, but if your situation is dreadful, chances are bankruptcy will help you more than you ever thought possible.

For some people, bankruptcy is the only alternative in a dire situation, but for others there are other options that need to be considered before bankruptcy is filed. Bankruptcy is a big deal, and if you aren't ready to deal with the aftermath of it then maybe you should choose another alternative for getting out of your current financial crisis. If you aren't willing or can't devote the time to budget your money and apply for future credit with caution, then you need to alter your priorities before you file. You can definitely reclaim your life following a bankruptcy, but it will require some effort on your part in order to achieve this goal. You will need to make absolutely certain that you pay all your bills on time in the future, and you'll also have to keep track of your credit report to ensure its accuracy.

Additionally, you need to determine exactly what type of debt you have, how much, and whether or not you're contemplating filing Chapter 7 bankruptcy or 13. Not all debts, such as taxes, student loans and child support arrears are dischargeable in a Chapter 7 bankruptcy, but can of course be included in a Chapter 13. If your income is low and you have many creditors that you owe a substantial amount of money to, then it would be wiser to file for Chapter 7 bankruptcy. On the other hand, if the amount that you need to pay off in order to be debt-free isn't exceptionally high and you could comfortably afford to pay off your bills but need to make payments, Chapter 13 may be a good option for you. Chapter 13 can also help you to retain ownership of a house or car that you may currently be delinquent in payments on.

Scheduling a visit with a debt consolidation agency may be a good idea in the beginning, because the first visit is usually free and the qualified debt analyzer can help you make the final decision to file bankruptcy or not. Specialists at these agencies can determine if your income will enable you to comfortably pay your regular living expenses as well as your debt, or if filing Chapter 7 bankruptcy would be a better option. If you are having trouble paying your rent, buying food, etc, no debt consolidation agency is going to tell you that you need to make arrangements to pay off your debt. Your first priority would be maintaining your household, and if you can't pay normal living expenses because you're paying on credit cards or other debt, you should definitely consider bankruptcy, which was created as protection for this very reason.

If you ultimately decide to file bankruptcy then you are most likely making the best decision to better your life and your finances. Consulting with a bankruptcy attorney, which is usually free for an initial visit, is the next step that you need to take in order to discuss specifics about your individual situation. If you can't afford the expensive attorney fees in addition to the bankruptcy filing fee, most law offices will make special payment arrangements for you. If you consult with one who doesn't allow payment arrangements, rest assured that there are attorneys who will, so just find another one. Bankruptcy is available in order to give people experiencing extreme financial trouble their lives back. If this describes you, then you should definitely take advantage of the law in order to get your life, finances and credit back on track.

September 9, 2008

The NEW 2009 Entertainment Book is Available

The 2009 Entertainment Book has arrived, loaded with ways to save money. As we have said previously, we use it ourselves and have found it particularly valuable at saving money when dining out. To give people an extra incentive to buy, the company is currently offering Free Shipping through September 30, 2008.

In addition to the valuable and unique local savings and discounts in each city, the book is highlighted this year by the introduction of completely FREE - no purchase necessary - offers from top merchants, and contains more grocery savings. The 2009 book has valuable discounts from such national merchants as Baja Fresh, TGI Fridays, Dave&Busters, Dick's Sporting Goods, and many more! And don't worry about purchasing the book early, as the coupons are good for the next 15 months.

To purchase the 2009 Entertainment Book as well as finding other ways to save money, visit the ManagingMoney.com Expenses Center.

September 8, 2008

Paulson Says Treasury Adopting Fannie and Freddie

Well, despite statements by Fannie Mae (NYSE: FNM) execs as recently as the last quarterly statement that they did not foresee a federal takeover, it has happened. Treasury Secretary Henry Paulson announced on Sunday that the federal government will place Fannie Mae and Freddie Mac (NYSE: FRE) into a temporary conservatorship. Immediate actions under the conservatorship include the elimination of dividends for both owners of both common and preferred shares, immediate cessation of all lobbying and political activities, and a re-evaluation of charitable activities. These moves are designed to preserve as much of the companies' capital as possible while the Treasury and the FHFA recapitalize the nation's largest mortgage brokers through the periodic purchase of senior preferred shares. Current shareholders will also lose all rights to govern the management of the company.

This move is expected to strip essentially all the value from existing preferred shares. Fannie Mae shares traded down to $3.50 / share in after-hours trading on Friday as rumors of the pending move by Paulson made the rounds. Paulson seems to think the shares will drop even more significantly as evidenced by his statement that "The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses... [will] reduce their regulatory capital below 'well capitalized.'"

Although the total cost of the rescue is still uncertain, it seems likely to be the most expensive in history, since Fannie and Freddie currently back about half of all US mortgages between them. With mortgage defaults continuing to increase, that amounts to some pretty lofty exposure numbers, although no one can say what portion of the $5.4 trillion in Fannie and Freddie backed debt will eventually default. More than 8000 banks currently hold mortgage guarantees from either Freddie Mac or Fannie Mae.

Both companies will also have new leaders. For Fannie Mae, CEO Daniel Mudd will be replaced by Herb Allison. Allison previously held the position of chairman and CEO of TIAA-CREF, a retirement plan provider. Freddie Mac's CEO, Richard Syron, will be replaced by David Moffett, the former vice-chairman and CFO of US Bancorp.

