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4 Ways to Use Your Tax Refund Wisely [INFOGRAPHIC]

Brendan — Fri, 12 Apr 2013 17:00:32 +0000

Tax time may not actually be 'fun,' but once the process of filling out all those forms is completed, dotting the Is and crossing the Ts, many of us have a refund coming our way. With the average tax refund near $3,000, it's important to put that money to use in the best way possible. For some that means paying down credit cards, for others it means putting it toward retirement. In any case, many options should be considered and evaluated. Here's a brief look at 4 wise ways to use that money. [infographic]

Thinking About Early Retirement? A Few Things to Consider:

Sue — Thu, 24 Jan 2013 11:57:33 +0000

Early retirement isn’t for everyone. But for those who do dream of it, it’s an idea that sounds very enticing. If you’re thinking that you’d rather not spend your sunset years toiling away at a 9-5 job, you have options. Just don’t give your notice until you’ve considered some of the following factors involved in granting yourself an early release from the workforce.

You can’t begin to claim Social Security benefits until you’re at least 62

This means is that if you decide to retire from your career at the age of 59, you’ll have three potentially long years to wait before you can begin to receive monthly Social Security checks. Unless you’re in line to receive a generous pension from your employer or have a lot of money saved up from years of penny-pinching, coupon-clipping and resisting impulse shopping, you may have no choice but to keep working until you are 62 -- or even older.

If you retire before 66, you won’t get your full social security retirement benefit

In other words, the monthly check you’ll get from the Social Security Administration won’t be as high if you retire before 66 as you’d receive if you wait until reaching the full retirement age, which is determined by the year in which you were born. Although the checks will begin to increase in value the closer you get to 66, it’s an incremental process. For example, if you retire at the age of 62, you’ll only receive 75 percent of the full value of your Social Security earnings. If you retire at 63, that amount rises to 80 percent. At 64, you’ll get about 87 percent, and at 65, around 93 percent. There are plenty of retirement age and income calculators available online, include this one from Allstate Financial, which takes a snapshot of what you have and helps you make the most of it.

Give careful consideration to health care

Medicare doesn’t kick in until you’ve turned 65 – but what are your options if you choose to retire early and are still years away from that age? If your current employer’s pension plan offers medical coverage, this is likely going to be your best option, as long as it’s affordable. But, if health care isn’t offered, or if it’s too expensive or is only offered for a short period of time, that’ll leave you uninsured until you’re eligible for Medicare. You may be eligible to get group health insurance as a paying member of the American Association Retired Persons (AARP). There’s also this: If you’re retiring within 18 months of your 65^th birthday and your employer isn’t offering a retirement health care package, you could always pay for COBRA benefits to bridge the gap to Medicare coverage. Needless to say, this is expensive, but it may be a better option than crossing your fingers and hoping you won’t get sick between now and then.

Keep in mind the reality of inflation

If you decide to retire at the age of 55 and have a nest egg of a $250,000, you may want to consider: How far will that money get you in another 20 years, when inflation has its way with the cost of living, and what’s affordable now may be downright expensive then? As a rule, whenever you’re planning your retirement – early or not – it’s critical that you take into consideration what inflation will do to your savings much further down the line. Check out this inflation calculator from the Bureau of Labor Statistics to get an idea of what you may be looking at and how far your dollar will take you in a couple of decades. Early retirement may be doable, as long as you’re willing to do the math and plan far in advance. Whether you’re 25 or 55, it’s never too early to start planning ahead. The sooner you do, the better chance you’ll have at spending your sunset years enjoying yourself instead of losing sleep over money. Recommended by the Editor:

Debt Counseling: How it Can Help You

Brendan — Wed, 09 Jan 2013 12:00:35 +0000

If you’re among the millions of Americans struggling with consumer debt, a debt counselor may be able to help you get your finances back on track. Dafne Torres, director of customer care at the Florida-based nonprofit InCharge Debt Solutions, says debt counselors work with clients on a variety of financial issues. “We have clients who are looking to buy a home, so they’re trying to improve their credit and have more money available,” says Torres. “We have other clients who can’t afford their monthly payments or are seeking assistance with their interest rates.” (However, debt counselors generally can’t make your loans disappear entirely or negotiate student loan debt or money owed to the IRS.) Here’s a look at some of the services offered by debt counselors:

Debt counseling: Counselors can typically advise you on credit card debt, home-foreclosure prevention, and in some cases, help you determine if you can afford to buy a home.

