Debt Management for Personal Loans
Personal loans can offer individuals a way to have the funds for an array of uses. Some are necessary while others are for pure enjoyment. It is important that you consider the financial obligation that comes with personal loans. Too often, individuals access money quickly then struggle to repay it. If you don’t have a good budget in place you may find yourself unable to make the payments on your personal loan.
An area where many individuals get into trouble with personal loans is debt consolidation. Within a year most people who use personal loans for this find themselves in even worse financial shape. This is because they have not altered their spending habits any. The result is they charge their credit cards up to the limit and now have those payments to make again as well as a personal loan payment. They may soon find they are drowning in the swimming pool of debt.
Enrolling in a debt management plan may be a great alternative for you to help you meet your financial obligations. Most debt management plans involve working with your creditors to reduce interest rates as well as working with the individual to establish a realistic budget and work to change spending habits.
The first step in the process is to do some research on the debt management programs available. Find out how long they have been in business and check for any reports from customers with the Better Business Bureau. Once you have chosen one, call to discuss your situation with them and schedule an appointment. You will need to bring statements for all of your bills as well as verification of your income.
With a debt management counselor you will discuss your monthly obligations. They will work with your creditors to reduce the interest on your debt. This will reduce your monthly payments. You will then make one monthly payment to the debt management agency. They will then disburse the funds to your creditors. You will continue to get monthly statements from your creditors for your records.
It is important that you understand you can’t use any of your credit cards that you place into a debt management program. Keeping that in mind, you might want to choose one with a very small limit that you pay separately. You will avoid making any additional charges on that credit card unless it is an absolute emergency. You will want to discuss this with your debt management counselor.
Most creditors are willing to accept the terms of a debt management program because it shows you are accepting responsibility for your debt. They want to recoup the money you owe so this is a very realistic way for that to happen. Most debt management agencies have policies in place about missing payments. Generally, if you miss two payments in a row they will drop you from the program. It is important you notify the debt management agency if you are having difficulties with making a payment.
Obtaining credit is often too easy, yet repaying it can be a struggle you have for a large portion of your life. If your personal loans and other debt have spiraled out of control, contact a debt management program to see if they can help your situation.
Like this article? Debt Management for Personal Loans
Saturday, January 2, 2010
Is Re-Financing Worth the Hassle?
Is Re-Financing Worth the Hassle?
Some homeowners may never re-finance while others may re-finance frequently. This is a decision which is largely a matter of personal preference. Sure there are some financial benefits which may result from re-financing but for some homeowners these benefits are not worth the hassle of going through a mortgage re-finance. For these homeowners the amount of savings overall or the opportunity to lower monthly payments is simply not worth the effort of investigating the re-financing options, comparison shopping for lenders and paying closing costs to obtain a re-finance.
Are Some Homeowners Just Lazy?
Yes, let’s face it we have all visited a friend’s house to find dust bunnies under the couch or unfolded laundry lying on the floor. However, laziness is usually not the culprit when a homeowner opts not to refinance despite the opportunity for an overall savings or lower monthly payments. In these cases the homeowner may simply decide not to re-finance because they are not confident in making the right decision. These homeowners essentially decide they are happy with their current financial situation and are not willing to make changes which may or may not improve this condition. It is likely that these same homeowners would re-finance their home if all the work was done for them and they were guaranteed an improved financial situation.
Do Some Homeowners Just Not Understand the Financial Benefits?
This may be true as well. Homeowners who do not fully comprehend the potential savings which may be involved in re-financing are not likely to undergo the re-financing process. For these homeowners it may seem as though the efforts are not worthwhile for the benefits that are received. If the homeowner had a clearer understanding of the situation they might have a different opinion but in this case the homeowners may be unable to comprehend the ramifications of a re-finance.
Consider the factors involved in re-financing. Most of the equations use to justify the benefits of re-financing are rather complex. There are calculators available online which make it extremely simple for homeowners to enter the known information and obtain the desired results. However, these calculators typically do not explain how the calculations are performed. This can make it hard for some homeowners to simply accept the results produced by these calculators. When this is the case the homeowner is not likely to be inclined to automatically accept the results generated by these calculators. Additionally, the homeowner may not consider re-financing until they are able to confirm these calculations. Depending on the homeowner’s mathematical skills, this could be either a short process or a long process.
