Changes Could Be Coming to Your 401(k)

by Gerri Willis

Hold onto your hats: A proposal coming from the White House could impact your 401(k) and not in a good way. President Obama plans to ask Congress to reduce tax benefits for 401(k) investors, particularly higher earners.  And the proposal doesn’t stop there. The president also wants to limit the value of all tax deductions and IRA deductions to 28 percent of income. Catch-up investors for retirement would be hardest hit by these rules if they were to become law.

Experts say that households caught in the crosshairs would be singles earning $183,000 or more and couples earning $225,000 and more.

 

The proposal, which is sure to reduce savings if it becomes law, comes even as Americans are pitifully under saved for retirement. According to Boston College’s Center for Retirement Research, the average 401(k) and IRA balance for people over 55 years of age is just $42,000. What’s more, just five percent of the roughly 60 million 401(k) plan participants contribute the maximum amount to their 401(k) of $17,500 for people under 50 and $23,000 for people 50 and older. 

 

“You don’t strengthen the caboose by weakening the engine; it’s a bizarre point of view,” says Ric Edelman, a financial advisor and author of “The Truth about Retirement Plans and IRAs. “We need to be creating incentives for people to save for retirement, not putting ceilings on them to discourage them from saving.”

 

What’s surprising is that the administration would look to raise the tax hit on retirement savings rather than increase it. The administration says that wealthier Americans will save for retirement regardless of whether they get tax breaks for doing so, but in many parts of the country, the earnings levels that are targeted -- $225,000 for a couple, for example – aren’t high wage earners, but middle class earners.

 

What’s more, the President’s proposal has the possibility of reducing retirement options for people in all wage categories, if small business owners decide to drop company 401(k)s, rather than deal with the changes. “If you have rich people without incentives to save, they are going to kill their retirement plans at work which means the lower-paid workers won’t have a retirement plan to contribute to at all. So, that’s a real backwards concept,” Edelman says.

 

 

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Comcast, Time Warner Deal to Get Close Look From All Sides

by Gerri Willis

The proposed $45 billion marriage of Comcast and Time Warner Cable has caught the eye of regulators and Congress, but the real impacts will be felt in American living rooms. The two companies rate among the lowest with consumers in term of customer satisfaction. And, despite the fact that executives called the merger “pro-consumer,” Americans complain about wait times for cable service providers and rising prices already. Monthly cable bills have nearly tripled in the last decade to $128 a month for triple play – phone, interest and cable TV services.

Although many consumer experts are predicting the merger will raise cable prices, others say that changes may be slow to come because it will take at least nine months to a year to get the merger approved by federal regulators. Meanwhile, some in Congress say they plan to hold hearings to give the deal a closer look. The House Judiciary Committee and the Senate Commerce Antitrust subcommittee have both announced plans to examine the deal in detail.

But it may not just be prices that are an issue when and if the deal is approved. Service may also be an issue. Consumer Reports has said Comcast  dropped streaming speeds sharply for Netflix, a popular content provider with its “House of Cards” series which scored record downloads this past weekend.

Ultimately, regulators will decide if the deal goes through. The Obama administration recently blocked the merger of AT&T and T-mobile. Comcast and Time Warner appear to already be positioning themselves for scrutiny by the Justice department. They say that that the two companies currently don’t compete in any single zip code in the country, and that even post-merger, the company will be available to only 30 percent of American households, typically regarded as an acceptable level.

 

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The Unintended Consequences of Divorce

by Gerri Willis

Getting a divorce isn’t just an emotional roller coaster, it’s also an event likely to have unintended consequences that reverberate throughout you and your children’s lives.    

What’s more, it’s big business, according to Vikki Ziegler, a divorce attorney and host of Bravo’s new show, Untying the Knot. “It’s estimated to be a billion-dollar a year industry when you include experts, counseling, life insurance, real estate issues, lawyers and the like.  It’s an expensive proposition that can financially ruin litigants.” If you take it all the way to divorce court, couples can spend $20,000 to $2 to $3 million. You can keep the costs low by using a mediator to help you negotiate a fair settlement. Ziegler recommends using a retired judge or attorney both of you can trust to help settle all the issues.

