Why a Roth IRA is a Must Have Plan

You are probably aware of some of the virtues of a Roth IRA. But there are at least five reasons why a Roth IRA is a must-have plan.

Tax Free Income in Retirement

This is the most obvious benefit of a Roth IRA, and it’s repeated in virtually any discussion related to the plan. Even still, this advantage is well worth reemphasizing.

Virtually every other type of retirement plan is a deferred plan. That means that the tax liability on the account – both your contributions and the investment income that the account earns – will be taxable when you start making withdrawals from the plan. At that point, the withdrawals will be added to your other retirement income, where they’ll be fully taxable at ordinary tax rates.

A Roth IRA stands alone as a retirement account from which you will be able to make withdrawals and pay no income taxes whatsoever.

Roth IRAs Are a Form of Retirement Tax Diversification

Most people probably never given this a thought, but the potential is very real that you can be in a higher tax bracket by the time you reach your sixties than you are right now. The reason will be multiple income sources. If you’re receiving income from Social Security, an employer pension, a deferred retirement plan, non-retirement investment income, or any income from continued employment, you may be earning much more money than you ever imagined.

The problem is that all of those income sources – including a percentage of your Social Security benefits – will be taxable in retirement. If you are earning $60,000 per year pre-retirement, and your income jumps to $90,000 when you retire, you may have a tax problem. You will have deferred income from a time of relatively low tax rates, only to pay higher tax rates in retirement.

This is where the tax-free nature of a Roth IRA really shines. While all of your other income sources will be creating tax liabilities, the withdrawal received from your Roth IRA will be completely tax-free. That will provide you with income tax diversification at a time when it will be badly needed. A Roth IRA is a way of making sure that at least some of your income will not create a corresponding tax liability.

Short-term Liquidity – Just In Case

Since contributions to a Roth IRA are not tax-deferred, you’ll have the ability to withdraw those contributions prior to age 59 ½ free from tax consequences. Since many people have the vast majority of their financial assets in tax-deferred accounts, this can be an important option to have.

A Roth IRA can give your portfolio some much-needed liquidity. It’s never a good idea to withdraw funds from any kind of retirement account before reaching retirement age. But it is still a good option a have. Life can be complicated, and it doesn’t always go according to our plans. A Roth IRA can give you the built-in flexibility that other retirement accounts can’t.

It Offers More Investment Choices Than an Employer Sponsored Plan

One of the frustrations that many people have with employer-sponsored plans is limited investment selection. For example, your employer-sponsored 401(k) plan may have only a half a dozen options, all of which are mutual funds. Those funds may not be anything close to the best performers in their classes. This can leave you stranded with nothing better than mediocre investment choices for the account that holds the largest amount of your money.

A Roth IRA is self-directed, just like a traditional IRA. That means that you can choose the trustee that holds the account. And in doing so, you can make sure that that trustee – typically an investment broker – provides the widest variety of investment options possible.

You can also make sure that the trustee provides the largest selection of low cost investment options. This is another limitation of most 401(k) plans. Not only do the plans themselves often have high investment expenses, but the limited investment options that you have within the plan also have investment fees that are above the norm in the market.

No Required Minimum Distributions (RMDs)

Virtually every other form of tax-sheltered retirement plan is subject to required minimum distributions, or RMDs. That means that once you reach the age of 70 ½ you are required to begin taking distributions from the plan. In fact, plan trustees are required to begin issuing RMDs when you reach 70 ½, so you won’t even have any choice.

They will take the balance of any retirement accounts that you have, and divide the balance by your life expectancy at that point in your life. You will receive distributions based on that formula, and it will apply to traditional IRAs as well as employer-sponsored plans.

There is no such requirement for RMDs for Roth IRA plans. You can literally keep your Roth IRA open and growing for the rest of your life. While other retirement plans are gradually depleting due to distributions, your Roth IRA can stay healthy and strong.

This can be an important part of an overall strategy to prevent you from out-living your money. Even as your other accounts are being drawn down by RMDs, you can allow your Roth IRA to continue growing so that you will have plenty of money in the later years of your retirement. With people now routinely living well into their eighties and even nineties, this can be an important asset preservation strategy.

If you have an opportunity to take a Roth IRA you should absolutely do so. There are just too many benefits that make it one of the most important investment plans that you’ll ever have.


The Good and the Bad of Taking Online Courses

Technology has come to the classroom, or – maybe more to the point – technology is moving people out of the classroom. There is an explosion of online courses, whether included in a college degree program, or as part of continuing education. There’s good and bad in taking online courses, but either way, they offer an excellent alternative to traditional classroom based courses.

The Good of Taking Online Courses

Having taken a few online courses myself, I’m a big fan of them. Here’s what I’ve found to be the biggest advantages.

You can take them from home. Since home is where you are most comfortable, it could also be the perfect environment for learning. After all, it’s most likely the place where you’d be doing your homework, so why not also take the course from home?

No on campus or commuter expenses. If you’re taking college courses, there’s usually a fee associated with taking it on campus. And even if there isn’t, you will still have the cost of commuting to and from the school. Since you can take online courses at home, there will be no campus fees, and no commuter costs. Not to mention wear-and-tear on your car, or the time and aggravation of spending time commuting either long distances or in heavy traffic.

