Financial Help for Our Visitors
Some of the Financial Questions and Answers Provided by Free Financial Advice
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I don't quite know if the question I have still falls under the "free advice" you are accustomed to giving out. I have worked for a company straight out of college that offered "profit sharing" sharing in place of a normal 401K through a broker (AG Edwards). Perhaps my naivete got the better of me that I never pursued monthly statement of this so-called profit share, nor a signed document that validated its legitimacy. I have since resigned my position in the company and have heard that my resignation forfeited any right to this profit share. Is this true? I have never signed anything nor was I ever presented a contract to this effect and was given the impression that this money could be rolled over much the same was as a 401K.
Unfortunately, profit sharing plans are not regulated with the same strict standards as a 401K plan and many of these plans are often open to interpretation or written very specifically to benefit or protect the company rather than the employee. Also, sometimes profit sharing plans do not vest until a long period of time (5 years or longer). My best advice for you is to search all of the documents that you have that refer to, mention, or define the profit sharing plan. I would read these materials and try to discover what the plan was designed to do in your case (voluntary resignation). If you can't find any information about the plan, you should be able to contact an HR rep at the company and ask them to provide you with a copy of the original plan you participated in. If you find out that you are indeed entitled to receive some of the profit sharing, then you should notify your ex-employer, in writing, that they are in breach of their profit sharing plan. If this doesn't resolve the matter, I would seek legal advice to help you recover the money that you have earned.
If you can't find anything in writing to prove that you are owed money it is very difficult to make any kind of a case.
I have managed to become over extended on my credit cards. As a result, I became past due on most of my accounts. I called each creditor and most lowered my interest and/or payments. I've been making fixed payments to one creditor with the knowledge that my account is now closed. Today, I called and asked several questions and found out I am in R9 and my account has been written off. I've had a friend tell me that paying on an R9 account is actually worse than paying nothing b/c it keeps the account active, therefore, being constantly reported to the credit agency. Is this true? I am really trying to straighten out my credit so I need to do the best thing.
I did a little research on this (since my knowledge on this subject is a little rusty). Here's what I found:
You should try to pay off the debt, even though it is charged-off. Charged off debt is still collectible debt. And by paying off charged off debt, it shows a good sign to future creditors that you have made an effort to pay your debts.
The charged off account will fall off from your credit report 7 years from the date it was first charged-off, regardless of whether or not you pay the debt. That means that by making payments on the account, it will not hurt your credit any further.
I've put some excerpts from one of the places I researched below. Also, I'm glad to see that you're doing something to improve your credit. Good luck,
(excerpts below are from www.creditmatters.com)
How Long Will Charge-Offs Stay On My Credit Report?
I heard that a charge-off is removed automatically after 7 years; is this true? And is the countdown date of the charge-off from the first time it was charged-off or does the date renew every time the item gets sold to another collection agency?
Good news all the way around! You heard correctly: a charge-off cycles off of a credit report after 7 years. And, that 7 years is calculated from the date of the original delinquency that led to the charge-off (that's even earlier than the charge-off itself!). No matter how many times the account is sold to a new company or collector, it still cycles off a credit report 7 years from that original missed payment.
Moreover, such information is automatically removed from your credit file when the reporting period ends. You don't have to do anything or contact anyone—it simply "ages off" the report. You might want to check your credit report a few months after the charge-off was to be removed just to be sure it really has been (sometimes with older accounts the original date of delinquency has not been reported to the bureau). If you find that it is still there, you can dispute the charge-off as outdated information through the credit bureau.
Does A Charged-Off Account Remain Collectible Even If It Has Fallen Off Of A Credit Report?
Once an account has been charged off and is off your credit report, can you still be sued, have wages garnished, or have liens put on your property?
Even though the term "charge-off" means that the creditor or lender has written off the debt as a loss, this does not necessarily mean that the debt is forgiven. Depending on the type of debt and on your particular state laws, the lawsuits, garnishments, and liens you refer to are all actions that may be allowed in some collection processes on some types of accounts. These types of actions, if completed successfully by the collector, would show up on your credit report in the "Public Records" section. Even though you may have had good-credit intentions, the use of these types of public actions may be viewed by future creditors as a sign that you cannot or even will not pay your debts as promised.
