Ask The Money Coach

Posts Tagged ‘retirement savings’

Should I sell some of my investments to pay off my debt

Q: I am a 53-Year-Old Single Woman Who is Medically Retired. Between Disability and Retirement Income, I’m Living on About $24,000 a Year. I Have a Little Over $90,000 in Retirement Accounts. This is My Only Savings. I Have a Balance on a Business Credit Card of Close to $14,000. The Business Has Been Dissolved and I Want to Clear Up the Debt and Close the Account. My Only Way of Doing This is Selling Some Investments. Do You Recommend Doing This?

A: No, I don’t recommend taking $14,000 from your retirement accounts in order to pay off that business credit card. I would be wary of doing so for three reasons. First, you are medically retired, so you will not likely have any source of earned income for the rest of your life. Frankly, $90,000 is not a lot of retirement income to live on until death. You could live another 30 or 40 years. Also, if you sell some of those retirement assets, you’ll have to be capital gains taxes on them. Sure that’s just 15% (and possibly as low as 5% for people in the two lowest income tax brackets). But I want you to realize that your money will be taxed, meaning you may have to give over to Uncle Sam as much as $2,100 of the $14,000 you’re considering cashing in. Lastly, I’m not convinced that you can’t pay off this debt over time by making some adjustments to your budget. I know that $24,000 a year is not a lot to live on. But have you considered if you can cut any of your existing expenses (namely any luxuries you may be spending money on) and using that money instead to knock out the business credit card debt? I just don’t want you to tap into an already modest retirement nest egg and later regret not having that money to fall back on if times get even tougher or if you need the money for other purposes later in your retirement.

What is the Best Way to Save Money and Get a Good Return on it?

Author: The Money Coach

Q: What is the Best Way to Save Money and Get a Good Return on it?

A: I recently wrote the following article that answers your question about saving money and getting a good return on it. Here is the article, entitled, Three Ways to Save More Money By Getting Paid to Save.

Three Ways to Save More Money By Getting Paid to Save

Everyone wants to save more money. Yet many cash-strapped people feel like they “can’t afford” to save. One way to make saving each month a little easier is by super-charging your savings – and making your money work as hard as you do. Here are three special ways to turbo-charge your savings. Try them and watch your savings grow faster than ever.

Strategy #1: Open an Individual Development Account or IDA

An Individual Development Account, or IDA, lets low-to-moderate income earners save money for a specific goal – such as a down payment on a house or starting a business – and receive matching funds from non-profit groups, corporations, and government agencies. Many IDAs provide a $3 to $1 match, meaning for every dollar you save, you get $3 in contributions. What’s the catch? You must agree to save money for a set period of time, usually at least one year. Some IDAs require you to set aside money for two or three years. Whatever the term, it’s worth it – because you’ll get rewarded with a huge cash bonus in the end.

The Payoff: If you save $100 a month, or $1,200 in one year, and your IDA has a $3 to $1 match, at the end of a year, you’ll receive a $3,600 contribution.

Resource: Visit http://www.IDAnetwork.org to find an institution in your area that offers Individual Development Accounts.

Strategy #2: Open a High-Yield Savings Account

Are you frustrated by savings accounts that are paying a paltry 0.5% or less in interest? Don’t despair. There are better yielding options available – if you shop around online. For example, the new InterestPlus Online Savings Account from Capital One currently carries a 1.45% Annual Percentage Yield (APY) – well above the national average. Plus, you can get a quarterly bonus equal to 10% of the interest you earned in the previous quarter. That’s a fantastic deal because you’re basically getting paid twice to save.

The Payoff: Keep $2,500 in your Capital One savings account each month, and you’ll earn an APY that’s roughly three times the amount that’s being offered elsewhere with other savings accounts.

Resource: Go to http://www.CapitalOne.com/directbanking to learn more about the no-fee InterestPlus Online Savings Account.

Strategy #3: Enroll in Your Company’s Retirement Savings Plan

If your company has a 401(k) or a 403(b) retirement savings plan, and you’re not contributing to it, you’re making a big financial mistake. Not only are you missing out on the opportunity to set aside money for your Golden Years, you’re also likely forgoing one of the best perks available to workers these days: a corporate match on your retirement contributions. Some companies offer a dollar for dollar match on the money you save for retirement, up to a certain percentage. Other firms offer 50 cents on the dollar. No matter the amount, it’s free money, so it’s foolish not to grab it.