They’re easier to fit into a busy schedule. Since you have control over when you take an online course, it will be less of a scheduling challenge. You can take it any time of the day, evening or even weekend that you want. And if you’re a night owl, you can even do it at night when the rest of the world is asleep. In fact, you can take online courses any time it’s convenient for you. That will allow you to build the course around your life, rather than being forced to build your life around the course, as you would have to do with an on-site course.

You can work at your own pace. This will allow you to spend less time on less challenging course material, and to linger longer on areas you’re struggling with. That arrangement will probably make it easier for you to master the course work. If you are moving particularly fast, you can even decide to complete the coursework early.

They’re a godsend if you learn best on your own. Some people learn more easily through self-study. It may have to do with the previous benefit of working at your own pace. If you are the type who can master a course without oversight, online courses will work better for you.

They work especially well with easier courses. Some courses lend themselves better to self-study, so online courses may be a way to lighten your schedule by taking the easier courses that you can blow through in less time and with less effort.

The Bad of Taking Online Courses

Alas, taking online courses isn’t a perfect situation, and certainly not for all people. Here is some of the bad side of taking online courses.

You have to be self-motivated. As in really self-motivated. Not everyone is capable of keeping pace in a learning environment that’s less structured. As well, the fact that it’s done from home could cause you to underestimate the amount of work that you need to put into the course.

It may not work if time control isn’t your strong suit. Online courses work very well in helping you to juggle a busy schedule, but that’s only if you have the time control thing working in your life. If you don’t, you’ll never have the time needed to make the course work. The casual nature of online courses can make it easy to keep them as a low priority, routinely putting them at the back of your schedule when ever you get busy with other things.

No everyone can learn from self-study. Some people need generous amounts of structure in their learning environment. They need a teacher to set the agenda, impose a schedule, enforce completion of assignments, and provide critical feedback. If this is your learning style, taking online courses could be a complete waste of time and money.

Direct support is limited. More specifically, this means that there’s no teacher readily available for face-to-face meetings on a regular basis. Some students need that more than others. If you’ve ever taken an online course, you’re probably aware that direct support is no better than limited. It’s usually email support, or very limited telephone contact, and it’s not always easy to come by.

There are no classmates to “compare notes with”. Some people learn better in group environments. Not only does it create a kind of synergy to feed off of (think study groups), but it also gives you a chance to work with other students when you miss an assignment or need extra help on a one-on-one basis. Depending on the type of course you’re taking and where you live, there may be no one else taking the course within hundreds of miles of where you live.

It’s easy to let online courses slip. For any of the above reasons, it’s entirely possible that you might simply let the course slip. You may get busy with other things, find that you can’t learn in an informal setting, or simply get hung up on certain course work, then quit the course.

Online courses aren’t for everyone. But they can be a real advantage if you understand all that’s involved and are prepared to make them work.

Have you taken online courses? What has your experience been?


The Dangers of Paying Off Credit Cards With Home Equity

When people accumulate a little too much credit card debt, there’s always a strong temptation to work out some sort of debt consolidation that will make the plastic go away in one fell swoop. On the surface this can seem like an excellent idea. But debt consolidation is really about converting debt from one type to another – without actually paying it off. There are all kinds of riskS to this maneuver, but especially when you use your house for the consolidation.

Here are five reasons you shouldn’t use your home equity to pay off your credit cards.

1. Increasing the Mortgage Puts Your Home at Greater Risk

Anytime you increase the amount of money you owe on your home, you also increase the risk of owning it. This is especially true if you use a home equity line of credit (HELOC) to payoff your credit card loans. A HELOC is really just a credit line secured by your house, and you’ll be moving your revolving debt from unsecured status to secured – by your house.

But that’s not the worst of it.

HELOCs typically come with variable rates, which is part of the reason they have lower closing costs than a traditional mortgage. Since the HELOC is secured by your home, the rate on it is generally lower than what it is for credit cards. But since it’s variable, it can change – meaning increase.

Nothing constructive will be accomplished if you consolidate a bunch of 10% credit card debt into a 5% HELOC, if two years later the rate on the HELOC is up to 10% – or higher. A large HELOC balance at much higher interest rates could threaten your ability to make the monthly payment on the home.

2. It May Not Be As Easy to Sell or Refinance Your Home With a Higher Mortgage

Whether your credit card debt is consolidated using a HELOC or a straight up refinance of your first mortgage, you will be increasing the indebtedness on your home. That will make it harder to refinance or to sell, should the need arise.

This can be a serious problem should the value of your property fall as it did in much of the country after 2007. A 25% drop in the value of your home could leave you “underwater” on your mortgage, if your indebtedness reached 80% of the original value. That could leave you trapped in the home, unable to sell or refinance it.

Even if values don’t fall, the increased indebtedness could leave you with less equity after a sale, and that would leave you with less cash to put down on your next home.

3. You’ll be Converting Short-term Debt to Long-term Debt

Credit card debt is short-term debt. But when you consolidate it on your home, it becomes long-term debt. You may be converting unsecured revolving debt to a 30 year mortgage on your home.

If your credit cards happened to contain – among other short-term purchases – last year’s summer vacation costs, then you will be paying for that vacation for the next 30 years. You may also be converting last years Christmas gift purchases, last weeks dinner at Olive Garden, and a whole bunch of Starbucks latte’s to semi-permanent debt. That’s a bad trade off, no matter how much you’re saving in interest costs.

