Pin Money Club

 It was one of my mom’s favorite phrases – can’t say I understood exactly what it meant when I was a child, but now that I’m a grownup, I get it. It means kicking something valuable to the curb, simply because there might be one little thing wrong with it.  In this case, the baby is your 401(k) plan. Over the last two years or so, many companies have suspended matching contributions to their 401(k) plans. Recently I was at a cocktail party where this was all anyone could talk about. One friend whose Fortune 500-employer had suspended their match declared: “Well, I can tell you this, if they’re not going to put any money into it, then you can be sure I’m not going to either” (augmented by a few choice expletives that I’ve chosen to omit here, demure little lady that I am). The 401(k) has suddenly been pinned with a Scarlet Letter through no fault of its own. It doesn’t help that every talking head and pundit from CNN to your local news to FOX (this demonizing of the 401(k) crosses party lines) are distorting the picture, proclaiming that perhaps the halcyon days of the 401(k) are over.  TIME OUT, I’m gonna need a judge’s call this one. So before I take a short MARTA ride and storm the CNN studios, let me put a few things in perspective.  It’s true that a number of companies, large and small have suspended their 401(k) matching contributions during these tough economic times. But should you take your marbles and go home if that happens to you? The short answer is, no! The key word here is “suspended” – for many companies this is a short-term, temporary measure with the intent of restoring the match either in full or at least in part in the near future. Either way the smart money knows that an employer match offers the best risk-free return on your investment – that is, if your employer matches you 100% on your first 3% of contributions, you’ve made a 100% return on your investment – tell me, where else can you earn a 100% tax-deferred return (legitimately)?  

That’s all well and good you say, but what if my employer never resumes its matching contributions; just how good is the 401(k) without a match? Well, let’s take an example –  say that you are 50 years old and have a current 401(k) balance of  $50,000 and you hope to retire 15 years from now at age 65. Your annual salary is $60,000 – with an expected increase of 2% every year (imagine what it might be if you got that long-overdue promotion) and you contribute 10% of that salary to the plan every year. If your employer matches your first 3% of contributions at 100% — a fairly typical matching formula — by age 65 you will have accumulated $331,312 in the plan. Without a match during that same time period, you would have accumulated $282,508 – a relatively nominal difference of $48,804* that I don’t believe warrants a wholesale rush to the exits.

 So what’s a smart cookie to do? Look at the whole picture before doing something you might later regret. Some pundits advise diverting your contributions to paying down debt – well if you’re lucky enough to be paying 29% on some of your credit cards that might be something to consider in the short term. As to the idea of diverting funds to other retirement savings vehicles such as a Roth IRA or an annuity, be cautious. They have their own warts and they aren’t for everyone; a careful analysis of your own personal financial situation is a must before going there.   My belief? Stick with the 401(k) as much as possible – it is still the best thing that ever happened to the American worker. It’s a painless way to save with tremendous tax benefits and you have legal rights afforded to you as a participant in these plans that do not necessarily apply to other retirement savings vehicles. I’ll talk more about that and debunk other 401(k) myths in a future article. Meanwhile : Contribute and prosper! *Source: Bloomberg.com   

Times are more than tough - they’re downright scary - but this isn’t the time to hide your head in the sand and wait for the worst to happen, especially if you think you’re at risk of losing your home. There are some things you can do - the banks don’t want too many people to know about those things - but I’m blowing the whistle.

Depending on the state of real estate in your neck of the woods and your bank’s prior lending practices - they may be holding on to a large and messy inventory of foreclosures. Foreclosed properties can sell for as little as 40 cents on the dollar and so many banks are aggressively “working out” mortgages with their customers because it’s in their financial interest as well.  Here are two of the ways they’re doing that…

 Loan modification

Loan modification is not the same as refinancing. If you can’t qualify to refinance - yes, it’s ironic that you can’t refinance right when you need it most - what kind of craziness is that? Well, it’s the bank’s way of stonewalling you in the hopes that you’ll keep paying them lots of money for as long as possible. 

A loan modification is different because you are appealing to the bank’s ”workout” department on the basis of financial hardship and no underwriting is required. With a loan modification, you typically submit a written explanation of how the financial hardship arose, provide a statement of income and expenses (you have to show that you can’t afford the payments as they are) and then tell the bank specifically what you’re looking for - it can be framed as a reduction in the interest rate or as a specific monthly payment you need, a reduction in the principal balance or an extension of the loan term. 

Generally a modification won’t negatively impact your credit since it’s just a change in the terms of the loan, but if you’ve had late payments prior to the modification being approved, that’s obviously going to ding your score a bit. Lesson here, do it sooner than later if you think you’re at risk of foreclosure.