“We go through their financial situation, do a budget and create a personalized plan, providing the pros and cons of each solution,” says Torres. Some debt counselors are approved to conduct a bankruptcy pre-filing credit counseling session, which is required before you can officially file for bankruptcy. InCharge, for example, charges a small fee for bankruptcy counseling sessions, but the other counseling options are free.

Debt management:In a debt management program, the debt counselor negotiates with each of your creditors to get a lower interest rate and to consolidate your loans. You send a monthly payment to the debt management program and they disperse funds to all your creditors. (There’s usually a fee for this, so the savings on interest rates should outweigh your monthly fee for the debt management program.)“Normally, we see a monthly payment reduction of $100 to $150,” says Torres. “When it comes to interest rate savings, that’s where the big savings come in. We can help them pay off an account in five years that would have taken them 20. Sometimes, they can save $10,000 to 13,000 throughout the period of their loan.”

All too often, says Torres, people get in over their heads before seeking out a debt counselor, which is often at the suggestion of their lender. “The majority of people wait until it’s too late,” she adds. “It’s a little bit embarrassing to have to call someone that you don’t know and tell them you’re struggling with debt. By the time they do it, it’s really because they’re forced to.” However, debt counselors can help even before you find yourself drowning in debt. “People can call us at any time,” says Torres. “We can help them in any facet of their life, even if they don’t have a lot of debt but they just need some guidance.” If you are working to improve your financial situation, consider these suggestions on how to reduce your debt. Even though you think certain financial options may be out of reach, it may still be a good idea to think of ways to save for retirement, as well. Visit MyAllstateFinancial.com's section on College and Retirement Savings Plans and IRAs for more information.

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The Road to a Happy Retirement

Brendan — Wed, 21 Nov 2012 12:00:54 +0000

Ask any two people what a happy retirement looks like and you’re likely to get two very different answers. “Golfing every day and reading presidential memoirs,” one person might say, while another might wax poetic about taking an Alaskan cruise and spending time with grandchildren. Still others might enjoy the peace of mind that comes from feeling financially secure or the satisfaction of volunteering for a worthwhile cause or even working part-time to stay busy and active. All of these visions for retirement are perfectly valid ways to spend your time, and it’s a good idea to share your definition of a happy retirement with your spouse. You may be surprised to discover that your visions vary slightly, but discussing your goals and priorities can help you create a joint vision that incorporates both of your needs. Share this vision with your financial representative so he can help you set a realistic budget for the activities and lifestyle you want during retirement. Plus, he’ll be able to help you choose the investment vehicles that align with those goals. Depending on your financial goals and other factors, there are some retirement investment options you might consider:

401(k): This is among the most popular retirement savings options because the money in a 401(k)—or a 403(b), the nonprofit equivalent to a 401(k)—grows tax-deferred, meaning you don’t pay taxes on the income until you withdraw money. Some employers offer matching funds, which can also help boost your retirement savings. If you need to access funds in your 401(k) before you turn 59 1/2, you might be able to take a 401(k) loan if your plan administrator allows it. Or, you could withdraw funds early, which could be subject to early withdrawal penalties. However, withdrawing money early or borrowing from your 401(k) means missing out on potential growth and possibly having less money when you retire.

