12/19/16

No Savings, No Backup Plan, No Fairy Godmother: How to Handle a Financial Disaster

By Susannah Snider, Oct. 18, 2016, US News & World Report

A financial disaster is hard enough to navigate. But it gets even harsher when you have no emergency fund or backup plan to help you work your way out of it. So, what’s an unlucky person to do after, say, a broken-down car or job loss leaves you short on cash and high on stress?

Fortunately, the financially unfortunate have access to a range of resources for patching up a financial disaster, experts say.

But keep in mind that all of these choices have their downsides. “Ideally you wouldn’t choose any of these options,” says Stephanie C. McElheny, a certified financial planner and assistant director of financial planning at Hefren-Tillotson in Pittsburgh. “None of them are good options – it’s just lesser evils.”

Here’s how to handle a money mishap when you have no backup plan – and no fairy godmother to boot.

Sell your stuff. A quick way to find extra cash without tapping credit is to hawk your belongings. “There are lots of options to get rid of your stuff,” writes Niv Persaud, a certified financial planner and managing director of Transition Planning & Guidance, a boutique financial advising firm in Atlanta, in an email.

Consider peddling your hand-me-downs on eBay, Craigslist and at secondhand stores. Heck, if you can survive without your car – and you’re in dire financial straits – consider letting it go.

Land a part-time job. If you’ve got time to spare, look into applying for a side gig. ”With the holidays around the corner, many retailers are looking for additional help,” Persaud writes. “Another option is [to] use your skills on sites, such as Fiverr, Elance, etc. You can also bite the bullet and babysit for friends [and] family or take care of their pets when they’re out of town.”

By cutting costs and using the debt snowball method, this duo slashed thousands in 25 months.

Slash spending. Carve out room in your budget by trimming expenses wherever possible. If housing is a major budget-buster, for example, consider getting a roommate, says Jamie Ebersole, a certified financial planner in Wellesley Hills, Massachusetts.

Do what you can to cut down on eating out and shopping. Re-negotiate or cancel unnecessary monthly bills, like your cable bill, to make your last dollar go further.

After you’re done digging your way out of this financial hole, consider continuing these good behaviors until you’ve built up at least six months of living expenses in an emergency fund.

“It’s best to just be proactive and have that emergency reserve, so this can be avoided, or at least mitigated [in the future],” McElheny says.

Work with your creditors. If your financial disaster revolves around debt, you may be able to negotiate a gentler repayment plan or reduced monthly bill – and carve out some extra room in your budget.

“Actually talk to your creditors,” Ebersole says. “Most creditors are willing to work with you if you’re upfront with them and aren’t trying to hide it.”

Tap your home equity. If you’re house-rich but cash-poor, borrowing against your home’s value can help you fund major, unexpected expenses, like medical bills, with a relatively affordable loan.

Consider a home equity line of credit, a type of revolving credit in which your home serves as collateral. A lender will set your credit amount based on the home’s appraised value, the balance owed on the mortgage and your ability to repay, including your credit history, according to the Consumer Financial Protection Bureau. Or consider a home equity loan, which provides a fixed amount of money, which you repay over a set time period.

Credit card expert Beverly Harzog offers some unusual tips in her new book ’The Debt Escape Plan.’

Borrow against your insurance policy. You can access relatively affordable debt by tapping the cash value of your life insurance policy, experts say. In this case, the insurance company will essentially lend you money while holding your policy as collateral.

Keep in mind, however, that if you fail to repay your loan – and it balloons to exceed the policy’s cash value – your policy could lapse and trigger a major tax bill.

Tap your retirement savings. If you have a 401(k) plan, you can borrow up to 50 percent of its vested account balance, or up to $50,000, whichever is less. So, to borrow the full $50,000, you’ll need to have at least $100,000 in your plan. Loans borrowed against your 401(k) must typically be repaid within five years. And failure to repay on time can leave you saddled with penalties and fees.

Savers who have been squirreling away money in a Roth IRA for at least five years can withdraw their contributions penalty-free. “You can always take out the principal without paying any taxes on it,” Ebersole says.

Bottom line: Even if you can repay loans taken from your retirement accounts on time, you’ll miss out on the gains you would have realized had you left those funds to grow on the investment market.

Borrow from your 529. Contributors can withdraw any funds placed in a 529 plan, which is for educational expenses, Ebersole says. But withdrawing money for noneducational expenses isn’t ideal since it can trigger taxes and a 10 percent penalty on the account’s earnings.

As with borrowing from a retirement account, dipping into your college savings account will cost you the returns you would have seen had you let the funds grow on the market.

Ask family and friends. ”Family and friends are always a good place to go if you don’t have any other options,” Ebersole says.