And, so much hangs in the balance: All of a couples assets, custody of their children. Who gets the house? Divorce attorneys say huge legal battles have been waged over who gets the dog. For that reason, you’ll want to try to take the emotion out of the proceedings and carefully tally what the two of you own and what you spend. Cases turn on who has the best documentation of these details.

Raoul Felder, a celebrity attorney known for his aggressive style in the courtroom, says cool-headed analysis is the key to getting what you want. “The thing that always seems so odd is that both the husband and the wife do not recognize that a divorce may be the biggest business deal either of them ever makes in their lives. If a successful businessman is buying or selling a subsidiary, he will go into long consultations, look at the charts, have meetings with his colleagues, employees and financial people. In a divorce, frequently, he will act out of anger or passion, and will make a life-altering decision in the blink of an eye.”

The economy’s recovery has many experts predicting the country is in for a rise in divorces as couples conclude they can afford to call it quits. But the reality is this: You thought the divorce was expensive? Wait till you see what it costs to live apart! Maintaining two households, one for the husband and the other for the wife and kids, may not be twice as expensive as maintaining a single household, but very nearly so. The high cost of living apart will impact your ability to save for your child’s college education, even your own retirement. (And, I’m not even talking about the emotional costs that result.) The consequences of divorce are enormous for families and continue for decades to come.

 

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Money Mistakes to Avoid in Marriage

by Gerri Willis

The number one cause of divorce, according to experts and polls alike, is money. Even in good times, couples are likely to disagree on how to spend their earnings. But add in the stresses of a weak economy and job market or a lingering and expensive illness, and the atmosphere can become a pressure cooker. Under these kinds of stresses, your partner’s behavior may become unrecognizable to you. He or she may seem like a stranger. 

 

That makes it all that more important to talk about money in the early days of the relationship. It may sound crazy but actually exchanging financial records can help clarify expectations and set the stage for handling the inevitable financial issues that crop up later. If you know what your spouse makes, what they save for retirement, how they spend day to day, you are in a much better position to handle issues down the road. Develop financial goals together. How much money would you like to have saved by retirement? Are you saving for your kid’s college education together? How much? Planning together in such a way puts you in the same boat and makes you feel like a team – critical to overcoming financial problems down the road.

 

“It’s about perception,” says Dr. Jeff Gardere, a psychologist and professor. “If you view it as an impossible situation it will become one and may end up hurting the marriage. Instead, view it as an aspect of life that happens to almost everyone at some point and that the two of you must take it on together and resolve the problem.”

 

It’s essential to consider as a couple that financial emergencies will arise and to have savings that can see you through the normal problems every family faces. Facing job loss, for example, is a lot easier when you and your spouse have already had a conversation about the potential that it might happen, than considering the impacts for the first time when it does. Surprises aren’t fun. But if you can start the conversation by saying, “Well, we’ve already talked about this,” that can be calming.

 

Hitting a true rough patch like a serious illness requires that you reach out and tap all of your resources for help. Don’t suffer in silence. It’s worth telling your accountant, attorney and other family members if the medical bills are coming in hot and fast. There may be solutions that you personally aren’t aware of.

Gardere says, “Show faith and courage in your partner, yourself and your marriage as you go through the process. It will only prepare you and make you stronger for the next challenge you face in your marriage.”

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The High Cost of Having Kids

by Gerri Willis

It never ceases to amaze me what my friends spend to raise their children.  Between the child care, the private schools and clothing, it’s no wonder so many parents both work. The Department of Agriculture estimates the average cost of raising a child born in 2012 will be $241,080 or $301,970 if you adjust for expected inflation, And, this shockingly, does not even include the cost of a college education which currently is $22,826 for a public school or $44,750 for a private school – that’s before the 4 to 5 percent annual tuition inflation hikes kick in.