Can You Convince a Homeowner to Re-Finance?
This is a hard question to answer because it depends on a number of factors. Some homeowners may be extremely trusting and may be convinced to re-finance with little effort at all. Conversely some homeowners may be quite guarded in terms of their financial situation. These homeowners may be suspicious of claims that the re-financing can improve their financial situation. These suspicions can make it extremely difficult for a homeowner to be convinced to make a change. Once suspicions begin to develop the homeowner may either seek out more information on the subject or become less receptive to additional information. While one case may lead to the homeowner being more likely to be convinced to re-finance the other case will likely make him less willing to re-finance.
Like this article? Is Re-Financing Worth the Hassle?
Some homeowners may never re-finance while others may re-finance frequently. This is a decision which is largely a matter of personal preference. Sure there are some financial benefits which may result from re-financing but for some homeowners these benefits are not worth the hassle of going through a mortgage re-finance. For these homeowners the amount of savings overall or the opportunity to lower monthly payments is simply not worth the effort of investigating the re-financing options, comparison shopping for lenders and paying closing costs to obtain a re-finance.
Are Some Homeowners Just Lazy?
Yes, let’s face it we have all visited a friend’s house to find dust bunnies under the couch or unfolded laundry lying on the floor. However, laziness is usually not the culprit when a homeowner opts not to refinance despite the opportunity for an overall savings or lower monthly payments. In these cases the homeowner may simply decide not to re-finance because they are not confident in making the right decision. These homeowners essentially decide they are happy with their current financial situation and are not willing to make changes which may or may not improve this condition. It is likely that these same homeowners would re-finance their home if all the work was done for them and they were guaranteed an improved financial situation.
Do Some Homeowners Just Not Understand the Financial Benefits?
This may be true as well. Homeowners who do not fully comprehend the potential savings which may be involved in re-financing are not likely to undergo the re-financing process. For these homeowners it may seem as though the efforts are not worthwhile for the benefits that are received. If the homeowner had a clearer understanding of the situation they might have a different opinion but in this case the homeowners may be unable to comprehend the ramifications of a re-finance.
Consider the factors involved in re-financing. Most of the equations use to justify the benefits of re-financing are rather complex. There are calculators available online which make it extremely simple for homeowners to enter the known information and obtain the desired results. However, these calculators typically do not explain how the calculations are performed. This can make it hard for some homeowners to simply accept the results produced by these calculators. When this is the case the homeowner is not likely to be inclined to automatically accept the results generated by these calculators. Additionally, the homeowner may not consider re-financing until they are able to confirm these calculations. Depending on the homeowner’s mathematical skills, this could be either a short process or a long process.
Can You Convince a Homeowner to Re-Finance?
This is a hard question to answer because it depends on a number of factors. Some homeowners may be extremely trusting and may be convinced to re-finance with little effort at all. Conversely some homeowners may be quite guarded in terms of their financial situation. These homeowners may be suspicious of claims that the re-financing can improve their financial situation. These suspicions can make it extremely difficult for a homeowner to be convinced to make a change. Once suspicions begin to develop the homeowner may either seek out more information on the subject or become less receptive to additional information. While one case may lead to the homeowner being more likely to be convinced to re-finance the other case will likely make him less willing to re-finance.
Like this article? Is Re-Financing Worth the Hassle?
Credit card processing
Credit card processing
It comes as a surprise how credit cards have found their way into our lives (and out wallet). Credit cards have gradually turned into becoming a necessity (rather than luxury). You can find credit card processing machines in almost all the shops today. With the advent of internet, online credit card processing has become popular too. ‘Credit card processing’ as such is a really interesting topic. This article tries to put into perspective the people, systems and the equipment that go into credit card processing.
First, let’s check the equipments used for credit card processing. So, there are credit card processing softwares for online credit card processing, there are credit card processing machines (i.e. the credit card reading machines at shops), there are data verification/validation devices/softwares that verify the security information on credit cards, there are communication devices/systems that enable safe transfer of credit card information from one point to another, and then there are other credit card processing equipments like the credit card processing equipment that is used for the preparation of the actual plastic (credit card).