4. Refinancing Your Mortgage Costs Money

Should you refinance your first mortgage to payoff credit cards, you will incur costs as a result of the refinance. These costs are generally between 2% and 3% of the new loan balance. On a $200,000 loan, you may pay $5,000 for the refinance. That means that the credit card consolidation was accomplished at a very high cost. For example, if the refinance was mainly to consolidate $50,000 in credit card debt, you will have paid 10% of that amount to make the refinance – up front!

The problem is compounded if you reset your mortgage term. For example, let’s say that you have 25 years remaining on your 30 year mortgage. In order to consolidate your credit cards, you refinance your first mortgage back to a 30 term. The payment may be lower than what you were paying for your old first mortgage plus the credit card payments, but you will have added an additional five years of payments to the back end of the loan.

5. One Debt Consolidation Will Beget Yet Another

We can categorize this this one under “moral hazard”. If you use your home to accomplish one credit card debt consolidation, you’ll use it again. That’s because the consolidation makes it easier to get into – and out of – credit card debt. Refinancing your home is a way to get out of credit card debt without actually having to repay the debt.

Anything that’s easy is something you’ll do again. Nothing is learned about the negatives of running up large credit card balances, because fixing the problem was so easy.

At least part of the reason so many people lost their homes in the housing and mortgage meltdown was because they engaged in serial refinancing for debt consolidation purposes. Sure, their homes increased in value over the years, but they consistently borrowed the equity out to cover non-housing expenses. Eventually, the perpetually rising mortgage balance outstripped even the sizeable gains in property value.

You have a chance to prevent that outcome, by not using your home as a debt consolidation scheme for your credit card debt.


6 Signs You Might Lose Your Job

One of the unfortunate realities of today’s workplace is that we’re usually not given advanced warning about an upcoming job loss. Many employers would have us tool along thinking everything is fine, right up until the day we’re asked to leave. But even if there is no formal notification that your job is in jeopardy, there several ways to know if it is.

Here are several strong clues…

1) You’ve Just Had a Bad Review

You can virtually assume that you are on probation if you have just had a bad performance review. Even if your employer doesn’t tell you as much, you will most likely be gone if you don’t begin showing measurable improvement soon. But a bad review can be an even bigger marker if you’re pretty certain that it isn’t true. Some employers will use a bad review as an unofficial warning, or as an attempt to push an employee out the door.

Do your best to improve your performance after a bad review, but it’s also a good time to start considering other options. You can never be entirely certain that it’s really about your performance, or maybe about something much bigger.

2) An Important Function (or Two) Has Just Been Taken Away From You

Everyone has one, two, maybe three, critical functions that substantially defines their job, and justifies their existence on the payroll. If one of these functions has been taken away from you – without your consent – there is a better than even chance that you are being demoted, even if your title and pay aren’t degraded.

It’s generally a sign that either your employer has lost confidence in your ability to perform that function, or they think that someone else can do a better job. Unless the removal of the function has been accomplished to free you up for a more important function, it’s probably best to assume the worst.

3) You’re Company Has Been Bought Out

If your company has been bought out by a larger organization, there is an excellent chance that you – and many of your coworkers – will lose your jobs. It may not happen immediately, but there’s an exceptional chance that the axe is being sharpened.

Most companies involved in mergers will dedicate a lot of ink, emails, and stage presentations to assuring all staff that their jobs are safe. But don’t bet on it. One of the major reasons why businesses merge is to take advantage of economies of scale. That is, they will merge operations and eliminate excess staff from one or both entities.

If your company has been bought out, make sure that your radar is up, and that you’re now approaching your job as though you are a rookie who has to prove himself all over again.

4) You’re Increasingly “Out-of-the-Loop”

If you have recently noticed that there are a lot of closed-door meetings and private conversations going on your department that don’t involve you, you may be a short-timer. This is particularly true if you have previously been part of the loop in most information exchanges.

All employees are excluded from a certain amount of information, but if you find that it is more common than not, something is getting ready to happen that you won’t be informed of – until it’s too late.

Sometimes information exclusion can affect an entire department. That probably means something negative is coming down the pike, and layoffs are a distinct possibility.

5) You’ve Been Re-assigned to a Job You Didn’t Ask For

Employers sometimes reassign employees in the hope that they will “take the hint” and leave the company. This is especially true if you have been with your employer for several years. The employer may be trying to engineer the voluntary resignation, rather than being put in the position of having to fire a long-term player, who may have the respect of her coworkers.

On the other hand, if you approve of the change – even though you didn’t request it – it may be an opportunity to thrive in a different capacity. If that’s the case, sit down and discuss the situation with your superiors, making it clear that you’re perfectly happy with the new position and harbor no ill feelings over the transition.

6) You’re Employer Is Losing Money – A Lot of It

These days, employers won’t sit much longer than two or three quarters in red ink before throwing the layoffs switch. If your employer is losing money, particularly a lot of it, you should never ignore this. This is especially true if the company becomes obsessed with cutting expenses, even little ones. I’ve seen companies go from cutting back on the coffee service to large-scale layoffs in less than six months.

This doesn’t mean that you should panic and prepare to jump ship at the first sign that the company is losing money. But it does mean that you should be aware that the situation has changed, perhaps radically, and you may need to have your parachute in good working order.