IRA: An Individual Retirement Account (IRA) is another retirement savings vehicle that comes in a few different forms. Based on IRS guidelines for 2012, most taxpayers can contribute up to $5,000 per year to an IRA, according to irs.gov. Contributions to a traditional IRA may be fully or partially tax-deductible, while contributions to a Roth IRA are not tax-deductible. (However, your distributions from a Roth IRA may be tax-free if you satisfy the IRA’s requirements.) Simplified Employee Pension (SEP) IRAs are a retirement savings option for self-employed people who don’t have an employer-sponsored 401(k) or 403(b). SEP-IRAs have higher contribution limits than traditional or Roth IRAs.

Deferred annuity: Generally, when you purchase an annuity, you make a lump-sum payment or series of payments, and in exchange, the insurance company makes ongoing payments to you, typically so you’ll have steady income during retirement, according to myallstatefinancial.com With an immediate annuity, you’ll often start receiving payments right away, while with a deferred annuity, you would receive payments in the future, perhaps when you retire.

Want to know more? An Allstate Personal Financial Representative can answer your retirement-savings questions and discuss which investments vehicles might make sense for you and your retirement goals.

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Living Longer: Men Are Closing the Gender Longevity Gap

Melissa — Fri, 05 Oct 2012 11:00:29 +0000

Men planning for retirement may want to take a second look at the size of their portfolios. According to a recent study released by the Institute of Health Metrics and Evaluation, they are living longer than ever before. Men are adding years to their lives at such a fast pace that the gender longevity gap is narrowing for the first time. According to data from IHME, from 1989 to 2009, the average life expectancy for men increased by 4.6 years. Female life expectancy only grew by 2.7 years over this same period. Today, men are expected to live to 76.2 years old, compared to 81.3 for women. Why is the average life expectancy inAmericagrowing faster for men than for women? Men are less likely than women to be obese and more likely to exercise and treat cardiovascular disease. Overall, men have also adopted healthier habits. For decades, more men than women smoked, and men were also more likely to follow unhealthy eating habits. Now, major cities likeNew York CityandSan Franciscoare leading a cultural attitude shift toward healthy lifestyle habits. IHME identified 10 major metropolitan areas that showed the biggest increase in male longevity. In New York City, men added 13.6 years to their lives, and inSan Francisco, men added 11.7. Many of the increases were also seen in the greaterNew York Cityregion, includingKings County, N.Y., with 11.5 years; the Bronx with 11.1 years; Queens with 8.9 years;EssexCounty, N.J., with 8.4 years; andHudson County,N.J., with 8.2 years. Other metropolitan areas seeing a major increase include Washington, D.C., with 10.9 years; Yuma County, Ariz., with 9.5 years; and Fulton County, Ga., with 9.3 years. What about the women? Over the same 20-year period, cardiovascular disease became the leading cause of death for women. According to Dr. Ali Mokdad, a professor of global health at IHME, men are more vigilant than women when it comes to treating cardiovascular concerns. Additionally, the American Heart Association reports that cardiovascular disease is often misunderstood, unrecognized and untreated in women. Consequently, women are still expected to outlive men, although by far less than they were expected to 20 years ago. Traditionally, women live longer than men. According to Tom Perls, founder of the New England Centenarian Study at BostonUniversity, 85 percent of all people over 100 years old are women. Experts estimate that up to 70 percent in the variation of life expectancy for men and women may be due to environmental factors. In his research, Perls cited three behaviors that men traditionally engage in more than women: smoking, eating foods high in cholesterol and internalizing stress. The study showed that when men eliminated these bad habits, their overall life expectancy increased. That’s good news for women. As the IHME study shows, behavioral changes for men made a big difference. According to Mokdad, women need to start exercising and be more proactive when it comes to their cardiovascular health. Ladies, it’s time to hit the treadmills!