Because of this, it might be worthwhile for you to contact the creditor on this account and discuss the possibility of setting up a new payment plan. Even though this account has fallen off of your report for now, new notations that you have paid off this debt could be placed on your report. And current and future credit grantors would likely take a positive view of making such an effort to pay off an old debt. By working to pay this old account off, you might not only be improving your credit, but also avoiding any future collection actions that might occur.
I have a credit card account with a low APR (9.9%). The account is current. When I checked my statement today, I found out the interest rate had been raised considerably. I called the creditor and found out it had been raised due to my credit report. I informed them that I had been having trouble with my accounts but am making steps to clear things up. They informed me they are allowed to raise my interest if the information from equifax is correct. Is there anything I can do?
By law I believe your credit card company has the right to raise your APR. You may want to call them and explain (try not to threaten) that by raising your interest rate it will make you less likely to be able to pay them back and that you may have to focus on paying down your other accounts first. Also, if you have never missed a payment to this particular credit card company, tell them that you have never missed a payment and that you demand better customer service from them. If none of that works and they won't make an exception for you, then your only alternative is to look for another lower interest rate card or use a balance transfer from one of your other cards. And if your other credit card companies act the same way, these choices will be difficult and you may have to pay the higher APRs until you can find a way to get lower interest rates. The only other ways I can think of for you to get lower rates would be to get a loan based on real assets (a house, car, etc) or to have a family member with great credit co-sign or apply for a new card in your name (not a desired option, but in some cases it could help).
I have a question I hope you can help me with. In October 2000, my husband and I had to file bankrupcy, it was final in January 2001. Now, someone is trying to get us to refinance. We have a first mortgage of 10.293% and a second at 13.% and a third at ?% interest. The total of the three mortgages monthly is almost $1600.00. They want to combine them all for a little over $900 a month at 8.5 or 8.75% for 2 years fixed and then (after establishing more credit rating after the bankruptcy) refinance. The problem is I'm afraid of what the interest rates would be then. Would this be a smart move? Please advice as to why or why not?
You are always taking an interest rate risk when you rely on an interest rate at some point in the future (in your case, 2 years from now). Here are some things to consider:
If you refinance at this 8 - 8.5% rate, what is the rate that it reverts to after 2 years (I'm assuming it's a fixed rate for 2 years at which time it converts to a variable rate.) Will it likely be higher than your combined interest rate right now (12-14%)? If not, then you don't have much to lose, and at worse case you can refinance in 6 - 9 years when the bankruptcy leaves your credit report.
Are there any large fees or hidden costs in this refinancing? Read the fine print closely and, even though it's okay to pay refinancing fees, make sure they aren't obsessive.
Is there a prepayment penalty on the 8 - 8.5% loan? If so, how big is it?
When you refinance in two years you have two risks: the risk that you will not be able to refinance at a rate lower than what you have today; and the risk that interest rates will have moved significantly higher. No one knows for sure where interest rates will be in two years, but my personal thoughts are that they will remain relatively low. Besides, you can't control interest rates, but you can control your credit.
If you decide to take this refinancing make sure that you do everything you can to increase your credit over the next few years. Although there is no way to remove the bankruptcy from your report until 6-9 years (depending on what type of bankruptcy you filed), there are other ways to improve your credit. You should check with a credit repair company or do your own research to find out how.
I have a question regarding how best to consolidate/eliminate my/our credit card debt with as little damage as possible to our credit... we are needing to purchase a larger home, and will possible need to purchase a newer vehicle soon. Currently our credit card debt is almost equal to our combined yearly income... we just refinanced to combine our 1st and 2nd... I have been off for nearly 10 months on disability, and will be terminated by early October because I am unable to return to my previous position without restrictions... I have transferred balances to get a better rate, and have asked to get a better rate, I have been denied for consolidation "loans" thru the bank and also a major credit card (we have 2 separate very high balance accounts with them)... our credit is "good", no major hot spots, except for too many and too high balances... I've tried closing all accounts that we do not need/want/use to clean it up... Help! I've wanted to do something to stop this insanity, but don't know how best to do this as quickly as possible and with as little damage as possible... Thanks for your help...
