5 STEPS TO PAY OFF OLD DEBT
There are times when the financial situation can become pretty dim. Lost jobs, increase in expenses and unexpected medical issues can place even the most conscientious money manager in a financial crisis. Fortunately, balance is usually found again with some adjustments in the budget and life goes on. Generally, the financial situation improves over time and there is an incentive to clean up old debt still lingering on the horizon. You may think you need to hire a debt settlement agency. But you don't! You can actually negotiate the debt yourself. Here are five steps to take in order to repay the debt and make improvements to your credit standing.
1. Find out who currently owns the debt.
This step may take longer then expected. Your account was with an original creditor who gave you the loan (either secured or unsecured). Once you stopped making regular payments on the debt, your account was transferred or maybe even sold several times over the years. Tracking the ownership of a debt may mean some detective work on your part. Gather all the letters you received concerning your account over the past years. If you no longer have them, pull a credit report to see who is reporting on your debt. Warning: A collection agency showing on your credit report may not be accurate so be diligent in having them prove they are the agency that has the power to resolve the debt.
2. Payments or debt settlement? That is the question!
Before you repay a debt, you need to see how much you can apply to the debt. To do that, you need to understand how much money is coming in and going out. Don’t do this step in your head. Take the time to sit down and make a list of income and expenses. If you need a template, click here to download our Income and Expenses form. Be realistic in determining how much to apply to the debt. This step will help you decide if you can settle the debt for less then full balance or if you need to make monthly payments on the full balance owed.
3. Get it in writing!
Before sending any money to a creditor/collection agency, make sure you understand what is expected. If you are going to make payments, what is the interest rate? Will there be late fees if you miss the due date? If you are settling for less then full balance, will the creditor agree to waive the amount in deficiency? There is a risk that they could take your money and sell the deficiency to a debt buyer who will then try to collect the amount you thought was waived.
The collection agency may submit a 1099 form to the IRS so you will be taxed on the amount of debt forgiven (any forgiven amount over $600.00 will be considered taxable income). How will this be noted on your credit report? Get everything in writing!!! Have someone in authority sign an agreement you create or have them send you a stipulation letter. Do not send any money without something outlining the agreement signed by them.
4. Sending the money.
Get a cashiers check for the amount you owe in a debt settlement agreement. Send it certified with a return receipt with a copy of the agreement/stipulation letter attached. Payments can be lost so make sure you have the correct account number or reference number on the check so they can post it correctly.
If making payments, make sure you know which method they want the payment; check, money order etc. I don’t recommend you give them access to your checking account for automatic payments. They can be very difficult to stop.
5. Keep all correspondence.
Make sure you get the first and last name of anyone you speak with including the department in which they work. Make note of phone numbers and extensions. If you need to call back you rarely get the same person. Finding the person who “promised” you something can be difficult. Any letters, stipulations and documents need to be kept forever!
For more information or assistance in the understanding debt settlement process, contact Family Life Resources at 800-553-8621. Like us on Facebook and follow us on Twitter for updates.
RETIREMENT LIFESTYLES: WHERE WILL YOU LIVE?
When people consider retirement planning, they almost always focus on the financial plans that must be made and money issues that they will face in the years ahead. While it is very important to have a good financial strategy, you must also consider all of the other factors that will play into retirement planning decisions. A basic question that must be answered is a simple one: where will I live?
SHOULD I STAY OR SHOULD I GO?
Some of you younger Boomers and Gen X-er's might recognize this question first posed by the song title from the rock band The Clash in 1982. Whether Boomers with five years to go or X-er's with a longer time horizon, it's not too early to cast an eye toward retirement lifestyles and locations.
We often assume that retirees can't wait to move away from their hometowns to the warmer climates of Florida or Arizona or to the beautiful mountains of North Carolina. But that is not what usually happens. Census information tells us that fewer than 5% of people over 60 move in any one year. Most people stay within their home state, many within their home county and often within the home they've occupied for years. Others want to move to an area with better weather, better lifestyle choices or a lower rate of taxation. Whatever the circumstances, you'll be faced with some big considerations.
BIG CONSIDERATION #1: YOUR FAMILY & FRIENDS
Let's face it, living under a palm tree and basking in the sunshine is great. But is it great enough to leave the grandkids or dear friends behind? Pulling up stakes to move away from loved-ones has some very powerful emotional elements that should not be ignored. Conversely, you may be moving to a community that will allow you to make scores of new friends. This is especially true of dedicated retirement-living communities where there are plentiful opportunities for interaction.
BIG CONSIDERATION #2: YOUR INTERESTS
You've been living and working in your hometown for years and most of that time has been spent concentrating on worklife and homelife. When you retire your focus changes. No longer putting in a full work day means that you have to fill your time and pursue new interests. Can you do that in your hometown? Retirees move in order to take up a new way of life, be it snow skiing in Colorado or sport fishing in Louisiana.