Of course, the real cost depends on where you live. In rural parts of the country, you might get away with spending just $143,600, but in the high-cost Northeast your costs might be $446,100, again according to the USDA. Trouble is some families spend even more, which raises the question: How can you cut your costs without sacrificing care for your child?

Let’s tackle child care – it’s one of the most expensive tabs parents face. According to the National Association of Child Care Resource and Referral Agencies, in 31 states and the District of Columbia, the average annual cost for infant care is MORE than a year’s tuition and fees at a four-year public college. In 2012, according to the same source, the average annual care cost for infants ranged from $4,863 in Mississippi to a high of $16,430 in Massachusetts. For a four year old, the average costs are similar ranging from $4,312 in Mississippi to $12,355 in New York.          

The best solution – getting a family member to care for your child, simply isn’t practical for many moms and dads. Given that, a good solution for some parents may be employer-provided child care which is typically run at a lower cost to employees. Peace of mind is higher when your child is down the hall or in the same building as mom or dad. If there is no onsite child care, your employer may provide you with referrals or even discounts to centers nearby. You may be able to pay for child care with pre-tax dollars through a flexible spending account, check your human resources office for details. Remember if you work in the public sector or for a company with more than 50 employees, you may be eligible for up to 12 weeks of leave to care for a sick child, under the Family and Medical Leave Act.

Another way to save is to share a nanny with other families and split up the costs of care. Other moms I know have set up a babysitting co-op, in which parents provide the care. You’ll need to work with families in which the parents have different schedules.

One word of caution for moms and dads: Don’t put your future at risk by putting every single penny into Junior’s education. Your son or daughter will be able to borrow for higher education, but you’ll have to foot your own tab for retirement.

 

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User's Guide to Prenups: For Better or Worse?

by Gerri Willis

Okay, I am definitely out of step with the professionals, the lawyers and marriage counselors, who say that the prenup is an essential step for the couple about to get married this year. At first glance, their arguments in favor of a prenup are pretty persuasive. Since half of marriages end in divorce, they say, agreeing how you’ll split up what you own in the event of divorce even before you take vows is the smart move. Given those odds, a responsible couple considers the end game ahead of time. Getting married, the prenup supporters say, is a roll of the dice and protecting your own skin is the name of the game.

If that’s the way you feel, I say, don’t get married. How can you possibly expect to have a real marriage unless you’re in it together? The traditional vows are “for better or worse,” not “until I find something better.” Look, undoubtedly, some people come into a marriage with a much firmer financial cushion or more debt than their partner. It’s rare that two people have the exact same financial profile. What’s missing isn’t a legal document, but communication about those differences. The bride or husband to be saddled with debt needs to be clear about the issues. Likewise, the spouse who is heir to a family business needs to share his or her expectations. But people getting married should be ready to work together.

Truth is, few couples have the money conversation and to me – that is essential. If you don’t know what your fiance earns to the penny, that’s a recipe for disaster. How much does he or she save? What is the size of the 401(k)? Is there a mountain of credit card or college debt hiding in the wings? Once you finish the financial disclosure, then you can start to tackle the other important financial questions you’ll face as a couple. What are your financial goals? How are you going to get there together?

Prenup advocates say marriage is a contractual arrangement, so, they reason, why not protect it with another contractual arrangement? I say a marriage’s most fundamental essence isn’t filed away in the county courthouse but lived out every day and for that to happen it has to be built on trust.

 

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Your User's Guide to Love & Money: Newlywed Advice

by Gerri Willis

By Gerri Willis

 

A couple of years ago one of my friends who I thought was a confirmed bachelor announced he was getting married. Since he lived on the West Coast, I didn’t get a chance to meet his fiancé until the wedding. And, what a wedding it was! A dozen formally-attired bridesmaids. Four-course meal. Champagne fountain. All of which was weird, because my buddy’s tastes tended to run to  Goretex jackets and Merrell shoes. Ah well, I thought, everybody changes. Besides, my friend had interviewed drug kingpins and travelled the world. He could handle himself.