Don’t forget that mixing loved ones and loans can make for a potentially toxic combination. “Borrowing money in any capacity from family has the potential to backfire and can really strain relationships,” McElheny says.

Declare bankruptcy. Another last resort is to declare bankruptcy. But keep in mind that going through bankruptcy will make it hard to access credit for years in the future, including loans for a child’s college education and other useful debt.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

12/12/16

3 Ways to Boost Retirement Income

By Linda Backus, Oct 19, 2016, MotleyFool.com

A whopping 52% of working American households are “at risk” for not being able to live as comfortably as they did before retirement, according to the findings derived from the 2014 National Retirement Risk Index published by the Center for Retirement Research at Boston College. That’s a sobering statistic considering retirement is classically considered a time when people get to enjoy the perks of a lifetime of hard work.

Whether it’s finding the cash to take the trip of a lifetime or simply finding the money to make ends meet, there are a myriad of ways to quickly fatten your wallet, and in the process, enrich your quality of life.

How much can I make?

The first step for any retiree seeking more income should always be to know the rules when it comes to Social Security benefits. For those who are 62 or older and receiving benefits but haven’t reached full retirement age, the limit for new employment income is $15,270 per year without facing penalties, according to the Social Security Administration. Any amount above that will be deducted from your monthly checks based on a calculation that factors in your age and how much you are making. But when you reach “full retirement age” you can earn as much as you want and still receive your full benefit check each month.

Once you’ve determined how much you can safely make without impacting your benefits, the sky is the limit in terms of what you can do to boost income. Here are three simple ideas that can improve your financial status quickly without too much hassle.

Seasonal work is plentiful for seniors

Working a couple of months a year can increase income in the short term leading to long term financial benefits. Industry analysts were quick to point out as the holiday season approached that jobs are plentiful, and could translate into year-round employment.

Job posting giant Monster staffer Lily Martis made it a point to highlight the findings of global outplacement consultancy Challenger, Gray & Christmas, Inc. which predicted companies across the country are poised to take on 700,000 seasonal employees to deal with the rush of holiday shoppers this year. But the jobs aren’t all in retail, said John A. Challenger, chief executive officer of Challenger, Gray & Christmas in a press release.

“The big change we are seeing, however, is that while seasonal retail jobs remain flat or shrink, there has been a marked increase in seasonal job gains in other sectors,” he said. “The sector with the biggest increase in holiday hiring in recent years has been transportation and warehousing, as more and more holiday shopping is done online.”

When checking out possibilities for seasonal work, don’t forget to consider the perks. Some positions at higher-end department stores include discounts on items you purchase or commissions for sales. As many as 20% of seasonal hires are retained for work throughout the year, according to Martis — which you may or may not want — and many seasonal workers come back during the next year’s holiday rush.

Retirees can teach

Retirees have a wealth of knowledge that can easily translate into more income. Teaching is a great way to share skills and stay engaged in learning while saving for a big vacation or finding new revenue to invest. Depending on your specialty and preferences, teaching can be an incredibly flexible job choice as well.

Consider tutoring or consulting in your old field. Most colleges and universities will allow tutors to post flyers on campus or information on online bulletin boards.

Another flexible way to make extra money on a part-time work basis is to work as a substitute teacher. School systems across the country are continuously looking for a stable of people who are willing to be on-call when a teacher is sick or takes a personal day.

The range pay varies by state and district. In the Northeast, substitute teachers can make anywhere from $75 to $150 per day depending on the district and the level of experience. Do your homework, however before considering this option. Some districts require that subs have a Bachelor’s degree to be considered, and you will likely be asked to undergo a background check including fingerprints. Subs can agree to work every day, a few days a week or even half-days. (Let’s face it, having the summers off isn’t a bad deal either.) The National Education Association has an excellent state-by-state summary that can help you get started.

And, it’s worth noting that teaching does not have to be in traditional subjects. There may be money to be made teaching bridge, chess, sewing, or countless other skills you may have developed during your life that you can share with others in retirement.

Sell things you don’t need

There’s no point in hanging on to items that have out-lived their usefulness, especially when you’re looking for a fast way to improve your financial outlook. One of the easiest ways to make some quick cash while cleaning out your basement or attic in the process, is to call on a reputable auction house to come cart the stuff away. While this option will only work once to boost your income, it’s basically like getting paid to have someone else clean your space. Owners will get a percentage of the purchase price. It’s often well worth the money to take a lower percentage if the auction house is willing to do all the work. The National Auctioneers Association provides a list of reputable auction houses in your area.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

12/5/16

8 Ways to Safeguard Your Financial Life as You Age

By Teresa Mears, Oct. 20, 2016, US News and World Report

Taking steps when you’re younger can be essential to keeping your money safe in your later years. We’ve all heard the horror stories about elderly people being fleeced of their life savings, falling prey to con artists or losing their homes because they never got a bill for their real estate taxes.