Sorry to hear of your hardship. I'm not sure that it is possible to both eliminate debt and keep good credit. You need to weigh your options and decide which path to take. Here are some of the options and questions to ask yourself:
Will you be able to pay off your credit card debt (or at least keep making the minimum payments)? If not, then you definitely need to do something about it. Are you planning to find a new job after October? If not, and your income declines, it may become impossible for you to keep up with your debt payments.
If you decide to reduce or eliminate your debt, how far do you want to go? Filing for bankruptcy will hurt your credit for 10 years but will remove more of the debt burden. Negotiating with your debtors will hurt your credit (not as much as bankruptcy) and will not reduce your obligations as much as bankruptcy.
If you decide that bankruptcy is the solution, I recommend consulting with an adviser that specializes in bankruptcy. You can find information about its consequences and how to proceed with it online or at most local city hall buildings.
If you decide to explore other opportunities to help reduce your debt, I have some links on my site to companies that provide this service: http://www.free-financial-advice.net/consolidate-debt.html
Also, after your credit is tarnished, there are ways to rapidly rebuild your credit (takes a few years instead of 10). I suggest learning more about these ways if your credit becomes damaged.
I have a question about 401K vs Debt.
I have about 35k in unsecured debt right now and I have a 401k with about 20k in it. I recently lost my job. I was thinking of cashing in my 401k and using the money to pay off some of the debt. I'm not making a dent in it and I'm afraid that once the severance runs out I won't find a good paying job and will have to declare bankruptcy.
Good idea or not??
You stand to make a tough decision. Here are some key points to consider in making your decision:
The money invested in your 401K is very important to your being able to retire.
If you cash out your 401K, you will have to pay taxes on the $20,000 plus a 10% penalty. You will only get to keep probably half of it.
If you file bankruptcy, your 401K will be protected but your credit will be hurt for 10 years.
Instead of filing bankruptcy, another option is to work with your lenders and credit card companies to renegotiate and even reduce your debt. This will hurt your credit but not nearly as badly as bankruptcy. My site has links to several companies that supply these services: http://www.free-financial-advice.net/consolidate-debt.html
Bad credit can be fixed rather quickly (a few years) if you learn how to repair your credit.
I HAVE $402 CAR PAYMENT FOR ABOUT 4 1/2 MORE YEARS AT 4.9% INTEREST RATE. I OWE APPROXIMATELY $6000 MORE ON THE CAR THAN IT IS WORTH. I WANT TO LOWER MY PAYMENTS. I AM THINKING OF BUYING A $3500-$4000 CAR, SELLING THE NEW CAR AND PAYING THE DIFFERENCE AS AN UNSECURED LOAN. IS THIS WISE? MY CREDIT CARD OFFERS A BALANCE TRANSFER RATE OF 9.9% UNTIL THE BALANCE IS PAID IN FULL. SHOULD I TRANSFER THE $6000 TO THE CARD? I WOULD WANT TO PAY IT OFF IN TWO YEARS; WOULD MY PAYMENT WOULD BE LOWER THAN $402/MONTH AND FOR LESS TIME? WHAT IS YOU ADVICE? ALSO, MY VEHICLE INSURANCE WOULD BE LOWER PER MONTH.
I definitely think it would make sense to buy a less expensive car. Here's a scenario of what I think you're proposing, and the effect it will have on your payments and future debt:
You pay $402 per month for the next 4 1/2 years.
At the end of the term, you will own a car worth about $10-12k (estimated)
You'll make $21,708 in total payments (4 1/2 years x $402)
With a new, $4000 car:
A 3 year loan on a used car (at 9%) would be about $127 per month.
To pay off $6,000 on your credit card (at 9.9%), you'd have to make 24 payments of about $280
Your payments could be lower if you can find a better rate to finance the car, or if you have the ability to transfer your CC balance to a lower rate. Also, in some cases, if you buy the car from the dealer, they will offer you a decent interest rate on both the car ($4000) and they will sometimes even refinance the amount you still owe on the trade in ($6,000).
Although the net payments will be about the same with the new car, you will have completely paid off the $6,000 in 2 years and the car in 3 years.
Your insurance rates will drop
The only other thing to take into account here is the resale value of both cars. In 4 1/2 years, your $4,000 car will probably be worth $2,000 (a $2,000 decline). However, your current car, which is probably worth about $15,000 today (that's my guess, given the interest rate and the $6,000 amount you mentioned), will probably be worth only $10,000-12,000 (a decline of $3,000 to $5,000).
