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Consumer Archive

Consumer

End of year smart time to review retirement goals

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McLEAN, Va. (12/23/14)--The end of the year is a timely opportunity for everyone to review financial goals or set new ones (USA Today Dec. 17).
 
But especially if you're planning to retire in the next few years, it's important to spend some time reviewing finances. Here's advice that can help you prepare for success:
  • Develop a spending plan. It's essential to know what your expenses are going to be and to develop a spending plan. There are software programs and apps that can make this easier; your credit union might have its own savings app. You might think you'll have fewer expenses than during your working years, but savings can be more than offset by expenses for medical care and insurance.
  • Scrutinize health care costs. Don't just look at what Medicare will cover. Health care costs can affect retirement savings tremendously, and many retirees don't plan accordingly or else underestimate expenses.
     
  • Evaluate your financial relationships. Look at the relationships you have with a financial adviser, accountant, attorney, insurance agent--and financial institution. If you're not happy with a relationship, start researching different options. If you're not already a member of a credit union, join one. On top of better customer service, credit unions often have lower interest rates and fees.
     
  • Look at your 401(k). Review options for what you can do with this investment after you retire. Talk to a specialist in your human resources department as well as a financial planner for help making the best decision.
     
  • Review beneficiary designations. The end of year is a great time to review beneficiary designations. Marriage, divorce, births and deaths are all events that can change your family dynamic.
     
  • Start thinking about withdrawing from your nest egg. People spend a lot of time thinking about retirement savings but think less about retirement withdrawals. Have a plan in place for how much you think you'll need to withdraw each year and be realistic about it. Talk to a retirement specialist at your credit union to work out a plan that suits you and your lifestyle.
For related information, read "Protect Your Nest Egg From Nursing Home Expenses" in the Home & Family Finance Resource Center.

Give safely and guilt-free this holiday season

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DETROIT (12/16/14)--The holidays are synonymous with giving, as seasonally warm feelings for humanity combine with charities searching for a year-end boost to their bottom lines.

While this is mostly a good thing, potential givers should be careful: Many fraudsters and unscrupulous organizations are looking to take advantage of their good intentions. A few simple questions and a quick online lookup are usually all it takes to determine if a charity is legitimate.

Ask about the charity's history, location, and tax ID number--if the answers seem fishy or vague, don't open your checkbook (The Detroit News Dec. 10). If someone is soliciting money in person, don't be afraid to pause and research the organization on your smartphone before deciding to donate.

Even better, take steps to avoid feeling guilt for declining just because someone asked you to give. The New York Times offered these tips last week for creating a giving plan.
  • Decide how much you want to give--either a dollar amount or percentage of income. Then choose an organization.
     
  • Pick a charity that aligns with your beliefs and will spend your donation responsibly. The website Give Well has analyzed thousands of charities and provides information about their pros and cons.
     
  • Decide how often you want to give and then follow your plan. By budgeting your generosity, you'll know exactly how much you've given and to whom come tax time.
     
  • When asked for a donation by other organizations, simply explain you've already given another way.
For related information, read "Financial Gifts Can Improve Well-Being" and "Holidays Are Rich With Teachable Money Moments" in the Home & Family Finance Resource Center.

Holidays present gifts to scammers

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WASHINGTON (12/9/14)--Along with all the good will, holidays create opportunities for greedy fraudsters to take advantage of how busy and preoccupied consumers can become. The AARP Bulletin (Nov. 26) highlights several scams to look out for.
  • Whose website is it? Scammers put up bogus but credible-looking sites to steal credit card and password data and to place malware on your computer. You can stumble onto these sites by online searches for such innocuous key terms as "discount toys." Before you click on these links, examine the URL closely. Tipoffs to bad sites include extra words or characters, or different domains. Your best bet: Type the website address yourself rather than clicking through on links found on searches or delivered via spoofed emails.

    Similarly, cybersquatters can tweak brand names to sell cheap counterfeit goods. Your best bet: Avoid American brands sold on sites with foreign domain designations, for example, co.mn, indicating a company in Mongolia.

    And by now you know to never give payment info unless the URL begins with https://.
     
  • Gift card rummy. Thieves skim the codes on gift cards with portable scanners and then lie in wait. A simple call to the toll-free number on a card will reveal if a card's been activated--and for how much--and then the crook spends the value before your gift recipient gets around to it. Your best bet: Buy cards from the cashier and not from a store kiosk. Watch to make sure the cashier scans and activates the card, and get a receipt.
     