BIG CONSIDERATION #3: YOUR HEALTH
This consideration can have many different facets and broadly affects your lifestyle decisions. Am I independent enough to live in a regular housing community or do I need assisted living? Do I have the resources to move far away from family members and still get the occasional care that I might need? Is my new retirement community served by a large number of high quality care providers and hospitals? Understand that as we age all of us will face more health challenges. That is a fact of life that good retirement planning always assumes.
BIG CONSIDERATION #4: YOUR FINANCES AND THE COST-OF-LIVING
Your retirement income and available financial resources are a key consideration when choosing a new retirement location. If you stay in your current city you already know the price of real estate, the cost of insurance and utilities and expected prices for food, gasoline and other consumer goods. If you have a limited or fixed income you may have no choice but to stay where you are. When moving to a new town remember that different regions of the country can have vastly different cost-of-living requirements. Retiring to California or Connecticut will generally be much more expensive than a relocation to South Carolina or Texas.
RESEARCH, RESEARCH, RESEARCH
You need to devote time and effort to researching these issues. Decide first if you should stay or go. When considering a move, start with an internet search, talk with people from your target location or, better yet, visit there. Evaluate the area for climate, cost, lifestyle and healthcare.
Check out the Fortune article by Dan Kadlec The Five Big Questions About Retirement and begin your retirement planning.
It's about more than the money. It's about your life.
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OUCH! I MISSED MY RMD
We spend a good portion of our working lives trying to build up some savings that we can rely on in our retirement years. We're careful to place those funds in a qualified retirement plan such as an IRA or 401(k). As the years go by and our balances (hopefully) increase, we remain concerned about consistently contributing to the account. Few of us take the time to ponder how we will withdraw those funds when we retire. But Uncle Sam has. In fact, he's thought about it a lot.
TAKING THE REQUIRED MINIMUM DISTRIBUTION
There are many people under the impression that they can put aside their retirement monies and let those funds grow indefinitely. They assume that they will only withdraw what they need each year to meet their expenses and let the rest remain in the account. But the IRS has a rule that you must withdraw a certain minimum amount each year, thereby subjecting it to taxation. It's called a Required Minimum Distribution or RMD. The RMD takes effect when you turn 70 1/2 or, if later, when you retire. Small business owners are under slightly different rules. Here's how it works: When you reach 70 1/2 you must calculate how much you need to withdraw from your account under RMD guidelines. It is based on your age and you must understand that it applies to ALL of your retirement account balances, not just each individual account.
HOW DO I CALCULATE THE RMD?
You can use one of the free calculators on-line at many websites, but I recommend this Required Minimum Distribution Calculator from Bankrate.com. Go to this site and type in your date of birth and the value of your retirement accounts. The calculation is based on your life expectancy. For example, when you type in a birth date of February 22, 1940 (a person turning 72 this year) and an account value of $25,000, you will find that this person must withdraw $977 from their traditional IRA account this year. That $977 will be taxed at ordinary income tax rates for the year 2012.
WHAT IF I DON'T WITHDRAW AT LEAST $977?
The IRS has a very stiff 50% penalty on the amount of funds not withdrawn. 50 percent! In our example above, if the account-holder only withdraws $477, then the remaining $500 is subject to a penalty of $250. Ouch! The taxpayer is responsible for accurately calculating the RMD, but with such painful consequences for getting it wrong, I would highly recommend that you consult a tax professional, especially if your account balances are more than a few thousand dollars.
WHERE CAN I LEARN MORE?
A good Q & A can be found at the IRS.gov Minimum Distribution website. There are also rules in place for inherited IRA accounts and they, too, are subject to RMD penalties. We'll cover that in a future article.
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Trying to buy a car but your credit report shows old debt? There are things you can do to improve your credit report in order to become more credit worthy. But first, you must decide how to deal with your old debt. What do we mean by the term "old debt"? Typically, debt that has been charged off by the original lender and is now in the hands of a collection agency, attorney or it has simply been written off is old debt. The good news is that there is a statute of limitations in which creditors are given a certain amount of time (in years) to collect on a debt through legal recourse. Depending on whether your debt is secured or unsecured, collectors of debt have several options in which to proceed to collect. Here's the breakdown:
The Original Lender (Creditor)
The original lender can pretty much do what they deem necessary to collect. They can call you numerous times a day. They can send your debt to a debt collection agency. They can hire an attorney to file a judgment in order to collect a debt by garnishment of wages, freezing bank accounts or putting a lien on your home. There are no protection laws for debtors that cover the original lender in their process.
If the original lender hires someone to collect your debt, those actions do fall under the protection of the Fair Debt Collection Practices Act. A debt collection agency or attorney acting as a debt collector must follow the guidelines found in this law. Click the link above to obtain more information.
Time barred debts
Once you go beyond that statute of limitation (this varies in each state) a debt becomes time barred. You still owe the debt but there are rules and regulations which collection agencies must abide by. Collection agencies can continue their process to collect the debt however, a lawsuit cannot stand over a time barred debt. As long as you are able to prove the debt has reached the statute of limitations, the agency will not be able to garnish wages, repossess items of value such as a automobile, freeze your checking account or put a lien on your home in order to collect the debt.
Options: To Pay or Not to Pay?