In this case, you've made $11,100 in payments ($6600 to your credit card and $4500 on the car)
The difference between the two:
You save at least $10,000 in total payments by buying a less expensive car
In 4 1/2 years, your current car will probably be worth about $8,000 more than the $4,000 car
There are lots of estimates and assumptions in these numbers, if you can find more favorable interest rates and spend less than $4,000 on a car, the scenario becomes more advantageous for you.
I like your site. It makes sense and seems honest. I have just found out about online services like passport and Checkfree. I started to enroll but balked when I realized I would have to give my passwords to every account to them. What is your opinion of this?
Personally, I'm not too worried about giving out my passwords to sites like Checkfree and Passport. They have good reputations and, in my opinion, there isn't much risk that someone will steal your information.
If you are only interested in paying and receiving your bills online, this should be easily attainable at your bank. Almost every bank offers online banking, where you can receive and pay e-bills online (like Checkfree). If your bank doesn't offer these services, try switching banks.
I have a $7,200 bonus coming due October 1. I don't know if I should pay off my car (6%) or 4 other little loans, that will leave me with money left over. All of the little loans have a higher finance charge. Either way, I will reduce my bills by $400 a month. Which is better?
I'd recommend paying off the loans with higher finance charges first. You may even consider investing any money you have left rather than spending the rest of the money paying off your car loan. That way you can withdraw the money if you need it for something else, and chances are, you'll earn more than 6% on the investments.
My wife and I currently make $60K a year combined. We have a mortgage payment of $650, a home equity loan payment of $120, but we have been paying $325 a month, $10K in credit card debt, and other bills.
From our home we drive 2 hours round trip back and forth to work. We want to move closer to work, but the cost of living in the city is much higher. Also, we feel strapped with paying bills because of the $10K credit card debt. We have little savings and are stretched thin each month with bills. We were thinking of selling the stock investments we have in order to pay off the credit card debt and possibly move closer to work. The sale of the stocks will deplete our portfolio and we will have to start over.
I am 30 and my wife is 26. We feel we are still young enough to save and invest if we deplete our stock portfolio, but on the other hand, it is hard for us to let go of this investment. What do you recommend?
PLEASE give us your advice in this matter. Thank you!
I'll answer your question with a few questions that youll need to truthfully answer before making your decision:
- If you are so stretched paying bills right now, will you be able to afford living in a higher cost area? Even if you pay off the credit card debt, are you sure you'll be able to stay out of credit card debt and save money when you move? Surely your mortgage will increase if you move to the city. Can you sell a car and take public transportation to offset the higher cost?
- Also, if you pay off the credit card debt, will you be able to put the money you were paying on your credit card back into a savings or investment account? If not, it may be better to keep your investment and continue feeling stretched until your debt is paid. That way you are more likely to save money.
Overall, paying off your debt with savings isn't a bad idea, especially at your age. Just make sure that you don't go back into credit card debt and that you can continue to save something each month.
MY WIFE AND I EARN ABOUT 45,000 - 50000 A YEAR, WE HAVE 30,000 IN MY 401K AND 10,000 IN IRA'S, 5,000 IN SAVINGS WE CONSIDER AN EMERGENCY FUND AND 1,200 IN A SAVINGS WE USE FOR INCIDENTALS. WE HAVE VERY LITTLE CREDIT CARD DEBT, UNDER 1,000 WE OWE 14,000 ON OUR HOUSE AT 7.5% SHOULD HAVE IT PAID OFF IN LESS THEN 4YRS. WE OWE 4,000 ON A HOME EQUITY LOAN AT 4.5%. I HAVE A 20,000 LINE OF CREDIT ON THE HOME EQUITY LOAN AND HAVE BEEN THINKING OF USING IT TO PAY OF THE HOUSE AND USE THE MONEY WE NOW PAY ON THE HOUSE MONTHLY TO INVEST FOR SHORT TERM EXPENSES WE HAVE COMING UP SUCH AS DAUGHTERS WEDDINGS FOR 2 OF THEM IN THE NEST 5 YRS AND COLLEGE FOR A THIRD WHO WILL BE STARTING IN ABOUT 4 YRS( WE ARE ALREADY IN THE PRE PAID TUITION PLAN IN OUR STATE)
THE HOUSE PAYMENT IS ABOUT 350.00 MONTHLY AND WE PAY AT LEAST 200.00 A MONTH ON THE HOME EQUITY LOAN THAT WOULDN'T HAVE TO CHANGE. DOES THIS SOUND LIKE A SOUND PLAN?
