Andover, Massachusetts January 31st, 2011 – Is your entire retirement plan relying on your 401k to fund it? If so, you might be in for a shock when it comes time to retire. While a fully funded ($16,500/year) 401k with a company match is probably enough to cover your retirement needs, the fact of the matter is that only a tiny minority of workers are able to do this. Even if you are in this tiny minority, placing all your eggs in one basket is generally not considered a wise move by retirement planners. So what are your options besides a 401k?
If you are currently contributing to a 401k, continue to do so and work towards maxing out this contribution as you near your retirement date. Always contribute enough to at least get the full matching contribution from your employer if it is offered. Beyond this simple step, there are many other things that you should take into account when planning your retirement funding. Post tax money invested in a Roth IRA is a great tool to add some diversity to your portfolio by allowing you to withdraw your savings tax free after the age of 59 ½. Social security can also be considered another option for most Americans who are already near retirement age (less than 10 years). For us younger generations, social security should not be used when planning your retirement, but if it is still around any amount you get from that will just be a bonus. Beyond this, having a strong, diversified portfolio of investments is critical to accumulate the amount of wealth you will need in retirement. Before you make any decisions in regards to funding your retirement, figure out when you want to retire and how much you will need. These two critical numbers will allow you to devise a funding plan for all your retirement dreams.
Readers, how are you planning for retirement?
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Andover, Massachusetts January 28th, 2011 – A day after a disappointing unemployment report was released by the Labor Department the Commerce Department today reported that our nations economy grew at an annual rate of 3.2% in the 4th quarter of 2010. While this was below the analysts’ expectations of 3.5%, it still signaled that the economy was gaining strength as 2010 ended and is boosting hopes that 2011 will beat expectations.
This 3.2% growth rate is the largest it has been since the beginning of 2010 and was .6% better than in the previous quarter. Taken as a whole, GDP grew by 2.9% in 2010, the largest increase since 2005 and most of this growth can be attributed to growing consumer confidence and spending and a boom in exports as a result of the weakened dollar. Americans increased their consumer spending by 4.4% in 2010, the largest increase since 2006 which was the peak time period of cheap money. This increase along with lower SS taxes, higher stock prices, and modest wage increases is the reason why analysts expect consumer spending to continue to increase throughout 2011.
The second big driver of economic growth in the 4th quarter was a boom in exports. Exports grew at a 10 percent pace in the quarter, up from a 5.8% increase in the 3rd. While most consumers think a weaker dollar is bad news for our country, the previous data suggests that while certain areas may suffer as a result (higher gas prices), factories and workers that produce many of the most wanted products in the world should be kept busy throughout 2011 as foreign markets continue to grow and become more affluent.
Readers, what do you take from this data? Is a jobless recovery a foregone conclusion at this point with the two vastly different reports released this week? Or will employment pick up as consumer spending and exports continue to produce demand at our nation’s factories and retail outlets?
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Andover, Massachusetts January 25th, 2011 – Has the economy over the past two years prevented you from purchasing big ticket items? Or have you purposely stayed on the sidelines because you were not sure about your employment situation and didn’t want to risk investing a lot of money in any one item? Well, recent data suggests that now may be a good time to jump back into buying mode when it comes to new cars.
As the economy has rebounded and mass layoffs are not an everyday occurrence anymore for most areas of the country, consumers are starting to realize that it may be time to replace many of their outdated items, including autos. As such, new auto sales hit a 2 and a half year high last quarter as Americans started to open their wallets again. More good news has come from Edmunds.com which reported today that auto loan rates hit a 9 year low of 4.16% in December. There are a couple of reasons for this but they all point to the fact that 2011 may be a good time to get that new car you have been looking for since before the recession hit.
One, the consumers that have survived the recent turmoil in relatively good shape have for the most part very good credit scores. This allows them to qualify for better rates than the average consumers and also explains why demand for higher priced vehicles outpaced the demand for lower model vehicles. Secondly, many automakers reintroduced 0% interest loans for new car purchases in the 4th quarter. This was a major reason why auto sales continued to post record numbers even while the unemployment rate remained high.
So what does all of this mean for the average Joe? If you have been putting off a new car purchase for the past few years because you could not risk the financial hit you would take, now is the time to step up. These low rates make purchasing a new car a better deal than at any point in the past decade. That old car you have in the driveway will not last forever and every dollar you put into it for repairs is a dollar that you could have spent on a new car. Good luck with the shopping!