None of these events mean categorically that your job is in jeopardy. But if any is particularly severe, or you see a combination of several, it will be time to prepare yourself and your finances for whatever may happen.


How to Teach Kids the Value of a Dollar?

Teaching my kids the value of a dollar is something that’s important to me and I’m always trying to find ways to help them understand that process of earning & spending money isn’t as simple as swiping your credit card.

There aren’t as many teaching moments as there were in my childhood because money is less visible in our society now. Credit cards, direct deposit, and auto bill pay mean that I hardly ever have actual cash in my wallet and my kids don’t have as much exposure to money coming in and going out of the household.

Teaching through Stories
Money Lessons Little House on the Praries
I was really pleased when I unexpectedly ran across a discussion on the value of money in a book my son is reading. He’s really gotten sucked into the stories of pioneers as told in the “Little House on the Prarie” books. The rigors and dangers of life as a pioneer in the 1800s are enough to keep him interested and excited to read more each night before bed.

Reading about how the Wilder family got by with so few worldly possessions and how hard they worked just to put food on the table and a roof over their heads teaches a little about the value of hard work and money. But last night we ran across a section in the “Farmer Boy” volume of the series where a young boy named Almanzo asked his dad for a nickel to buy some lemonade at the town Fourth of July celebration.

I liked his answer and also that my son read it in a book. Sometimes advice from mom and dad goes in one ear and out the other. But when they read it in a book or hear it in a story sometimes it soaks in a little more. So here’s the mini-tale of how this boy’s dad helped him understand the value of a money.

Money for Lemonade

To set it up, they’re at a July Fourth celebration in the town square and the young Almanzo is jealous because all his friends and cousins are buying lemonade. He approaches his dad who’s in conversation with the men of the town and asks his Father if he can have a nickel:

Father looked at him a long time. Then he took out his wallet and opened it, and slowly he took out a round, big silver half-dollar. He asked:

“Almanzo, do you know what this is?”

“Half a dollar,” Almanzo answered.

“Yes. But do you know what half a dollar is?”

Almanzo didn’t know it was anything but half a dollar.

“It’s work, son,” Father said. “That’s what money is; it’s hard work.”

So I can imagine at this point the boy probably has a confused look in his eyes. He looks up to his dad so he believes what he says but he doesn’t understand what it means. So then his Father goes on and relates it to something more specific that the boy can relate to.

Father asked: “You know how to raise potatoes, Almanzo?”

“Yes,” Almanzo said.

“Say you have a seed potato in the spring, what do you do with it?”

“You cut it up,” Almanzo said.

“Go on, son.”
“Then you harrow ? first you manure the field, and plow it. Then you harrow, and mark the ground. And plant the potatoes, and plow them.”

“That’s right, son. And then?”

“Then you dig them and put them down cellar.”

“Yes. Then you pick them over all winter; you throw out all the little ones and the rotten ones. Come spring, you sell them. And if you get a good price son, how much do you get to show for all that work?”

So up until now Almanzo’s been talking about something he knows well, helping grow potatoes. Earlier in the book it talks about all the steps that he and his brother go through to help with potatoes. So this is something he does every year and not necessarily something he enjoys. Now his dad relates all that hard work to money.

“How much do you get for half a bushel of potatoes?”

“Half a dollar,” Almanzo said.

“Yes,” said Father. “That’s what’s in this half-dollar, Almanzo. The work that raised half a bushel of potatoes is in it.”

Almanzo looked at the round piece of money that Father held up. It looked small,compared with all that work.

That part of the story is neat because the dad helps him tie the value of the money to all the work that the boy does to help grow potatoes. But the next part is even cooler because the dad puts his son’s newly gained understanding of the value of money to the test.

I don’t know if my kids would act as responsibly as young Almanzo does in this next section but I’d like to think they’d at least consider it. So continuing on:

“You can have it, Almanzo,” Father said. Almanzo could hardly believe his ears. Father gave him the heavy half-dollar.

“It’s yours,” said Father. “You could buy a pig with it, if you want to. You could raise it, and it would raise a litter of pigs, worth four, five dollars apiece. Or you can trade that half dollar for lemonade, and drink it up. You do as you want, it’s your money.”

What I really love about this part of the story is that his dad doesn’t use a typical generic statement that us parents often fall back on, like “don’t waste money”. Instead he shows his son an alternative to spending his money on lemonade. It’s also neat because he’s planting entrepreneurial seeds, showing his son how to turn some money into more money.

Almanzo forgot to say thank you. He held the half-dollar a minute, then he put his hand in his pocket and went back to the boys by the lemonade-stand.

Frank asked Almanzo:

“Where’s the nickel?”

“He didn’t give me a nickel,” said Almanzo, and Frank yelled: “Yah, Yah! I told you he wouldn’t. I told you so!”

“He gave me half a dollar,” said Almanzo.

The boys wouldn’t believe it till he showed them. Then they crowded around, waiting for him to spend it. He showed it to them all, and put it back in his pocket.

“I’m going to look around,” he said, “and buy me a good little pig.”

So after the dad’s mini life lesson is over, he lets his son make the decision on his own. So how could this lesson be updated for the current day?

So if my son asked me for a dollar to buy a lemonade at the fair I suppose I could offer to give him $20 to use to setup his own lemonade stand. If I gave him that much money would he listen to my advice and use it to invest in his own business or would he just spend it on lemondade and candy? I don’t know but I guess there’s only one way to find out.

