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Where’s my Social Security benefit statement?

You know your birthday is not far away when you get your Social Security benefits statement in the mail.  It’s four pages of information that explains your benefit and how it can vary in different situations.  The Social Security Administration has sent this statement out yearly to American workers over age 25 since 1999.  Well, most people will no longer be getting these statements automatically.  As a cost-saving measure, the Social Security Administration has announced plans to mail out automatic statements only to workers over age 60.  However, your local Social Security office will still be able to give you a copy of your benefits statement.  The Social Security Administration is working to make the statements available online as well.  Meanwhile, you can get an estimate of your benefits by visiting http://www.ssa.gov/estimator/.

Checking your benefits statement each year is a useful tool for your financial planning.  One thing it shows is how much more you can gain in benefits by waiting a few years to claim your Social Security benefits.  For example, depending on when you were born, you could gain a 32% higher monthly benefit by waiting to claim at 70 instead of 66.   The statement also shows your earnings for each year of your work life.  Your benefit is based on the top 35 years of earnings.  If you were out of the workforce for several years, you could potentially earn a much higher benefit by working full-time for at least a few more years and replacing some of those zeros with higher numbers!  Social Security planning is particularly important for women, who tend to earn less than men but live longer.  So pay attention to what your benefits statement tells you, and consider taking action to increase what is a very important source of income for most American workers.

This entry was posted on Thursday, April 28th, 2011 at 4:28 pm and is filed under Financial Planning, Retirement Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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An investment banker gives back

I’d like to share a remarkable story with you.  Gordon Murray, who died Saturday, spent many successful years on Wall Street.  Later, facing a terminal illness, he wrote a book called The Investment Answer as a way to give something back in the time remaining to him.  Contrary to the prevalent thinking among many advisors and investors, the book advocates a passive investment approach, one that emphasizes the use of  buy-and-hold and rebalancing, and using low-cost index funds and ETFs instead of chasing the next hot market sector.  Though it’s not a popular view on Wall Street, his approach is truly the one that has proven best for investors in the long-term. This is also the approach used by many independent fee-only planners, including myself.

I’m delighted to see that his book is turning into a bestseller.

Read Gordon’s story.

This entry was posted on Thursday, January 20th, 2011 at 6:14 pm and is filed under General Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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What’s the best way to know when to buy and sell?

Investing is very emotional for many people.  Unfortunately, when people react emotionally to market volatility, they often react in the wrong direction.  When stock prices are rising, money moves out of bonds and into stocks.  When stock prices are falling, money moves out of stocks and into bonds.

In the third week of March 2009, at the market bottom, outflows from equity mutual funds were about $11 billion, while $3.5 billion flowed into bond mutual funds.  Millions of people sold everything at the bottom and went to cash.  Over the next six months, the Dow Jones Industrial Average rose 48%.  There are many other similar examples.

Many “experts” claim to have the formula for knowing when to buy and sell, and they will let you in on the secret—for a small price, of course.  The problem is, no one is consistently right about timing the markets.   If you use market timing, then even if you’re correct about when to get out of the market, you also need to get back in at the right time and into the right investments—no easy task.

If market timing isn’t the answer, then what is?

An opposite strategy, buy and hold, was very popular about ten years ago, during the tech bubble days.  It is still popular.  The investor decides on a certain mix and holds onto it indefinitely, without rebalancing.  As stocks rise, the portfolio becomes aggressive and stock-heavy.  As stocks decline, the portfolio becomes more heavily weighted towards bonds.  Warren Buffett has made billions as a buy and hold investor.

A third way to manage investments is “constant-mix reinvesting.”  With this method, you  determine an appropriate asset allocation, say 60% stocks and 40% fixed income, and maintain that allocation through rebalancing.  This is a contrarian way to do things, because it means you’re buying stocks when stocks are doing poorly, and selling stocks when stocks are rising, all to maintain the desired mix.  This is the method followed by most professional financial planners.

Constant-mix reinvesting doesn’t always perform the best of these three methods.  In long-term bull or long-term bear markets, a buy and hold strategy tends to work somewhat better.   But most of the time the market is fluctuating, not in a long-term trend.  So in most situations, periodic rebalancing works best.

What works best?  Get a well-thought-out plan—one based on your needs and your goals–and stick with it.

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This entry was posted on Thursday, July 1st, 2010 at 11:16 am and is filed under Investments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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How much should I have withheld from my paycheck?

Shocked by the size of the check you just wrote to the IRS?  Or happily planning how to spend that large refund check?  Ideally, your withholding should be sufficient to avoid penalties but not so high that you’re giving Uncle Sam a fat tax-free loan.

The IRS has a  useful calculator to help you determine what your federal income tax withholding should be.   Be aware that the calculator isn’t suitable for everyone.  For example, if your income is hard to predict or you pay self-employment tax, the results won’t be as reliable.  After you run the calculations, the site tells you exactly how to adjust your W-4 at work so you’re having the correct amount withheld.  If you receive a pension or annuity you can use IRS Form W-4P to start or change withholding from these payments.

For the withholding calculator, go to http://www.irs.gov/individuals/article/0,,id=96196,00.html.

This entry was posted on Friday, April 23rd, 2010 at 4:23 pm and is filed under General Information, Tax Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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Credit vs. cash: Teaching college students to be financially responsible

Is having a credit card a good idea for a college student?  It can be.  Whether or not you agree, there are new rules in effect that are really good news  for parents and students.  As of February 22, 2010, getting a credit card is much harder if you’re under 21, thanks to the Credit Card Act of 2009.  If you are under 21, you will be able to get a credit card only under certain conditions:

  • a student must be able to prove sufficient income to support credit card payments; OR
  • the student can get an adult cosigner; OR
  • a student can be an authorized user on someone else’s card.

