Is there a rule of thumb that a monthly pension payment should equal a certain amount of dollars of savings? We hear that we need X dollars for retirement, but with a pension, what might that equate to? Some of us will have pensions from previous employers and wonder what it means in terms of the amount we need to save. (For example, does $1,000 in a monthly pension = $125,000 in savings?) What are good numbers to use in planning? Thank you.
Kathie, it really all boils down to how much of your pre-retirement income you’re trying to replace. That’s what you should focus on. Recent research has shown that spending in retirement isn’t linear as previously thought. You were often told you should plan on spending 70 to 80% of your pre-retirement income in retirement. In fact, spending usually tails off after the kids go to college and leave the house and, eventually, you stop working full time. Then life gets really expensive when you hit uber old age and healthcare expenses ramp up.
That said, on average, aiming for that 80% replacement rate is probably a pretty good move. You need to head to a retirement calculator that allows you to input how much you’re expecting from Social Security and your pension as well as how much you’ve saved. The AARP’s retirement calculator – which you’ll find here – will let you do just that. It’ll run the numbers and help you figure out how much more you need to save to meet your goals.
Hi Jean. We bought our home in 1982 for $67,000 and refinanced in 2001 for $85,000. This company sold our mortgage without our knowledge in 2013 for $72,000 @ 8.5% interest. Unfortunately things happened that were beyond our control. For the past ten years I took care of my parents. They both passed away last year. Our whole life we’ve taken one step forward, three backwards. It seems when we get caught up something else happens that takes us back. Our credit is poor. We have never asked anyone for help; that’s why we are in this mess. We don’t know where to turn. Can you please point us in the right direction. Thank you.
Hi Toni. I have to admit, I can’t tell from your letter exactly where you are right now – but I can sense that it’s somewhere very difficult. And having lost one of my parents, I cannot imagine losing both – let alone in the same year. I’m so sorry for all you’re going through. In situations like these, fixing everything quickly is just not an option. The world of money just doesn’t yield results that dramatic that fast (if it did, I’d have a television show like The Biggest Loser). Rather, it’s the smaller, habitual changes that add up to something meaningful over time. Focus on controlling the things that you can control. The top three things I’d do? 1. Look at your spending and see where you can cut back. 2. Take that money and pay down high interest rate debt if you have it, or save it if you don’t. And 3. Pay your bills on time. Even if you’re just playing a little more than the minimum (a number you should try to nudge up) paying on time will help move your credit in the right direction.
In going through my 88-year-old father’s papers, I came across several capital stock certificates for 100 shares each for “Central Wyoming Oil and Uranium Corporation” dated 1954. I have tried Google searches to find out if they are indeed worth anything but have had no luck. Can you tell me if they are worth anything or what the process would be to find out? I tried the sec.gov website to no avail. Thank you in advance for any help you can give me.
Marie, you’re right — a google search of that company name turns very little up. But there are ways to research the value of paper stock certificates, which were common during your father’s time but are now largely a thing of the past.
First, you want to look at the certificate itself. Does it say cancelled on it, or contain punch holes through the paper? That likely means the certificate has already been cashed in. If you can’t find any signs of cancellation, check to see if your father’s name is on it it — if so, that’s a good start.
Often, though — as seems to be the case in this instance — the company issuing the stock no longer exists. This is common — companies frequently merge with other entities, are purchased, go out of business or end up bankrupt. But the certificate may be printed with the name of the transfer agent, which the SEC says is the best place to start your research. If no agent is listed, or that agency also no longer exists, you can contact the agency that incorporates businesses in the state where the company was located. In your case, that would be Wyoming, and the state has a handy guide to tracing old stock here. They may be able to tell you who the new transfer agent is.
There are also companies who will do this for you, though you should be aware that you’ll likely be charged a fee and you may be chasing something that has little or no value. The Wyoming document referenced above suggests a company called America West Archives, which has a subsidiary, OldStockResearch.com. They charge a research fee of $35 to $45 per company and claim a 95% success rate (keep in mind, that means they’ve turned up results — not necessarily of value — 95% of the time). If they come up with no information, you’ll receive a full refund.
Another option is Scripophily.com, which researches, buys and sells original stock and bond certificates. They charge a flat research fee of $39.95 per company, and again, if no information is turned up, you won’t be charged.
Finally, if you have a brokerage account, you may be able to get your broker to research this for you.
Keep in mind that even if you find that these certificates hold value, if your father isn’t alive anymore, you’ll need to prove that you’re the legal heir to the security. And if the certificate doesn’t have cash value, it may still have collector value, based on condition, age, design, industry and other factors. One of the services above can help you determine if this might apply in your case.
I have a friend that has been taken advantage of by an unethical broker. Because I work in the industry, I am helping her clean up the mess and file a formal complaint. She also needs help with life insurance and I am not knowledgeable enough to help her. Is there any kind of resource, akin to a fee-only planner, that she could use to evaluate her needs and determine the best option? All avenues I am aware of turn to people who have a vested interest in selling a product. Thanks.