With the move by Paulson, both Freddie Mac and Fannie Mae are expected to be able to meet all existing obligations. This expectation was confirmed by Standard and Poor's reiteration of its AAA rating for both companies while pronouncing them "stable." Stakeholders around Washington and Wall Street hailed the move. Ben Bernanke, The Chairman of the Federal Reserve, said "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets."

September 5, 2008

Social Security Benefits for Married Couples

When should married couples apply for Social Security benefits? Before answering this question, you first need to understand the rules governing Social Security.

If benefits start at full retirement age, you are entitled to the larger of 100% of your benefit based on your earnings or 50% of your spouse's benefit. However, if you elect benefits before full retirement age, your spouse's benefit will be reduced by a larger percentage than your benefit was reduced. After your death, your spouse receives the larger of his/her benefit or 100% of your benefit, provided he/she is over full retirement age. If not, your spouse receives between 71.5% and 100% of your benefit. Thus, the larger your benefit is, the larger your spouse's benefit may be after your death.

For individuals turning 62 this year, full retirement age for Social Security purposes is 66. If benefits are claimed at age 62, that individual would receive 75% of full retirement benefits. For each year past age 66, benefits increase by 8% per year, for a maximum benefit at age 70 that is 132% of full retirement benefits. These amounts have been actuarially calculated, so that if you live to the average age, the benefits are approximately the same for a single individual, no matter when you start those benefits.

However, for married couples, benefits are not actuarially the same. Typically, the man is older than the woman, has higher earnings than the woman, and will not live as long as the woman. Because the surviving spouse can elect to receive 100% of the other spouse's benefit, it typically makes sense for the man to wait until age 70 to claim Social Security benefits, in order to provide his wife with the highest benefit possible after his death. On the other hand, there is usually no reason for the woman to wait beyond ages 62 to 66 to start Social Security benefits, provided she can claim benefits on her own earnings record. While the wife's benefit may be lower when her husband is alive, she will receive his higher benefit after his death.

A spouse who can't claim benefits on his/her own earnings record can claim spousal benefits, but he/she must wait until his/her spouse starts benefits or reaches full retirement age. Spousal benefits are reduced when taken at age 62, but do not continue to grow after full retirement age. However, a worker can apply for Social Security benefits at full retirement age, allowing his/her spouse to collect benefits, and then suspend his/her own benefit, reapplying at a later date.

Keep in mind that these strategies are based on individuals living an average life expectancy. If you and your spouse live well beyond that age, it will typically pay for both of you to delay benefits until age 70. However, if you both die young, it would make more sense for both of you to claim benefits at age 62.

Bottled Water: Is it Worth the Cost?

Consumers purchase large amounts of bottled water for numerous reasons. First of all, many prefer the taste, which is often free of the chlorinated/chemical-like taste that some tap water contains. Many consumers choose to purchase bottled water because they feel it's healthier than contaminated tap water. Others prefer to purchase bottled water simply because of the convenience and portability of the various sized bottles. No matter what reason a person chooses to purchase bottled water, many people wonder if they're wasting their money or if buying bottled water is actually worth the cost.

An abundance of research has been performed by labs in attempt to find out exactly what our water, bottled and tap, actually contains. Shockingly, many potentially dangerous substances have been found in our tap water, which includes poisons like arsenic, chlorine, which is used to clean the water, and many others. Recent findings from scientists have also discovered that tap water also contains traces of medications, animal and human feces, and other disgusting and dangerous substances. Publicizing these findings has led many people to turn to bottled water as a safe alternative, but sadly it may not be such a good substitute.

Now while the bottled water that so many Americans buy may smell and taste a great deal better than tap water does, it has actually been found to be no safer than tap. Some bottled water manufacturers don't collect their water from "springs," but in fact use regular tap water and then add mineral and vitamins to it. Even though the bottled water doesn't contain the exact same toxins that tap water does, it contains other toxins, including chemicals that can leach from the container that the water comes in. Unfortunately, there are no state regulations in place to dictate what bottled water can and cannot contain, unlike tap water. Additionally, many bottled water manufacturers merely clean the plastic bottles that the water comes in, without sterilization, which could harbor bacteria in the water assumed to be so pure.

Even though tap water contains trace amounts of arsenic, fluoride, and other undesirable materials, most experts agree that drinking tap water is actually safer--and cheaper--than drinking bottled water. If you don't want to give up the convenience of bottled water, though, there are a few companies that guarantee the purity of their water. You could also purchase a water bottle that contains a filter and simply purify your own tap water this way. This option would certainly save you a great deal of money, as you would only have to occasionally purchase filters for the bottle. You could even invest in a water filter for your faucet, which would make it easier to cook with and drink while you're at home.

Despite the findings regarding bottled water, many people choose to continue to purchase the water that they're so used to buying. For these people, purchasing bottled water is worth the cost--and the risk. Ultimately it's up to you to decide if buying bottled water is worth the money, but if your health goals are to avoid as many toxins as possible, then obviously bottled water may not be worth the cost since it could potentially affect your health. On the other hand, if you feel that the benefits of bottled water outweigh the disadvantages and buying it doesn't hurt your budget, then it may very well be worth the cost and in your case you should continue to buy bottled water.


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