MONEY MANAGEMENT

It’s something we’ve, hopefully, been taught since we were small children. What is the best way to maximize the money that you have? The issue becomes especially important as we start to save for the things that we want and need – namely in this situation retirement.

Consider implementing the following tips to help you with your money management skills.

1. Have a financial record-keeping system in place at home to track income and expenses. This can be as simple as a green ledger form or as complicated as money management software. Just so long as you know where your money is coming from and going.

2. Have a household spending plan or budget and use it. Sure, things do arise that you can’t control, but stay with your budget as much as possible for effective money management.

3. Regularly reconcile your checks and ATM withdrawals. With the advent of online banking, many people don’t always receive a paper bank statement. However, you must be sure that your money is being accurately tracked and debited from your account.

4. Pay your bills on time. When you pay late, the extra fees charged can wreak havoc with the best of budget systems. Plus, late payments can adversely affect your credit report – something you never want to happen!

5. Compare offers from credit card companies before you apply for credit. There are some cards that charge a small interest rate on purchases with no annual fees. Those are the ones you should be looking for!

6. When you have credit card debt, you should do everything you possibly can to pay off the balance each month. If it is not possible to do that, at the very least, pay more than the minimum each month.

7. Request and review a copy of your credit report at least once every year. There are three credit reporting agencies that you can choose from. Take note of the information included in the report and take steps to correct any discrepancies.

8. Identify immediate and long-term savings goals and how you will achieve those goals.

9. Make it a habit to save some money on a regular basis. A special favorite of mine is to pay for items with paper money and at the end of the day, deposit all change into a savings jar. It’s something small, but it can really add up!

10. It’s a good idea to have an emergency fund that will cover three to six months of living expenses in the event that something happens and you cannot work.

11. Put money into low-risk savings products. These can include savings accounts, money market accounts, or certificates of deposit (CDs).

12. When purchasing a vehicle, shop around for the best interest rates. Finance for 24 or 36 months while avoiding the ever popular 60 months. If you pay off your vehicle early, you won’t run the risk of being “upside down” or owing more money than what the car is worth.

13. You will get an annual Social Security statement from the Social Security Administration. Pay attention to what it says and what information is contained inside.

14. Calculate how much money you will need to retire comfortably.

15. As we have said before, you should join your employer-funded pension plan. Once you become vested, this is a great savings vehicle.

16. Contribute regularly to an employer-sponsored retirement savings plan such as a 401 (k).

17. Save money in a tax-advantaged Individual Retirement Account (IRA).

18. Put money in different types of investments to boost returns and reduce risk.

19. Have a mutual fund.

20. DO NOT dip into retirement savings to cover other expenses. That’s what your emergency fund is for.

21. Search around to find the lowest interest rates and fees on a home mortgage.

22. Be sure you have a will.

23. Invest in disability insurance to cover emergency situations and make sure the coverage meets your specific needs.

24. For piece of mind, be sure to have adequate life insurance. This will cover not only your funeral expenses, but it can also leave your dependents with a little extra money to help after you’re gone.

25. Have adequate health insurance.

26. Explore the pros and cons of long-term care insurance.

27. Educate yourself about financial issues and keep learning. You never know what may eventually affect you and your money!

In retirement, it’s especially necessary to manage your money wisely. Sometimes people think so much about how to save for retirement that they give little to no thought towards how they will be managing the money that they have saved.

There are a lot of things to think about: health, age, hobbies, etc. when you think about making your money last. While you may not have enough money to do everything you want, you sure can make the most of what you do have!

To make your money last in retirement requires some thought and planning. There are things you can do to make your dollars stretch.

According to the 2006 Social Security Trustees Report, in 2006, a 65-year-old man is expected to live to 82.1 years and a 65-year-old woman is expected to live to 84.7 years.

The Retirement Confidence Survey (RCS), which is conducted by the Employee Benefit Research Institute (EBRI), found that 6% of workers expect their retirement to last ten years or less. Another 25% believe it will last 10 to 19 years.

In reality, a 65-year old man can expect to live to 82. A 65-year old woman is expected to live to 85. An increasing number of Americans are living to be 100.

As we’ve said throughout this book, you first, you need to figure out how much money you will need in retirement. Experts say that retirees typically need at least 70 to 80 percent of their pre-retirement income.

Your money must last as long as you do. You may outlive your money because:

• You didn't save enough
• Your investments don't keep up with inflation
• You withdraw too much
• You don't invest wisely
• You don't have a pension that pays income for life

Financial experts say that you can take out somewhere between 3-6 % (most recommend 4%) of your assets each year in retirement, and not outlast your money. Most caution that if you withdraw more than 5%, the chances of going broke during retirement increase.

While it makes sense to take less investment risks when you reach retirement, some people go too far. With people living longer and longer in retirement, having some investments in stocks along with more stable bonds and cash may help your money last.

You should also think about the order in which you withdraw money from your different accounts. Generally, a good tip is to start taking money from your regular taxable accounts first and let your tax-deferred accounts grow as long as possible. Dip into your Roth IRA last. This may not work best for everyone, so check with a financial professional to be sure.

