How Much of My Savings Should Go to Annuities?

Prioritizing your income and deciding how much should go where can be difficult, especially in today’s economy. One of the toughest decisions many Americans face is how much of your savings or 401(k) should go towards annuities. CNN Money.com recently published an article on this topic, in response to a question from an Ohio taxpayer. You can find a section of their answer below, or check out the full text at CNN Money.com.

Question: What portion of my 401(k) and savings should I move to annuities? -- Jack S., Alliance, Ohio.

Answer: That depends. Many annuities have such onerous fees and other drawbacks that you're better off avoiding them altogether.

There's one type, though, that I've long believed can play a useful role in some retirement portfolios. I'm talking about immediate income annuities, where you turn over a lump sum to an insurance company and in return receive guaranteed monthly checks for life, regardless of how the economy and markets fare.

But while most people should at least consider devoting some money to such an annuity at retirement, don't assume that buying one is the best move for you.

For one thing, retirees automatically qualify for an immediate annuity of sorts -- Social Security, which provides guaranteed, inflation-adjusted lifetime payments. If you'll be collecting a pension on top of that, you may very well have the assured income you'll need to cover enough of your expected outlays in retirement without an annuity.

What's more, if you have large balances in your 401(k)s and other retirement accounts, you might be able to draw enough from them with little risk of outliving your assets.

Continue reading at CNN Money.com…

Bank Makes Rewards Harder to Earn With Card Changes

Although credit card companies try to promote their reward programs as valuable benefits to their customers, new reports suggest they less benefits to consumers then you would think. Earlier today WalletPop.com put together a consumer warning post about CitiGroup and how they are making it difficult for their customers to take advantage of their so called “rewards” program. Check out a section of their article below.

We've written recently about some tricky things credit card companies do that can whittle away at the value of your hard-earned rewards, and recent news reported in the Consumer Reports blog illustrates that banks are still trying -- and trying very hard, in some cases -- to keep you from getting those perks.

Consumer Reports says that Citigroup recently switched most holders of its Dividend Platinum Select MasterCard over to its Citi Dividend World MasterCard. One major difference between the two cards is that the Platinum Select offered 2% cash back in several commonly used retail categories like supermarkets, gas stations and drugstores. The World has a different rewards structure that puts the onus on the customer to keep earning their rewards.

With the World rewards program, users can earn 5% cash back on hotels and rental cars. This blog post says most of the new rewards are travel related, which is in line with the new card's enhanced benefits of trip insurance, lost-baggage reimbursement and the like. But if you got the card hoping to earn a nice cash-back bonus at the grocery store, you're out of luck. But there's an even bigger caveat: The reward categories change every quarter, some have lower redemption rates (in line with the old 2% rate) and - here's the kicker - customers have to remember to sign up for them every three months. No sign-up, no rewards.

Linda Sherry, director of national priorities for advocacy group Consumer Action, blasts the practice. "The idea of having to contact the company at quarterly intervals to continue your rewards is inconvenient and seems designed to avoid paying rewards," she told WalletPop via e-mail. What's more, she added, there's nothing in the CARD Act that prevents card issuers from pulling these kinds of switcharoos after you've already gotten established with your card. "This is precisely the reason we believe restrictions on one-sided contractual agreements is so important," Sherry said. "The current practice leaves consumers as sitting ducks."

Perhaps even more frustrating to the changes in the reward program is the fact that Citi issued new card numbers for every customer. In other words, if you had the old card and had any auto-bills or recurring payments set up, you'll have to tell all of those

Continue reading at WalletPop.com…

Labor Day Travel Savings

Thousands of Americans getting ready to celebrate this Labor Day weekend, but in today’s economy traveling has become a luxury for many families. To assist struggling taxpayers, CNN Money has put together the following list of travel tips.

Lodging deals

There are still plenty of great deals to be found if you book a room now for this weekend. "But don't delay," advises Bob Deiner, president ofGetaRoom.com. "We expect hotels to raise rates right before the weekend."