Promotions for credit cards (you know, the free T-shirts, etc.) will be not be allowed within 1000 feet of a college campus.

It’s high time these new, stricter guidelines were put into place for kids and credit cards.  According to USA Today, in 2008, college seniors with at least one credit card graduated with an average of $4,138 in credit card debt.  There have been stories of college students who committed suicide because they felt they would never be able to pay off their credit card debt.

The new law should help protect students from their own irresponsibility.   But what’s the best way to help students learn financial responsibility?  I would argue that learning how credit works is an important part of it, but probably not the most important part.  I also believe that the best ways to learn responsibility depend on the child, as I discussed in a February 13 New York Times article.  Some key elements include giving the child some financial independence and letting him or her learn from making small mistakes.  Nothing drives home the importance of budgeting quite like running out of money before payday and living on ramen noodles for a couple of days.  Is it important for a new college graduate to have a great credit score?  Maybe.   However, it’s probably more important to teach your student to save for financial goals rather than borrowing for them.  If you think having a credit card is important for your student, I’d recommend setting spending limits by getting a prepaid credit card and letting your student know it’s only for emergencies.

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This entry was posted on Monday, March 1st, 2010 at 7:38 pm and is filed under Credit cards, Debt Management, General Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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Get in line now for Tennessee Hope Scholarship, other college financial aid

If you or someone you know will be going to college this summer or fall, it’s time to apply for college financial aid.  For most students, this means filing the FAFSA, or Free Application for Federal Student Assistance.  It’s easy to submit the FAFSA online at www.fafsa.ed.gov.

Like most things invented by our federal government, the FAFSA is complicated and confusing, not unlike doing your federal income taxes.  Luckily the FAFSA has recently been simplified somewhat.  One nice change is that you can now get instant estimates for Pell Grants and student loans as you work through the form.  Another change on the horizon is being able to upload info from your federal income tax return directly into the FAFSA form.

Before you start completing the FAFSA online, get your records together. You’ll need your Social Security number, drivers license, and alien registration number if you’re not a U.S. citizen. You will need your 2009 income tax returns and W-2s. Get together statements for savings, checking, and investment accounts. Also have ready records of any non-taxed income you or your parents receive, such as welfare payments, EIC, and Social Security. You can complete the FAFSA using estimated tax information. Then, when you get your 2009 income tax returns completed, you can go to the FAFSA website and update the tax-related questions on the FAFSA–but be sure you do so before the applicable deadlines. Be sure to sign your FAFSA, either electronically or by signing and mailing the paper page provided on the website.

Be aware of the various financial aid deadlines.  To receive the Hope Scholarship for the Fall 2010-2011 school year, you must submit the FAFSA by September 1, 2010.  Colleges have their own deadlines by which they prefer to receive the FAFSA as well.  For federal student aid,  online FAFSA applications must be submitted by  June 30, 2011.  Online FAFSA corrections  must be submitted by September 15, 2011.

There’s a lot of good information out there to tell you more about all the money available for college.  Visit www.fastweb.org and for information about financial aid offered by the State of  Tennessee, try the Tennessee Student Assistance Corporation at www.tn.gov/collegepays.

This entry was posted on Thursday, January 28th, 2010 at 5:40 pm and is filed under Education planning, General Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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New Memphis City Schools health insurance to be in place January 1

Cigna will become the new administrator for MCS employees’ health coverage starting January 1. The most substantial change will be the move from a dual hospital choice (Baptist and Methodist hospital systems) to a single hospital system choice (Methodist Network only). However, according to Cigna, the choice of doctors and other providers will be wide: 99% of  eligible doctors in the Greater Memphis area are in the Cigna provider network. MCS employees who want a provider to be added to the network  can contact the Cigna Hotline and ask for a provider nomination form. The provider must go through Cigna’s approval process, but several local providers have already been added as a result of MCS employee nominations. The Cigna hotline number for current MCS employees is 1-800-564-7642. MCS retirees have their own hotline number, 1-877-507-4099.  For more information, visit http://www.mcsk12.net/ and view the video “Conversation:  HR Benefits Part 2.”

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This entry was posted on Tuesday, November 10th, 2009 at 11:24 am and is filed under Insurance Planning, Retirement Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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Homebuyers Tax Credit to Be Expanded

A Senate panel has worked out a deal to extend the homebuyers’ tax credit program through April 2010. Income limits for eligibility would be extended too–to singles making up to $125,000 a year and couples making up to $225,000. Repeat buyers are included in this new expansion, but their tax credit will be $6500 versus $8000 for first-time buyers. Sales agreements must be in hand by April 30, but buyers will have until June 30 of next year to close the sale.

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This entry was posted on Thursday, October 29th, 2009 at 8:41 am and is filed under General Information, Tax Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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F-I-D-U-C-I-A-R-Y! Can your financial advisor spell it?

Trying to find objective financial advice can really be a challenge. The fact is, many people calling themselves financial advisors are really just salespeople. That’s why, when you are looking for financial advice, you need to learn where a potential advisor’s loyalties really are. Always ask if the advisor has a fiduciary duty to you, the client. If so, the advisor must put your interests ahead of his own in every situation. If the advisor is not a fiduciary, any products he sells you still have to be “suitable” for you, but he does not have to put your interests first. Fee-only planners do not sell any financial products and are compensated solely by their clients. Since there are no conflicts of interest, clients can be sure they are getting objective advice that is truly in their best interest. My colleague Michael Chamberlain, who like me is a member of the Garrett Planning Network, discusses this important issue in a recent issue of Investment News Daily. To see this article, go to:

Let’s Call A Spade A Spade and a Salesperson a Salesperson

This entry was posted on Tuesday, October 6th, 2009 at 9:07 am and is filed under Financial Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.