1. If the debt is still under the statute of limitations, you can either ignore it or pay it. If the balance is small, a creditor may not go to the extreme to collect it. However, remember that creditors place different fees on unpaid debt; late fees, over the credit limit fees and increased interest fees. Your low balance debt can quickly balloon to a much larger balance especially if attorney fees are added. Not paying on a debt for several years may put you in a position of not having enough financial resources to repay the debt in the future.
2. If the debt is past the statute of limitations you can dispute it with the credit bureaus as old debt and not be reflective of your current financial situation. Old debt can be removed from your credit report after 7 years (except bankruptcy). You still owe the debt however. If at anytime you promise to repay the debt or make a partial payment, you have restarted the clock and the statute of limitations starts all over again.
If you decide to repay the debt, make sure you know where your debt really lies. Collection agencies are notorious for trying to collect on a debt they no longer have the contract for. Paying a collection agency may not get your balance paid in full. They may never send the payment to the owner of the debt… the original lender. It is best to call the original lender. They can tell you where the debt is and if it was sold. Once the debt is sold, the new buyer becomes the original lender. Tracing the owner of the debt can be time consuming but it is important to make sure money goes to the proper place. Also be sure to keep any documentation of payment. If it doesn't shows up on the credit report correctly, you will be able to show that proof to the bureaus and have the credit report updated to reflect the correct information.
If you have question concerning old debt you may contact us at 800-553-8621, Monday – Friday 9:00AM to 5:30PM. Family Life Resources is a non profit agency that can educate you concerning your debt issues. Whether you want to become more credit worthy, settle old debt or just get an overall picture of your finances, we are here to help. Like us on Facebook and follow us on Twitter for updates.
401(k) LOANS: PROCEED WITH CAUTION
As funds begin to accumulate in your 401(k) and other qualified retirement accounts, you may feel the need to access those dollars for emergencies or to make a major purchase. As mentioned in a previous article, taking money out of those accounts before a certain age can be very costly because of early withdrawal penalties and taxes due. For workers participating in a 401(k) or 403(b) plan there may be another way.
BORROWING FROM YOURSELF.
You may be eligible take out a loan against these funds and have the use of that money, but be aware that this type of arrangement has financial consequences that carry risks. First, a little bit of good news. When you take out a 401(k) loan you are effectively "borrowing money from yourself" so no credit check should be required. Next, you will probably get a much lower interest rate than those charged for regular loans and won't face high upfront fees or closing costs. Not having to face traditional loan underwriting standards (and a denial of your application) is welcomed news for many families that now find themselves with damaged credit. Beyond these advantages, be aware that a loan of this type has restrictions and pitfalls.
LIMITS ON 401(k) LOANS.
There can be limits as to the amount that you can borrow, the terms and even the availability of getting the loan. Some rules are set by the government and some by your employer. I'll not try to cover all the bases, but here are a few general requirements:
* Limits on how much you can borrow. You are restricted to one-half of your balance that you have contributed, but not more than $50,000. Notice that employer contributions are excluded from this calculation. Your employer/plan administrator may have additional rules and borrowing limits.
* Limits on the loan term. You must pay back the loan in five years or less. Exceptions are made if you are using the funds to purchase a home.
THE DOWNSIDE RISKS OF THESE LOANS.
* If you get fired or leave your job, the loan is due and payable. Upon termination of your employment with your current company, you'll have to pay back any outstanding balance within 60 days. Failure to do so will trigger early withdrawal penalties and taxes due. You could find yourself unemployed and saddled with a huge current tax bill.
* Double taxation. You pay back your 401(k) loan with after-tax dollars. Then you pay taxes on it again after you retire and draw the money from your account. Uncle Sam loves you.
* Unplugging a productive asset. All of the time that your retirement money stays out of your account is time that your money is not working for you. In a down market this isn't such a big deal, but didn't you invest on the assumption that these funds will grow over time?
IS A HARDSHIP WITHDRAWAL A BETTER OPTION?
If you are facing an emergency and need to get access to your money, perhaps you should consider a hardship withdrawal instead of a loan. Under certain conditions and subject to your employer's rules you could request your funds be released under a hardship arrangement. For an excellent summary of hardship withdrawal policies, see the following site:
Taking money from a qualified fund before you retire may be unavoidable, but it always should be approached with caution. Always seek the advice of a trusted counselor before making the move.
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KNOW YOUR RIGHTS ON COLLECTION OF AN OLD DEBT
When you have debts that you have stopped paying on, you have rights under the Fair Debt Collection Practices Act. Often times the debts are sold to a consumer debt buyer that will pay pennies on the dollar then call the debtor several times a day to collect the full amount. There are things you can do to protect yourself depending on where your debts are in the process.
30 to 180 days late:
Your credit card debt is still with your original lender in their internal collection department. The collector calling you can do things that a debt collection agency cannot. They do not fall under the protection clauses of the Fair Debt Collection Practices Act because they represent the original lender. The important thing to remember is that once you stop paying on the debt, a clock starts. This clock represents the time it will take for your debt to go beyond the statute of limitations. That statute of limitations for credit card debt can be as short as three years or as long as ten years. State law determines how long the statute lasts, but varies state to state. The state law applies either to the state you live in or the state specified in your credit contract. The type of debt is also a factor. You can check with a legal aid lawyer, an attorney or your State Attorney General’s Office to see how your state law applies to your type of debt.
