Archive for Kiplinger

8 Financial Decisions You’ll Regret Forever

 

Financial regrets. We’ve all had a few. But there’s a big difference between making an impulse purchase that you second-guess the morning after and making a major decision about your money that could haunt you for a lifetime.

We reached out to dozens of financial planners and personal-finance experts for their views on some of the most consequential mistakes people can make with their money. We also offer advice on fixing these mistakes – or avoiding them altogether – so you’re not left ruing the day when you blew your budget, wiped out your savings or otherwise sabotaged your financial future. Take a look.

1. Borrowing from your 401(k)

Taking a loan from your 401(k) can be tempting. After all, it’s your money. As long as your plan sponsor permits borrowing, you’ll usually have five years to pay it back with interest.

But short of an emergency, tapping your 401(k) is a bad idea for many reasons. According to John Sweeney, executive vice president for retirement and investment strategies at Fidelity Investments, you’re likely to reduce or suspend new contributions during the period you’re repaying the loan. That means you’re short-changing your retirement account for months or even years and sacrificing employer matches. You’re also missing out on the investment growth from the missed contributions and the cash that was borrowed.

Keep in mind, too, that you’ll be paying the interest on that 401(k) loan with after-tax dollars – then paying taxes on those funds again when retirement rolls around. And if you leave your job, the loan usually must be paid back within 60 days. Otherwise, it’s considered a distribution and taxed as income.
Before borrowing from a 401(k), explore other loan options. College tuition, for instance, can be covered with student loans and PLUS loans for parents. Major home repairs can be financed with a home-equity line of credit.

2. Claiming Social Security early

You’re entitled to start taking benefits at 62, but you probably shouldn’t. Most financial planners recommend waiting at least until your full retirement age – currently 66 and gradually rising to 67 for those born after 1959 – before tapping Social Security. Waiting until 70 can be even better.

Let’s say your full retirement age, the point at which you would receive 100% of your benefit amount, is 66. If you claim at 62, your monthly check will be reduced by 25% for the rest of your life. But hold off until age 70 and you’ll get a 32% boost in benefits – 8% a year for four years – thanks to delayed retirement credits. (Claiming strategies can differ for couples, widows and divorced spouses.)

“If you can live off your portfolio for a few years to delay claiming, do so,” says Natalie Colley, a financial analyst at Francis Financial in New York City. “Where else will you get guaranteed returns of 8% from the market?” Alternatively, stay on the job longer, if feasible, or start a side gig to help bridge the financial gap. There are plenty …read more

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Category: economy, money, personal finance, spending

11 Overlooked Credit-Card Perks

By Sandra Block and Lisa Gerstner…

Rewards points and cash back are only some of the benefits of paying with plastic. Here are 11 little-known benefits that cardholders can take advantage of — from extended warranties on items you purchase with your cards to free admission to museums. See what your card can do for you.

Extended Warranties

Before you pay extra to extend the warranty of a product you buy, check to see whether your credit card offers additional coverage free. The four major credit card networks — Visa, MasterCard, Discover and American Express — provide up to a year of extended warranty protection for some cardholders. To be covered, an item must be purchased with your credit card and must have an existing manufacturer’s warranty. Coverage typically is limited to $10,000 per item.

Price Matching

If you use a credit card to buy an item that later goes on sale, your credit card might pay you back the difference. For example, Citi cardholders who register purchases they make with their cards will receive the difference in price if Citi finds the same item for less within 60 days of purchase. Discover will refund the difference up to $500 if you find a lower price within 90 days; MasterCard will reimburse cardholders who find a lower price on an item within 60 days of purchase.

Coverage for Damaged or Stolen Products

Several card issuers will repair or replace items you charge to your card that are damaged or stolen within 90 days of purchase, says Bill Hardekopf, CEO of credit card comparison site LowCards.com. And if a retailer will not accept a return within 90 days of purchase, some cards, such as Chase Sapphire and all Discover cards, will reimburse you for the cost of the item purchased with your card.

Rental-Car Insurance

Most major credit cards offer secondary rental car insurance, picking up costs that aren’t covered by your personal auto insurance policy if your rental is wrecked or stolen. Declining the damage waivers offered at the rental car counter could save you $15 to $25 a day.