Your plan sounds fine to me. It makes sense to use your line of credit to pay off your higher interest rate loan. However, if you don't plan on paying off the line of credit soon (the next few years), and the rate is adjustable, you face the risk that the interest rate increases to more than the fixed rate you were paying for the original loan.
I have a question regarding prioritizing my debt. I would like to pay off my car loan with in the next year by paying large amounts on the principal (i.e., tripling my payments). However, a friend told me that it's not best to pay off loans on depreciating items (e.g., car). I have a limited income and currently my credit card and car payments consume most of my income making it difficult to save. I am hoping that if I pay off my loan and credit card I can use the freed income for savings. Any advice you could offer would be helpful. Thank you.
I think it is a great idea to pay off your car loan quickly, especially if you are paying a higher interest rate. However, if you have credit card debt at higher rates than the car loan, you should make the extra payments to pay those off first.
Hello, I'll try to condense this as much as possible, although it's complicated. My husband and I live on a farm in upstate New York and we are 68 years old. About 20 years ago he started selling garden tractors on our farm and he also repaired used ones and then added chain saws and attachments for the tractors. The business grew and now people are coming from all around the county and beyond. This should not be a problem, but my husband is not a businessman at heart. He has gone further into debt each year until he now owes more than $100,000. Actually people take advantage of him, I think, because he is good-hearted. They trade him wood or junk tractors for something better or they go bankrupt or they simply don't pay their bills. The floor plan interest is enormous and people are not buying much because the economy in our area of New York is terrible. I am no longer able to hold down a full time job. When I did work, I was able to save a little money which I put into CD's. This grew to $17,000. I hope I didn't make a mistake, but I withdrew one of the CD's and invested it in Corning stock when it dropped to $2. I have no idea what else I can do to help reduce this debt. Of course, what I was really hoping for was that Corning would rebound (our friends who work there think it will) and I could use that money to reduce his business debt.
He says if he could pay off his debt, he would get rid of the business, an excellent idea. He is getting a loan from a local bank to consolidate all his debts and I think that will take place this week. However, $80,000 in monthly payments will take us way beyond any good years we might still have. Is there anything I can do, or we can do to get rid of that debt quicker?
Tough question, I know, and I'm not expecting you to be a miracle worker.
I'm sorry to hear of your situation. My grandfather was a farmer who was continually taken advantage of because of his good heart, so I know how you must feel. And, unfortunately, I can't work any miracles but can maybe help you become aware of what some of your options are. Here are some bulletpoints with some of the alternatives I can think of. Remember, there are lots of other options available so don't let this list limit you.
You could hire a consultant or experienced accountant to help you scrutinize your business and find ways to make it profitable. This would include the following: 1) Make sure you are pricing your products and services properly (stop being taken advantage of!), 2) focus only on the profitable products (whether its the new tractors, the repair work, the chainsaws, etc), 3) lower your expenses somehow, 4) find ways to capitalize on your losses (tax writeoffs, use customer non-payments to negotiate with your creditor / suppliers), 5) negotiate for lower costs from your supplier(s) and raise your prices if you think you are underpricing and finally, 6) don't make unprofitable barter trades in your business just to help another person / friend. As hard as this sounds, you have to think about your own well-being before you go into further debt just to help another person.
If you decide to turn your business around, make a five year plan that offers the chance to pay a lot of your debt off. And remember to include a more aggressive business forecast for years 3 to 5, as the economy should have recovered by then.
If you do not think you can turn the business around, then your best option is to dispose of it right away:
If the business is legally set up under its own business name, then you should be able to declare the company bankrupt and thereby pay the creditors the money you have remaining in the business and leave the business altogether. I assume this probably isn't the case, but if it is, you should talk to an attorney, a tax attorney or even an accountant to explore these options. Although the business would suffer, your credit and personal property would be protected.
