Message from CFP Board

The trees and tinsel have come down, and we’ve replaced our holiday shopping lists with our new year’s financial resolutions. ‘Tis the season for promising to do better. After the year we have just experienced, our resolve to change is likely to be at an all-time high. But making resolutions is easy to do. Sticking with them is another story.

Come February, another 500 point surge in the stock market, or an encouraging drop in the unemployment rate, and those resolutions may well go south to the nether region where all good intentions ultimately go. To avoid having to recycle 2010’s failed resolutions into 2011, we have to try something different. Rather than making big promises to ourselves, perhaps we should aim for really small or instantaneous changes – changes that take only a second or two of high resolve and never have to be tackled again. Call it the No-Rep Financial Workout: one lift, put it down, and you’re done.

Here is a list of one-shot changes that you can effect on that rare day in May (or August or October) when you are feeling strong. With just one phone call or online search or request, you can:

• Increase your 401(k) contribution to the maximum allowed.
• Ask your tax preparer for a tax projection for 2010, and get your withholding or estimates payments in line with your expected liability. (Nothing screws up cash flow management more than getting big refunds or having to pay a lot with your return.)
• Call your IRA custodian and ask about your beneficiary designations. Did you make them? Did you name a successor to your primary beneficiary?
• Call an estate planner, no matter how little you may have. If you have a child, and little else, you still need a will.
• Rebalance your investment and retirement accounts. Do this ONCE and once only per year. There is no need, and a lot of possible harm, in constant selling and buying with every market hiccup.
• Set up an auto-transfer from your checking to your savings.
• Make an appointment with a CFP^® professional for a financial check-up. (okay, this one may involve a bit more than a phone call – you will have to get your documents in order – but the hardest part is the phone call.)
• To find a CFP^® practitioner in your area, go to www.cfp.net.

So forget about change that takes sustained or ongoing effort, like giving up your morning Starbucks, or packing your lunch every morning instead of going out to lunch with friends. You know there’s going to be a bad-hair, traffic-snarled, the boss- is-acting-like-your spouse, and your-spouse-is- acting-like-your-boss, day at some point, and that diurnal resolve will evaporate, never to be recovered. By making these small, but permanent changes you can then practically forget about, you can end 2010, with the same old weak will as ever, but financially fitter than you were before.

-Eleanor Blayney, CFP^® Consumer Advocate, CFP Board

Top News Stories

Proposal to Spell Out Projected 401(k) Income Has Critics Fearing Riskier Investing
Chicago Tribune (01/03/10) Powell, Robert

A proposed measure that would require employers who sponsor 401(k) plans and the like to inform participants of the projected monthly income they could expect at retirement based on their current balance could spur riskier investing as employees seek to bolster what they see as inadequate savings, say critics. Michael Zwecher, author of "Retirement Portfolios: Theory, Construction and Management," says that once employees learn how little their 401(k) might produce, they may increase the amount they invest in stocks, raising their exposure to market risk. Zwecher says that most employees lack the knowledge necessary to make sound 401(k) investment decisions. As proof, he cites statistics from the Employee Benefit Research Institute and Investment Company Institute that show that 9.7 percent of 401(k) funds are invested in company stock. "Adding to the high concentration by investing 401(k) funds, or through an employee stock-purchase plan, into greater exposure is dangerous."

Personal Finance News

Digging Out From Under a Mountain of Debt
Bellingham Herald (WA) (12/20/09) Brackey, Harriet Johnson

A recent poll conducted by credit counselors found that most people claim they would pay down debt if they suddenly had some extra money, but the high levels of consumer debt in America indicate otherwise. The national average debt load for Americans, according to a report from Credit Karma, is $297,130; this amount includes mortgage, home equity, credit card, auto loan, and student loan debt. To climb out from under that mountain, consumers should first total up all of their debt and if it amounts to more than 10 percent of monthly take-home pay, start paying it off. They should set a target date for when it will be paid off in order to feel in control of the situation, and then decide on a minimum monthly payment that will be made no matter what, even if it means skipping some luxuries for awhile. Automatic debiting or monthly email reminders can help keep the strategy going, and everyone should draw up a budget plan to avoid falling into debt in the future.


6 Questions to Ask About Title Insurance
Bankrate.com (12/14/09) Dratch, Dana

Consumers who are looking to buy or refinance a home must also consider title insurance, a two-part transaction that consists of a title search to determine the seller really owns the property, and the underwriting to pay for a legal defense and provide compensation in the event of a loss of equity. Homeowners usually need an owner's policy for their own protection, as well as a lender's policy to protect their financier. Buyers should ask whether prices are regulated, which is the case in many states, but they should also focus on the quality of insurance and of the title search. Buyers should ask what coverage they need, considering the lender might require more insurance than the typical protections against contingencies such as fraud, forgery, undisclosed heirs, and spousal claims. Buyers should ask who pays, because some jurisdictions require lenders to pay for their policy, and buyers also have an opportunity to negotiate the cost. In dealing with sellers, real estate agents, and mortgage lenders, buyers will want to know who they can trust; their interests are most aligned with those of their lender. Buyers will also want to know how much reassurance they need, considering there are some bad apples, and banks and insurance companies do go under.


Getting an Early Start on Saving Makes a Huge Difference in Retirement Income
Spokesman-Review (12/08/2009) Hadley, Nancy

Starting retirement planning too late is a serious but common mistake, says Nancy Hadley, CFP^®. In contrast, a person who starts funding his or her IRA at age 18, for instance, has 32 years to save for retirement by age 50, by which time the retirement savings could be in the six digits. A person could then continue to save for 15 more years if they retire at 65, or 20 years if they wait until age 70. These investment returns add up over time even if some years are leaner than others. Contributions should be increased as the limits are adjusted for inflation. The 401(k) plan is an excellent supplement because it lets a person save more in the employer’s plan than if he or she were only funding an IRA. Employers also might give matching funds. In addition, it is important to have a plan that allows for making slight adjustments in response to unexpected life events.