Because coverage varies, even among cards within the same network, call your credit card issuer before you rent the car. In general, you must use the credit card to book the rental, and you must decline the collision damage waiver when you rent the car. Ask the issuer whether it will cover “loss of use” — the cost the rental car company incurs while the vehicle you rented is being repaired (or, in the case of theft, relocated). Be aware, too, that your credit card may not provide coverage in some overseas countries. For example, American Express excludes cars rented in Australia, Ireland, Israel, Italy, Jamaica and New Zealand.

Cell Phone Replacement

Replacing a damaged or stolen cell phone could cost you hundreds of dollars. Some credit card issuers will cover the cost of purchasing a new phone, as long as you use the card to pay your cell phone bills. First Citizens …read more

Read more here: 11 Overlooked Credit-Card Perks

Category: credit cards, economy, money, personal finance, rewards, spending

15 Surprising Places You Never Considered for Retirement

When you hear the words “retirement destination,” places in Arizona and Florida probably spring to mind. But broaden your horizons, and you can find plenty of other great options all across the country.

The following 15 spots may not be popular with retirees now-but contrarian living comes with benefits. Some of these places may offer tax breaks or other perks to try and lure in more older residents. Plus, the existing younger crowds might help keep you young and active.

Check out our list of surprising places for retirement that you probably haven’t considered, and see if any hold appeal for your own new home:

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Category: best cities, economy, powerofplanning, retirement planning

How to Withdraw from Your 401(k) Plan in Retirement

Whether you can take regular withdrawals from your 401(k) plan when you retire depends on the rules for your employer’s plan. Two-thirds of large 401(k) plans allow retired participants to withdraw money in regularly scheduled installments — say, monthly or quarterly. About the same percentage of large plans allow retirees to take partial withdrawals whenever they want, according to the Plan Sponsor Council of America, a trade association for employer-sponsored retirement plans.

Other plans offer just two options: Leave the money in the plan without regular withdrawals, or take the entire amount in a lump sum. (Check your 401(k)’s summary plan description, which lays out the rules, or call your company’s human resources office.) If those are your only choices, your best course is to roll your 401(k) into an IRA. That way, you won’t have to pay taxes on the money until you start taking withdrawals, and you can take money out whenever you need it or set up a regular schedule.

If your company’s 401(k) allows periodic withdrawals, ask about transaction fees, particularly if you plan to withdraw money frequently. About one-third of all 401(k) plans charge retired participants a transaction fee, averaging $52 for each withdrawal, according to the PSCA.

Benefits of staying put. Leaving money in your 401(k) plan after you retire can have significant benefits. Large plans often have access to institutional-class shares of mutual funds, which typically charge lower fees than the retail versions. In 2014, the average expense ratio for a stock fund in a 401(k) plan was 0.54 percent, compared with an average of 1.33 percent for all stock funds, according to the Investment Company Institute. Participants in the Thrift Savings Plan, the retirement-savings plan for federal government employees, have an especially powerful incentive to stay put, says Drew Weckbach, a certified financial planner with Scaling Independence, in St. Louis. The average expense ratio for funds in the TSP portfolio is 0.029 percent.

Many 401(k) plans offer a stable value fund, an option that’s not available in an IRA. These low-risk funds, with recent yields averaging 1 percent, offer an attractive alternative to money market funds, which are currently yielding just slightly above zero percent. And unlike bond funds, stable value funds won’t take a nosedive if interest rates rise.

The IRA advantage. If your 401(k) plan charges high fees and is stocked with poor-performing funds, you’ll want to roll your money into an IRA as soon as you leave your job. And there are other reasons to roll your money into an IRA. You can select which funds to sell when you make a withdrawal — something your 401(k) plan administrator likely won’t let you do, says Daniel Lash, a certified financial planner with VLP Financial Advisors, in Vienna, Virginia. Most plans take an equal amount from each fund in the portfolio. In 2008, when stock funds fell 40 percent or more, such withdrawals would have been devastating.

In addition, if you already have an IRA (or IRAs), consolidating all of your savings under one …read more

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Category: benefits, changing jobs, employment, pensions, powerofplanning, retirement, rmd, savings

Should Deleting Personal Information Online Be a Right?

Q. My friend and I disagree about whether people who are not in the public eye should have the legal right to force websites to remove (or search engines to unlink) any information about themselves that is erroneous, intimate or badly outdated. I say yes. But he says, “Internet content should live forever, like it or not.” What do you think?