Deiner's low price pick for Labor Day: Orlando. The Disney Regal Sun is offering deals as low as $55 a night.

To get the best deal on a room, check rates online first. Then, call and ask for the unpublished rate. Deiner claims, "Typical savings by phone is 10 to 25% lower than the lowest online rate."

Continue reading at CNN Money.com…

New York Cuts Fees for College Savings Plan by Almost 50% to Aid Families

The state of New York is giving families who participate in their 529 college savings plan a break, by cutting fees almost in half. Comptroller Thomas DiNapoli claims that the reduction will help families save more for college and assist residences of the states who are strapped financially. Bloomberg published a great piece on the announcement; you can find a snippet of it below or read the full article at Bloomberg.com.

New Yorkers who participate in the state’s 529 college savings direct plan will see fees cut by almost 50 percent, New York State Comptroller Thomas DiNapoli said.

The direct plan’s total annual asset-based fee declined to 0.25 percent from 0.49 percent starting Aug. 29, according to a statement today from the comptroller’s office. The reduction could result in savings of almost $20 million annually for plan participants.

“Family budgets are getting tighter, but families still need to save for college,” DiNapoli said in the statement. “When you’re saving for college, every dime counts.”

The reduced cost means New York’s fees are among the lowest for directly sold 529 plans, said Laura Pavlenko Lutton, editorial director in the fund research group at Chicago-based Morningstar Inc. The New York plan offers investors 16 investment choices from Vanguard including three that change the investment mix as beneficiaries near college. Account fees for age-based options, which are the most popular nationwide, range from 0.20 percent to as high as 2.27 percent, Lutton said.

‘Pressure on Fees’

“There’s pressure on fees, which is a great thing for parents and grandparents investing in 529 plans because that’s more of your nest egg that you get to keep,” she said.

Personal Savings Rate Climbs to 1-Year High

From CNNMoney.com:

Americans saved a slightly larger chunk of their disposable income for a third straight month in June, pushing the personal savings rate to its highest level in a year, according to government data released Tuesday.

The Commerce Department reported that personal savings totaled $725.9 billion, or 6.4% of post-tax income, up from $713.9 billion, or 6.3%, in May. The rate was the highest since June 2009, when the reading came in at 6.7%.

"The rebound in the savings rate is encouraging," said Mark Vitner, senior economist at Wells Fargo. "It means that spending is likely to rise more in line with income whenever it grows."

In addition to lifting spending, a higher savings rate also means that households have a better cushion to pay down debt.

The report showed that personal income and spending were virtually unchanged during the month.

10 Ways to Increase your Savings

With a record number of taxpayers living paycheck to paycheck, these days many people are finding it difficult to save money. We all work hard for the income we earn and it is nice to be able to put a little away for the rainy day – so, I have put together the following list of saving tips.

1. Set a Savings Goal

If you are serious about saving money, then I highly recommend the following: set a goal, a timeline, and a plan of attack. Depending on your unique financial situation your goal might be to save up enough money for a new car, or it might be to just put extra funds in your savings for that rainy day. Whatever your goal is, it is always helpful to identify it, and work towards achieving that goal.

2. Focus on Paying Off Debts

Many of us have credit cards, and are simply paying the minimum monthly payment. Do you believe sending monthly payments to a creditor can significantly inhibit your ability to save? Believe me, it does. Therefore, you should focus on paying off your credit cards as soon as possible. It is always a good rule of thumb to begin paying down cards with the highest interest rates, which will help you save as much of your money as possible. As you work towards paying these cards off, it is important to not use them any more then you absolutely have to. A good habit to get into is to pay the monthly balance in its entirety each month.

3. Put Together a List of Monthly Expenses

In order to assess areas that you can save, you should put together a list of all of your monthly expenses. Then, determine which expenses are required (rent, car payment, health insurance, etc.) versus those that are unnecessary (such as coffee, landscaping, gym memberships, etc.) By making these two separate lists you can focus on finding ways to save.