If the business is not separate from your other finances, then you still have the option of declaring bankruptcy. You could surrender the assets you have in the business and likely get rid of most of the $80,000 in debt. Your credit would be hurt and it might have some other negative consequences depending on how the loans are secured (by your house, your business assets, the land, etc). It wouldn't hurt to contact a local attorney that specializes in this, or swing by your local city hall to see if they have any brochures that would help you learn more about these procedures in your area. Bankruptcy, although often seen as a terrible thing, can sometimes offer a lot of financial relief. Quite simply, it works by having you and your creditors meet with a judge at which point you work out a deal to pay off your debt. Depending on the level of bankruptcy you declare, you could get rid of almost all of your debt, or you could at least reduce it substantially.
You also mentioned purchasing the Corning stock. Don't be discouraged by low stock prices. If you remember how high stock prices were 2 years ago, you know that times change very rapidly. Remember, at some point the market will turn around and stocks should see healthy rebounds for years to come. A lot could change between now and two years from now. With that said, it's always risky to invest in only one stock, so understand that you bare lots of other risks besides the market risk by just holding one stock. In fact, it's possible (I'm not making a prediction here) for the telecom sector (which Corning is part of) to continue to fare poorly for a long period after the market recovers. You may wish to invest instead in a market-related portfolio or mutual funds. If you believe in tech stocks, the QQQ (Nasdaq 100) tracking stock is a great way to participate in the market and get lots of exposure to the fastest growing companies.
These are all the options I can think of right now. I hope you find a solution to your worries and wish you the best of luck in whatever path you follow!
I'm not sure if you are the person I should be asking this question. If not, please give as much advice as who you think can help me. My husband plays professional Basketball overseas. We were recently talking to our parents about getting a house. They said something about we must pay taxes before we can get a house or basically anything. I don't think my husband has ever paid taxes. We are still young 23 and 24. This is his 3rd year playing overseas. Are we suppose to be paying taxes? How do I get info on what we need to do? Overseas is not our home, we are only here 8 months out of the year. What track should we be on, as far as paying taxes and using that info to get a home. My parents say that many basketball players who play overseas don't have anyone to tell them about filing taxes, and financial planning. And they end up later on in life paying the government thousands of dollars.
We don't want to be one of these people. Please lead us in the right direction.
I am not a tax expert, but I do know that you are legally obligated to pay taxes in the US if you are a US citizen. If you are paying taxes overseas then you will likely have an exemption from many of the taxes, however you will still need to file a return with the US each year. I've attached some links below that will help you learn more:
This link is to the IRS site. If it doesn't work (link will likely get broken in two from this email), go to www.irs.gov, click on "individuals", then "overseas taxpayers".
Here is a link to H&R Block overseas offices. If you can locate a local office, they should be able to help you.
Help! if you can. I am having trouble deciding what to do. I am 46 soon to be 47. I have 9 years left on my house @ 6.5%. I have $8,000 in CD's earning a whopping 3% interest., I invest in a Janus fund every pay period $75. I have a 401K here at work that I put about $200 a month into. I have a modest $5,000 in harley-davidson, walmart and international paper stock. I have got about $50,000 in my 401K here at work. I am wracking my brain (little as it is) trying to decide what to do, with the CD money, leave it in a nice and safe CD or start up an annuity or buy more stock (really scared to). the way it is going now.
I am not sure that when I reach retirement in about 15 years, whether we will have enough money to retire on. My wife also has a 401k and she puts in about $35 per pay check, she just started and has about $3,000 in hers. plus we have a modest savings of about $1,000...........the only bills that we have are our new truck payment $522 per month and our house payment $803, oh we also have two cute money sucking daughters (LOL!)..................I just want to be ready when I hit 62 (preferably 60) to retire comfortably. I do not seem to trust investment counselors, they scare me, they loooong term commitment and some of my money..................could you please help!.............thanks,
I do have some financial advice for you to help you decide what to do with your money:
First of all, to figure out how much money you'll need to retire, check out the following page on my site:
The chart shows that to retire with a residual income of $30,000 per year, and with a life expectancy of 30 years from that date, you'll need to save about $400,000 in order to retire. Look at the chart to find how much you think you'll need, for this email, I'll assume $400k.