Financial Security Tips for Single Retirees

Brendan — Tue, 28 Aug 2012 11:00:08 +0000

Single retirees don’t have it easy. The cost of living for single retirees is 40 to 50 percent higher than that of retired married couples, according to a recent report by the BMO Retirement Institute. And almost half (43 percent) of Americans who are 65 or older fall into that single category, according to a 2011 Census Bureau report. Several reasons explain the high number of single retirees. According to The Vanier Institute of the Family, 44 percent of marriages in theUnited States will end in divorce before the couple’s 30th anniversary. There are also a lot of women simply outliving their husbands. Thirty-nine percent of women 65 and older are widowed. A number of people are also choosing not to marry. Unmarried young adults ages 25 to 34 outnumbered their married counterparts by approximately 2 percent. With a substantially higher cost of living, single retirees have to be more mindful of their finances. “It’s extremely more expensive living as a single person than as a couple,” says Tina Di Vito, head of the BMO Retirement Institute. Couples can share living expenses and use their joint savings to pay for retirement, whereas single retirees are on their own. To help alleviate extra costs, single retirees should set a spending budget and stick to it. “When single retirees are entering retirement, they can only rely on themselves for the financial perspective—one pension, one Social Security, one savings account—so that person needs to make sure they have a spending budget and know where their money is going,” says Di Vito.

Share and Share Alike

Another recommendation is that single seniors consider shared housing arrangements for the sake of cost-sharing and for additional support around the house with things like chores. According to a 2010 Census Bureau report, 557,000 seniors age 65 and older are involved in some kind of shared housing arrangement. You’ll be taking a lesson from The Golden Girls, a T.V. sitcom in which Bea Arthur’s character and three older women shared a home in Miami. The women had camaraderie, led full lives and helped each other during difficult times. Single women in particular need to plan more for retirement, as women generally have longer life spans than men. However, many women earn less during their working years and accumulate a smaller nest egg. Because of this, they will need to really consider how much they are putting away for retirement. Women may need to save for a longer period of time to accumulate more capital.

Do your retirement plans include a roommate or a strict budget?

Does Birth Order Affect Financial Decisions?

Brendan — Wed, 11 Jul 2012 10:00:00 +0000

Does birth order affect your personal finances? According to Derrick Kinney, an Ameriprise Financial Advisor, your birth order position as the eldest, youngest, middle or only child may impact your finances. In fact, according to psychiatrist Dr. Soroya Bacchus, birth order traits like independence, creativity and secrecy subtly affect the financial decisions we make each day. Are birth order traits affecting how you manage finances? Read on to see if you agree with Dr. Bacchus’s assessment.

Eldest children:

Firstborns love to be seen as stable and independent. According to Dr. Bacchus, you’re punctual about paying bills and managing finances. Since 35 percent of a FICO score is thanks to on-time bill pay, firstborns typically have strong credit scores. However, this perfectionism can also backfire, leading to burnout and unrealistic financial expectations. Do you expect a 30 percent annual return on your 401(k)? Are you trying to double your savings account while also building your IRA and emergency fund? Too many financial priorities at once can lead to unnecessary financial stress. Prioritize your short-term and long-term goals, and take steps each month to achieve these goals.

Middle children:

As natural problem solvers, middle children believe that they can handle anything themselves. When it comes to paying bills, Dr. Bacchus says that your independent, inventive streak may backfire. You’re more likely to move money around between different cards to hide financial problems. You’re also more likely to hide money troubles from the spouses. This can mean that your spouse is blindsided by financial troubles, such as a home loan rejection. Resist the urge to “get creative” with your accounting and be honest with your partner—together, you can build financial stability and trust.

Youngest children:

Parents often dote on younger children, giving in to their demands for new toys or clothing while growing up. Unfortunately, Dr. Bacchus says that this precedent makes it difficult for you to impose any self-discipline on your own financial affairs. Younger children are often more social than older children, prioritizing dinners with friends, shopping trips, and expensive vacations over financial prudence. To combat overspending, Bacchus recommends that you create a “social budget” for each month. Set aside a fixed amount of cash for social expenditures, like coffee with friends or dinner and a movie. Using cash helps keep you accountable for how much you spend—teaching you to make responsible spending choices.