Then there are various service providers that provide services related to credit card processing. There are suppliers for credit card processing equipment and suppliers for online credit card processing services. Then there are postal and courier service that help deliver credit card bills in time. There are merchants/petrol-bunks etc which provide facility of payment collection boxes at their premises (another important aspect of credit card processing).
Besides that there are complete systems for processing credit card applications, there are systems for credit card bill processing/generation, there are people at call centres who help in addressing the queries from credit card holders and, very importantly, there are people (sales representatives) who help you in filling the credit card application forms. Another important entity with regards to ‘credit card processing’ process is the credit rating bureaus. Credit card bureaus maintain a database of credit ratings for individuals and businesses. This rating is based on the data received from various credit providers over a period of time. This rating is the most important part of credit card application processing and a bad rating can lead to rejection of the credit card application altogether.
Thus, credit card processing involves a coordinated effort from a lot of professionals and service providers. In that sense, we can also say that credit card processing is an industry in itself that has generated a lot of employment.
Like this article? Credit card processing
It comes as a surprise how credit cards have found their way into our lives (and out wallet). Credit cards have gradually turned into becoming a necessity (rather than luxury). You can find credit card processing machines in almost all the shops today. With the advent of internet, online credit card processing has become popular too. ‘Credit card processing’ as such is a really interesting topic. This article tries to put into perspective the people, systems and the equipment that go into credit card processing.
First, let’s check the equipments used for credit card processing. So, there are credit card processing softwares for online credit card processing, there are credit card processing machines (i.e. the credit card reading machines at shops), there are data verification/validation devices/softwares that verify the security information on credit cards, there are communication devices/systems that enable safe transfer of credit card information from one point to another, and then there are other credit card processing equipments like the credit card processing equipment that is used for the preparation of the actual plastic (credit card).
Then there are various service providers that provide services related to credit card processing. There are suppliers for credit card processing equipment and suppliers for online credit card processing services. Then there are postal and courier service that help deliver credit card bills in time. There are merchants/petrol-bunks etc which provide facility of payment collection boxes at their premises (another important aspect of credit card processing).
Besides that there are complete systems for processing credit card applications, there are systems for credit card bill processing/generation, there are people at call centres who help in addressing the queries from credit card holders and, very importantly, there are people (sales representatives) who help you in filling the credit card application forms. Another important entity with regards to ‘credit card processing’ process is the credit rating bureaus. Credit card bureaus maintain a database of credit ratings for individuals and businesses. This rating is based on the data received from various credit providers over a period of time. This rating is the most important part of credit card application processing and a bad rating can lead to rejection of the credit card application altogether.
Thus, credit card processing involves a coordinated effort from a lot of professionals and service providers. In that sense, we can also say that credit card processing is an industry in itself that has generated a lot of employment.
Like this article? Credit card processing
Credit Cards With Cash Rebate
Credit Cards With Cash Rebate
Credit cards with cash rebate incentives give you cash rewards each and every time you make a purchase with your credit card. Although there are many types of reward credit cards out there, more and more companies are leaning towards cash back incentives, as most people prefer to receive cash back over any other type of reward.
For many, getting cash back is far preferred over air miles, items, or any other reward. If you like to use your credit card often, then you’ll find that cash rebate credit cards will give you a lot of money in return.
Normally, these types of credit cards entail higher fees and APR. You don’t want to carry a high balance on these cards at any time, as it normally ends up very costly. If you can off your balance at the end of the month, then your APR won’t affect you. Paying off your bill will also allow you to take full advantage of the cash rebate reward.
The percentage of cash back will vary, although most normally have 1%, with 5% being applied with certain purchases. For every purchase you make using your cash rebate credit card, you’ll get a small amount of cash back. Using your credit card on a frequent basis will give you a lot of cash back at the end of the year.
If you make big purchases, you can get a lot of cash back by using your credit card, although some may have a limit on just how much of a rebate you get back. If you plan to purchase large items such as furniture, you should check into your cash rebate credit card and find out what the rebate is on these types of purchases. The better rebate cards will normally send a lot of rebate cash your way just for purchasing some of the larger items.
Before you get a cash rebate credit card, you should always find out how much of a reward you will be getting with each purchase, and what the limit may be. Once you have reached the limit, some banks will either send you a check, deposit the reward into your bank account, or simply add the reward to your credit card. All three are wise options, although most prefer to have the money added to their bank account - so it can help draw some interest.