Readers, have you stayed on the sidelines over the past few years or were you secure in your job to take advantage of government programs such as Cash for Clunkers?
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Andover, Massachusetts January 21st, 2011 – Much has been made about the decline in the American consumer over the past two years. The foundation of our economy, the American consumer, has been battered by unemployment, low wage growth, and limited access to credit. The result has been a much slower recovery than was expected with many saying the days of the consumer accounting for 70% of our GDP are over. However, a closer look at the numbers indicates that the consumer is in fact not dead yet, and may just be waiting for the job market to improve before going on a spending binge again. Check out the 6 reasons why the American consumer is not dead below….
- Household Net Worth has proven resilient. Although consumer debt rose for much of the past decade and housing prices collapsed starting in early 2008, the average household’s net worth has not taken a tumble as many thought it would. It increase from 47 to 66 trillion dollars between 2003 and 2007 due to the housing spike, and then tumbled back down to 49 trillion dollars by early 2009 as the stock market took a pounding and housing prices continued to fall. But since then, the nation’s household net worth has rebounded quite nicely reaching 55 trillion dollars by the end of 2010. This means Americans today have a net worth that is 18% higher than it was in 2003.
- Both household debt service ratio (DSR) and financial obligations ratio (FOR) have declined significantly. Both of these take a look at how stretched consumers are due to various fixed and variable monthly payments they have. The DSR is an estimate of debt payments compared to disposable net income. It is currently at 12.13%, which is well below its peak of 13.96 in 2007 and even below its rate in 1987 when it reached 12.38. This means that Americans now spend less on fixed debt each month compared to their income than they have in at least 23 years. The FOR ratio includes auto, rental, tax, and insurance figures to the calculation. This ratio has dropped from a high of 18.66 in 2007 to 17.02 last quarter, which is lower than it was in 1987. What can we take from both of this? Americans are returning to a more normal financial house by lowering their debt payments and avoiding a credit enhanced lifestyle that was so popular just 3 years ago.
- Despite the Great Recession and mass layoffs, aggregate personal income has increased from 11.9 trillion dollars in 2007 to a 12.5 trillion dollar seasonally adjusted rate in the middle of 2010. This increased income along with a higher savings rate will allow consumers to reduce debt AND increase spending in the future.
- Consumer spending continues to be strong in the face of adversity. Personal consumption has increased for all three quarters of 2010 so far and in fact was higher than the previous record high during the 2nd quarter. This record high spending comes despite a much higher savings rate, once again proving that Americans are both spending and saving more in the post recession recovery.
- Retail sales have shown steady improvement for almost all of 2010. Back to school, Halloween, Thanksgiving, and Christmas time shopping numbers have all exceeded expectations which has allowed many consumer product companies to expect higher sales numbers in 2011. Auto sales are also increasing and are still below the level needed just to replace scraped cars.
- Consumer spending remains restricted due to tight credit conditions. This has been a familiar complaint not only from consumers but business owners as well. The nation’s banks are sitting on a huge pile of cash just waiting for conditions to improve. At some point in the near future, these banks will have to start lending money to new clients again or they will miss out on the growth opportunities that will present themselves over the next 1-3 years.
Readers, do you agree? Will the US consumer rebound in 2011 and be the engine that powers our recovery?
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Andover, Massachusetts January 20th, 2011 – Was last weeks increase in unemployment claims a temporary bump in the road or was it a sign that the build up through much of the fourth quarter was all due to seasonal hiring for the Holiday shopping season? All signs point towards the job market improving again as 2011 moves along and companies continue to expand to meet growing domestic and international demand.
The latest figures released by the Labor Department for last week show that unemployment claims dropped again by 37,000 to get near the 400,000 weekly number again. This means that the drop last week can almost certainly be attributed mostly to seasonal workers being laid off after their temporary assignment had ended. We are still over 30,000 claims away from the 375,000 mark, which signals storng employment growth.
Analysts have said that the improving employment situation can be mostly attributed to a better credit climate for small businesses as banks are becoming more willing to lend to these firms in the belief that the economy and consumer demand are both rebounding. If this is true, I expect the unemployment rate to continue to drop throughout the year as large businesses will begin to hire to meet the rising demand for consumer goods and services.
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Andover, Massachusetts January 17th, 2011 – Are you getting fed up with new fees being charged by your bank? Is the customer service not what it used to be? Well, before you switch banks make sure you are ready for the process which can be extremely time intensive and frustrating. Remember, you are the customer, so if you are fed up, don’t feel bad, do the research, pick a new bank, and make the move. But whatever you do, don’t rush the process as small things can fall through the cracks and cause huge headaches down the line.
