October 25, 2016

Understanding Social Security: 35 years of earnings

While many Americans have strong opinions about Social Security, and too many people falsely believe that it won't be there for them due to irresponsible media reports and irresponsible politicians, this blog attempts to educate people about the realities of Social Security. The Squared Away Blog from the Center for Retirement Research at Boston College, explains how the formula for retirement benefits is calculated. This info is especially important for persons considering stopping working before they have accumulated 35 years of earnings (and paying FICA taxes).
"To qualify for a pension benefit at all, a person must work full- or part-time for 40 quarters – a total of 10 years." (and pay FICA taxes on their wages).
The "size of your future benefit check... is determined by your highest 35 years of indexed earnings." The Squared Away blog explained how "indexed" earnings are calculated. At least as important for many workers is that if you pay SS taxes on less than 35 years of earning, zeros are entered into the calculation. So it may be worthwhile, especially if SS will comprise a large portion of your retirement income, to work a few more years so years of zero earnings are dropped from the formula.
Learn more at: http://squaredawayblog.bc.edu/squared-away/your-social-security-35-years-of-work/

October 24, 2016

Why You Need to Think About Your Retirement Taxes Long Before You Retire

If you wait until retirement to figure out your tax liability on your retirement accounts... it's too late to do much to reduce your tax obligation. You need to plan for "tax diversification" while you are investing for retirement. Tax diversification means having some funds in non-taxable accounts like Roth IRAs. To learn more about the importance of planning ahead for taxes after you retire, read:

October 17, 2016

What to know before you take out a student loan

This great resource from the American Institute of Certified Public Accountants is must reading for students and their parents. Quoting directly from the article by James Sowell and Melissa Towell in the Journal of Accountancy:
  • There are two types of student loans. Federal student loans (FSLs) are issued directly to students by the federal government. Private student loans are issued by banks or other financial institutions.
  • FSL interest rates are either subsidized or unsubsidized. Subsidized FSLs do not accrue interest while the student is in school. Unsubsidized FSLs accrue interest while the student remains in school. 
  • FSLs and private loans have different repayment terms. The repayment terms for FSLs are more flexible and offer relief if needed. Private student loan terms are set by the lender and offer little flexibility or relief if the student has trouble repaying the loan.
FSLs are based on a student's financial need, not on the borrower's (or parents') credit rating.
Read more details at:

When a diamond isn't forever

"Couples who spend more on engagement rings and wedding festivities are more likely to wind up divorced." 

"While student loans are a painful, long-term expense, they are also an investment in one’s career and earnings prospects. But what does lavish spending on a wedding provide?
It can lead to divorce, according to a study by Emory University researchers Andrew Francis and Hugo Mialon. More interesting, they suggest that the stress that comes with wedding debt might be the underlying cause for the unhappy outcomes.
Weddings, which peak in early summer and surge again in the fall, have become more elaborate over the years. Engagement rings usually have diamonds – that wasn’t always the case. The average expense for a wedding and reception in this country is now $30,000.
But the researchers found that women who spend more than $20,000 on a wedding were nearly four times more likely to become divorced than women who spend under $10,000. In the case of men, buying a more expensive engagement ring was linked to a higher divorce rate."

Preventing and resolving Identity Theft

With 17 million Americans affected by ID theft each year, and our increasing use of the internet, the chances of being affected grow with each year. USA Today explains how to avoid becoming a victim and what to do if your identity is stolen. Far worse than ID theft is identity take over. "The scarier type of fraud is identity takeover, which happens when a thief steals your Social Security number and uses your data to open a brand new account without your knowledge. Although this type of fraud doesn’t happen very often, it can be very painful when it does."
1. Where available, sign up for “second-factor authentication.”
2. Sign up for text message or email alerts with your financial institutions.
3. "Ensure you install anti-malware and anti-virus protection on your computer and mobile phone."
AND keep it up to date!
Use strong passwords, change them often, and store securely.  Learn more at: 

Planning for the cost of children

"The U.S. Department of Agriculture's handy, terrifying Cost of Raising a Child Calculator told me that the average two-parent household in the U.S. earning less than $61,530 a year spends $11,850 to raise a child in his or her first year. Such a big number might make you think that having a baby is impossible financially." Read the details from Brianna McGurran, a writer for NerdWallet at http://bigstory.ap.org/article/88fff6cd6c6a4f2fba756889f284b64f/ask-brianna-how-can-i-afford-have-kids

How to encourage donations to 529 college savings plans

Behavioral psychologist Dan Ariely responded to a parent who would like to encourage monetary gifts to a child's 529 college savings plan in lieu of the usual gifts. As reported in The Wall Street Journal, Dan replied:

"Giving money is often more economically efficient than giving stuff, but the feeling of social connection that we get from gift-giving is higher when we give something tangible. You could try to provide the gift-givers with a chance to do a bit of both. You can ask them to buy something small for your child and also to put some money in the college fund."
"If you want an even higher proportion of the money to go to the college fund, buy a nice book with blank pages and on its cover write your child’s name and the word “future” (“Dan’s Future,” for example). You can then ask each gift-giver to contribute to the college fund and, at the same time, to share some life advice by writing on a page of the book. This way, there is a physical reminder of their gift (the book and the advice), but more of the money will go to the college fund."

Pay your kids to eat vegetables?

Study finds short-term cash incentives yield more-healthful eating habits in the long term as reported in The Wall Street Journal by Beckie Strum, Oct. 16, 2016.  "The strategy not only works in the short term, but can create healthful eating habits in children in the long run if the little bribe is carried out consistently for several weeks, according to a study published earlier this year in the Journal of Health Economics." For a year and a half, the researchers carried out a study of 8,000 children at 40 elementary schools. Students who ate at least one serving of fruit or vegetable at lunch received a 25-cent token redeemable at the school’s store, carnival or book fair. “These small incentives produced a dramatic increase in fruit and vegetable consumption during the incentive period,” the researchers wrote. “This change in behavior was sustained.”"Two months after the incentives ended, many more students than before the program started were still eating a fruit or vegetable at lunch.The effect was even greater for schools that implemented the program for five weeks." (quoting from WSJ)

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