In a friend’s case - she was able to reduce her interest rate by 2.75% and that translated into an almost $800 reduction in her monthly mortgage payment - the only catch is that her 10-year fixed loan converted to a 5/1 ARM. It was a humbling experience for my friend and it took a lot of courage to disclose the gory details of her financial life to a perfect stranger, but she kept herself from being put out on the street. 

Short Sale

Right now, roughly 40% of home sales nationwide are in the form of ”short sales.” A short sale involves getting your bank to allow you to sell your home for less than the amount you owe - usually within a certain range -as an example, the bank may say it can be sold for anywhere between 80 and 85% of your balance.

Watch out for…
Short sales can still result in what’s called a “deficiency”balance and you could be held liable for that deficiency. Rules relating to deficiency pursuits vary from state to state. If you are considering a short sale, make sure to work with a knowledgeable short-sale realtor  - the good ones will likely have already worked with your bank on another deal and can help you navigate that bank’s application process which includes a hardship package similar to the one required for a loan modification. It’s also a good idea to consult with a real estate attorney. 

Also, if a balance is forgiven, it is possible that it can be taxed as ordinary income. However, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, a temporary measure passed in 2007,  provides for some exceptions. Click here to go to the IRS’ web site page detailing those exceptions.

Although a short sale does adversely affect your credit report, the impact is far less than the impact of a foreclosure. For purposes of your credit report, a short sale appears as a “settlement” and will stay on your credit report for seven years. Depending on your overall creditworthiness, it is possible to get another mortgage within 1-3 years after a short sale.

So take heart and take action - in the immortal words of Joseph Kennedy and Billy Ocean: “When the going gets tough, the tough get going.” Click here to be instantly transported to the halcyon days of the mid-1980’s and sing along. 

 Our nation turns its lonely eyes to you…

With the immortal words: “We have nothing to fear, but fear itself,” FDR kicked off the era of the New Deal and will forever be credited with bringing our nation out of the deepest depression it had ever known. Fast forward more than 50 years and we’re at a similar crossroads, but FDR is nowhere to be found.

[Before they find themselves in their own “War of the Roses” ]

Men receiving alimony from their wives; could this be a trend? As some women begin to out-earn their spouses, some men are asking for - and getting - alimony after a divorce.

Take the case of John David Castellanos - he played hunky attorney John Silva on The Young and the Restless on and off  for 15 years. In a case of poetic irony, his character represented many other characters in their TV divorces. While working on the show he met and married Rhonda Friedman who now earns over $500,000 a year producing “The Bold and the Beautiful.” Mr. Castellanos’ career, meanwhile, has stalled. During their recent divorce, he was awarded $9,000 a month in alimony from Ms. Friedman.

I’m not saying that men aren’t entitled to alimony if they meet the same tests women do for receiving it…but both parties to a marriage should have a financial reality check before they march down the aisle. Maybe wedding planners should add it to their list of services, right alongside the flowers, music and white-dove releases and let’s have Jennifer Lopez reprise her role in The Wedding Planner with this new plot twist.

A recent study from the UK shows that more than three-quarters (76%) of bosses would not hire a female if they knew she would become pregnant within six months of starting the job (I think we can safely assume that these attitudes pervade in the good ole’ US of A too)!

The study found that during the selection process, 52% of respondents will weigh the chances of a candidate getting pregnant, taking into account age and whether they have just got married. Of the 1,100 bosses and personnel managers of both sexes that were polled, 68% said they would like more rights to quiz candidates about their plans for a family.

In addition, the survey found only 5% of the bosses have employed someone knowing the candidate is pregnant, and 86% said they would feel cheated if someone started a job and announced within weeks they were pregnant.

It just goes to prove my point that women still get the short end of the stick financially in this world and why it’s so important that they know what they’re up against and fight back by making the best financial decisions possible.   

I’ve got some good news and I’ve got some bad news…

We’re all living longer (whoopee) but it’s going to get more expensive. At the rate we’re saving in this country, many of us are at risk of outliving our nest eggs (boo!). But there are some intriguing new financial products coming on to the market that promise to pay a steady stream of income in retirement. Just how good are they?

All these products are not created equal - not by a long shot. While they all have the same goal - providing you a steady stream of income in retirement - the amount and length of their payout, how much that payout costs you in fees and whether or not you can outlive the payout - differ widely. So read the fine print and know what you’re getting into. Here’s just a few questions to ask:

How long is the payout guaranteed and can I outlive the income? Some plans stop payouts at age 85, the actuarial life expectancy for today’s American woman. If you’re convinced that all those supplements you’re swallowing will take you to age 100 and beyond, then you’ll have to spend more to guarantee you won’t outlive the income.