A. I lean toward your position, but within limits. I believe that websites and search engines should be obligated to comply with requests to remove information (or block its easy retrieval) under certain circumstances, including the following:

  • The information is demonstrably false;
  • The information lacks important facts about the outcome of a bad situation — for example, that an arrest resulted in the charges being dropped or the accused person’s acquittal;
  • The negative information is so old — say, a story about a person’s youthful indiscretion or minor legal offense — that the individual is entitled to a fresh start, a “clean slate”;
  • The content (music, photography, literature, etc.) is protected by copyright and is being distributed without the owner’s consent;
  • The information reveals personal financial data that could be used for identity theft;
  • Intimate personal information — for example, about one’s health or private sexual activity — was posted not by the individual depicted, but by someone intent on humiliating her or him;
  • The online information was posted long ago by a youthful commentator — say, in an academic paper, online blog or column in a college newspaper — and expresses inflammatory opinions that were later disavowed by the writer.

These guidelines would help achieve a balance between two conflicting rights: on the one hand, the public’s right (actually, an insatiable and somewhat voyeuristic desire) to know or learn, through Web searches, virtually everything about everyone; and on the other hand, a nonpublic citizen’s right to “privacy by obscurity,” or the “right to be forgotten.”

Have a money-and-ethics question you’d like answered in this column? Write to editor-in-chief Knight Kiplinger at ethics@kiplinger.com.

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Category: court, cybersecurity, first amendment, internet, law, legal, online, personal finance, privacy, web

5 Ways Your Health Insurance Plan May Change in 2016

Q. What changes can I expect from my employer’s health insurance plan during open enrollment for 2016?

A. Employers are just starting to announce their health insurance options for 2016, and you may need to make your decisions during open enrollment in the next month or two. The National Business Group on Health recently came out with its annual survey of large employers, which offers the first glimpse of the changes employees are likely to see in their health plans for 2016.

1. Higher premiums. Large employers expect their health care costs to increase by about 5 percent for 2016 — the same size increase they expected in 2014 and 2015. They plan to pass along some of the extra cost to employees but more of it to dependents, with employees contributing 20 percent of their own premiums and 24 percent of the premiums for dependents (higher-income employees may pay more). About one-third of the companies plan to add a surcharge for spouses who could get coverage elsewhere but don’t. But very few (only 4 percent) plan to exclude spouses who have similar coverage available through their own employer.

2. More high-deductible health plans. Employers are continuing to try to contain rising costs by forcing employees to take more control of their health care: 83 percent of large employers plan to offer a consumer-directed health insurance plan in 2016 (primarily high-deductible health insurance paired with a health savings account). Half of the employers plan to offer the high-deductible plan as an option, and 33 percent plan to offer it as the only option. More than half contribute to employees’ HSAs, giving them tax-free money for medical expenses; some add more if you participate in a wellness program or take a health risk assessment. For more information about HSAs, see FAQs About Health Savings Accounts.

3. Restrictions on expensive drugs. Employers identified the cost of specialty drugs as one of the major causes for health care cost increases, and they’re imposing more restrictions on coverage. More than three-quarters of the employers surveyed plan to use prior authorization for some of these specialty medications — requiring physicians to fill out forms explaining why you need the specific drug. Three-quarters plan to use step therapy, covering the drug only after you’ve tried a list of less-expensive medications first.

4. New telemedicine options. Nearly three-quarters of the employers will offer telemedicine, which provides virtual visits with a doctor, as an option. “It’s still primarily phone-based, but the video component is starting to take off,” says Karen Marlo, vice president of benchmarking and analysis for the National Business Group on Health. “You can take a picture of a rash with your phone and e-mail it to someone who can look at it, for example. It’s a good way to provide good quality care at a lower cost, and it improves access in parts of the country where you have to travel a long distance to go to a physician.” A telemedicine doctor’s appointment may cost $40 …read more

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Category: benefits, career, employers, health care, health insurance, high deductible health plans, hsa, prescription drugs, wellness

Save on Obamacare With This Overlooked Cost-Sharing Subsidy

I saw a study that said a lot of people who qualify for the Obamacare cost-sharing subsidy aren’t taking advantage of it. How do I know if I qualify?

A. If your household income is less than 400 percent of the federal poverty level (for 2015 plans, that’s $46,680 if you’re single or $95,400 for a family of four), you qualify for a government subsidy to help pay your health insurance premiums if you buy coverage through your state’s health insurance exchange. If your household income is less than 250 percent of the federal poverty level ($29,175 if single or $59,625 for a family of four), you can get an extra break: a cost-sharing subsidy that reduces your deductibles, coinsurance and co-payments when you receive care. You can get the extra cost-sharing subsidy only if you buy a silver-level policy on the exchange; you won’t get the break if you buy a bronze-, gold- or platinum-level policy.