4. Trim "Unnecessary" Expenses

After your list is complete, you should identify all the ways you can trim your unnecessary expenses. This could include eating out less, brewing your own coffee, mowing your own lawn, downgrading your cable or satellite service, or finding a gym with a less expensive membership fee. It might be difficult to go without some of these luxuries at first, but once you begin seeing the result of your savings you will be encouraged to trim more and more!

5. Reduce Household Monthly Expenses

Even though you cannot simply get rid of some monthly household expenses, you may be surprised to see how much money you can save with a little effort. When your lease is up ask your landlord to reduce the rent, or move to a cheaper place. If you own your home you might be able to refinance with a lower interest rate. Additionally, you should check your insurance policies to make sure you are not “over insured,” and paying an inflated premium. You could even start an office carpool to lower your gasoline bill. Be creative; you are sure to find a few ways to reduce your monthly expenses across the board.

6. Stick to your Budget

Millions of families across the country make a monthly budget for expenses, but sticking to that budget is often easier said then done. You should make your budget a priority, and get your whole family involved in the process. Maybe invest time in having a weekly or monthly family budge meeting.

7. Become a Discount Traveler

Summer is often the season when families take a vacation. However, your vacation does not have to break the bank. You could save money by looking for cheaper hotel rooms online, or take a frugal camping trip this year.

8. Review Tax Withholdings

While looking for ways to cut your expenses, it is also a good idea to look over the taxes being withheld from your paycheck to make sure you are not over or underpaying. If you overpay the government each month then you are basically giving the IRS an interest free loan. Instead, you could get more money in your paycheck, and put that money into a savings account.

9. Interest Earning Savings Account

As part of your plan to save money, you should consider looking around to find a savings account with the best interest rate possible. If you have enough spare cash you might be able to put the money into a high interest savings account. However, these accounts often have restrictions such as a large minimum balance.

10. Put Money from Each Paycheck into Savings

If you are committed to saving, then you need to make it a priority and see that money from each of your paychecks goes into your savings account. You could decide to put a specific percent of your income into savings, or a dollar amount, whatever you select the most important thing is to stick to your plan. Many banks even offer automatic transfers from your checking to savings account, which is a great way to make sure you add more funds to your savings each month.

18 Ways to Earn 5% or More

Due to the poor economy and weak banking industry, most account holders are earning next to nothing from interest on their savings. Many Americans are being forced to find other investment opportunities, however finding a safe investment is much easier said than done. Fortunately, MSN Money.com put together a helpful article with over a dozen tips on earning 5% or more on your savings. I have included a few of their tips below, but you can find the full story here.

Taxable munis

In little more than a year, cities, states and public agencies have issued $100 billion of taxable Build America Bonds (BABs). BABs pay extraordinarily high interest rates because Uncle Sam, as part of the 2009 financial-rescue package, picks up 35% of the issuers' interest costs. BABs now yield more than corporate bonds with similar maturities and credit ratings, making them great not just for IRAs and other tax-deferred accounts, but for taxable accounts as well.

Yields of at least 6% are common for new, long-term BABs. The state of Illinois, for example, just issued 25-year BABs at 6.6%. These are general-obligation bonds, backed by the state's taxing power. Standard & Poor's rates Illinois A-plus, although the state is on watch for a possible rating downgrade. If you prefer to lend to an entity that appears to be in better shape, consider a new, 30-year New York City water-and-sewer revenue bond. The BAB, rated double-A-plus, hit the market at 6.4%.

Fans of exchange-traded funds should consider PowerShares Build America Bond ETF (BAB, news, msgs). With an average credit quality of double-A, it pays dividends once a month and was recently yielding 6.2%.