The following is a list of the basic steps that should be followed during your move….
- Do not close your old account as soon as your open your new account!
- Make sure you know of all the direct deposit and auto drafts that are currently active with your old account.
- Keep the old account funded for at least three months in case you forgot about certain drafts or deposits that could cause you to be charged fees and penalties.
- Create links between the two accounts so you can easily transfer funds between the accounts when necessary for the first three months.
- Once the new account is created, sign up for direct deposits and auto withdrawals from this new account.
- Once you know that activity at your old account has ended (most likely within the 3 month window), transfer the rest of your money to the new account.
- The last step should always be to close the old account!!
Readers, have you had experience with opening a new account? Did you close your old one or do you continue to have two? Was it a pain free or a painful experience?
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Andover, Massachusetts January 13th, 2011 – The credit card industry has been on the defensive ever since the recent financial regulations bill was passed by congress. While these restrictions may have caused an outcry then, the latest allegations being leveled against a major credit card company by one of its own employees could open the door to further lawsuits and a significant change in how consumer debt is handled by these companies.
Linda Almonte, a former JPMorgan Chase employee has recently filed a complaint with the SEC over how JPMorgan Chase operates its credit card debt processes. The complaint alleges grotesque and illegal practices involving credit card debt processes occur with management not taking any steps to stop them. Executives were informed of the illegal practices by Ms. Almonte and as a result of her coming forward she was fired in an attempt to cover up the activities and continue to profit from them. In the complaint filed with the SEC, Ms. Almonte outlines multiple ways in which the company allowed illegal activities to occur without any regard for consumers.
- Chase Bank sold to third party debt buyers hundreds of millions of dollars worth of credit card accounts. . .when in fact Chase Bank executives knew that many of those accounts had incorrect and overstated balances.
- Chase Bank executives routinely destroyed information and communications from consumers rather than incorporate that information into the consumer’s credit card file, including bankruptcy notices, powers of attorney, notice of cancellation of auto-pay, proof of payments and letters from debt settlement companies.
- Chase Bank executives mass-executed thousands of affidavits in support of Chase Banks collection efforts and those Chase Bank executives did not have personal knowledge of the facts set forth in the affidavits.
Ms. Almonte also states in her complaint that she has evidence of these activities occurring and has no hesitation to turn those over to the authorities. The evidence includes a large volume of internal documents which she accumulated during her time at JPMorgan Chase. She also offered to provide her first hand observations which include…
- Witnessing the head of Chase’s pre-litigation group eliminate material communications from borrowers such as bankruptcy notices, settlement communications, and debt settlement communications instead of entering them into the Chase internal database.
- She also claims that senior Chase Bank executives instructed Chase Bank employees remove important information and data from Litigation Accounts because the retention of the information would have resulted in increased computer hardware costs. Both types of record destruction rendered the accounts inaccurate, she says.
So how has this impacted consumers? Basically, these activities have delayed or in many cases ended any attempts by consumers to settle their accounts because Chase was deleting vital documents that were necessary for the settlement process. In doing so they ensured that thousands of clients were forced into court due to judgments levied against them. The consequences of this included wage garnishments, legal action, and bankruptcies.
This historic whistleblower case could open the doors to illegal activities at all major credit card companies. All of us here at PFS and consumers around the nation now expect the government to come down hard on these firms and change the way they deal with distressed consumers.
Readers, are you surprised by these allegations? Is this the final straw that drives you away from the credit card companies and towards a debt free life?
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Andover, Massachusetts January 12th, 2011 – Is your state one of the dozens nationwide that is running a massive budget deficit on a yearly basis? The worst offenders and those in the most financial trouble include California, New York, and Illinois. So what is the solution that one of these states, Illinois, came up with? You guessed it, raising your taxes!
Illinois announced yesterday that they would increase their personal income tax and corporate tax rates as a way to reduce their current 13 billion dollar budget deficit. The tax increases will raise about 7 billion dollars in the coming fiscal year, which still leaves a rather large hole for the incoming democratic governor to fill. The likely outcome of this 6 billion dollar gap is a widespread reduction in state services, a reduction in state worker’s compensation, and an increase in fees associated with everything from licensing to car registrations.