The study you saw, by Avalere Health, discovered that more than 2 million people who bought coverage on the exchanges and are eligible for the cost-sharing subsidy aren’t receiving that extra benefit because they didn’t sign up for a silver policy. They may have chosen a bronze-level policy during open enrollment because the premiums were lower, but if they have even a few medical expenses, they could end up paying less out of pocket by the end of the year by choosing a silver plan with cost sharing.

You generally can’t switch policies until open enrollment in the fall unless you’ve experienced certain life changes (such as getting married, having a baby, losing other health coverage, moving, or experiencing changes in income that affect your eligibility for a subsidy). See the Special Enrollment Period tool for more information. But the cost-sharing subsidy is important to keep in mind when picking a plan for 2016 during open enrollment, which runs from November 1 through Jan. 31. Don’t just compare premiums; compare your out-of-pocket costs for your typical drugs and medical care, and factor in the value of the cost-sharing subsidy if you qualify for it.

Insurers automatically apply the cost-sharing subsidy if you qualify. They can use the cost-sharing subsidy to reduce the deductible or limit co-payments or coinsurance rates for medical care and prescription drugs. Insurers must limit the maximum amount you can spend out of pocket for the year to $2,250 to $5,200 for individual plans (the limit is based on your income) or $4,500 to $10,400 for family plans. (Without the cost-sharing subsidy, the out-of-pocket maximum for policies sold on the exchanges can be up to $6,600 for individual coverage and $13,200 for family plans.) Compare each plan’s details at your state exchange website. You can find links at www.healthcare.gov.

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Category: affordable care act, family money, health care, health care reform, health insurance, healthcare.gov, income, obamacare, personal finance, salary, subsidies, wages

Making Your Money Last a Lifetime

These days, protecting your savings as you approach retirement — with the goal of making it last as long as you do — is like navigating between a rock and a hard place. Now in its seventh year, the bull market is one of the longest on record. That means by most standards that a bear market is overdue. Interest rates are almost certain to go up in the coming years, and bond prices fall when interest rates rise. “I see risk at both ends of the spectrum,” says David Blanchett, head of retirement research at the investment consulting branch of Morningstar (MORN).

The more distant future looks dicey, too. Over the next 10 to 30 years, we think stocks will deliver average annual returns of 6 to 8 percent, rather than the annualized return of 10.1 percent they have produced since 1926. If you buy a 10-year Treasury bond today, you know that you’ll earn roughly 2.2 percent a year over the next decade. Expect a little more if you invest in individual high-grade corporate bonds. (Funds will be hard-pressed to match the return of investors who buy individual bonds and hold to maturity.) Inflation is projected to stay low, at 2 percent, but cash will earn less than that, with money market mutual funds yielding maybe 1.5 percent over the next five to 10 years.

Longevity is a two-sided coin. There’s the risk of outliving your portfolio and also the risk of underspending.


In this low-growth world, calculating how much money you need in retirement and at what rate you can safely draw it down is challenging. Longer life spans further complicate such estimates. A 65-year-old man can now expect to live another 18 years, on average; a 65-year-old woman can expect to live another 21. “Longevity is a two-sided coin,” says Maria Bruno, a senior investment analyst at mutual fund giant Vanguard Group. “There’s the risk of outliving your portfolio and also the risk of underspending.”

Whether you’re a few years away from retirement or a few years into it, you still have the ability to adjust your plan. The key is to be flexible and willing to rethink some of the old rules.

Invest for the long haul. Traditional wisdom has it that you invest heavily in stocks while you’re young and scale back that part of your portfolio to, say, 50 percent as you approach retirement, keeping the rest in bonds and other fixed-income investments. Near-retirees who are still shell-shocked by the bear market of October 2007 to March 2009 may cringe at the idea of putting even half their money in stocks. But short-term thinking poses a bigger risk, says Debra Morrison, a certified financial planner in Morristown, New Jersey. “What skews people’s retirement asset allocation is that they’re planning for the immediate future. Unless you have a terminal diagnosis, we’re talking about another 20 to 30 years.”