But then, weeks later my friend called to say that not long after the five-star wedding he found out his new bride had debt. A lot of debt. Six figures worth of debt. A stunning revelation for my friend but stories like this play out all the time.

In fact, according to a study from Michigan University’s Ross School of Business, tightwads and spendthrifts are attracted to each other. That’s right, Mother Nature is conspiring against financially solvent, happy couples. According to the study, “Fatal Fiscal Attraction: Spendthrifts and Tightwads in Marriage,” opposites attract even when it comes to money.

For that reason, if you’re getting married for the first time or the fifth, you need to have a real world understanding of just how financially literate your intended is and the debt load they carry because it will soon be yours. You can typically get a sense of your honey’s money habits by simply watching them on dates. Who orders the extra bottle of wine at midnight? Who wants to book the last-minute weekend getaway with astronomical airfare? Some of the spending conducted by a couple in love can be blamed on their euphoria over being in love. But for some folks, overspending is a habit and a bad one.

I believe that every couple headed down the aisle should engage in financial disclosure. You need to know what your soon-to-be spouse earns for a living. What kind of credit card debt they have. Outstanding student loans? Alimony? Child support? Tell me about it. Let’s face it, if getting a mortgage to buy a house is a financial strip search, why should getting married be any different?

In short, it’s not un-romantic to understand your fiance’s money life. It’s part of them – an important part of them. And, one you need to understand before slipping on the ring.

 

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Warm Weather Getaway Tips That Will Save You Money

by Gerri Willis

By Gerri Willis

 

Dreaming of a warm weather getaway? With much of the nation locked down in freezing weather,  planning a getaway with the kids to a warm-weather theme park might just be the ticket. And, let's face it, the attractions just seem to be getting better and better. Not to be outdone by Universal's Wizarding World of Harry Potter, Disney has launched a Star Wars attraction that seems to be getting all the buzz. But what will a trip for four cost you? The answer is: Plenty.

 

The theme park business has gotten so big, in fact, that some allow you to buy your vacation on an installment plan. Average prices for a single day at a single park are cruising just below $100. So you'll want to plan your excursion with care to make sure Junior's vacation doesn't pre-empt Junior's college education.

 

Here are some tips for getting the most out of your theme park vacation. First off,  buying multiple day passes can reduce your daily costs to visit. Check the websites of your destinations to find out if you can score a deal by planning multiple visits in advance. Keep in mind that traveling to one of these parks will still be cheaper than taking your kids to a foreign capital (they'll probably enjoy themselves more, too).

Before you even look at package prices at the theme parks themselves, check out the hotels in and around the parks. Many offer incentives with early admission; complimentary travel and passes that will help you skip the line. Consider booking an offseason trip to score the richest incentives. The best times to visit are weekdays in the shoulder months of March, April. September and October. Twilight admission deals abound, too. (That's typically after 4 p.m.) Schedule your visit for weekdays, instead of weekends, and you'll score even more savings.

 

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This is NOT How to Solve the Nation’s Retirement Crisis

by Gerri Willis

By Gerri Willis

 

Every once in a while, along comes a great idea for solving the nation’s retirement crisis. Unfortunately, the President’s MyRA is not it.

Unveiled at this week’s state of the union address, MyRA is a starter savings vehicle developed to encourage the middle class to invest for retirement. An admirable goal, especially since  53 percent of American households are at risk of not being able to maintain their standard of living in retirement.

But MyRA doesn’t set its sights that high. Instead, the program, which is in early stages now, encourages workers to set aside small amounts. The minimum investment is just $25 and even that can be taken out at any time. Contributions will be made after-tax with a $15,000 account maximum. Senior administration officials, speaking on background earlier this week, said that savers would be able to take money out at any time if they hit a “rough patch.” No word yet about what would happen if the program became popular and everybody decided to pull all their money  out at one time during, say, a financial crisis like we saw in 2007. Presumably, taxpayers would be on the hook.