If you research the rebate card and find out what other features are included, you’ll normally come out a winner. Make sure you inquire about the credit limit, fees, and other things that you feel you should find out. Once you have researched and found out what you need to know - you can get a cash rebate credit card and begin living life knowing you will be getting cash back for just about anything you purchase.
PPPPP
(word count 474)
Like this article? Credit Cards With Cash Rebate
Credit cards with cash rebate incentives give you cash rewards each and every time you make a purchase with your credit card. Although there are many types of reward credit cards out there, more and more companies are leaning towards cash back incentives, as most people prefer to receive cash back over any other type of reward.
For many, getting cash back is far preferred over air miles, items, or any other reward. If you like to use your credit card often, then you’ll find that cash rebate credit cards will give you a lot of money in return.
Normally, these types of credit cards entail higher fees and APR. You don’t want to carry a high balance on these cards at any time, as it normally ends up very costly. If you can off your balance at the end of the month, then your APR won’t affect you. Paying off your bill will also allow you to take full advantage of the cash rebate reward.
The percentage of cash back will vary, although most normally have 1%, with 5% being applied with certain purchases. For every purchase you make using your cash rebate credit card, you’ll get a small amount of cash back. Using your credit card on a frequent basis will give you a lot of cash back at the end of the year.
If you make big purchases, you can get a lot of cash back by using your credit card, although some may have a limit on just how much of a rebate you get back. If you plan to purchase large items such as furniture, you should check into your cash rebate credit card and find out what the rebate is on these types of purchases. The better rebate cards will normally send a lot of rebate cash your way just for purchasing some of the larger items.
Before you get a cash rebate credit card, you should always find out how much of a reward you will be getting with each purchase, and what the limit may be. Once you have reached the limit, some banks will either send you a check, deposit the reward into your bank account, or simply add the reward to your credit card. All three are wise options, although most prefer to have the money added to their bank account - so it can help draw some interest.
If you research the rebate card and find out what other features are included, you’ll normally come out a winner. Make sure you inquire about the credit limit, fees, and other things that you feel you should find out. Once you have researched and found out what you need to know - you can get a cash rebate credit card and begin living life knowing you will be getting cash back for just about anything you purchase.
PPPPP
(word count 474)
Like this article? Credit Cards With Cash Rebate
Rebates – Reward or Rip Off?
Rebates – Reward or Rip Off?
Rebates have become increasingly popular in the last few years on a lot of items and certainly on electronic items and computers. Rebates of $20, $50 or $100 are not uncommon.
I’ve even seen items advertised as “free after rebate”. Do these rebates come under the heading of “too good to be true”? Some of them do and there are “catches” to watch out for but if you are careful, rebates can help you get some really good deals.
The way a rebate works is that you pay the listed price for an item then mail in a form and the bar code to the manufacturer and they send you a refund thus reducing the price of what you paid for the item except with a time delay of several weeks.
Rule #1. Rebates from reputable companies are usually just fine.
You can be pretty sure you will get the promised rebate from Best Buy, Amazon or Dell but you should probably not count on getting one from a company you’ve never heard of. If you really want the product and are OK with paying the price listed then buy it but don’t count on actually getting the refund.
Rule #2. Check rebate expiration dates.
Many times products will stay on the shelf of a retailer after the date for sending in the rebate offer has expired so check that date carefully.
Rule #3. Be sure you have all the forms required to file for the rebate before you leave the store.
Rebates will almost always require a form to be filled out, a receipt for the purchase and a bar code.
Rule #4. Back up your rebate claim.
Make copies of everything you send in to get your rebate including the bar code. Stuff gets lost in the mail all the time and if the rebate is for $50 it’s worth the trouble to back up your claim.
Like this article? Rebates – Reward or Rip Off?
Rebates have become increasingly popular in the last few years on a lot of items and certainly on electronic items and computers. Rebates of $20, $50 or $100 are not uncommon.
I’ve even seen items advertised as “free after rebate”. Do these rebates come under the heading of “too good to be true”? Some of them do and there are “catches” to watch out for but if you are careful, rebates can help you get some really good deals.
The way a rebate works is that you pay the listed price for an item then mail in a form and the bar code to the manufacturer and they send you a refund thus reducing the price of what you paid for the item except with a time delay of several weeks.