Only children:

Like firstborns, only children are perfectionists who are extremely responsible with their money. You pay your bills on time and have a great credit score. However, Dr. Bacchus says that approval from others is essential, which means that you’re more likely to overspend in an effort to impress. Are you living beyond your means? Even if you pay bills on time, you may not be saving for future goals or investing in your retirement. If you spend beyond your means, cut down on shopping and social expenses. Instead, make regular savings a required part of your monthly budget.

What do you think—do your birth order traits affect your personal finances?

Don’t Let Your Emotions Get the Best of Your Finances

Pauline Hammerbeck — Thu, 12 Apr 2012 13:09:44 +0000

Confusion, fear and an inability to stay grounded often drive people to do dumb things with their money, says Carl Richards, author of the New York Times Bucks Blog and the newly released book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Your Money. This chat with Richards is part two in our money-happiness series (part one, Sometimes Money Can Buy Happiness). The key to avoiding disastrous financial decisions? According to Richards, it’s understanding that money management isn’t about getting rich, but getting what you want.

Allstate Blog: What’s an example of that? Richards: The classic one is that we buy high and sell low. In 2006, did you become a real estate investor, like so many of us did? In ’08 did you swear off equities forever? And, now, are you feeling, like ‘Hey maybe I should be buying back in the stock market?’ We sell when everyone else is scared and buy when everyone feels great. And we just keep doing that. AB: What’s a good way to resolve that? R: We have to realize money is emotional. Let’s stop expecting it to be like a math problem, like it should be 2 + 2 = 4. It’s not. [Money] represents our biggest goals and dreams. We also don’t talk about money enough. How many late-night arguments have you gotten in over the credit card statement? Instead of [arguing about the money spent], let’s talk about why you spent this money. AB: So, where should a money talk begin? R: Start with your current [financial] reality. Get really clear about [it]. I used to think that was easy, but the more I talk to people the more I realize people don’t know where they stand. So, build a personal balance sheet. And if you don’t know what that is, do not be embarrassed—nobody else does either. Use Google. AB: What next? R: Start to put a framework around where you want to go. But don’t get too tied up in that. People get so nervous, like, ‘Where am I going to be 30 years from now? I have no idea!’ That’s fine. Where do you think you “might” want to be? The process of getting clear about where you are today, and having those discussions of where you want to go, will lead you. AB: One of the really interesting things you talk about in your book is the idea of personal responsibility. You’re a rare voice in that. R: We all make [financial] mistakes, but we have a choice. We can sit around and blame Wall Street, the big bad banks, credit card companies, a family member, business partner, spouse … but as long as we stay in that game—of just finding someone else to blame—nothing will change. AB: Why do you think people respond that way? R: We’re making very important decisions under an extreme degree of uncertainty, and it leads to a feeling of lack of control. I don’t know if there’s anything scarier to humans than lack of control. Instead, it really helps to focus only on the things you can control. AB: Like what? R: Like, how the amount of money you save will have a far more dramatic impact on your financial future than the rate of return you earn. We spend so much time searching for the best investment, or trying to get the highest return, instead of figuring out how to save a little bit more (or maybe how to make a little more; there are two sides to that). So, focus on what you can control—how much to save, what your expenses are, what the tax consequences of your decisions are, etc. AB: And then? R: And then realize that, when it comes to investing, this really is a long-term game. Everyone says ‘invest in a diversified index fund, it’s a long-term investment,’ but the average hold time is less than two years. You would never plant an oak tree and dig it up every week to check its roots. Long term means long term.

Retiree: How the World Sees Me

Brendan — Fri, 02 Mar 2012 15:09:36 +0000

Being retired is often misunderstood. Younger people may think it's an extended vacation, older people may think it's an opportunity to finally be who you want to be. Some may even think you're out of touch. The reality is often far from the perception, but fighting those stereotypes can be exhausting.