How about you, what teachable moments have you encountered with your kids? What have you done to help them understand the value of a dollar?


Cut Medical Bills With a Hospital Billing Negotiator

Have you ever received a great, big, ugly bill for services rendered from a hospital or other healthcare provider? This can happen to just about anyone, whether or not you have health insurance. When a bill of this size comes in, you can sometimes get it cut by using the services of a hospital billing negotiator.

That’s a person or agency who steps in on your behalf and negotiates a reduction in the amount of the bill, or can set up other terms that will make it easier for you handle the obligation.

Why you may need a hospital billing negotiator

There was once a time – long gone – when you could have a major medical procedure and never see a bill from a provider. If you did, it was a small amount, probably no more than a few hundred dollars.

That whole situation has changed today. It’s now more the rule than an exception that you’ll receive a bill for thousands of dollars in connection with just about any health care procedure you have. Whether or not you have health insurance will determine the size of the medical bill you need to pay. If you have health insurance, your portion may be a few thousand dollars. But you don’t have insurance, the bill will likely be in the tens of thousands of dollars.

In recent years, health insurance companies have increased the amount of out-of-pocket payments by patients in order to keep premiums more affordable. The kind of health insurance that will provide you with top coverage without ever seeing a bill from a provider is prohibitively expensive, if it’s even available.

The patient portion – comprising the bill you’ll receive – typically includes co-payments, deductibles, co-insurance, and uncovered charges. It’s precisely that combination of responsibilities that can make figuring out a health care bill so complicated.

As a patient, the complexity of a medical bill can be overwhelming. Not only will the bill be written in some language that looks like Greek, but if you have no experience in negotiating, trying to handle it yourself can be beyond difficult.

Going the DIY route to negotiating

If you have at least some basic knowledge of medical billing, and you are confident in your ability to negotiate, you might want to try the do-it-yourself route.

If you do, make sure that you review any bills you receive from the healthcare provider. Check the bills for errors, as well as for overcharges and for services not provided. If there are any items on the bill that need to be disputed, this should be the first place you’ll start your negotiations. You want to get the bill down to its true amount, and nothing more.

Once you and the healthcare provider are in agreement on the amount owed, it’s time to do what you can to cut down the bill to a number that you can actually afford to pay.

Healthcare providers, and especially hospitals, often negotiate lower settlements. Just like everyone else, providers want to get paid, and they are well aware of the half a loaf is better than none doctrine. In addition, they don’t want to push the patient into bankruptcy, in which case they’ll get nothing at all.

You can use this to your advantage. Try to get the provider to cut the bill as low as possible. You may have to make the entire payment in order to get the biggest reduction. But failing that, make the biggest upfront payment that you can, and work to arrange a monthly payment plan that your budget can accommodate.

Using a patient advocate

Healthcare providers, and especially hospitals often have a person on staff – either an employee or an outside contractor – known as a patient advocate. It’s this person’s job to represent the patient’s interest throughout the process, typically from pre-admission through your final payment.

While the job of the patient advocate isn’t strictly to handle the financial side of your treatment, they can nonetheless represent an inside contact when the bills start coming in.

The advantage to using a patient advocate is that they are involved in the system, and understand how works. They are aware of various financing options that the provider has available, options that you as a patient would never know about. They may be able to direct you toward the proper parties within the organization, help to arrange financing plans, or even settlement options.

However else you might plan to handle your hospital billing, it’s a good idea to start with the patient advocate.

Using a professional hospital billing negotiator

If you’re not getting much help from the patient advocate, or you don’t feel comfortable negotiating a settlement on your own, or the size of your bill is just so enormous that you have no capability of ever paying it, you always have the option of bringing in a hospital billing negotiator.

This is a person or agency specifically involved in the business of negotiating medical bills. Since this is what they do, they have a solid idea as to what can be done to reduce medical bills, and even how much flexibility a specific provider will offer.

A good hospital billing negotiator starts by validating the accuracy of your bills. Once that’s done, they will handle the negotiations for you, and negotiate the best settlement possible. Some will even review and negotiate your charges prior to your receiving services.

Hospital billing negotiators do charge fees. However, they do it by charging a percentage of the amount they’re able to save on your overall bill. Their fees are typically somewhere between 25% and 35% of the amount that they reduce your bill.

Let’s say that you receive a bill of $10,000 from a hospital for a recent stay. If the hospital billing negotiator can get that bill cut down to $5,000, and their fee is 30%, they’ll take $1,500 of the $5,000 that they saved you. This is similar to attorneys working on a contingency basis, and only charging you if they win your case.

This will mean that you will owe the hospital $5,000, the hospital billing negotiator $1,500 ($5,000 X 30%), and you will get the benefit of a $3,500 savings on what was originally a $10,000 bill. You’re total out of pocket on the bill will be reduced from $10,000 down to $6,500.

Which ever way you choose to go – DIY, patient advocate, or hospital billing negotiator, it’s important to develop a strategy for dealing with large medical bills. It‘s likely they’ll only increase in the future.


Should You Let Your Family and Friends Know About Your Debt Struggles?

This is a touchy subject – it’s easy making a case for keeping personal debt problems secret from your family and friends. But let’s take the opposite side of that debate – should you let your family and friends know about your debt problems?