Rule #1. Rebates from reputable companies are usually just fine.
You can be pretty sure you will get the promised rebate from Best Buy, Amazon or Dell but you should probably not count on getting one from a company you’ve never heard of. If you really want the product and are OK with paying the price listed then buy it but don’t count on actually getting the refund.
Rule #2. Check rebate expiration dates.
Many times products will stay on the shelf of a retailer after the date for sending in the rebate offer has expired so check that date carefully.
Rule #3. Be sure you have all the forms required to file for the rebate before you leave the store.
Rebates will almost always require a form to be filled out, a receipt for the purchase and a bar code.
Rule #4. Back up your rebate claim.
Make copies of everything you send in to get your rebate including the bar code. Stuff gets lost in the mail all the time and if the rebate is for $50 it’s worth the trouble to back up your claim.
Like this article? Rebates – Reward or Rip Off?
Top Six Financial-Planning Tips for 2010
Volunteering in your community. Putting a regular workout schedule in place--and sticking to it. Tackling that pile of books that is fast taking over your nightstand.
If you're like many people, your 2010 to-do list is rapidly growing unwieldy. So the last thing you need is a long and unrealistic list of financial to-dos thrown into the mix.
But getting a grip on your finances needn't be a massive undertaking. In fact, you can accomplish many key tasks in a half-hour or less. (In fact, I coach you on completing 36 such tasks in my upcoming book, 30-Minute Money Solutions.) So go ahead and get a jump-start on your 2010 plans by tackling some of the key issues below. You'll be done before you know it.
1) Rebalance. (Or don't.)
When it comes to your investments, a strategy of benign neglect is often more fruitful than a more active approach. That’s why I'm a big believer in making changes to your portfolio on an infrequent basis, mainly when your allocations to stocks, bonds, or cash are more than 5 or even 10 percentage points different from your targets--a process called rebalancing. As you rebalance, pay the most attention to your exposure to broad asset classes; those allocations are going to be the biggest determinant of how your portfolio behaves. But also consider how your investments are arrayed across various subasset classes. Following this year's rally, aggressive holdings such as emerging markets, technology, and commodities are apt to be in need of a trim, whereas tamer positions such as high-quality bonds and dividend-paying stocks may be consuming a smaller portion of your portfolio than you intended them to. (Eyeballing the Sector Valuation graph in the top right-hand corner of the Stocks cover page gives you a quick view of where our analysts think the bargains are--and are not.)
This article details how to rebalance.
2) Check withdrawal rates.
If you're already retired and taking distributions from your portfolio, check up on whether your withdrawals are realistic given the size of your nest egg. A 4% annual portfolio withdrawal rate is often considered "safe," but that may not be a livable amount for those who aren't superwealthy. T. Rowe Price's free Retirement Income Calculator enables you to play around with the variables, such as changing your asset allocation, to help determine how much you can safely withdraw in retirement. The calculator is also helpful for those who are still in accumulation mode: You can model the effects of continuing to work part-time in retirement, deferring Social Security for a few years, or increasing your equity position.
3) Build liquidity if taking distributions.
On a related note, those who are over age 70 1/2 and taking required minimum distributions from company retirement plans or IRA portfolios will have to resume distributions in 2010, after being allowed to skip them last year. Thus, you'll want to make sure that your portfolio includes adequate liquidity to help you meet your distributions. If you don't have cash on hand, it's time to think about what to sell to raise it.
4) Consider an IRA conversion.
I've been extolling the virtues of IRA conversions for more than a year now, and all savers, regardless of income level, will get their chance beginning in 2010. Those who heretofore have not amassed any IRA assets because they earn too much will also be able to get into a Roth through the back door next year. Although income limits on IRA contributions will remain in place, higher-income savers can make a nondeductible IRA contribution in 2009 and again in 2010, and then convert those assets to Roth status in 2010. It's possible that Congress may close this loophole down the line, given that it doesn't make sense to leave the income limits in place for initial contributions but not conversions. But for now it looks like an opportunity.