Worst case scenarios aside, senior administration officials said the program goal is to attract investors with its “simple, safe and secure” design. Further, they said that “Everyone who wants to save, should be able to do so.” It’s an odd assertion, especially given the fact that there are plenty of options at hand for consumers who want to save.  The nation’s more than 6,000 federal credit unions allow customers to open an account with just $5. Vanguard requires IRA applicants to have $1,000 to invest.

What’s most confounding about the plan is that there will be just one option offered to investors. A “savings-bond like” investment that will mimic the return that government employees get in their retirement accounts. Over the past five years, however, those returns have averaged just 2.69 percent, while the S&P 500 has returned 17.98 percent. I know what I’d rather have. The Wall Street Journal reported this morning that it would take a saver who contributed $50 every two weeks nearly 11 years to amass $15,000 given last year’s government fund return.  That’s a long time for a saver to wait.

Here’s the real problem with the program: With returns so low and investment options so few, who will invest? Americans are reluctant to invest in their 401(k) even when they get matching employer dollars. Participation rates are typically just 53 percent unless workers are automatically enrolled and are forced to opt out.

To be sure,  I think encouraging people to save and invest is good. We need more savings. But young investors need experience with the real world of investing and that means your principal isn’t guaranteed. That means taking on some risk. It’s a personal responsibility to save for retirement and if the government wants to help, maybe the Federal Reserve should be encouraged to let rates reset on their own so that savers can be rewarded in the marketplace.

 

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How to Bring Down Home Heating Costs

by Gerri Willis

By Gerri Willis

 

The arctic plunge felt all over the country is pressuring Americans’ wallets. Despite the revolution in energy production, high demand and supply constraints are sending energy prices soaring. Propane prices are double their previous highs in the Midwest as demand spikes. Meanwhile, natural gas prices are soaring as inadequate pipeline capacity struggles to fulfill demand in the Northeast.

The Energy Information Agency reports that 90 percent of the 116 million Americans homes will face higher home heating bills this winter. Heating oil users will face the  highest bill for the season at an average of $2,114. Propane users come in at No. 2 with an average bill of $1,666,  Electric heat users average tab is seen at $914 and natural gas users will pay $665, that’s up 13 percent from last year. Natural gas is used by about a half of American households to heat their homes.

Experts say that keeping your home warm and safe is nothing short of a challenge this year. On the one hand, every time your ratchet up the heat on your thermostat a single degree, you increase your costs by 3 percent. But lowering your thermostat too much can cause trouble. Second home owners need to keep a particularly sharp eye on how much they turn down their thermostat. Turn it too low and your pipes can freeze. Danny Lipford, host of Today’s Homeowner, recommends allowing your faucets to drip overnight when the weather is extremely cold. Open up the cabinet doors below your kitchen faucets to allow warmer air to circulate around pipes.

January is the month for home fires and if you are using electric space heaters be particularly careful.  Underwriters Laboratories estimates that the safest distance between your space heater and curtains or other household items that can catch fire three feet. Use a high quality extension cord and shut the heater off if you aren’t in the room.

One way to bring your costs down for the long term is to buy a more efficient furnace. New furnaces these days are extremely efficient, capturing as much as 97 percent of the fuel’s energy. But at a cost of $2,500 to $14,000 to buy and install, a gas furnace isn’t cheap. Get a pro to help you determine how much you might save by upgrading your furnace and then figure out how long it would take the savings to pay the cost of the furnace. Most experts weigh three factors: the efficiency of the furnace, the cost of the fuel and the heating load of the house – that’s the amount of energy it takes to maintain a steady 65-degree temperature. Check your state government’s website to see if you can score some government-funded rebates to make the cost easier to bear.

Chances are if your furnace still has several good years left in its 15 to 20-year life, you might want to consider other ways to improve your homes fuel efficiency, such as weather stripping and insulating your attic or blowing in insulation into your walls. (I’ve done the latter after determining that the builders of our 81-year-old house insulated with newspaper.) If you’re still not satisfied, ask your energy provider for an energy audit, which will provide detailed information about where your home drafts are coming in.

 

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