The good news is that you are mostly on track to accomplish your goals and you seem to be asking the right questions. Here is the approach I would take in order for you to reach the $400k you need.
Here are your current assets (excluding your house):
$53k in 401K, $8k in CDs, $5k in stock, $1k in savings
Total is $67,000
Here is how much money you could expect to have given a few different scenarios. Remember, these are based on assumptions using historical rates of return and may or may not hold true in the future. My guess is that things are going to return to normal in the not too distant future.
Scenario 1 - Continue as you are, stock market returns 6%, in 15 years:
Your 401k grows from $53k to $127k
Your stock grows from $5k to $12k
The $310 per month you invest in stock and your 401ks grows to $90k.
Your CD (assuming 4% average return) grows to $14k.
Your total retirement funds are $243k, a little shy of what you need.
Scenario 2 - Continue as you are, stock market returns 8%, in 15 years:
Your 401k grows from $53k to $168k
Your stock grows from $5k to $16k
The $310 per month you invest in stock and your 401ks grows to $107k.
Your CD (assuming 4% average return) grows to $14k.
Your total retirement funds are $305k, probably a little shy of what you need.
Scenario 3 - Continue as you are, stock market returns 10%, in 15 years:
Your 401k grows from $53k to $221k
Your stock grows from $5k to $21k
The $310 per month you invest in stock and your 401ks grows to $128k.
Your CD (assuming 4% average return) grows to $14k.
Your total retirement funds are $384k, which is probably enough to retire, especially with your house paid off.
Adjustments to Scenarios - Make the following modifications to your investments to maximize your retirement savings. Add these adjustments to Scenarios 1-3 to calculate your expected retirement funds.
Invest your CD in a higher yielding product (mutual funds). Will add between $8k - $20k depending on if you earn 6-10%.
In 9 years, when your house is paid for, contribute the $803 payment to your investment account (invest in mutual funds, bond funds and cash, but try to keep your portfolio diversified). This will add between $69k and $78k depending on whether you earn 6-10%.
If you can increase the amount of money you invest each month, add $29k - $41k for each $100 you can increase your monthly investment.
Upon retirement, you will always have the equity in your home to fall back on. There are tools such as reverse mortgages that you can use to withdraw money and subsidize your retirement income.
Also, you will likely receive money from Social Security once you retire, you can find out how much this will be by looking at your annual statement. Annualize these benefits and subtract them from the annual retirement income you need to retire (from the webpage table), you may find that the amount of savings you need to retire drops from $400k to as little as $300k.
Similarly, subtract from your retirement income (on the table) any employee pensions that you may be eligible for upon retirement. I hope this isn't too confusing, but there is no easy way to answer a question like yours without looking at all your options. Also, look at the long term when making your calculations, not at what today's market is doing. In fact, if things return to normal, equity returns could rise to 12-14% and you may be able to retire earlier, or with more money than you expected.
I currently have self directed IRA with financial planner (currently worth one hundred thousand dollars) with Scott and stringfellow. The IRA is predominately mutual funds and some stocks. I am unhappy with a loss of 45% over the last three years. I don't know if switching planners will ease my pain. What are my options other than another financial planner?
Do I open an account online? Open an account with an accountant? I would like to recouped my losses post haste,next 3-5 years. Any suggestions would be helpful. We have spoken to our planner about the losses we have incurred and she says stay the course. Very difficult to stay the course if your getting your financial head handed to you. How do I determine if the financial course we are on is the right one. Thanks
I don't blame you at all for being discouraged by your financial losses. I don't think anyone would have expected things to remain this ugly for this long, and you are definitely not alone in your feelings.
With that said, my advice would be for you to stick with your long term plan, or in other words continue to invest your money. Even though the last three years have been remarkably terrible for all of us with money at risk in the markets, changing your investment strategy during a market downturn (which is likely near a market bottom) would probably be worse than holding onto your current investments. Although it's true that you could pull your money out of investments and then return when the market recovers, this almost never happens because, like the downturn, nobody (not your advisor, not the strategists, not even Alan Greenspan) can see the market bottom and by the time everyone realizes that the market is recovering, it will have already risen 15-35%.