The key benefit of converting to a Roth is that you'll pay taxes now in exchange for tax-free withdrawals in retirement, which seems like a pretty good trade-off given that taxes are widely expected to drift upward in the years ahead. (Some of you have been worrying that Congress could decide to tax Roth IRA withdrawals. There are no certainties, but in my view this would be a politically precarious step to take given that the Roth has been the province of middle-class investors for much of its existence.)
The Roth also makes sense from the standpoint of estate planning. Unlike traditional IRAs, the Roth doesn't require mandatory distributions, thereby allowing your assets to compound and increasing the amount you can pass to your spouse or heirs. Your heirs, in turn, will be able to receive tax-free distributions on those assets, and they'll also be able to accept distributions over an extended period, further stretching out the tax benefits and enabling those assets to compound on a tax-free basis.
The second key estate-planning benefit relates to estate taxes. Because you've already paid tax on Roth assets, the overall nest egg that you pass to your heirs will be smaller under the estate tax system, and therefore could help to reduce your estate-tax liability. The traditional IRA assets, by contrast, will be included in your estate-tax liability, even though your heirs will have to pay taxes on those assets. (Of course, the estate tax is another issue that will probably be revisited in Washington in the coming years.)
5) Earn a higher guaranteed return on your cash.
With interest rates way down, investors in search of a guaranteed rate of return on their cash are really getting squeezed. CDs and money market funds are hardly yielding anything, but the risks of venturing into higher-yielding investments were laid bare by colossal blowups at funds like Schwab YieldPlus (NASDAQ:SWYSX - News).
Assuming you have ample cash in your emergency fund to cover any additional expenses you anticipate within the next year or two, one of the best possible uses of your cash is to prepay your mortgage. Of course, you won't have the same access to your capital that you would have by parking your cash in a money market fund or even stocks and bonds. But by prepaying your principal on a more aggressive schedule than your lender requires, you'll earn a guaranteed return on your cash that's far higher than what you can earn in safe investments. Those who are nearing retirement or are paying private mortgage insurance will be particularly good candidates for this strategy; ditto for those who have had their mortgages for awhile and don't have much in the way of deductible interest. This article discusses the ins and outs of prepaying your mortgage.
6) Strategize in preparation for 2011.
All's quiet on the tax front for 2010, meaning that dividend and long-term capital gains tax rates will remain relatively low: 15% for most investors. However, that favorable tax treatment is set to sunset in 2011, meaning that most long-term capital gains would be dunned at 20% and dividends would again be treated as ordinary income.
Basing your investment decisions on taxes alone is invariably a mistake; it's also possible that Congress could extend the currently favorable dividends and capital gains tax rates. But if you were thinking about selling something anyway and the security is trading well above the price you paid for it, you're better off doing so in 2010 than waiting until 2011 or beyond.
Morningstar Premium Members get access to over 3,900 Stock and Fund Analyst Reports, Analyst Picks, and award-winning portfolio tools. Learn More.
If you're like many people, your 2010 to-do list is rapidly growing unwieldy. So the last thing you need is a long and unrealistic list of financial to-dos thrown into the mix.
But getting a grip on your finances needn't be a massive undertaking. In fact, you can accomplish many key tasks in a half-hour or less. (In fact, I coach you on completing 36 such tasks in my upcoming book, 30-Minute Money Solutions.) So go ahead and get a jump-start on your 2010 plans by tackling some of the key issues below. You'll be done before you know it.
1) Rebalance. (Or don't.)
When it comes to your investments, a strategy of benign neglect is often more fruitful than a more active approach. That’s why I'm a big believer in making changes to your portfolio on an infrequent basis, mainly when your allocations to stocks, bonds, or cash are more than 5 or even 10 percentage points different from your targets--a process called rebalancing. As you rebalance, pay the most attention to your exposure to broad asset classes; those allocations are going to be the biggest determinant of how your portfolio behaves. But also consider how your investments are arrayed across various subasset classes. Following this year's rally, aggressive holdings such as emerging markets, technology, and commodities are apt to be in need of a trim, whereas tamer positions such as high-quality bonds and dividend-paying stocks may be consuming a smaller portion of your portfolio than you intended them to. (Eyeballing the Sector Valuation graph in the top right-hand corner of the Stocks cover page gives you a quick view of where our analysts think the bargains are--and are not.)
This article details how to rebalance.
2) Check withdrawal rates.