Six months to ten years
Once a credit card debt goes to an outside collection agency, an attorney who regularly collect debts, or a company that buys old debt to collect on later, your debt is considered a write off for the original lender. These other debt collectors now fall under the Fair Debt Collection Practice’s Act. You can click on this link to read about the protections this act allows you. Once your debt falls beyond the statute of limitations it is considered a time-barred debt. In other words, you cannot be sued in order to collect the debt. That does not mean you do not owe the debt and collection agencies can continue to try to collect. It simply means they can no longer sue you ( file a judgment) in order to collect.
If you decide to start making payments on an old debt, understand that resets the clock. Even a partial payment or a commitment to make a payment will reset the clock. Make sure you are able to repay the debt before committing to a payment plan. It may be best to try to settle the debt for less then full balance and pay it off instead of agreeing to payments. You can negotiate the settlement yourself; don’t hire a company to provide that service.
Should you have questions on issues arising from old debt, Family Life Resources can assist you. We can teach you how to settle your debt or whether a payment plan is a good option for you. We can also help you understand how all of this affects your credit report. You can contact us at 800-553-8621 Monday- Friday 9:00AM to 5:30 PM. Our initial counseling is free. See our other blogs on this subject, like us on facebook and follow us on twitter for our updates.
TAKING A BITE OUT OF RETIREMENT SAVINGS
You've been putting aside funds into your 401(k) or IRA each payday with an eye toward building up a retirement nest-egg. You want to keep those funds working for you, year after year, so that by the time you reach your mid 60s you can tap your savings to supplement social security. But sometimes we need to dip into that cash before we retire. A job loss, a medical emergency or other pressing need may force you to consider an early withdrawal from these accounts. While it's nice to have that pool of money available, accessing it before a certain age can be very expensive.
SOME MAGIC NUMBERS: 10, 25, 55, 59.5 AND 70.5
Early withdrawals from retirement accounts can trigger penalties and taxes due that can drastically reduce the amount of cash that you can realize. The penalties depend on a number of factors including your age and what the withdrawn funds are used for. You will normally face a 10% penalty on funds withdrawn before you turn 59 1/2 plus you must pay taxes on that amount. For someone who is 40 years of age taking $10,000 from their account and who is in the 28% tax bracket, your withdrawal penalty and taxes due will be $3800 (10,000 x 38%). If you have a SIMPLE IRA and you have been contributing to it for less than two years, your early withdrawal penalty is 25% plus the taxes due.
The rules are different for 401(k) and other similar plans. You may withdraw funds without penalty if you leave your job after you turn 55, but taxes will still be due. And, lastly, the grand-daddy penalty of them all: the levy for not taking a required minimum distribution when you turn 70 1/2. You must begin withdrawing a set amount of money each year or face a 50% penalty. To see the specific rules and calculate what your required minimum distribution must be, see the IRS site http://www.irs.gov/retirement/article/0,,id=96989,00.html#1 .
EXCEPTIONS TO THE RULE
The good news is that there are some exceptions to most of the penalty rules. According to About.com you can avoid the 10% IRA penalty on your distributions for the following reasons:
- You used a "direct rollover" to another qualified retirement account
- You were permanently or totally disabled
- You were unemployed and used the funds to purchase health insurance
- You paid for college expenses for you or your dependent
- You were a first-time home buyer (their are certain restrictions)
- You paid certain medical expenses (again, some restrictions)
- The IRS levied your account to pay off tax debts.
Exceptions for 401(k) and 403(b) plans:
- Distributions upon death or disability of plan participant
- You were age 55 or over when you retired or left your job
- You received "substantially equal payments" over your lifetime
- You paid certain medical expenses
- Distributions were required by a divorce decree or separation agreement.
As always, never make a move without consulting a qualified professional (CPA or attorney) especially if significant amounts of money are involved or you have complicated legal issues.
In the case of workplace plans (401k) you often have the option of accessing your money through a loan, but there are other considerations involved and those will be addressed in a future article. For now understand that penalties and taxes due can take a substantial bite out of your retirement funds and should only be used after careful consideration.
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Filing bankruptcy is not an easy choice but may be necessary to get a "fresh start." However, there are some little known facts that may impact your ability to file bankruptcy or dictate which bankruptcy you can file.
With the economy less than stellar in these last few years, we see families using credit cards to fill in the gap for many expenses that would normally be paid for out of a checking or savings account. As a result, some surprises can occur when filing bankruptcy (we are not an attorney and the following is not to be considered legal advice but for educational purposes only).
In a chapter 7 bankruptcy you can't discharge a debt you incurred to pay off taxes you owed to a government agency
Let's say you owed income taxes last year and the only way you could pay them was by using your Visa card. Now you want to put that credit card into your bankruptcy. Can you place that card into your bankruptcy? Yes, BUT..your Visa may bill you for the amount you charged to pay your taxes after your bankruptcy is over.