The Payoff: Getting a dollar for dollar matching contribution from your employer’s 401(k) plan translates into a 100% return on your money. Guaranteed. You’ll never get that on Wall Street, or anyplace else.

Resource: Head to your company’s Human Resources Department today, and get the enrollment papers you need to sign up immediately for your 401(k) or 403(b) plan. If you’re already in the plan, consider boosting your contribution slightly. Also, read up on the benefits of having a retirement plan at the Employee Benefit Research Institute (http://www.ebri.org).

By using these three savings methods, you’ll become a more diligent saver, you’ll watch your money grow quickly, and you’ll make the process of saving money pain free. Best of all, pretty soon you’ll feel cash rich instead of cash-strapped.

Would it Make Sense to use My Retirement Savings to Fund My Master’s Degree?

Author: The Money Coach

Q: Would it Make Sense to use My Retirement Savings to Fund My Master’s Degree? I Have No Debt, Some Savings, Twin Toddlers and a Husband Who is Currently Out of Work. My Master’s Degree Program Will Cost About $50,000.

A: For many reasons, I think it would be a very bad idea to use your retirement savings in order to finance your Master’s degree. First, there are better financial options to fund your advanced education. Second, since your husband isn’t presently working, if times get particularly tight economically, you may need to access some of those retirement funds to help keep your family afloat. (Note: If you do need the money in the future, take a loan from your retirement plan – not a withdrawal. That way, you’ll avoid paying the IRS ordinary income taxes and a 10% penalty on the distribution.) Lastly, you’ve worked hard to build up a decent retirement nest egg. It would be a shame (and risky) to deplete those funds and jeopardize the financial security that your retirement assets will provide during your Golden Years.

Smart Ways to Finance a Graduate Education

Here are some alternatives to help you finance your Master’s degree program.

Your Employer
Since you are working, definitely start by asking whether your employer has a tuition assistance plan. Many companies will pay for tuition, or at the very least will offer a stipend to cover the costs of books and supplies.

Scholarships
Also begin aggressively seeking out scholarships for which you may qualify – based on everything from your gender and ethnic background to your major and certain hobbies you have. Consult a good online database, such as http://www.FastWeb.com, which lists thousands of scholarships.

Too many students (both undergraduate and graduate) fail to adequate explore the multi-billion dollar scholarships arena, and then they say “I couldn’t find anything for which I qualified.” Well, you have to make your scholarship search the equivalent of a full-time job. Plan to spend at least 30 hours a week – for three to four weeks – hunting for this free money. I know that’s a lot of time. But if you invest the time and energy now, the long-term financial payoff can be huge – well worth the short-term sacrifice you must make to find, apply for, and secure these resources. As a target goal: plan to apply for at least 12 scholarships. This will greatly increase your odds of receiving scholarship money.

Grants
Be persistent in finding grants too. Like scholarships, they don’t have to be repaid. Find grants via a specific department at the college you are considering, like the Business School or the Science Department.

Work Study
Also, the financial aid officer at any school you’re considering can tell you about Work Study opportunities to pay for college. Work study programs – where you work, say, in the library or the computer lab and get paid or receive a discount on tuition – help minimize your school fees or, for some people, the money you spend on room and board.

Paid Internships
You should also seek out paid internships to help you foot your college bills. This option is obviously most feasible for those who don’t have full-time jobs. In years past, students interned without pay, just to get valuable work experience and make connections. Today, with the high price tag of a college education, you don’t have the luxury of working free of charge. So investigate paid internships in your industry where you get a decent paycheck, along with work experience and access to professional colleagues and mentors.

Student Loans
Finally, I know you want to avoid college loans, but that’s not always 100% possible. If you’ve exhausted all the options listed above, and still come up short, then you should consider student loans. Always apply for federal loans first – not private loans. Federal loans carry lower interest rates, have fewer fees, and offer better forbearance, deferment and loan forgiveness options.

By exploring all of these financing sources, and getting creative with your own budget, you can pay for that advanced degree – without withdrawing your retirement money and hurting your chances of having a secure retirement.