We all think it could never happen to us. But you may want to think again. Research shows that even people who never succumb to dementia lose some of their financial prowess as they age. Unfortunately, they don’t always lose confidence in their ability to manage their own finances. That can lead to financial losses.

People of any age, but especially older people, should take steps when they are young to protect themselves from financial errors later in life. They can include steps such as automating bill pay or discussing financial decisions with a trusted friend or relative before taking any action.

Financial scams often target older people, partly because they have more money but also because they are often seen as more trusting. Even people savvy enough to avoid scams can make financial mistakes because they’re disorganized or forgetful. But they may be too proud to ask for help.

“If you’re in that position, you may be in a state of denial. And you don’t want to [ask for help], and you’re embarrassed,” says Joseph Lucey, president of Secured Retirement Advisors in St. Louis Park, Minnesota. “You want to plan for the worst but hope for the best.” Awareness is the first line of defense to keep older adults safe from fraud.

Among the most vulnerable are widows and widowers whose partners previously handled all the finances. Not only are they dealing with unfamiliar transactions, they’ve lost a trusted partner with whom they could discuss decisions. “Spouses keep an eye on each other. They have somebody else to keep tabs on them,” says Scott Tucker, a fiduciary investment advisor in Chicago.

A 2009 study by the Center for Retirement Research at Boston College found that people made the fewest financial missteps between ages 43 and 63, with 53 being the peak financial age. There are things people of all ages can do to avoid becoming the victim of bad financial decisions, but getting systems in place can be particularly important as you age.

Here are eight steps to take to safeguard your financial life:

Automate transactions. Anyone of any age can forget to pay the mortgage or real estate taxes. Automate as much as you can, from utility payments to mortgage payments to required distributions from retirement accounts. And have anything you can deposited directly into your bank account. Then make a list of what you have automated and let your heirs know where it is. Don’t automate and ignore, however. “You still need to look at your statements, just like you look at your bills,” says Gerri Walsh, senior vice president for investor education at the Financial Industry Regulatory Authority, which maintains a securities helpline for seniors as well as a BrokerCheck service, which allows consumers to check the employment history, certifications and license of brokers as well as any serious complaints. “It’s still important to know what you’re being charged.”

Set up banking alerts. Most banks will alert you if your balance drops below a certain level. You can also set up alerts for large credit card purchases, due dates for bills and reminders to check your statements. Alerts can come via text or email, whichever you’re more likely to see. You can also create calendar alerts on your phone or computer or write reminders on a paper calendar.

Keep your estate planning documents updated. Depending on your situation, you might need a will, a living trust, health care directives, a power of attorney or other documents to let someone else manage your affairs while you’re still alive and to handle your business once you’ve passed on.

Organize your important papers and let someone know where they are. Make a list of assets, gather important documents and passwords and put them in a secure place, perhaps a home safe or waterproof box. Then make sure one of your children or trusted confidante knows where they are in case you’re incapacitated.

Simplify your accounts. Consolidate brokerage and bank accounts. Close accounts that have only small amounts of money. That gives you less to manage. If you have multiple credit cards, use just one so you’ll have only one bill to pay.

Sure, boomers have time and experience on their side, but they could still learn a thing or two about money from millennials.

Don’t make quick decisions. Sales people, both good and nefarious, push for a quick response because they know people are more likely to buy in the heat of emotion. Make a pact with yourself that you won’t make any significant financial move, such as moving your investments to another brokerage firm or buying a new car, without first discussing it with a trusted friend or relative. “Emotion ties into fraud susceptibility,” Walsh says. “When older individuals were invited into a heightened emotion state … they were more likely to be receptive to a fraudulent pitch.”

Consider sharing information. If you want someone else to help monitor your finances, have copies of your statements sent to a trusted friend or relative. Authorize your financial advisor to discuss your finances and concerns with a third party, and request an annual meeting to which you’ll bring other family members or friends. You can also give account passwords to those you trust so they can keep tabs on your financial affairs. But be careful with whom you share your information. “There’s pros and cons,” Walsh says. “Sometimes the issue is stranger danger, and sometimes the danger is family fraud.”

Sign up for the Do Not Call registry. That won’t end all nuisance, fraud and solicitor phone calls, but it will reduce the number of them. Refuse to answer other calls from people you don’t know or immediately hang up, and decline offers from strangers who call trying to sell you something, “fix” your computer or otherwise try to separate you from your money.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®