Despite the problems that are inherent in sharing negative information about yourself with people close to you, there are compelling reasons it may be to your advantage.

They may be able to help

Generally speaking, no one is in a better position to help you – or more willing to do so – then the people who you are closest with. Even though family and friends may not be able to help you to completely fix your debt problem, they may be there as a safety net to provide for short-term needs while you’re working out a longer-term solution.

Family and friends may also know of people or organizations that can help you to deal with your debt. Simply pointing you in the right direction might provide the kind of assistance that even money can’t buy.

Under extreme circumstances, and if the friend or relative has the money, they might be able to help you in a more direct way. For example, they may offer to payoff your debt with the stipulation that you will repay them.

This arrangement, while tempting, will represent transferring your debt problems from creditors to a friend or family member where the arrangement will be very personal. You have to consider the possibility that the relationship may be impaired or permanently destroyed if you are unable to repay the debt to that person. You may not be able to do it, for all the same reasons that you can’t pay your creditors now. Tread lightly if this offer is ever made!

Still, even if you don’t accept such an arrangement with a friend or family member, it can be comforting just knowing that it’s available – just in case.

You’ll have less explaining to do when you can’t afford something

One of the stickiest parts of not telling family and friends that you have a debt problem is that it leaves you constantly explaining to them why you can’t participate in certain activities. This practice gets old in a hurry. If you let family and friends know that you’re having debt problems, that you can’t afford to keep up with them, you might be lifting a major burden from yourself.

If nothing else, you won’t need to come up with an excuse every time you can’t afford to do something with other people close to you.

You may be surprised to find that some of them have the same problem

When we’re going through a crisis of any sort – including debt problems – we often think that we’re the only ones who have the problem. But it can be both a shock and a comfort to find out the others close to us are having the same issue.

That’s not even an unlikely situation. A lot of families have still have not recovered fully from the recession a few years ago. Many are still dealing with either a career crisis, or the aftermath of an extended period of unemployment. Any of those situations could leave them saddled with oversized debts.

If you find a friend or family member with debt problems, you’ll have a confidant to talk to about your problems. And you can know that person fully understands the situation in you’re in, and won’t judge you.

You should never go through a serious crisis alone

Money problems can be embarrassing, which is why a lot of people try to keep it from others, especially those closest to them. It’s hard not to blame yourself for debt problems, even if you weren’t entirely to blame.

A debt problem is a crisis, even if you are fully responsible for it. And like any crisis, you should never go through it alone. You need people, especially family and friends, to help you go through it. Their camaraderie alone can make the experience easier to live with, and even speed a solution.

There are whole lot of emotional issues that go with debt problems, and you’ll need the people closest to you to help you weather those issues.

Creating accountability

People tend to go through debt problems alone, embarrassed that anyone else might know. They also cling to the idea that somehow “I can handle it”.

In truth, if you don’t share your debt problems with at least one or two people who are close to you, the chances that you will come out victorious over the problem is a lot less likely.

Accountability is often necessary in order to deal with a long-term problems like debt. If secrecy is one of the fundamental reasons for debt, accountability will be one of its solutions. The fact that someone else is aware that you have a debt problem, and especially the magnitude of it, can make you accountable to them should you decide to come up with a plan to pay your debts off.

It’s human nature that we tend to behave better when we know that other people are watching. That’s what accountability does for people with debt problems. If there’s no one keeping  an eye on what’s going on except for you, there is a very good chance that the problem will continue to do what it has always done, which is to get worse.

Is there a downside to cluing in family and friends about your debt problems? Of course. But in many cases, the benefits outweigh those negatives.


Five Alternatives to Raiding Your Retirement Savings Early

Every year thousands of people raid their retirement savings early. It could be to get out of debt, to cover living expenses during a time of unemployment, to deal with a medical crisis, or even help a family member in trouble. While the reasons for doing so may be perfectly noble, it’s best to consider all possible alternatives before doing this.

There are at least four reasons why raiding your retirement savings early is not in your best interests:

  • Income tax liability – If the money is withdrawn before you turn 59 ½, the amount of the distribution will be added to your income, and taxed as ordinary income.
  • Early withdrawal penalty – If income tax liability weren’t bad enough, you’ll be subject to the IRS early withdrawal penalty, equal to 10% of the amount of the distribution.
  • Permanently weakening your retirement – Because of the time value of money, any funds that you withdraw will represent a permanent reduction in your retirement plan. That means you will have less money available when it comes time to retire, and there’s no way to make that up once you do.
  • Selling “the family jewels” – In most households, retirement savings represent the largest percentage of their financial assets. This is long-term money, and if you withdraw it for short-term needs, you will be weakening your family’s overall financial position.

What alternatives do you have to avoid raiding your retirement savings?

1) Sell what ever you don’t need

If you absolutely need a few thousand dollars to cover an emergency expense, consider selling some kind of personal asset instead of raiding your retirement savings.

It could be an extra car, a recreational vehicle, a boat, or even a second home. Selling any of these would be preferable to liquidating retirement savings, as they generally will not create an income tax liability (except perhaps the second home), and certainly not a penalty on top of it

2) Borrow from a family member

Still another way to borrow money rather than liquidating retirement funds, is to get a short-term loan from a family member. If the need for cash is brought on by a true emergency, then a family member would be more likely to step in and help you in your time need.

Once the crisis passes, you can begin working out repayment using one or both of the strategies below.

