A good time to review finances
By Bob Moeller
WEAC Member Benefits
June 2007
Financial
Planning Seminars
Achieving
Financial Independence
T he summer break is a good time to generally review your finances and plan for the future. Here are some guidelines and a general review of items that might influence your financial well being.
- We continue to be in an inverted interest rate curve. That means that long-term interest rates are actually lower than short-term rates. Most of your “safe” interest-earning type investments should be fairly short commitment. One-year CDs pay more than
5-year CDs as this is written. Your basic premise should be that all of your cash-type investments should be paying at least 4.5%. Probably that will mean you will not have any savings accounts. Rather you want money
market arrangements paying more than 4.5%. If you need specific sources, e-mail me.
- Make a careful analysis of your debt. If you are paying more than 7% interest on any non-mortgage debt (i.e. not tax deductible), try to pay it off. I see members earning 1% in their savings account and paying 8% on a boat loan. I see members carefully making extra payments on their 6% (deductible) mortgage in order to get it paid off early, but making no additional payments on an 8% furniture loan.
- Know your tax bracket. Look at line 43 on your 1040. If in 2007, this line will be over $63,700 (married) or $31,850 (single), you are in the 25% federal marginal tax bracket. Add 5% net to that for the state and you are paying 30% total income tax on any new income such as a raise, more interest earned, etc. Consider putting this raise into a TSA, spouse’s 401(k), etc. You can effectively invest $1,000 in this example and your take-home will only go down $700.
- Unless you are really seriously financially strained, commit some money to a Roth IRA. Here you are investing after-tax money but you will never pay income taxes on the growth. That’s NEVER.
- Know how you use your money. There is a Wall Street adage that “good savers beat good investors every time.” The key to becoming wealthy by retirement is not that you need to be a genius investor. The “how to invest” question is pretty easy. The key is to spend less and save more.
- Related to #5, know what your expenditure patterns and amounts are. Members ask me if they can afford to retire when they can’t tell me how much money they spend. Keep track of your basic costs for a year. This is not a budget, but rather an after-the-fact recording of how and how much you spend.
- Analyze your life insurance needs and current coverage. Once your kids are grown, your debts are under control, your Wisconsin retirement and your retirement investments are looking pretty good, you don’t need to pay for a lot of life insurance. You may have some long-held whole life policies that are now decent investments and you should keep those. If you need more coverage (you’re young, have young children, big mortgages etc.) buy fixed-term coverage. Term is the only kind of new insurance purchase you should con-sider.
- I have met privately with well over 3,000 members over the past few years. I have looked at a lot of insurance company investment products. Other than some longer held whole life policies which are not bad investments now, I’ve never seen an investment product from an insurance company that I would recommend. This includes insurance company TSAs, universal life, variable life, and particularly annuities purchased with after-tax dollars. And yes the “guaranteed” index annuities are not good deals. Why? High fees (commissions), high mortality expense costs (life insurance), high withdrawal penalties, versus very limited gain possibilities.
- Regarding your investment allocations, the current stock market has completed a long period of pretty good returns. Perhaps it will go on forever. Just in case it doesn’t, you should check out your holdings. I suggest that your age, plus or minus 10% should be in stable investments like CDs, fixed interest, etc. Yes, this is a conservative approach.
- Check the dollar and percent difference between where you are on your salary schedule and where you could advance to. Remember, you not only get more while you are working, you get a higher pension for the rest of your life.
- Discuss the estate situation with your parents. If you need will forms or State of Wisconsin forms for power of attorney for finances, health, or a living will form e-mail me and we will send you copies.
- Discuss your finances with your spouse. Both spouses should know where you are financially and both should take part in planning future moves.
Summer appointments
Bob Moeller is providing individual member financial planning appointments throughout the summer.
As this paper goes to print, there are a limited number of summer appointments available in Madison during the last three weeks of August. To schedule an appointment, contact Diana Buchholz at 608-276-7711 or 800-362-8034, extension 253.
Financial well-being is just a few steps away
I truly believe that most members can take control of their financial life and do quite well. Most can operate very well without a financial planner or insurance sales people. It takes a little resolve, agreement about goals with your spouse, and a little reading.
Here are a few suggestions:
- Subscribe to a good magazine like Money, SmartMoney, or Kiplinger’s Personal Finance.
- Shop your money market accounts and CDs for the best rates.
- Do your stock market investments using low-cost, no-load index funds.
- Make no investments in insurance company investment products.
- Reduce your spending (no, you don’t need that SUV).
- Make good use of TSAs, 401ks and Roth IRAs.
- Understand your own finances, including the interest rates you are paying on debt, your tax bracket, and the value of your investments.
Are you enjoying the Savers' Club?
Summer is a great time to take advantage of the values available to you by using your OnWEAC Savers’ Club card.
You can browse the discounts online by going to OnWEAC at www.weac.org, logging in to the Members Only site and clicking on the Savers’ Club card at the upper right corner of the screen.
We would like to know how much you are enjoying the OnWEAC Savers’ Club. Where have you found great Savers’ Club discounts? How much have you saved? Would you recommend it to other members? Do you know of a business that would make a great addition to the Savers’ Club?
Please send your e-mails to Diana Buchholz at buchholzd@weac.org.
Posted May 29, 2007