If you're already retired and taking distributions from your portfolio, check up on whether your withdrawals are realistic given the size of your nest egg. A 4% annual portfolio withdrawal rate is often considered "safe," but that may not be a livable amount for those who aren't superwealthy. T. Rowe Price's free Retirement Income Calculator enables you to play around with the variables, such as changing your asset allocation, to help determine how much you can safely withdraw in retirement. The calculator is also helpful for those who are still in accumulation mode: You can model the effects of continuing to work part-time in retirement, deferring Social Security for a few years, or increasing your equity position.
3) Build liquidity if taking distributions.
On a related note, those who are over age 70 1/2 and taking required minimum distributions from company retirement plans or IRA portfolios will have to resume distributions in 2010, after being allowed to skip them last year. Thus, you'll want to make sure that your portfolio includes adequate liquidity to help you meet your distributions. If you don't have cash on hand, it's time to think about what to sell to raise it.
4) Consider an IRA conversion.
I've been extolling the virtues of IRA conversions for more than a year now, and all savers, regardless of income level, will get their chance beginning in 2010. Those who heretofore have not amassed any IRA assets because they earn too much will also be able to get into a Roth through the back door next year. Although income limits on IRA contributions will remain in place, higher-income savers can make a nondeductible IRA contribution in 2009 and again in 2010, and then convert those assets to Roth status in 2010. It's possible that Congress may close this loophole down the line, given that it doesn't make sense to leave the income limits in place for initial contributions but not conversions. But for now it looks like an opportunity.
The key benefit of converting to a Roth is that you'll pay taxes now in exchange for tax-free withdrawals in retirement, which seems like a pretty good trade-off given that taxes are widely expected to drift upward in the years ahead. (Some of you have been worrying that Congress could decide to tax Roth IRA withdrawals. There are no certainties, but in my view this would be a politically precarious step to take given that the Roth has been the province of middle-class investors for much of its existence.)
The Roth also makes sense from the standpoint of estate planning. Unlike traditional IRAs, the Roth doesn't require mandatory distributions, thereby allowing your assets to compound and increasing the amount you can pass to your spouse or heirs. Your heirs, in turn, will be able to receive tax-free distributions on those assets, and they'll also be able to accept distributions over an extended period, further stretching out the tax benefits and enabling those assets to compound on a tax-free basis.
The second key estate-planning benefit relates to estate taxes. Because you've already paid tax on Roth assets, the overall nest egg that you pass to your heirs will be smaller under the estate tax system, and therefore could help to reduce your estate-tax liability. The traditional IRA assets, by contrast, will be included in your estate-tax liability, even though your heirs will have to pay taxes on those assets. (Of course, the estate tax is another issue that will probably be revisited in Washington in the coming years.)
5) Earn a higher guaranteed return on your cash.
With interest rates way down, investors in search of a guaranteed rate of return on their cash are really getting squeezed. CDs and money market funds are hardly yielding anything, but the risks of venturing into higher-yielding investments were laid bare by colossal blowups at funds like Schwab YieldPlus (NASDAQ:SWYSX - News).
Assuming you have ample cash in your emergency fund to cover any additional expenses you anticipate within the next year or two, one of the best possible uses of your cash is to prepay your mortgage. Of course, you won't have the same access to your capital that you would have by parking your cash in a money market fund or even stocks and bonds. But by prepaying your principal on a more aggressive schedule than your lender requires, you'll earn a guaranteed return on your cash that's far higher than what you can earn in safe investments. Those who are nearing retirement or are paying private mortgage insurance will be particularly good candidates for this strategy; ditto for those who have had their mortgages for awhile and don't have much in the way of deductible interest. This article discusses the ins and outs of prepaying your mortgage.
6) Strategize in preparation for 2011.
All's quiet on the tax front for 2010, meaning that dividend and long-term capital gains tax rates will remain relatively low: 15% for most investors. However, that favorable tax treatment is set to sunset in 2011, meaning that most long-term capital gains would be dunned at 20% and dividends would again be treated as ordinary income.
Basing your investment decisions on taxes alone is invariably a mistake; it's also possible that Congress could extend the currently favorable dividends and capital gains tax rates. But if you were thinking about selling something anyway and the security is trading well above the price you paid for it, you're better off doing so in 2010 than waiting until 2011 or beyond.
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