  • Knock knock, who's there? Tracking updates that alert you to the progress of your order from retailer to your front door are routine these days. But they, too, provide opportunities for phony emails purporting to be from a trusted retailer or shipper. They'll send a message with a link you can click, but it will deliver malware to your PC or else ask for personal or financial information that can be parlayed into more fraud. Your best bet: Check delivery status by entering the received tracking number directly on the courier's website. Unless you provided your email to the sender, assume that unexpected emails are scams. Even messages seemingly from known firms can be bogus--one making the rounds right now looks like a Costco message. The clumsy language gives it away, but don't count on that--crooks are getting smarter, and more literate, all the time. 
     
  • Free ... maybe. Few terms get as much consumer attention, and action, as the word free. Crooks know that and take advantage by sending emails promising free stuff. Rather than free, the real cost could be identity theft if you bite and give up personal information to claim your promised goodies. You also could infect your PC or mobile device with malware via "free" downloads of games, screen savers, movies or music. Your best bet: Download wisely, and only from known and trusted vendors.
     
  • Prudent plastic. You might be tempted to pay with cash as a way to avoid data breaches occurring at some retailers, but carrying cash has risks, too. Your best bet: Men, carry wallets in front pockets. Women, wear purses across your body and not hanging from a shoulder. And of course, never leave your purse in the basket of a retailer's cart.

    You can use credit and debit cards in comfort as long as you monitor account activity. That's easy to do online. And if a breach occurs where you shop get in touch with all card issuers to close those accounts and get new numbers and cards.
For related information, read "What Will EMV (Chip) Credit and Debit Cards Mean for You?" in the Home & Family Finance Resource Center.

Watch for pitfalls if you work past retirement

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WASHINGTON (12/2/14)--The thought of working past retirement is financially appealing to boomers who inadequately prepared for the big event. You hope you'll earn extra income, increase your Social Security income, and save money by extending health insurance benefits. But, if you're thinking about working after you retire, watch out for these financial pitfalls (U.S. News Nov. 10).
  • Medicare deadlines. Sign up for Medicare during the seven-month window around your 65th birthday, even if you're still working and don't need the coverage. If you miss the sign-up deadline, your Medicare coverage could be delayed and cost more;
     
  • Social Security sign-up date. If you are earning income and sign up for Social Security before your full retirement age, part or all of your payments might be temporarily withheld. The longer you delay claiming Social Security after your full retirement age, your benefits increase by 8% a year (for most boomers) up to age 70. After that, there is no additional benefit to waiting to claim Social Security payments; and
     
  • Required minimum distributions (RMD). Typically, you must start taking the RMD from your traditional retirement account after age 70 1/2. If you're still working, you might be able to delay taking the money out of one kind of traditional account, the 401(k). However, you must make RMDs from IRAs and 401(k)s from previous employers--if you don't, you'll pay a steep 50% tax penalty.
Although not a penalty, one more tax piece could affect your finances if you're still working after age 70 1/2: Don't count on tax deductions for contributions to a traditional IRA--you're no longer eligible.
 
For related information, use the calculator "How Long Will Retirement Savings Last?" and read "How to Calculate Your Retirement Needs" in the Home & Family Finance Resource Center.
 
Ask your financial professional to help you determine if you will face any additional financial effects for working during retirement.

Financial gifts can improve well-being

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McLEAN, Va. (11/24/14)--If you really want to give a meaningful holiday gift this year, think beyond traditional items such as clothing and gift cards. A recent survey conducted for Charles Schwab shows that more than half (53%) of those surveyed say cash to help pay off credit card bills would be their top choice as an unexpected holiday gift (USA Today Nov. 12).
 
A holiday gift to pay down debt can help someone save on interest payments as well as help the recipient feel more financially secure as he or she grapples with debt.
 
Other financial gifts to consider:
  • Piggy bank. This simple gift can go a long way toward educating even the youngest children about money. They quickly learn the concept of putting coins in the bank, then using the coins to make a purchase later. Buy a cute bank and fill with coins or a few dollars. Some banks electronically add up coins each time a new one is deposited--seeing the amount grow can be motivating to kids. Another idea: Buy a small three-drawer container and set up a drawer each for saving, spending, and sharing;
     
  • Sessions with a financial adviser. Paying for a sit-down with a financial planner, if only for one or two sessions, can help someone learn personal finance basics and give him or her the groundwork for starting to invest. To locate a fee-only financial planner, visit the National Association of Personal Financial Advisors at napfa.org;
     
  • Cash toward a Roth IRA (individual retirement account). "In addition to using cash to pay off credit card debt, another smart way to use holiday gift money is to encourage a working recipient to put the money into a Roth IRA," said Michelle Dosher, managing editor, Credit Union National Association Market Research and Consumer Education. "Roth IRAs can be really beneficial, especially when people start them at a young age," Dosher said;
     