Property taxes can be discharged: maybe
Property taxes must become due more than a year before you file bankruptcy to be able to be discharged. However, in Chapter 7 bankruptcy, the lien on your property will stay. This discharge may have no value for you if you are planning on selling your property. You will have to satisfy the lien before you can sell.
Loans from tax-deferred retirement plans
If you borrow money from your 401K or other type of retirement plan that would qualify under the IRS rules for tax-deferred status, that debt cannot be discharged in a chapter 7 bankruptcy. It will survive your bankruptcy and will need to be addressed.
Lets say you went to on a cruise. You spent more than $550.00. You bought some jewelry and other luxury items on your Visa. You get back from your cruise and find you have been fired. You panic and want to file bankruptcy. In a chapter 7 bankruptcy those charges may not be dischargable. It will be presumed by the court that you did not intend to repay the debt unless you can prove you were not going to defraud the credit card company.
Many of these debts discussed in this blog can be discharged in a chapter 13 repayment plan but if you want to qualify for chapter 7, do your homework. Bankruptcy law is very complicated. Get advise from an attorney. Don't leave anything out when you talk to them. It is the little things that come up at the 341 meeting that can hang up your bankruptcy discharge. Be honest with your attorney and don't try to hide information. If you want further information on bankruptcy visit our website at www.FLRMinistry.com. We invite you to read our other blogs, like us on Facebook and follow us on Twitter.
Some of the above information was taken from the following resources: Nolo: Solve Your Money Troubles, Nolo: The New Bankruptcy , United States Bankruptcy Code & Rules Booklet, The National Consumer Law Center: Guide to Surviving Debt.
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IS A CERTAIN PERCENTAGE RIGHT FOR YOU?
A key issue for anyone approaching retirement is the amount of money you will need to assure that you can keep the basic bills paid. Determining that number is crucial to your financial future but we too often rely on easy formulas and generalizations to make these kinds of decisions that require more careful analysis.
A good place to start the process of determining your retirement expenses is to take a look at your current budget (I'm assuming that you have one, if not please use our Income/Expense planner.) Some expenses will follow you into retirement and be close to the amounts that you now spend. Your insurances, utilities and debts will not change dramatically once you leave the workplace. Others could be significantly different such as gasoline consumption, clothing needs and travel costs. It is important that you spend time making serious assessments of these numbers and developing a written spending plan that reflects the new situation.
But that's not what most of us do.
Instead we look for the easy "rule of thumb" and the number most prevalent in this discussion is 70%.
THE 70% RULE
For years the conventional wisdom has embraced this number at the best guideline for predicting your future cost-of-living. It states that you calculate your current income and assume that your expenses will drop to 70% of that level once you retire. Instead of accepting the number at face value you should see if it really measures up to your circumstances and your goals. This is no time for a one size fits all solution. You need to construct your own analysis and here are some concepts to consider:
1. HOW IS THE NUMBER CALCULATED
Is the number 70% of gross or 70% of net pay? Remember that we can only spend the net so we always consider just your take-home pay. It is obvious that you'll not be paying payroll taxes and federal income tax on earned income in retirement, but may still have a tax bill if you are withdrawing money from a qualified retirement plan. And it is true that you won't need to be making retirement plan contributions but if you've always had these items deducted from your check then you've built a lifestyle around that take-home number. My advice is that you consider the 70% to be after taxes, SSI and 401(k) contributions.
2. WHICH EXPENSES WILL REMAIN THE SAME?
Go through your current budget and determine those entries that will not change significantly when you retire. Homeowners and car insurance, life insurance, mortgage payments, gifts, and home maintenance are just some of the expenses that probably won't differ from your current spending. Next, look to see which expenses can be reduced, especially those relating to debt payments. Reducing debt can be one of your best moves in achieving retirement security. See our previous blog Breaking The Chains of Debt in Retirement.
3. WHICH EXPENSES WILL CHANGE MODESTLY?
Some expenses will change only slightly. Utility usage, gasoline costs, car maintenance and food consumption will shift depending on such things as the distance of your commute and whether you brown-bagged lunch on a daily basis.
4. WHICH EXPENSES WILL CHANGE SIGNFICANTLY?
Here is where the 70% rule faces its greatest test. Changes in post-retirement expenses need to be examined according to which phase we are considering: younger retirement years or later. When you are in your 60s and 70s you'll probably want to travel and take on other activities that an 8 to 5 workday never allowed. You may retire to an area that is not near your family and you'll want to visit them regularly. All of these circumstances can add up to an increase in your cash outlay in your early retirement years. As you become older you may not keep up that lifestyle pace, but you could face greatly inflated costs for healthcare, long-term care and other aging issues.
The point is that 70% is a rule-of-thumb and not a rule. It is a good starting point from which to base your budget planning, but you need to incorporate your unique needs, goals and circumstances into the equation. Have a serious discussion with your spouse about how you envision retirement and those issues that could arise. Then plug in your own number that is 100% you and not 70% of everyone else.