3) Slash your expenses radically

There are two factors at play here. First, it’s often true that when a person needs to tap retirement savings early, it’s due to some kind of financial imbalance. While the imbalance could be due to temporary factors, such as a job loss (which could become long-term) or high medical bills, it can be due to long-term factors just as well. That might include excess debt levels, high living expenses, or a lack of liquid savings.

If the need for cash is in any way related to long-term financial difficulties, you should seriously consider slashing your expenses radically. That will be the best permanent solution to your money troubles.

Second, lowering your living expenses will also help you to pay off any short-term financing you took to deal with your emergency. Eliminate any recurring expenses that you don’t absolutely need, cut way back on discretionary spending, and even consider how you can reduce your major expenses.

It may be that the house you’re living in is simply too expensive for your income level. In that case you may have to consider downsizing your living space. Or it may be that you have two cars, both of which have payments. You may need to sell one of the cars, and replace it with a very used car that does not require a monthly payment.

Sometimes the only way to get control of your finances is to cut your structural expenses. Not easy to do, granted, but it is a permanent solution to a financial problem, and may help you to repay short term loans taken to deal with the emergency.

4) Borrow from your 401(k)

If you have an employer-sponsored 401(k) plan, you probably have the option to take a loan against it. Under IRS regulations, you can typically borrow as much 50% of the value of the plan, up to $50,000. And you’ll have five years to repay the amount of the loan.

Borrowing money would be preferable to taking distributions because not only would it avoid creating a tax liability, but it would also leave your retirement savings intact.

5) Create an additional income stream

Creating an additional income stream can work well in combination with a short-term loan from your 401(k) plan, a family member, or some other source. The idea is to borrow the money that you need – without taking distributions from your retirement savings – and then to pay it back out of the additional income.

The extra income could be from a part-time job, or a side business. Not only can this be used to cover short-term loans once the crisis passes, but it may also be a way to improve your long-term financial situation, so that you will have less debt and more liquid savings. When the next crisis comes, you’ll be in a better financial position, and won’t need to consider raiding your retirement savings early.

Avoiding early withdrawal of retirement savings is mostly about advanced planning. That means creating extra room in your budget – either by lowering your living expenses or creating more income – so that you won’t have to resort to raiding your retirement savings.

Any one of these strategies will put more money your pocket, without causing an income tax liability that will only add to the financial problems caused by the emergency you need to deal with.


Four Ways to Lower Portfolio Risk in a Record Stock Market

Want a hot tip on the stock market? It’s more profitable to reduce risk at the top of the stock market than once a full-blown bear market develops. Is now the top of the stock market? We can’t know for sure, but what we do know is that the market remains in record territory, and that’s when it’s time to take steps to reduce your portfolio risk.

What can you do now to lower that portfolio risk?

Take some profits

There’s no need to perform a wholesale liquidation of your stock portfolio if you feel the market is flying a bit too high. But you can take some profits in order to reduce your overall exposure to stocks, while leaving most of your positions intact. That’s a good strategy because market tops are notoriously hard to anticipate, and stocks can continue rising for much longer (and farther) than anyone thinks.

But if you have stocks that have done particularly well for several years, you might consider selling them to take profits. By selling stocks that have done well, you are locking in your gains on those trades. Sooner or later, the market will fall, and if the fundamentals of those winning stocks are still strong, you can buy them back at lower prices.

Stop funding new stock purchases

One of the best ways to lower your risk in a record stock market is by not investing fresh cash contributions into more stocks. You don’t sell your primary stock positions (other than the profit taking on the best performers as discussed above), but you increase your non-stock positions (cash) with the new money you contribute.

This will lower your stock allocation without selling off large blocks of stocks. You can use the money either to build up cash, or to invest in assets that might have a better chance when the market turns down.

The time honored technique for making money in the stock market has always been buy low, sell high. Though it may not necessarily be time to sell, by not funding new stock purchases with fresh cash, you will at least avoid buying at the top of the market (or “buying high”).

Increase your cash

By taking profits on some high fliers and not buying stocks with your fresh cash contributions, you’re accomplishing something that’s fundamentally important at market tops: you’re raising cash.

Though some people try to raise cash during bear markets, it’s usually much easier to do at or near market tops. This is because you’re in a position to sell when prices are high, which not only raises greater amounts of cash, but it also avoids selling stocks into declining markets where you will lock in losses on those trades.

Cash is typically the single best asset to have during market downturns for the following reasons:

  • It reduces portfolio losses during general price declines because it has a fixed value.
  • It can be invested in interest bearing assets, providing at least a small cash flow while equities are losing value.
  • It can be accumulated so that you will have ready capital available so that you can buy stocks at bargain prices after a significant fall.

Unfortunately, cash is also perhaps the most under-appreciated asset class at market tops when everyone wants to be “fully invested”. But start building your cash reserves now and when the direction of the market turns, you’ll be in a perfect position to ride out and exploit the changing circumstances.

Move money to income producing assets

We just touched on moving cash into interest bearing assets as a way of generating an income, but you can do this with stocks as well. High dividend paying stocks can often be the perfect place to ride out a downturn in the market. Not only will the dividend income provide a reliable income stream, but high dividend stocks also generally resist market declines, preserving your portfolio’s value.

