Extension Educator, Consumer Economics
Extension Specialist, Consumer Economics
Extension Educator, Consumer Economics
June 29, 2009
Financial planners always say to save money for the unexpected. I think we should just admit that the unexpected expenses will always happen -- that's just life! We may not be able to predict just what the unexpected expenses will be ... but something will need to be repaired or replaced. Whether it's a flat tire, an appliance that breaks, or something else, unexpected expenses happen to everyone.
My latest unexpected expense is our house foundation. We have a quite large crack in foundation, plus the wall is starting to curve in -- yikes! I really wish it was as simple as a flat tire! Luckily we do have savings to pay for this so that we don't have to pay for this unexpected expense with a credit card with high interest rates or take out money from our retirement accounts. If we didn't have savings, paying for this expense by other means would have made our repairs even more expensive.
How can you plan for "unexpected" expenses? You need to build up a savings fund in either a savings account or money market account from which you can withdraw money easily. If you need help finding money to save, visit the Plan Well, Retire Well website. Saving tips and strategies at this website can help you get started.
How much should you save for home repairs? A good rule of thumb is to save 1 to 2 percent of the purchase price of the home for annual maintenance and repairs. If your home or the appliances are older, you may need to save an even bigger amount.
Plan ahead for major purchases and estimate when you might have to purchase something new. According to industry officials, the average life span for the following appliances is estimated at:
Do you have a savings fund for those unexpected expenses that we can all expect? If not, now is the time to start building it up!
June 17, 2009
Please allow me to introduce myself. My name is Kimberly Nute-Jones. I am a Consumer and Family Economics Educator in Cook County. My office is located in Matteson, Illinois. I generally service the south side of Chicago and the south suburbs. I am a wife and mother of two teens. My hope in participating in this blog is to connect my real life experiences to many of the topics that we teach every day. Therefore, you will probably hear personal stories and get to know me in an intimate way. So, read the story below, and let me know what you think.
My son just recently graduated from 8th grade. He collected about $400.00 in cash. Boy was he excited! He told me that he wanted to open a bank account. He already has investment accounts for college, but no longer has a local bank account. I agreed to take him to the bank to open an account. Being a financial educator, I figured this would be a great teachable moment.
First, we talked about the banks where we already have accounts. We decided to compare rates, minimum requirements and all the usual things that are considered before opening an account. When my son saw the interest rate on the savings accounts, he hollered "THAT'S IT?!!" At first, I attempted to explain that in the past rates were higher, but since the recession, things have gone down quite a bit. That answer wasn't quite good enough. His response was "I might as well keep my money at home."
My daughter didn't make things any better. Years ago, they both had minor savings accounts. Although the bank wasn't supposed to charge fees, they were erroneously taking fees out of the kids' accounts every month. Each month I would have to call the bank and have them credit the fees back. My daughter remembered the experience and did not want to open another account.
I tell both stories because in times like these, it is human nature to focus on the negative instead of the positive. Retirement planning is a long term process where benefits may not be realized for years. Like my son, some of you are asking "why should I save for retirement? Things are bad!" You should save because you are not saving for today's rate, but for tomorrow's return. Buying low and selling high is still a good principle to live by. When the economy turns around, the investors that bought at lower prices will reap the greater reward.
Those who have had bad experiences, like my daughter, tend to write off the saving and investing world all together. My question is: what are the alternatives? When you choose not to invest in your company's 401(k) or open a personal IRA, what do you have left to depend on during retirement? Will Social Security be enough? Will Social Security still be around? To see what your estimated monthly Social Security benefits will be, go to the Social Security benefits calculator at http://www.ssa.gov/estimator/. Can you survive on that? If you want more, use one of our financial calculators at http://www.ace.illinois.edu/cfe/calculators.html to figure out how much you need to save. These are just some things to think about.
Needless to say, both kids opened bank accounts and are waiting for their debit cards to arrive. They saw the need to have a place to hold their money for safe keeping and I hope that you will, too. If you have been sitting on the sidelines waiting out of fear, hopefully you will find a reason to trust again. Get off the sidelines. Do your research. We have volumes of information on saving and investing on our website. If you still have questions, we are around to help; shoot us an email or give us a call. I look forward to sharing my thoughts, and at times, my complaints with you.