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RETIREMENT: DELAYING THE DATE
Many people have dreamed of leaving the workplace and living a life where they keep their own schedule and fill their days with pleasurable pursuits. They dream of retirement. But events of the past two decades have challenged those notions and forced the vast majority of older workers to re-evaluate plans for their golden years.
RETIRE AT 65. WHERE DID THAT COME FROM?
Ask anyone about "the normal retirement age" and they will almost always come up with the number 65. That number has been enshrined in our social security laws and in the policy manuals of public and private enterprises. Mandatory retirement at 65 was the rule in many companies through the 60s, 70s and 80s. But where did that number come from?
It probably was derived from life expectancy statistics of the 1930s and 40s. If you review the actuary charts from those years you'll find that life expectancy in 1930 was 64.2 years. When social security was created it assumed that people would only be collecting their benefits for a very few years and so the numbers worked out. Then something very wonderful happened: people began living longer. Today the charts show that you will probably live well into your 80s.
WILL YOU HAVE ENOUGH RESOURCES TO LIVE 15 YEARS IN RETIREMENT?
The good news is that we're living longer and our quality of life is much better than in years past. Balance that, however, with the need to meet basic living expenses for over 15 years after you've left behind a steady paycheck. Social security will provide some of that income, but many people reach their early 60s with the realization that SSI won't be enough and that they are falling short of saving enough to fund the difference. The downturn in the economy and decline in many household incomes mean that putting aside extra savings is difficult and a stagnant stock market over the past 10 years has prevented meaningful growth in 401(k) and IRA accounts.
THE NEW STRATEGY: DELAY RETIREMENT
The sad reality of our new economy is that workers may need to consider delaying retirement. Full retirement age (for social security purposes) is moving upward and most baby boomers cannot claim full benefits until age 66 or later. Many will have no alternative but to continue working into their late 60s. Staying in your current job for a few more years has three great advantages:
1. Obviously, the longer you wait to retire, the fewer years your retirement funds need to last and the more time you have to accumulate extra retirement savings.
2. Having an earned monthly income could delay your required minimum distributions on IRA accounts until 70 1/2 and that allows the earnings to grow tax-deferred for a longer time.
3. Wait four more years before claiming social security and your monthly benefit check, at age 70, will be around 8% higher than at normal retirement age. That could mean an income boost of several thousand dollars per year.
EASIER SAID THAN DONE
There are some problems with the "delay" strategy. The first is your job situation. If you are able to remain in your current position, then delaying can be beneficial. But if you are now jobless or will be facing a layoff, you'll need to be mindful of the difficulties of competing in the new economy. Keep your digital skills (computer, communications, etc.) sharp and don't lose your marketplace contacts. Stay current on the issues affecting your profession. Click here for tips on job searches for seniors.
The other concern is one that is more difficult to address and that is your health. By age 65 some people are facing medical issues that may prevent them from working. For this, there is no easy answer. I talk with many people who claim that they have no retirement plans other than to work their entire lives. Health issues can take away that option.
If you are some years away from retiring, it is best to try to accumulate enough resources so that you can supplement your social security and be able to pay your basic bills. Depending on the "delay" strategy has many shortcomings that may or may not be in your control.
For other issues on this subject, see Boomers Working Past Retirement.
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My intentions always start out great. I have learned to budget and I know all about creating a list before I go shopping. I ONLY get the things I need or, in the case of grocery shopping, I can stockpile for cheap. But this past weekend was special. Walmart had its "red balloon" sale. I honestly forgot about the sale as I had already intended to go to Walmart to return some items, use my coupons and purchase inexpensive, generic medicine. But the red balloons got the best of me and I overspent. Thankfully, because of cash enveloping, I did have other envelopes to pull from and although they are now emptier, I am still on track to meet my priority monthly expenses.
The reality is, most of us find it hard to resist the sales, deals, coupons and any other tactics put in place to get us to spend our hard earned income. We find it hard to always have to stay within our budgets and to always stick to our list and to always...well you get the point. Budgeting is not easy and reminding yourself of why you are saving can sometimes lose its stronghold when you see shiny red balloons that represent a "great savings" on many of the items you can honestly say you need. But that is no excuse for making the poor choice of overspending and NOT being able to meet the priority needs of your budget. When you are in the midst of a "great deal" and are trying to determine if it is worth the splurge, take a moment before rushing off to the register and follow these tips:
- Stay within a reasonable "splurge" limit. If it is not in your fun money envelope or you cannot pull the cash from another category that is low on your list of priority needs and wants, put the merchandise back under the red balloon. There will always be a next time.
- Remind yourself of what greater expenses your splurging may affect. Will you be able to pay the electric, cable or phone bill if you make this purchase? Will you be able to put gas into the car next week? Also, don't evaluate this in the moment based on what you think you have in the bank. More than likely, you will forget a bill or some other expense that needs to be covered and then there will be an overdraft in your future, costing you more than what you saved in the sale.