Margaret, she’s lucky to have you! There are, in fact, fee-only insurance advisors who – like fee-only financial planners – who will help you figure out the right life insurance policy (with the lowest commission) for you. Unfortunately, there aren’t many of them. I only know of three – and I’m going to point you directly to them. Glenn Daily is in New York, NY. Peter Katt is in Mattawan, MI. And Scott Witt, whom I learned about from this Bankrate.com story, is in New Berlin, WI. I can vouch for Daily and Katt because for many years, they were sources I called whenever I was writing a story on life insurance. Some fee-online financial planners may be able to help you with this as well. You can find ones near you by using the locator tool at NAPFA.org.
My daughter and her fiancé are about to receive about $75,000 from family in England. They want to set up a joint account to have the money wired into. Do you know anything about First Trade Union Bank? Apparently it’s an Internet bank. I know that it is FDIC insured, but what else should we be concerned about?
Nothing I can think of, Ann. First Trade Union Bank isn’t just an Internet bank – although many of its customers may do business with them over the Internet. It’s one of the nation’s many community banks. Like many other community banks, it seems to have a very consumer friendly approach including a steady record of making SBA (Small Business Administration) loans for its customers and, as of mid-last year, rebating an unlimited number of monthly ATM surcharges.
If you want to focus on something, rather than the choice of bank, I’d encourage your daughter and her fiancé to understand what an opportunity that $75,000 can be. It could be the down payment on their eventual home, a jumpstart on a college fund for a future child or a substantial leap into retirement savings for them. The mistake many people make when they get a windfall is taking action too quickly. Advise them to sit on the funds for at least six months to a year until they have a plan of attack.
Do you have appointments for individual consultations for financial planning? I live at the Jersey Shore and will travel anywhere to get the financial help I need. I am 59, a teacher and divorced with a low credit score and significant debt from a high mortgage and poor choice of loans. Facing major decisions, and I need help!!
I don’t, Sue. But you’re an excellent candidate for Money School. Specifically, you should take The Debt Diet, which is designed to help you do two of the very things you mentioned you’re struggling with: pay off debt, and increase your credit score. By the end of the class, you’ll also be prepared to start building an emergency fund, which can help keep you from falling into debt again the next time money gets tight.
A new schedule of classes can be found here — this semester’s live schedule starts on February 11. I teach these live classes via webinar, and they come with a live Q&A period at the end, as well as a week of chat-based Office Hours, so you can ask me all of your questions and come back for more info if you realize something from the lessons wasn’t clear. It looks like this:
This year, I’m also offering recorded versions of the same classes — including The Debt Diet — through an online education platform called Udemy. This is a great solution if our live course schedule doesn’t mesh with your own schedule.
And as debt is usually tied to other areas of your financial life that aren’t working, you may want to take some of the others (particularlyBudgeting Bootcamp, A Crash Course in Saving More and Spending Less, and Yes, You Can Retire) as well.
I hope that is helpful — and I hope to see you in class! If you decide to attend, I look forward to hearing what you think.
I have two children in college (and one in high school). We have exhausted their 529 accounts. I have already taken out Parent Plus loans to the extent I can afford at this point due to other financial setbacks. After financial aid, we still need to borrow to cover all the tuition/room and board costs. What are the best options, or what should we look for in obtaining loans for our children? Anything you can provide would be appreciated. I’m overwhelmed at this point.
Hi Nicolette. I get where you’re coming from – it is overwhelming. And you’re smart to recognize when you’ve come to your own limit in terms of borrowing. At this point, the borrowing will fall to your children and the rule to stick to is to make sure they’ve exhausted their ability to take out federal loans before even considering private ones.
I also want you to take another look at your financial aid situation and call the financial aid offices at the schools your children are attending. Talk to a financial aid officer about the financial setbacks you’ve faced – particularly if they occurred after you originally applied for aid – and ask if there’s anything the school can do to help. Then have a very frank talk with your children about borrowing and how much they will have to repay when they graduate from school. Break it down for them so they can see what their monthly loan payments will look like. And if they’re overwhelmed by the thought, talk to them about the fact that they have options. They may want to consider transferring to schools that will offer them more in aid or working while they’re in school (and perhaps taking a lighter course load) to minimize borrowing.
Finally, the website fastweb.org has a terrific database of scholarships and grants and you’ll want to pore through it together. And when your next child goes through the process of selecting a college, make sure a good value is one of the criteria on your list.