  • Electronic gadgets. Gadgets such as tablets and smartphones are popular gifts, but you can add a financially savvy twist with personal finance apps, many of which are free or inexpensive. "If you're going to give someone a gadget, also give suggestions of financial apps that could help teach money management skills. Also encourage recipients to download their credit union's mobile banking app," Dosher added. This is a gift that teens and tweens can appreciate as well;
     
  • Books. Help family members and friends learn to manage money by giving them a book about the topic. One idea is "Money Rules: The Simple Path to Lifelong Security" by Jean Chatzky. It's an easy read, broken up into sections about making and saving money, spending wisely, and investing;
  • A financial jumpstart. Maybe you know a new grad or someone just getting back on his or her feet. You could help by offering your home as a place to stay for a month or two or by helping to pay a security deposit or first month's rent. This would be a great gift for parents to give young adult children as they learn financial independence; and
  • Credit union membership. Let family members know that because you're a credit union member they can be members. Tell them about the benefits of credit union membership and about the ease of using automatic deposits, payments and transfers, and online and mobile banking.
For related information, read "Holidays are Rich With Teachable Money Moments" in the Home & Family Finance Resource Center.

Longer car loans detrimental to consumers' finances

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WASHINGTON (11/18/14)--A longer-term loan can make even the most expensive car look affordable.
 
By stretching out the loan over many years, your monthly payment is likely lower, but you could end up paying a lot more in interest. Still, many people find such loans attractive. 
 
The average new car loan is now 67 months, according to Edmunds.com--the second-highest average term on record (Washington Post Nov. 12). Almost 25% of vehicle loans made in the second quarter of 2014 were for 73 to 84 months, according to Experian.
 
That's well above the standard three- to four-year loan that used to be typical for new car purchases. Here are some of the problems with taking out a longer car loan:
  • The longer the term of the loan, the worse your interest is likely to be. Shorter-term loans generally qualify shoppers for a better rate;
     
  • There's a greater chance you'll end up underwater. Without a substantial down payment, if you total the car or need to sell it, you could up receiving less than you owe on the loan; and
     
  • You're stuck with the car even if you don't want it anymore. If you want to buy a different vehicle, you likely won't be able to trade in your car because of the difference between what you owe and what the dealer is willing to pay for it.
If you need a longer car loan just so you can afford to buy the car, that's probably a good sign that you can't afford the car in the first place. Keep your loan at 48 months, and visit your credit union for preapproval on a loan before you even begin shopping.
 
That way you know exactly how much you can afford, and you can avoid taking out a loan that's going to be a financial burden long after the new car smell has evaporated.
 
If you have an auto loan from another financial institution, your credit union can help you refinance to a shorter term but still help you stay with an affordable payment.
 
For related information, read "Keep Your Old Car Running Longer" in the Home & Family Finance Resource Center.

In 2015, save with tax-advantaged accounts

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NEW YORK (11/12/14)--Next year you can put an extra $50 in your health care flexible spending account bringing the total to $2,550. Meanwhile the contribution limit for dependent care remains fixed at $5,000 where it's been stuck since 1986 when Congress originally set it.
 
While both accounts are employer-sponsored, the flex account for health care is adjusted each year for inflation. The account to help employees pay for day care is not. If it was, the contribution limit should now be at a robust $10, 859.08 (The New York Times Nov. 7).
 
For a long time, the government didn't even cap flexible spending accounts for health care--though employers usually limited annual savings to $5,000--but the Affordable Care Act capped it at $2,500 while allowing for future inflation adjustments. Next year will be the first time it's risen since the cap was put in place.
 
Still, these caps shouldn't stop you from contributing, because the savings can be significant. Here's what you need to know about the various tax-advantaged accounts and their new limits for 2015:
  • Health care flexible spending account, $2,550 cap. Your employer takes set aside pre-tax money out of your paycheck and puts into a separate account for health care expenses;
     
  • Dependent care flexible spending account, $5,000 cap. Works the same as the health care account, except the money is set aside for child care expenses for children 12 and under or, in some cases, a disabled spouse or aging parent who lives with you. If your employer doesn't offer this, you can use the dependent care tax credit;
     
  • Commuter expense account, $130 cap for public transportation, $250 for parking. Works the same as other flex spending accounts but is used for commuting expenses;
     
  • Individual retirement account, $5,500 cap, plus extra $1,000 for people age 50 and older. How it works depends on where you open the account, but most people are eligible for a $5,500 federal tax deduction for contributing; and
     
  • 401(k) and 403(b), $18,000 limit, plus an extra $6,000 for people age 50 and older. Your employer takes pre-tax money from your paycheck and places it into an investment account. You pay taxes on the money when you withdraw it in retirement.
For related information, read "Everybody's Money Matters: Benefits of Health Savings Accounts" in the Home & Family Finance Resource Center.