Whether or not you are happy with your advisor is a second issue. If you feel that your advisor is dishonest, gives bad advice or just want to move on, that is fine. If you are angry at your advisor because your portfolio is down 45% (which by the way is much better than the NASDAQ has performed), then you may want to reconsider. If you decide to drop your advisor, you could open an account online at any of the brokerages (etrade, schwab, MSDW, etc). You wouldn't have to pay any fees (other than commissions), but you would have to choose your own investments. With one of these accounts, you can buy almost any stock, mutual fund or bond fund you can think of.
So, to answer your question: In my opinion, the best way for you to recoup your losses is to continue to invest your money in the same manner you've been investing during the downfall. Try to view the current low stock prices as a way to lower your average cost by purchasing more shares at this level. If you contribute enough to your savings now, you can recover your losses faster once the market starts to rise again, which should be sooner than your 3-5 year goal.
Anyway, those are just my thoughts. I am an eternal optimist on the US economy and long term market prospects.
Follow Up Question:
How does one who has just started reading money magazine evaluate info provided by a financial planner? I would like to ensure that the best decisions are being made on my behalf with our money. Thanks.
Follow Up Response:
Tough question! Typically one has a high level of trust with one's financial planner and the financial planner is able to explain and convince you as to why the decision is optimal. If you don't trust the decision or just feel that something is wrong, you could take the following steps to help ensure that the decisions are the best:
Find another financial planner and ask their advice on what they would recommend for your money. This could cost you some money but may be worth it.
Talk to your friends and family to see what their financial planners are recommending (or what they are doing with their finances) and see if they have the same issues as you.
Ask your financial planner for a list of references - both professional references and other customers. You can then contact some of these people to find out if they are comfortable with your planner's methodologies.
Also, ask your financial planner to better explain why he/she made the decisions he/she made for your money. If you have questions or concerns, force your planner to either remedy them or lose you as a client.
Keep reading money magazine, kiplingers personal finance magazine and all the other money management info you can get your hands on (including research on the internet) and decide for yourself what you think is right. If you want hands on experience, enroll in a local junior college class.
It has occurred to me that instead of paying a mortgage of 50K with interest of-say- another 50K I would be able to walk into my agents and offer them 50K on the table and not have to pay the interest, however I don't have 50K in cash sitting in the bank and the people I know that do have that sort of money are too closer friends to be mixing business with pleasure.
I am not asking you to fund me £50,000. I am asking you if you could help me in my search to find a way around this problem I have with understanding why I have to pay more than twice of the amount that is agreed that the house is worth!
If you want to contact me please do I would encourage your input in this matter and appreciate any help I can get, alternatively you could pass this on to a friend that you think could help me!
Many thanks (from the UK)
I am somewhat perplexed by your email. If I understand it correctly, you are saying that you have trouble understanding why you are obligated to pay back more than the original loan amount in which you borrow from a lender. If this is the case, I'm not sure that I can accurately explain the answer to your liking, but I'll give it a shot anyway...
First, the reason you have to pay back more than the original loan amount is because you have to pay back the loan amount, plus an interest rate. The longer it takes you to pay back the loan, the more interest you will pay. Also, the higher the interest rate is, the more interest you will have to pay.
So then the question becomes, Why do you have to pay an interest rate?: Interest rates exist for many different reasons. Here are a few that I can think of:
To compensate the lender for the time value of their money. In other words, the person that loaned you the money could have, instead of lending it to you, invested it in the stock market or a savings account and earned money on it. By giving you the money they forego other earnings and therefore deserved to be compensated for the loan.
To compensate the lender for any risk of the loan not getting paid back.
So that a lender can stay in business. If a lender only received the original loan amount back, then there would be no banks in business, as they would run out of money and could not afford to pay out interest on their savings or to manage the documents associated with a loan. This is especially important considering all the people that never pay back their loans.
Interest rates encourage borrowers to pay back the loan. By charging a fee on the outstanding loan balance, a borrower has incentive to pay the loan off quicker than if there were no interest rate.
If you can find the right lender, you may not have to pay any interest rate at all. For example, if a family member loans you money they may not care if you pay them interest. Other interest free loans could include a credit card that offers 0% interest for a period, or even sometimes when buying a new car they offer 0% financing.
See Also: Financial Help