Retirement Planning at Age 55+: The Landing Pattern
Fort Wayne Daily News (12/15/09) Wilson, Mike

Preparing for retirement is much like an airplane pilot’s job of preparing to land a plane, writes Mike Wilson, CFP^®. Coming in for a good landing the first time is very important, and some of the variables to consider ahead of time are inflation, the cost of long-term care, healthcare, the risk of outliving one’s resources, market risk, and future tax rates. All of these should be considered when devising a retirement plan, in addition to determining what will be the right time to retire—choosing the wrong time can make or break one’s nest egg. One should also consider whether they want to work into retirement, and then do whatever is necessary both financially and health-wise to ensure there will be plenty of opportunities. Considering all of these variables will ensure a good landing into retirement.


Retirement Guide: 'Never Too Late' for a Plan; How to Pick Financial Planner
New York Daily News (12/07/09) Lisanti, Joseph

"It's never too late" to begin meeting with a financial planner, even for those approaching the retirement age of 65, asserts Maureen Whelan, CFP^®. Experts say the earlier a person examines their finances, the better; however, those who have waited until their twilight years are hardly alone. "Most people don't seriously think about these issues until they are in their 50s," says Bob Wander, CFP^®. To understand what a CERTIFIED FINANCIAL PLANNER™ professional can do, it is best to define what they cannot do. A planner cannot magically multiply a nest-egg. Planners can, on the other hand, help individuals understand their needs for the rest of their lives after retirement. Whelan acknowledges that people want to maintain a certain standard of living, but expensive gifts, trips, and eating out may have to be pared back. A planner can help align fixed expenses with regular income, such as Social Security, pensions, or guaranteed annuities.


Questions for a Financial Planner
Wall Street Journal (12/06/09) Burton, Jonathan

Recent scandals like the Bernie Madoff ponzi scheme have shaken the trust some clients have for their financial advisors, but there are some ways to determine whether an advisor is trustworthy. First, investors should question everything, and treat the advisor like they would an employee, including performing background checks, signing contracts, performance reviews, and demanding full disclosure of conflicts and outside affiliations. “If the only thing the advisor seems to care about is how much money you have, your radar should go up,” says Sheryl Garrett, CFP^®. There are five main questions an investor should ask, starting with whether the advisor is a fiduciary, followed by who is their target client, how they get paid, where the money will be kept, and what conflicts of interest the advisor may have. Conflicts are a fact of life in the financial industry, they just need to be fully disclosed so the investor can make an informed decision. If the investor has any doubts about the advisor’s answers, they can double-check them on the Securities and Exchange Commission’s Form ADV, which offers information on an advisor’s background, disciplinary history, services, fees, and investment strategies.


Tax Breaks Include the New and the Overlooked
Columbus Telegram (12/02/2009) Sanchez, Adrian

As people prepare their 2009 tax returns, opportunities to leverage a bevy of new and overlooked 2009 tax breaks abound, according to Internal Revenue Service (IRS) representative Carrie Resch. For instance, local car dealers disclosed significant increases in new vehicle sales through the duration of the federal "cash for clunkers" program, and those new car owners may be eligible for sales and excise tax deduction on their purchase. Meanwhile, many recent home buyers may be unaware of the move-up/repeat home buyer tax credit on homes bought after Nov. 6. Repeat home buyers may be eligible for as much as $6,500 in tax credits, and Resch says that 2009 or early 2010 may be the best time for those in the market for a new home to buy one. Resch points to the Earned Income Tax Credit (EITC) as one of the most overlooked tax credits for people who are employed but do not earn large incomes. The IRS says that almost 118,000 taxpayers claimed over $227.5 million through the EITC in the 2008 tax year, but Resch notes that "approximately 20-25 percent of people who qualify aren't taking that credit." She adds that many more people may be eligible without knowing it thanks to revisions to the EITC provisions. There also is the child tax credit, which may equal up to $1,000 in tax savings per child, as well as credit for child and dependent care costs.

Financial Alerts

ID Theft Threats to Watch in 2010
BankInfoSecurity.com (12/29/09) Field, Tom

Identity Theft Resource Center executive director Jay Foley identifies a number of ID theft trends and threats to watch for in 2010. He notes that the most prominent ID theft story in 2009 was the Heartland security breach orchestrated by Albert Gonzales, which involved the compromise of more than 130 million credit and debit card accounts. Foley says that although Gonzales was caught, many other young hackers are going to transition from hacking just for fun to hacking to make money. "We are seeing kids in the high school level who are setting up Web sites, selling products that don't exist, taking the credit cards, and going to town on them," he warns. Foley categorizes the payment industry and the payment services industry as the sectors most vulnerable to ID theft, because the companies that process debit and credit card transactions are the most appealing targets. "If a thief can get into your software and can get into your data, they have ready cash right there at their fingertips," he notes.


Friend Request Phishing Gaining Traction
KOMO News (WA) (12/21/09) Weisbaum, Herb

Cyber-criminals are sending out fraudulent "new friend request" emails from social networking sites and electronic greeting cards as part of their phishing schemes. The emails appear to be from sites such as Facebook or MySpace, but clicking on links within the messages may automatically install malicious software on the computer that could steal personal information. Recipients of such emails should log into the original Web site and see if the friend requests are really in the application, and check up on the person's profile before adding them as a friend. For electronic greeting cards, users should go to the real Web site and type in the code that comes in the email, an extra step that can protect the computer.

---

Abstract News © Copyright 2010 INFORMATION, INC.