- If you decide you must have it and want to use credit to pay for your merchandise, think again. If the item is on sale, and you take time to pay it off on the credit card, you have now added interest and potentially saved nothing on the item you just brought because it was on sale! Phew! Why not wait for it to go on sale again and save money to buy it or something similar at the next red, blue or yellow balloon sale.
The reality is that we have to live by a budget. It helps us to stay organized and on track. It helps us to meet our wants and needs for the present and for the future. But every now and again, you will want to go off course. If you do, at least know what your consequences will be so that you can offset any future issues that could ultimately create financial problems for you. Take the time to go through this process. You will be less likely to overspend on purchases knowing what its effect will be on your budget. And, since preparedness is your best strategy, why not make an envelope that says "red balloon sale" and then you can be ready for the next round of sales any store may offer you.
If you wish to learn more about budgeting and Cash Enveloping, follow this link - Cash Enveloping - and you will be a able to download our course for free. You can follow up with as well for one on one assistance at 1-800-553-8621 or email us at firstname.lastname@example.org.
Before I answer the question "Can I transfer property before filing Chapter 7?" let me start by stating that I am not an attorney and this blog does not contain legal advise. Bankruptcy law is complicated and any legal questions should be taken to an attorney who specializes in bankruptcy law. With this said, the simple answer to the question is "Yes."
Of course life is not simple so let me expound on this. Property can be transfered or sold prior to bankruptcy. The real question is when. There is a two year period immediately preceding the bankruptcy that trustees look at very carefully. Any property, real or personal, can be sold at the fair market value and you can even use that money to pay your attorney for filing bankruptcy. But property transfered during that two year period, that is less then fair market value, can cost you your bankruptcy.
Some people want to transfer or sell property in order to protect it from being taken or sold and then the money distributed to their creditors as part of the bankruptcy proceedings. Their intention is to get it back after the bankruptcy has been discharged. That behavior is fraudulent and can cost you to lose your bankruptcy discharge. An example would be: Selling a car to a friend for $50.00 then filing bankruptcy. Even if the title is transfered, the car was not sold at the fair market value. The court will interpret this as hiding an asset from your bankruptcy estate. If however the bluebook value on the car was $5000.00 and you sold it for $5000.00 then the transfer of the title was honorable.
A more common example is taking your name off a joint account like a deed. Lets say Grandma left her property to her five grandchildren and you are one of them. But you need to file bankruptcy and do not want to harm the the others who are titled on the deed as well. You can quick claim the deed over but you will need to list that transaction in your bankruptcy petition ( because the petition asks that question) and the trustee may not approve your bankruptcy unless the property is sold and your portion is returned to your bankruptcy estate.
The transfer of titled or real property is easy to track. The transfer of personal property is easier to hide or so you may think. A woman filed Chapter 7 bankruptcy. When the appraiser came through her home they saw a large free standing jewelry box. When they looked inside it was empty. The trustee wanted to know what happen to all of the jewelry. The woman stated it was costume jewelry and she gave it to her children. The trustee stopped the bankruptcy because they suspected she had, in that large jewelry box, jewelry that had value and she was attempting to defraud the court.
Many times, property that is transferred prior to filing bankruptcy can be kept and claimed as exempt. However, because people are not aware of the bankruptcy laws, they choose to transfer property and complicate their bankruptcy process. It is best to wait past the two year period after the transfer before filing. It is always a bad idea to commit perjury.
If you would like more information on bankruptcy see our other blogs on the subject. You are invited to visit our website at www.FLRMinistry.com or call us at 800-553-8621 Monday - Friday 9:00 - 5:30. Like us on Facebook and follow us on Twitter to get updates.
If you were walking down a sidewalk today and came upon a stack of cash, would you step over it and keep on walking? Lots of people do exactly that in their workplace. With the demise of traditional pension plans, many employers offer 401(k) and other retirement arrangements where the employee can contribute to their accounts and also receive a contribution from the company. These employer-provided funds are known as the match.
401(k)s, SIMPLE IRAs, SEPs and other qualified retirement plans are set up by employers so that employees can contribute funds on a tax-deferred basis and earn returns on that money through the years. They are called defined contribution plans. Often the employer will offer to match a portion of those funds using a formula based on annual compensation. But in order to get this bonus, employees have to participate and "capture the match."
Recent research has shown that a surprisingly large number of workers do not place funds into these plans and miss the opportunity to collect what amounts to free money. Of course, in today's tough economy it can be difficult to squeeze out a savings contribution from a slimmer paycheck. But for those who can re-work their budgets and find those funds, the payoff can be big. You can get help with budgeting by clicking this link docs/lessons - understanding income and expenses.pdf
INTEREST RATE ON YOUR SAVINGS: 100%
Look at it this way: if you contribute $1.00 to your 401(k) and your employer adds $1.00, then you have an effective interest rate of 100% on your money. Compare that to what your bank is offering. In addition, you won't be taxed on that "interest" until you withdraw that money years from now when you'll probably be in a lower tax bracket. Over time these regular and matching contributions should produce a pool of resources that can greatly enhance your retirement finances. To get an idea of how matching contributions grow your account, I recommend this site from BLOOMBERG.