That means entering retirement with a healthy portion invested in stocks for growth and gradually reducing that side …read more

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Category: 401k, bonds, family money, household budget, inflation, interest rates, ira, pensions, personal finance, retirement, savings, stocks, morn

The Danger of Investing Too Heavily in U.S. Stocks

You can’t blame investors for being skittish about investing abroad, with volatility in Europe and an outright implosion in Chinese stocks. The recent trepidation exacerbates a bias that investors already have in favor of homegrown investments — a misplaced patriotism that can pummel your portfolio.

Recent research shows that U.S. stocks account for less than half of the global stock market but make up nearly three-fourths of U.S. investors’ stock holdings. Investors from other countries are even more provincial. Canadian stocks represent just 4 percent of the world market but 60 percent of Canadians’ stock holdings. And get this: Even in beleaguered Greece, where the stock market accounts for less than 1 percent of global market capitalization, the share of domestic stock holdings was recently 82 percent.

Our home bias comes at a price: a dangerous lack of diversification that increases the volatility of returns over time and robs us of opportunities to invest in promising companies that just happen to be based elsewhere. True, in recent years a U.S.-based portfolio has been the best bet, but that’s not always the case. For instance, international stocks in developed countries outperformed U.S. stocks from 1983 through 1988, and again from 2002 through 2007.

Our preference for homegrown stocks goes deeper than nationality. A survey by Openfolio, a portfolio-sharing platform, found regional biases as well. For example, West Coast investors are 10 percent more likely than the average investor to hold tech companies, while Southerners are 14 percent more likely to load up on energy stocks.

There are rational explanations for our home-country preference, especially when it comes to international investing. Foreign assets carry an additional currency risk. Trading costs might be higher. Information may be limited. But none of these fully explain what’s known as the “home bias puzzle,” says Hisham Foad, an economics professor at San Diego State University. Instead, says Foad, blame it on “the predictably irrational behavior of investors.”

Overconfident investors. Start with overconfidence. Studies have shown that investors have more faith in their ability to forecast domestic returns, even when it’s unwarranted — for instance, when they’re presented with equivalent information about both foreign and domestic holdings.

Loss aversion also plays a role. Investors typically feel pain from losses more acutely than they feel satisfaction from gains. “So you stick with a portfolio that’s stable and safe in your own mind, even though empirical evidence says a diversified portfolio would be safer,” Foad says.

Finally, toss in some patriotism. Experiments with investors who spoke different languages and hailed from various countries found that they repeatedly chose to invest in companies with which they identified culturally.

Is it so bad to invest in what you know, a philosophy espoused by many investment greats? No, but there’s a difference between the investment savvy of an insider (or keen observer) and mere familiarity. The former conveys a real informational advantage; the latter doesn’t. And the risk of concentrating your holdings — nationally and, especially, locally — are huge, says Scott Yonker, a finance professor at Cornell …read more

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Category: economy, investing, market news, mutual funds, stocks, wall street, world markets

3 Worst Things to Buy New for Kids

Kids cost a lot to raise. During the first 18 years of a child’s life you’ll spend on average about $245,000 for food, housing, child care, education and other related expenses. Considering how costly it is just to provide them with the essentials, it makes financial sense to look for ways to save on the things your kids want but don’t actually need. One easy way to do this is to buy used rather than new.

Here are three things that you should avoid buying new for your kids to cut costs.

While older children might balk at the thought of wearing slightly used clothing, little kids won’t know the difference. You can save big by buying gently worn baby and toddler clothes at consignment sales hosted by your local church or by going to an actual consignment store. You can even look online.

At ThredUp.com, the online consignment retailer sells more than 4,000 kids’ brands in like-new condition for an average of 65 percent off the original retail price.

Kids tend to break or lose their cellphones pretty easily, so it could be a waste of money to buy a brand new smartphone that costs hundreds of dollars. Instead, you could buy your child a pre-owned phone for much less. On Gazelle.com, for example, you can buy pre-owned phones that have gone through a 30-point inspection for about 40 percent less than newer models. You can also find refurbished phones on websites such as Glyde.com or Overstock.com.

Your son or daughter may like a certain sport and want to join a team, but they could lose interest after a few tough practices. And even if they remain committed, they will probably outgrow equipment quickly. So it would be wise to buy most sporting equipment used rather than new. One mom we talked to saved 50 percent on boxing, lacrosse and horseback riding equipment she bought at resale stores such as Play It Again Sports. Some sports leagues even have trade-in days when parents can swap kids’ equipment at no additional cost.

Check out five more of the worst things to buy new for your kids.

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Category: cellphone, clothing, consumer electronics, family money, household budget, kids, parenting, personal finance, saving money, smartphone, sports

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