Top Ten Stupid Retirement Tricks

I couldn’t resist.  In honor of David Letterman’s retirement I had to weigh in with a Top Ten list of my own.

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 #10.  Putting all your retirement money into equity-indexed annuities. Granted, if you do this, you just made your annuity salesperson very happy because you may have helped them earn enough to make The President’s Trip. But, before you sign up, do your homework and read up on them. Here’s what Bogleheads.org has to say: Equity Indexed Annuities.

#9. Quitting your job before you have enough quarters for Social Security.   Learn more here: Social Security Guidelines 

#8. Quitting your job before you have enough quarters for Medicare.  Use this calculator to verify you have worked enough to qualify:  Medicare Eligibility

#7. Quitting your job before you verified your pension benefits.  If you are one of the lucky ones who still qualifies for a pension at work, make sure you know what you’re getting.  For some people, taking the lump sum distribution is best while for others, the annuity payment makes the most sense.  Be sure to evaluate all your options before submitting that final paperwork.

#6.  Forgetting to sign up for Medicare.  Within 3 months of turning age 65 you need to sign up unless you are part of a group plan.  If you don’t sign up on time you may have to pay an enrollment penalty of 10% per month for twice the number of years you could have had Medicare but didn’t sign up.  Certain restrictions apply; learn more about them here:  More Medicare Information

#5.  Holding on to the distribution check from your 401(k) rollover for more than 60 days.  You need to deposit the distribution in a qualified account, like an IRA or another 401(k) plan sooner than that to avoid paying taxes on the entire amount.

#4.  Spending the lump sum distribution from your retirement plan on a timeshare while on vacation in Mexico.   Yes, the warm sun, sparkling waters, and colorful drinks inspire many people to do silly things.  I also know many people who own and love their timeshares but don’t buy new, while under pressure, on vacation.  There are thousands of timeshares for sale online that are available for a fraction of the cost of a new one.  But don’t use your retirement plan distribution to pay for it; invest that money in a tax-deferred account so it can continue to grow to support you through your retirement.   If you don’t have separate savings available, skip the timeshare altogether.

#3. Waiting until you’ve given notice at your job to figure out how much money you need in retirement.  Your desired lifestyle may cost more than you think and it is difficult to get a do-over on that final job departure.

#2. Making investment decisions on what you heard yesterday on CNBC or FOX News.  Retirement is a phase of life, not an event. You need a plan, not a hot tip.

And, finally,

#1. Not verifying your financial advisor is a fiduciary.  You need to make sure the person you are working places your interests before his or her own.  The CFP Board lays it out pretty clearly: CFP Board Fiduciary Standard.  

Happy Retirement, David Letterman!

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Readers, if you have any retirement tips of your own, please share.

 

4 Green Ways to Pay Less Tax

This month, Bridget Sullivan Mermel provides a guest post. Bridget is based in Chicago and specializes in socially responsible investing. The term and its applications are broader than you might think!

A lot of people think that green financial planning is all about investments.

I beg to differ. As a comprehensive planner, I love to talk about the good you can do without investing a dollar. One great way is to act green and save money is on your taxes. Here are four big opportunities:

1. Donate to charity
If you itemize, donating items that you don’t need is a great way to get a deduction.

When acting green, there are generally good, better and best alternatives. In this case, “good” is contributing your used clothing and household items to the charity of your choice rather than pitching it into the garbage stream.

Even better: you can also contribute used TVs and electronic items to charities that will recycle them.

And best is finding charities that will actually reuse your electronic items. Domestic violence shelters use cell phones. Other charities refurbish your old electronics and send them to schools and developing countries that need them. One time I even donated an old mountain bike to a charity that sends them overseas.

Here’s a nationwide website that connects you with local charity pickup services. You might have to scan the listings of each individual charity to figure out which accept items like mattresses and TVs that some charities won’t accept:

http://www.donationtown.org/

Here’s a Chicago charity that accepts electronics for re-use called FreeGeek. They have a resale shop and accept drop-offs:

http://freegeekchicago.org/donate

Here’s a handy list of Chicago charitable organizations that details what each organization is looking for and what they do with it:

http://www.chaostoorder.com/resources/donations/

And here’s where I donated my bike:

http://workingbikes.org/

Common sense caution applies. Donating a computer with a hard drive full of personal information? Make sure you are comfortable with programs that wipe it clean before setting up your pick-up. Even if you don’t want to donate your hard drive, giving away old printers, scanners and cords don’t offer security challenges.

2. Improve your home
These purchases get you a tax credit through 12/31/2013 if your purchases meet energy star criteria:

1. Insulation
2. Roofs (metal and asphalt)
3. Water heaters (non-solar)
4. HVAC systems
5. Windows and doors
6. Biomass stoves HVAC systems (I’ve got to admit that I didn’t even know what these were!)