The Illinois plan raises the personal income tax from 3% to 5% for the next four years and raises the corporate income tax rate from 4.8% to 7% for the next four years as well. Realistically, any “temporary” tax increase that has been enacted in the US over the past century has ended up being permanent. So what does this mean for Illinois residents and potentially you? Well, Illinois residents are headed for a rough four years. Their income tax rate is increasing 66%, perhaps the largest ever percentage tax increase in American history. This will most likely lead to lower consumption which will hurt the thousands of businesses state wide that depend on consumer spending. The corporate tax rate, while still lower than many of its neighbors, will make it more likely that current Illinois businesses move out of state and those looking to move into the state to reconsider. All in all, this plan is necessary but without massive spending cuts to compliment it, it will only lead to pain for the average citizen and a much bleaker economic outlook for the state as a whole. Residents nationwide should be ready for similar measures in their states. For the upcoming fiscal year states nationwide face a collective 41 billion dollar budget gap, the largest in history. So, even if your state isn’t in debt to the tune of 13 billion, any budget deficit means spending cuts and or tax hikes are being planned. Prepare now so you will not feel the pinch when it happens.
Readers, tax hikes or spending cuts? Which would you prefer? Can you have one without the other?
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Andover, Massachusetts January 11th, 2011 – Have you made your New Years resolutions yet? Have you had success in the past when making a New Years resolution? Well, if you have been following my blog at all over the past year, I hope you made some New Years resolutions that involve your finances. If not, check out the list below and eliminate some of your poor financial habits once and for all.
- Ignoring Your Cash Flow. Cash flow is one of the most important metrics that you should be keeping track of on a monthly basis. Knowing how much money is flowing in and how much is flowing out is just the first step. Once you know the numbers, figure out where it is going, the more you know about your cash flow, the more you can do to improve your financial situation.
- Making Impulse Purchases. This is a common topic that many personal finance blogs discuss. Basically it comes down to you having the inner strength to not purchase items on a whim. If it’s a larger purchase, sleep on it to make sure you need it. For smaller items such as day to day snacks etc., I recommend not evening carrying cash around or entering stores where you know money can be spent very easily and quickly.
- Using Credit Cards for Purchases You Can’t Afford. This should be the number one rule for everyone entering 2011. Credit Cards have allowed the majority of Americans to live a lifestyle that they otherwise could not afford. Make sure that in 2011 you use credit cards for their convenience and rewards programs, not to live a life that you know you can’t afford.
- Forgetting an Emergency Fund. These have picked up in popularity over the past 2 years as many people who never planned for a loss of income were faced with long term unemployment. Make sure that in 2011 you set aside at least a few months worth of living expenses in a liquid savings account so that just in case an emergency pops up (job loss, accidents, health problems), you will be prepared and wont have to worry about the financial consequences of whatever emergency you face.
- Procrastinating Saving for Retirement. This is the number one thing everyone can do in 2011 to improve their retirement years. The sooner you start the better and there is no such thing as too late to start. Put away as much as you can afford each year if you are nearing retirement. If you are just starting out, anywhere from 10-20% of your gross income is a great way to start preparing for retirement.
- Turning Down Employer Contributions to your 401(k). This is basically turning away free money. Not only does this encourage you to save, but if your employer matches it, you are doubling your investment up to a certain percentage limit. Always invest at least enough to take advantage of the employer match on your retirement account.
Readers, is personal finance an area you will be focusing on in 2011? What sort of information are you looking for to help your finances this year?
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Personal Finance
Andover, Massachusetts January 7th, 2011 – The much anticipated December Jobs report came out today, and the news is more of the same, cautious optimism. The economy added 103,000 jobs in December, not counting seasonal jobs, which lowered the unemployment rate to 9.4%, the lowest level in 19 months. The Labor department also further revised its figures for the past 2 months as more data has come in. The October numbers were revised upward by over 30,000 and the November numbers increased by 42,000. This means that for the past three months, the economy has averaged an increase of about 128,000.
So where is the bad news? Well, economist had expected a larger gain in jobs, closer to 150,000. They also attribute the drop in the unemployment rate mainly to people who stopped looking for work, not the increase in hiring. Basically this is because the economy needs to add about 125,000 jobs per month just to keep pace with the population growth. On the flip side, the all important private sector accounted for all of the gains in December, great news for the New Year. The private sector added 113,000 jobs while the government eliminated another 10,000 jobs, the 5th straight month that the number of people employed by the government has dropped. All in all, we can expect 2011 to be much better than 2010, but we are still years away from returning to our pre recession levels of employment.
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