A: Thanks Tracy. (Note to anyone who isn’t a subscriber, my weekly newsletter is fun and free! You can sign up here.) As for me, Tracy, I own real estate and have some in my portfolio, but other than telling you how to get the very best rate on a mortgage, it’s not my prime focus. Check out BiggerPockets.com run by Joshua Dorkin. I met him at a recent conference and spent some time afterward chatting with him about his work. If you’re looking to buy properties relatively cheap, spruce them up, and either own or flip them, he’s built a vibrant community with a lot of information – some of which you can access for free.
Buck: I am considering taking money out of my 401(k) and paying off my mortgage. I am 60 and have no other debt. That would mean I would need significantly less income in retirement without a mortgage. Otherwise I have 15 more years on the mortgage. I will work for another 5-7 years so why shouldn’t I do this?
A: Buck, if you know me at all you know I like the idea of entering retirement mortgage-free. But I wouldn’t do this and here’s why: When you prepay a mortgage you have to weigh the return you get from making that prepayment (your mortgage rate minus the tax deduction) against the return you’d otherwise get on your money. If you’ve got a diversified portfolio in that 401(k) earning even a conservative 6% a year (tax-deferred) and your mortgage is at, say 4%, or even 5% pre-deduction, it just doesn’t make sense. Plus, pulling money you don’t need to pull out of your 401(k) before you absolutely have to robs you of the ability to rack up even more of that tax-deferred growth. What I might consider is, while you’re working for the next 5 to 7 years, figuring out a schedule of pre-payments that would help you time the end of your loan to roughly the time you exit the workforce. Try to figure out a way to come up with that money without robbing your 401(k).
My husband and I are starting to get in control of our finances in 2014. We’ve been keeping track of our expenditures and changed our direct deposits to divert a small percentage of our income to our savings account, which is earning an anemic 0.12%. In “Make Money, Not Excuses,” you recommend Bankrate.com to research interest rates. Maybe I did it wrong, but the very best rate I could find was only 1%, and for that account, you had to have an opening deposit of $100,000. I’m finishing up my Master’s and my husband just graduated from culinary school last April — there’s no way we’ll ever be able to put that kind of money together. Meanwhile, we’re paying 6.8% on our student loans (thanks, Congress). How will we ever get our heads above water?
Elizabeth, don’t worry – you didn’t do anything wrong. Savings rates in this country are really, really awful right now. The best just about anyone can find is in the 1% range (although I have a few suggestions about where you can do just a little bit better and I’ll give them to you in a second). The step that you and your husband took to track your expenditures and save automatically is absolutely perfect. It’s exactly what I want you to do and that’s because the habit of saving is the most important thing and automating is the easiest way to make that habit stick.
As for those savings rates, they will go up. As the Fed starts to raise interest rates — which it will eventually do — savings rates will go along for the ride and you’ll benefit. In the meantime, if you want to eke out a little bit of added return on your savings, check out high interest rate checking accounts (checkingfinder.com, kasasa.com). If you’re willing to pay at least a bill or two online and use your ATM card for (typically) 10 purchases a month, you can get a fairly decent (again, comparatively) rate of interest on your checking account. These accounts have maximums, rather than minimums. Usually you can’t keep more than $25,000 or so in them.
The other place to look is a bank called Santander. Their extra20 checking product offers a return of $20 a month ($240 a year) to customers who make at least $1,500 per month in total direct deposits and pay at least two bills online from their account each month. The account doesn’t have a minimum balance requirement, nor a monthly maintenance fee. On $1,500, that $20 a month works out to an interest rate of around 16%. Granted, the more money you keep in the account the lower the rate actually is, but it’s substantially better than you’re getting anywhere else. (At least anywhere else that I’ve been able to find.)
I’m 48 years old. How can I find someone who can look at my finances and come up with a retirement plan without being my investment planner? Also, where can I check to make sure they are in good standing and properly licensed?
There are financial advisors who charge by the plan and even by the hour, and it sounds like that is what you want: Someone to set you up, but not hold your hand. I’m going to recommend two resources: The first is the Garrett Planning Network, which is a group of fee-only independent financial advisors. That means they charge a set fee, not a commission or a percentage of assets under management. Garrett Planning Network advisors will also work on an hourly basis, meaning you can contact a network planner for one or two hours of guidance instead of comprehensive planning services. This may be a good fit for you.
You can also do a search on NAPFA.org, another great association for quality fee-only advisors. Advisors found through both sites will have the proper certification, but during your first meeting, you can ask for the advisor’s ADV Form, Part II from the Security and Exchange Commission. It will tell you how the advisor is compensated and list any conflicts of interest – including whether they are earning a commission for recommending certain investments. You should also ask for references – and call them. And if you have friends or coworkers who work with an advisor, you might ask around for recommendations. Coworkers in particularly can be helpful here, because they’re likely to have similar financial situations to your own, including the same 401(k) plan and other benefits.
Finally, I heavily weigh whether I feel comfortable with that advisor. Open, honest communication is important in this relationship, and if you can’t bring everything to the table — the good, the bad and the ugly — you’re not going to get your money’s worth.