Health is an unpredictable factor. Even if you're putting much younger people to shame in the workout room, good health comes with no guarantees. Healthcare expenses can alter the amount you'll need in retirement, and medical problems can put a damper on all of your retirement dreams. The health of your spouse or life partner can also change the course of your retirement. Consider getting long-term care insurance. See our section on long-term care insurance to help you with your decision.

Social Security provides a strong base for retirement security. It is the largest source of income for older Americans. For most people, however, Social Security benefits will replace only about 40% of your paycheck. So they—and possibly you too—will need other sources of retirement income.

Deciding when to begin getting your Social Security benefits is important. You can get a reduced benefit beginning at age 62. But if you wait until your full retirement age (sometime between age 65 and 67), you'll get your full benefit. If you can wait even longer, your benefit will be even higher.

There is no clear cut answer on the best course of action. But if you can afford to wait, your benefit amount will be higher.

More and more older people are deciding to continue working in retirement. AARP research has found that about 70% of mid-life and older workers expect to continue to work in some way in retirement. While financial need is the major reason, many continue working because they like their work and enjoy being productive.

Many mature workers seek balance in their work and personal life. They want flexibility in the workplace. Options such as flextime, compressed work schedules, compensatory time off, telecommuting, job sharing and phased retirement are becoming more common.

You can give away as much as $12,000 to anyone without paying taxes. They don't have to be related to you. The gifts are nontaxable. Amounts vary from year to year so keep apprised of the rates with the IRS.

Gifts can help you reduce your taxable estate to a level that is free of federal estate taxes. However, don't give away this money if it will leave you short of funds.

How and where you live can greatly impact your financial security in retirement.

Location is everything. Do you want to stay in your present home for as long as possible or would you be happy somewhere else?

Maybe, it's time for a smaller house. You may get a great tax break if you sell your home. A married couple, filing jointly, can earn up to $500,000 on the sale of their primary dwelling and pay no federal income taxes on the gain ($250,000 for individuals).

The great part about this tax break is that you don't have to be 55 or older as was once the case. It's no longer a once-in-a-lifetime tax break and you can take advantage of it every two years.

If you are thinking about moving, consider:

• Cost of living
• Taxes
• Climate
• Family and friend support
• Work opportunities

Cut your spending. People often spend more in retirement than they expected. A miscalculation of 10% is to be expected, because you have:

• More time to spend money and shop;
• More leisure time and will be involved in more activities that cost money;
• More time to travel;
• A greater tendency to splurge.

If you're worried about running out of money, you may need to pull in the reins with steps like these:

• Luxuries/necessities. Distinguish between items you must buy and things it would be nice to own.
  
• Stop credit cards. Put away your credit cards to help curb impulse spending. Only carry your credit cards for a planned purchase.
  
  
• Avoid ATM withdrawals. Decide how much cash you need and don't spend a penny more.
  
  
• Buy right. With the right planning, you can buy most of the things you want at a more reasonable price. Thoroughly investigating each purchase can help you get the best value or you may decide that the purchase isn't worth the money.
  
  
• Balance spending. Don't overspend in one budget area without cutting corners in another. If you take an expensive trip, you may want to cut corners by eating out less often or by waiting for movies to come to the bargain theater.
  
  
• Downsize. It may be time to move to a smaller house or sell that second car.
  
  
• Coordinate. Work with your life partner to keep you spending habits in line. Agree on a budget both of you can live with without feeling deprived. And stick with it!
  
  
• Prepare. Leave room in your budget for unexpected expenses. You never know when the furnace will stop or your car will need an expensive repair.

There are ways that your home can help you meet your financial needs in retirement. But be careful, because you don't want to lose your home in the process.

The equity in your home can be a source of cash in retirement.

• Loans. You might refinance your first mortgage and ask for a larger loan. This is called "taking out cash" and it allows you to have cash for any use you wish. If, however, you have a low mortgage rate and don't want to lose it, you could simply get a home equity loan. This is essentially a second mortgage that gives you a lump sum to use.
  
  
• Line of credit. You could choose to open a home equity line of credit. This essentially works like a revolving credit card: You borrow when you need the money and repay it on your own schedule, as long as you make the minimum monthly payments.
  
  Some benefits. Borrowing against your home's value has several advantages:
• Tax break. The interest you pay may be tax deductible. Ask your tax advisor.
• Low rates. Because the loan is secured by your home, the rate is typically lower than other types of loans.
• Less risk. You can use the loan instead of cashing in stocks at the wrong time or withdrawing from an IRA prematurely. Both of those may trigger income tax payments.
  
  
• Reverse mortgages. AARP has an entire section devoted to guiding you through the pros and cons of reverse mortgages. In short, these loans allow you to borrow money and only repay it when you sell the home.

Annuities offer a tax-sheltered way to guarantee an income for life, or in the alternative, a set amount of income for a specific number of years. It all depends on what you need. Consider annuities only if you plan on investing for the longer term; otherwise, it might not be worth it. Annuities can be complicated and difficult to understand.