Until we talk again,
June 12, 2009
It used to be that retirees from state and local government positions and union retirees could look forward to receiving generous health benefits in the form of subsidized health insurance premiums or fully covered health expenses in retirement. Those days seem to be moving into the past rather quickly. The mega-bankruptcy and restructuring of General Motors will likely see retirees losing significant health benefits as some previously covered services such as eye-care coverage and dental coverage are dropped and some co-pays get increased dramatically. At the same time the Medicare program may see out-of-pocket expenses increase for its participants, leading to a double-squeeze on the affected union retirees.
Similarly, state employees and state government retirees may face a similar sea change in their covered health benefits as retirees. States such as Illinois, California and West Virginia face budget gaps in the billions of dollars. Moreover, they confront significant gaps between the expected future cost of benefits promised by their pension systems and the assets controlled by the pension systems. While current state employees and retirees may retain their benefits, it is quite certain that future state employees face a distinct possibility of receiving less generous retirement health benefits.What are some action points for the average person who is saving and investing for his or her retirement? First, as some auto union retirees will say, some agreements for retiree benefits can unravel if the finances of your organization fall apart catastrophically. Second, the broad economic and demographic forces behind the pressure to change retirement health benefits for these groups of employees are massive economic pressures, which are not likely to diminish soon. I expect that the trend towards more individual risk-bearing and responsibility for retirement saving and investing, at least in the employer–employee context, to continue. For many of us, this means we should redo a retirement income projection to take into account the possibility of higher than expected future health care costs. It may mean that a person should bump up his or her savings rate to be ready to address the possibility of higher health care costs in retirement.
June 4, 2009
The issue of fiduciary responsibility has been a hot topic for some time, and it looks like that will continue. In 2007, the Financial Planning Association (FPA) sued the Securities and Exchange Commission (SEC) over a rule that was commonly known as the Merrill Lynch Rule. This rule allowed brokers to provide investment advice without being required to meet the same standards required of investment advisers. The FPA won. But what does that mean?
The Investment Adviser Act of 1940 requires that investment advisers meet a fiduciary standard. A fiduciary must put the interests of the client first. In other words, they must recommend the investment that is the best for you. But a broker only has to meet a lower standard, the suitability standard. They must recommend only investments that are suitable for you. They can consider their own interests in determining which investment to sell you. So it's legally OK for a broker to choose exactly which mutual fund to sell you based on whether she will earn a higher commission, a prize, or the favor of her supervisor by selling that particular fund to you.
When brokers were allowed to provide investment advice but were not required to be fiduciaries, things got pretty confusing for consumers. Unless you were really well-informed, you probably had no idea whether that person was really looking out for your interests or not.
So the FPA sued the SEC and won. Now, brokers shouldn't provide investment advice or be able to portray themselves as investment advisers. They should be paid via commission, and not by a fee for advice. And they shouldn't be able to switch hats, calling themselves a broker (technically, a registered representative) at one time and an investment advisers at another.
But now the game has changed. FINRA (the Financial Industry Regulatory Authority, which is not a governmental agency but a self-regulatory body which licenses and regulates brokers) and the SEC, which regulates most* investment advisers, are now engaged in a new discussion about the legal definition of fiduciary. NAPFA, the FPA, and the Certified Financial Board of Standards have formed a coalition to give input on this discussion, hoping to keep the fiduciary standard at its current, stringent definition.
As an educator whose goal is to help you make wise decisions when you choose financial advisers, I sincerely hope the outcome will be clear guidelines that consumers can understand. Consumers need to know 1) exactly what services they can expect from a given type of financial professional, and 2) to whom their financial adviser owes their allegiance. Stay tuned to see how this unfolds!
Want to know more? Check out our website, Choosing a Financial Professional. Follow this issue in the news. And make your voice heard with your elected officials.
And let me know what you think about this. Click on my name below to send me an email.
*The others are regulated by state securities agencies and are held to the same standards as those registered with the SEC.