Our current recession saw a sharp increase in the number of employers that dropped the matching portion of their retirement plans, but as the economy improves look for most firms to reinstate those benefits at some level. Any extra funds that you can generate in the future and contribute toward capturing the match would reward you handsomely. There is a credit card commercial currently on TV where a popular comedian asks the question of a baby: "who doesn't like free money?"
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If you have decided to file bankruptcy, the next question you may have is how to find a bankruptcy attorney. Any attorney can file bankruptcy but, like most professions, there are attorneys that specialize in one or two areas like bankruptcy law. Filing bankruptcy is a stressful experience and having an uncaring or unprofessional attorney will only add to the stress. So here are some steps to follow in choosing an attorney:
1. Consider the fees. Bankruptcy has several fees attached. There are the court costs. There are fees attached to the two counseling certificates that are required. And, the attorney will have his fee. Shop around to see what the standard fee is for your area. You don't have to go with the cheapest but you don't want to pay a high fee for standard services. Also check to see what services the flat fee will include. Typically the attorney will include a free consultation, the preparation of the bankruptcy petition, represent you at the 341 meeting and correspondence with your creditors. Some will also include assistance in reviewing and making corrections to your credit report. There can be circumstances that arise from a bankruptcy requiring your attorney's attention. They will charge for any extra service that falls outside of the norm.
2. Do your research. Google information concerning bankruptcy so you have a full understanding of the process. Understand the difference between a Chapter 7 and a Chapter 13 bankruptcy. Decide what is best for you before seeing an attorney. Go to www.abanet.org to see a list of attorneys in your area. Call your local American Bar Association for information. Get several names together and call for an appointment. The first appointment should be free.
3. How did the law office answer the phone? Was the recepitionst friendly or eagar to pass on your call? Did the paralegal instruct you on what information to bring to the appointment? Did they tell you how much time you would have with the attorney? The front office represents the office culture and how your attorney will handle your case. If staff in the front office are unorganized and seem stressed, your attorney will be too.
4. Be prepared for your first meeting. Have your questions written down. The more research you do on bankruptcy the more questions you will have. This is good. You need to cover as much ground in the first meeting as possible. While the attorney may not answer specific questions concerning your case ( you have not hired them yet) they should seem confident in answering the general questions. Questions to ask: How many years of experience do they have in bankruptcy law? What percentage of their practice is allocated to bankruptcy cases? Will this attorney represent you at the 341 hearing or will other attorneys be involved in your case? If you have a question, can you speak directly with the attorney? What services do his fees cover? Will you need to have a credit report pulled?
5. Find the attorney that speaks your language...one you feel comfortable with. An attorney that matches your personality will be a better communicator and help you understand the specific points of your case. It is like buying a car...don't buy the first one you see. There are many attorneys to choose from so keep looking until you find the right one.
If you want more information concerning bankruptcy visit our website at www.flrministry.org or see our other blogs on the subject.
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BREAK THE CHAINS
You're ten years out from retirement and, if you're like most Americans, you haven't put nearly enough money aside to fund a comfortable lifestyle in your later years. While it is important to set aside as much as possible to supplement social security, there is another step that can have a big impact on your retirement cash-flow: getting out of debt.
Breaking the chains of debt is a powerful tool in making sure that your income can cover necessary living expenses. When your (often fixed) income is claimed by monthly payments, it becomes much more difficult to pay the basic bills. Additionally, when you eliminate or reduce your debt load, you avoid interest expenses and other charges.
How you attack your balances depends on the type of debt that you're facing.
CREDIT CARD AND OTHER UNSECURED DEBT
Most credit counselors will tell you that you should pay off unsecured, high interest rate debt first. These include credit card balances, personal loans and medical bills. You could set up your own accelerated payment plan where you calculate how long you have until retirement and boost your monthly payments to meet a payoff by that date. If your interest rates have skyrocketed, a good way to address these debts is with a debt management plan. You can go to an accredited agency and set up a 5-year payout plan and often get the interest rates greatly reduced.
AUTOMOBILE LOAN DEBT
Unfortunately, once you're wrapped up in a car loan it is difficult to escape or even reduce the payment amounts. My best advice is to be very careful in your car purchases in the years preceding retirement. Buying that $70K blinged-out sports car on your 60th birthday will quickly turn a mid-life crisis into and end-finance crisis. If you purchase a car during this time, limit your loan term to 4 years so that you do not carry car payments deeply into retirement.
If you are in your mid-50s, have enough equity in your home and still have a good credit rating, you should consider accelerating your home loan payments. Interest rates on 15 year fixed rate mortgages are at historic lows and you would be sending substantially more to principal than if you took out a longer term loan. But the best part is that a shorter term loan will provide the discipline to get that debt paid off before you retire. Like Dave Ramsey says, a 15 year loan magically pays off in 15 years...every time. If you are unable to refinance, then paying ahead on your current mortgage can achieve the same results, but without the built-in discipline.
For help with budgeting, debt management and other credit issues visit the following locations on our website:
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