The one caveat with high dividend stocks is a market decline caused by rising interest rates. In periods of rising rates, high dividend stocks function much like bonds, moving in an inverse direction from interest rates. Thus when interest rates rise, high dividend stocks tend to fall in price.

Still, high dividend stocks can represent a diversification away from typical growth stocks that are a pure play on price appreciation – something that’s in short supply in declining markets.

Have you been giving any thought to lowering the risk in your portfolio with stocks being in record territory?


How to Not Out-Live Your Retirement Savings

One of the biggest fears that many current retirees have is that they might out-live their retirement savings. That can be a particularly difficult problem, because once you’re retired there’s not much you can do about it. But if you’re planning for your retirement, there’s a lot you can do about a right now.

Here are five ways to not outlive your retirement savings:

1) Delay Retirement

This is something virtually anyone can do, as long as you are in good health. Actually, there is nothing sacrosanct about age 65 as the preferred age of retirement. The Social Security Administration is now in the process of forcing full retirement to gradually move up to age 67, for those born in 1960 or later.

But if you are concerned about outliving your retirement savings, you can delay the date of your retirement for virtually as long as you are able to work. And considering that people today are living longer, and are generally healthier, than what they were 50 years ago, delaying makes abundant sense.

If you can delay for retirement until age 70, you’ll reduce the number of years that you will live in retirement by five (with the assumption of 65 being a normal retirement age). For example, let’s say that for planning purposes you expect that you will live to be 90. If you retire at 65, you’ll need to provide for 25 years in retirement. But if you delay until you turn 70, you’ll cut that down to just 20 years. The difference in required financial resources will be substantial.

There is a another benefit to delaying retirement at least until age 70. Social Security will increase your monthly benefit by 8% for each year that you delay retiring past your normal retirement age. If normal retirement for you is 67, and you delay collecting benefits until 70, your monthly benefit will by 24% over what it would be if you retire at 67. (There is no benefit to delaying past age 70, as Social Security will no longer increase your monthly benefit beyond that age.)

2) Work Part-Time For as Long as You Can

This can be a halfway option, that will enable you to delay retirement out-right. Instead of delaying full retirement to, say age 70, you can instead spend the first few years of your retirement working part-time. Under that scenario, you’ll be trading full-retirement for semi-retirement. And the fact that you will be relying less on investment income will help you to preserve those assets for the time in your life when you’re not able to work at all.

This can work for people on a lot of fronts too. You may not be quite ready to fully retire at age 65 or 67, and working at least on a part-time basis – or starting your own part-time business – could help you to ease into the transition of finally living the work-free life.

3) Set Up a Roth IRA and Save It For…Later

We’re hearing a lot these days about the many benefits of the Roth IRA. These plans are something of a supercharged retirement plan, because they enable you to withdraw money from the plan tax-free, as long as you are at least 59 ½ when you begin taking distributions, and you have been in the plan for at least five years.

Other tax-sheltered retirement plans require that you begin paying taxes on any money that you withdraw from the plan. Unlike the Roth IRA, these plans are merely tax-deferred, and not tax-free.

But Roth IRAs have another advantage over ordinary retirement plans, one that make them particularly suitable as investment vehicles to keep you from outliving your retirement savings. Roth IRAs do not require you to take required minimum distributions (RMDs) when you turn 70 ½. Virtually every other retirement plan requires that you take RMDs as soon as you reach that age. That will virtually guarantee that other plans will eventually be depleted.

This is not true with the Roth IRA. Since there is no requirement to take RMD’s, you could allow the money in the account to continue to earn investment income and to grow until the time comes when you need to funds. This can enable you to live out of other retirement accounts, while you hold your Roth IRA funds until you actually need the money. Even if you exhaust other plans, you can still have your Roth IRA growing for the day when you need the money. You can delay withdrawing your Roth IRA funds until you’re 75, or 80, or what ever age you decide you need to.

4) Live on Non-Retirement Savings For as Long as You Can

If the idea of delaying retirement, or working part-time for the first few years, don’t interest you, you could also consider living on non-retirement savings for the first few years. This will enable you to delay tapping retirement savings for several years. During that time, the plans can continue to grow, so that you will have more money available in them when you finally do begin taking distributions.

As an example, let’s say that you begin taking Social Security benefits at age 65. You also have $100,000 in non retirement assets – savings, CDs, money market funds, stocks, mutual funds, etc. Rather than beginning to draw funds out of your retirement accounts at age 65, you instead withdrawal $20,000 per year from your non-retirement holdings for the first five years. That will allow your tax-sheltered retirement plans to continue growing for an extra five years.

Perhaps equally significant is the fact that your non-retirement assets can be withdrawn without creating an income tax liability.

5) Keep Your Cost of Living to an Absolute Minimum

This has to be a strategy if you are at all concerned over the prospect of outliving your retirement savings. There is nothing at all exotic about this strategy either. The less money you need to live on, the less you’ll need to withdraw from your retirement savings, and the longer they will last.

This involves keeping your basic living expenses as low as possible. That can mean trading down to a less expensive home, driving a modest car, and avoiding expensive entertainment hobbies. Even more fundamentally however is that you should make sure that you are completely out of debt. That means everything – credit cards, car loans, installment loans of all types, and yes, even your mortgage. The less money you owe, the lower your cost of living will be, and the longer your retirement savings will last.

Do you ever worry about outliving your retirement savings?



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