What are the fees? Fees are usually charged on an annualized basis and taken directly from your account. These products can be expensive, so comparison shop.

How much can I expect the payout to be? This is partly a function of how much the fund charges as well as what the fund’s target rate of return is.

Will I ever dig into my principal? The answer is yes with some products. You may want to consider this strongly if you want to leave anything to your heirs.

Who guarantees the income stream? Is it an insurance company? What is that company’s financial rating? Remember, the guarantee is only as good as the company selling the product. These products aren’t going to be FDIC-insured nor are they likely to be SIPC-insured, the securities industry equivalent of the FDIC.

I don’t know about you, but my momma told me:”you’d better shop around”. I’ve looked all over and decided I like this version of that song best from American Idol’s David Archuleta…

 No - it’s not Lost, Survivor or CSI, it’s our special PMC event…

April 3,  2008 - A special opportunity to discuss some of life’s biggest financial decisions

Ladies, don’t forget our special meeting of the Pin Money Club this Thursday, April 3 from 7 to 9 p.m. We’ll be discussing the  “Sandwich Generation” - those of us who are financially caught between competing and often overwhelming financial needs such as saving for retirement, funding our children’s college education and planning for long-term care for ourselves and our parents.

Remember, the meeting is by invitation only and space is limited to 12 people. If you received an invitation, please click on the “Events” button at the upper right to sign up and you’ll also find a link for directions under the “Events” banner. Don’t forget, we will be raffling off a beautiful pair of embellished flip flops, just in time for the warm weather.

Click here for directions. 

“Pin Money” is an expression that refers to an allowance a husband would give his wife for her incidental expenditures. I like to say: “WE can do better than that, can’t we girls?”

This Sunday at 9 p.m., Paula Zahn will be hosting a program called “Retirement Revolution” on PBS. It’s a sign of the times and how much retirement is on everyone’s minds that PBS is hosting such an event, and that the promotion of the the program included a full -page color ad in the Wall Street Journal (BTW, such an ad runs in excess of $150,000).

The show, sponsored in part by Mass Mutual Financial Group, will highlight the changing face of retirement in the U.S. - delayed retirements, longer retirements and some folks who by design or disaster will never truly retire - and aims to provide strategies that will help you be as prepared as possible for the future.

Ladies, don’t miss this program and write in and let me know what you thought of it.

[oh no, you didn’t] 

When I was a kid I used to play handball; when I would leave the house to go play, my mother would say: “Let the boys win Cherith.” Well, as you might have guessed, that only made me more determined to win (and, P.S., I did most of the time).

So when I read the results of a new research study out today that show women are behind men in retirement planning I was freshly miffed! The study found that 56% of all baby boomers (age 44-62) say they are less confident than they were three months ago that their retirement savings will last them through retirement but women are less confident and further behind…

-Among adults of all ages, men are more likely than women to have retirement savings (78% vs. 70%).

-Compared to male baby boomers, female baby boomers are much more likely to say they have less confidence in their retirement savings (61% vs. 49%).

-Among those who have changed or plan to change their retirement savings, more baby boomer women than men say they have or will buy long-term care insurance to protect their assets (18% vs. 7%). Clearly we ladies understand that we will live longer than the men (OK, score one for us here) and that we have to figure out how to not outlive our savings!

So girls, don’t let em win…keep saving as much as you can. For some good general retirement planning help, including “Five Tips for Retirement Planning,” visit www.longevityalliance.com.
 

Take away his credit cards! (but seriously folks!)

Recently Jonathan Clements wrote in the Wall Street Journal about the looming credit score crisis many Americans face in the current economy, likening people’s plummeting credit scores to junk bond ratings.

It’s worth a reminder here of the three big things you can do to keep your credit score as high as possible if you should lose your job or your financial circumstances take a turn for the worse: pay your bills on time, avoid applying for credit too often (I know it’s tempting, but ladies, resist the urgings of every cashier in town asking you to apply for that credit card and get 10% off!), use as little of your available credit lines as possible.

It also pays to know and keep up with your credit score; the most useful to know is your FICO score. The score ranges from 300 to 850 and it’s basically a number that summarizes all the activity on your credit report. Generally speaking a score in the mid 700s or higher is considered good. You can get it directly from myfico.com for about $16 (with some add ons if you choose). You can also succumb to freecreditreport.com; their constant advertising makes them hard to forget, but know that it has a catch; you are automatically enrolled in their Triple Advantage Credit Monitoring program. If you don’t cancel your membership within their 7-day trial period, you will be billed $14.95 a month (doesn’t seem like the best deal to me). However, their latest commercials are darn funny and this subject demands some comic relief (other than my bad jokes)…