Doing a more ambitious project to either your principal residence OR your second home? Consider following energy star guidelines and get a tax credit. The credit for these expires 12/31/2016:

1. Geothermal Heat Pumps
2. Small Wind Turbines (Residential)
3. Solar Energy Systems

Also for your principal residence (sorry, no second homes here) if you get one of these bad boys before 2016, you can get a credit:

1. Fuel Cells (Residential Fuel Cell and Microturbine System)

You can find more details about all the above credits here:

http://www.energystar.gov/index.cfm?c=tax_credits.tx_index

3. Buy a Plug-in Car
The credit for hybrid cars is gone, but there are still some credits left for buying a plug-in. Here’s the link:

http://www.irs.gov/Businesses/Qualified-Vehicles-Acquired-after-12-31-2009

4. Get money from your state
Finally, most states have green tax incentives. Here’s the website to help you look up your state:

http://www.dsireusa.org/

I looked over Illinois’ list and it seemed to be primarily incentives that relate to the construction industry. However Illinois is in a fiscal-crisis-mode, not a dolling-out-tax-incentives mode at the moment. Other states are more promising.

By Bridget Sullivan Mermel

Coin: Making it Easy for College Grads to Manage Their Money Well

Coin (koin) n.

 

Definition:

1. flat round chunk of metal used to buy stuff

2. slang term for money

3. the personal finance book used by successful college graduates

Introducing “Coin: The Irreverent Yet Practical Guide to Money Management for Recent College Graduates.”

It’s about time!  Many of you know I have been working on this book for years.  But it’s ready now and if you see it I think you’ll agree that it turned out well.  Full of fantastic illustrations by the talented Jenna Kusmierek, Coin is the perfect book for anyone just graduating from college as well as folks who, perhaps, missed the money management lecture the first time around. It’s funny, it’s short, and it’s jargon-free.  What more could you ask for? In less than two hours the book walks you through what you need to know to be on the right path, financially.  And, I promise I’m not lying, you’ll laugh and have fun reading it.  So if you know someone who might need a nudge in the right financial direction, let them know about Coin.

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Financial Planning Week 2012

October 22nd-29th is Financial Planning week.  Conveniently positioned before the big holiday shopping season, there are many ways you can celebrate Financial Planning week to make the rest of your year (and the year after that) a lot less stressful.

Here are a dozen suggestions from the Financial Planning Association:

1.  Balance your checkbook

2.  Make a monetary contribution to your favorite charity

3.  Start a savings account for a child, vacation, or a gift for yourself

4.  Help teach your children how to save and spend wisely

5.  Get your estate in order: Create or revise your will & other estate-planning documents

6.  Call your financial planner and share your appreciation for their service

7.  Pay off a credit card

8.  Get a head start on college – investigate collegiate planning options

9.  Establish an emergency fund

10.  Evaluate your employee benefits and begin planning for open enrollment

11.  Develop your holiday spending budget

12.  Plan for year-end tax strategies

A Delightfully Savage Experience

I just returned from the annual conference for the Alliance of Cambridge Advisors, the leading organization of fee-only financial planners.  Three packed days of sessions were terrific, as always, but one session was a special treat.  Terry Savage, the Chicago Sun-Times columnist and well-known author of The Savage Number and The Savage Truth on Money, was a featured speaker.  She’s currently on a nationwide tour with financial literacy as her mission.

She was genuinely delighted to find a conference full of like-minded souls and spent just as much time asking us questions about fee-only financial planning as she did sharing wisdom.  If you get the chance to hear her speak, I recommend going.  She motivates and inspires while explaining financial concepts in ways anyone can understand.

Her website has a nice collection of useful calculators as well as archived columns she’s written for the Chicago Sun-Times. Check it out here: www.terrysavage.com

Obfuscate

ob·fus·cate ( b f -sk t , b-f s k t )tr.v. ob·fus·cat·ed, ob·fus·cat·ing, ob·fus·cates

1. To make so confused or opaque as to be difficult to perceive or understand: “A great effort was made . . . to obscure or obfuscate the truth” (Robert Conquest).

2. To render indistinct or dim; darken: The fog obfuscated the shore.


[Latin obfusc re, obfusc t-, to darken : ob-, over; see ob- + fusc re, to darken (from fuscus, dark).]


ob fus·ca tion n.

ob·fus ca·to ry ( b-f s k -tôr , -t r , b-) adj.1

Obfuscate is a wonderful word.  I just wish it didn’t apply so often to issues in personal finance.  Annuity contracts are one example.  Recently I met with a client who owned several annuity contracts and she wanted help translating them – from obfuscatory English to plain English. The contracts were thick documents that I’m convinced were carefully designed to keep anyone from actually wanting to read them.   Buried within were onerous sounding surrender charges, various subaccount fees and expenses, commissions, penalties, insurance fees, redemption fees, and enough other terms to make you nervous.  Wouldn’t it be nice if one of the insurance companies selling annuities would lay out the information in a simple diagram or a flow chart? It would make a lot more sense and it would help consumers evaluate and understand, for example, what the real cost of that death benefit is.

If you find yourself struggling to understand the costs, benefits, and tradeoffs of an investment, perhaps it’s due to a deliberate obfuscation of the information.  So what should you do?  If you don’t understand it, don’t buy it.  It’s that simple.

1. The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.