Sometimes, Money CAN Buy Happiness (for a little while)

Pauline Hammerbeck — Thu, 01 Mar 2012 17:42:02 +0000

Laura Vanderkam offers a total rethink about financial planning in her new book, All the Money in the World: What the Happiest People Know about Getting and Spending. Every dollar is a choice, she says. So when you think more broadly about how you spend it, you’ll find that money can buy happiness. The Allstate Blog caught up with Vanderkam to talk about money and happiness (part one in a series; part two, Don't Let Your Emotions Get the Best of Your Finances), why extreme couponing might be a waste of time, and why you should keep on enjoying those morning lattes.

ALLSTATE BLOG: Many personal finance books focus on the tiny expenditures that take a cut out of budgets. But you tell people to keep those small indulgences and, instead, scale back the big-ticket items.

VANDERKAM: Small indulgences have an outsized effect on happiness. Buying a house and buying a latte will both make you happy when they come into your possession, but you only buy a house once every few years (or decades). You can buy a latte three times a week, and you’ll enjoy it every time. When it comes to happiness, the general thrust of the research is that frequency trumps intensity.

AB: So, lattes trump McMansions?

V: A house, a fancy car, or expensive furniture certainly make you happy when you buy these objects. But then you adapt to them. Happiness research is finding that variability forestalls adaptation. That’s one reason that travel, and getting together with friends, tends to make people happier than their furniture. Furniture is always the same. Every trip is a new adventure.

AB: You also say that, rather than spending loads of time scrimping (extreme couponers come to mind), people should invest time in earning more. So … more work makes us happier? V: Work can make you happy if you choose the right kind of work. These days, many people moonlight by doing something creative—the thousands of merchants on Etsy and Zazzle come to mind. But even if you like nothing more than sitting on the sofa watching TV, people change jobs pretty frequently these days. Positioning yourself to get a higher salary at your next job means you can spend less time hunting around for discarded coupon circulars and more time watching your shows. AB: And then there’s your take on retirement … the idea that the allure isn’t about “not working” but a result of people’s dissatisfaction with their current work. V: If you’ve been stuck in the grind for years in a job you don’t like, the lure of retirement is freedom. But a better question than the exact day you want to retire is what kind of work you’d enjoy so much that you’d never want to retire from it. What if your gig was something part-time and flexible? What if it tapped your hobbies? And then, here’s the real question: how can you get into some kind of job that looks a lot like that now? You don’t have to wait until age 65 to live your dreams. AB: Love that. You also suggest couples look at expenditures as a series of choices (like a spendy diamond engagement ring vs. 100 date nights after you’re married). V: When you’re in the middle of planning your nuptials, it seems very important that you get the details right. It’s hard to picture yourself, 10 years hence, exhausted from work and caring for three children under the age of six. So the fact that the amount of money you’re about to blow on a wedding reception could pay for a cleaning service for years never enters your mind. One way to try to think long-term is to talk to couples who’ve been together for 10 to 20 years about what ways they think money could have made their lives easier during that time. Then, go ahead and plan a great wedding. But start saving some money, too, for those life enhancers older couples tell you about. AB: What advice do you have for people who are finding it a rough go in this economy? V: A key skill people need to learn in this economy is how to be entrepreneurial. We can no longer count on somebody giving us jobs. Often, we have to make our own. This involves asking several questions: what skills do I have, or could I learn? Which of these will people pay me for? How do I find those people?

AB: So, what’s in your joy budget?

V: These days, I buy more lattes. I buy more flowers. I try to get together with friends and “make a fuss” for social occasions. But we spend less than we could in other areas that don’t make us as happy, like clothes. While I was writing All the Money in the World, we actually moved from New York to Pennsylvania, in part for the lower cost of living. Splurging on what makes you happy, and scrimping everywhere else sounds pretty smart to me.

AB: To us too. Thanks for chatting.

Photo: Michael Falco