Preferred stocks

A preferred stock is closer in spirit to a bond than a common stock because a preferred dividend is almost always fixed. So, if long-term interest rates rise, a preferred reacts like a bond and loses value. You also face company risk should the issuer run into trouble and suspend preferred dividends. If you can stand some price fluctuation, consider reinsurer Endurance Specialty Holdings 7.75% Preferred (ENH-A, news, msgs). Rated triple-B-minus, the issue is not callable until 2015 and sports a current yield of 8.1%. Under current federal law, the top tax rate on qualified dividends is just 15%. (Many stocks that look like preferred are actually hybrid securities and aren't eligible for preferential tax treatment.)

Banks, insurers, and real-estate investment trusts are the most common issuers of preferreds. With a preferred-stock ETF, you can diversify into utilities and industrials. The oldest and largest among these is iShares U.S. Preferred Stock Index ETF (PFF, news, msgs). It pays dividends monthly and yields 6.5%.

Top College Savings Plan

With the cost of going to college increasing more and more each year, parents and grandparents need to start saving now. Many students and families are faced with the tough decision of how to pay for higher education—it is a tragedy when families have to make the decision not to attend college due to the inability to afford tuition cost. I have always been an advocate for making it possible for young people to attend college—I have personally sent five young adults to college! The best way to ensure your loved one gets a college education is to save for the expense. A 529 savings plan is recommended as a great investment for your future college plans.

These savings plans do not get taxed federally and many states also give a state income-tax credit for having one. Check whether your state offers a tax break and take advantage of it. To escape federal taxes on the distribution, you must use the 529 savings to pay for qualified educational expenses such as tuition, books, fees, room and board. Don’t worry, the 529 accounts are flexible. If your child doesn’t want to go to college, you can transfer funds to another family member without losing the tax benefits. If you do need to withdraw the money and use it elsewhere please know you will pay taxes on the distribution and a 10% penalty on the earnings. Buy a 529 savings account directly from your state and you will avoid paying commissions or adviser fees. According to Klipinger.com more than 60% of investors put their 529 money on autopilot by choosing age based portfolios.

The “Perfect” Time To Save

Everyone has an excuse to put off saving. You’re waiting until after the holidays, or until you pay off your credit card, or until the economy improves. Does this sound like you? The article, There’s No Perfect Time to Start Saving on Banks.com, states what I’ve been telling people for years. So many individuals of every age and income level are waiting for that “perfect” time to save, but the truth is, the perfect time to save is NOW. No matter what your income level I bet you can put a few dollars into an interest-bearing account each month.

Waiting for interest rates to rise again? Don’t hold your breath. I’ve only seen mine go down in the last few years. While interest is a wonderful way to make your money work for you, the main point is to get in the habit of saving. The “perfect” time to save will most likely never arrive. While financial experts recommend saving 10% of your income, every bit helps. Make a goal to put something into savings every month and you’ll be well on your way to a healthier financial future.

Read the full article here.

How Uncle Sam is Killing your Savings

It is always a good idea to save up a little money in case of a rainy day, because you never know when you are going to need it in an emergency. However, according to CNNMoney.com the Federal government’s programs designed to stimulate the economy are actually hurting the investments of average Americans.

What do the record-high Wall Street bonuses have in common with the record-low yields for savers?

Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being screwed by the government's bailout of the imprudent.

Here's the deal. The government is spending trillions to keep interest rates down in order to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers' incomes.

"It's a direct wealth transfer from savers and retirees to overly indebted borrowers," says Greg McBride, senior financial analyst at Bankrate.com.

Since October 2007, when government intervention in the financial system began picking up speed, yields on the ultrasafe one-year and five-year investments that many retirees favor have tanked.

Two years ago the average yield on a five-year federally insured bank CD was 3.9%, according to Bankrate.com. Now it's 2.2%, a drop of more than 40%.

Yields on one-year CDs have almost vanished: 0.92%, compared with 3.6%. On five-year Treasury securities, yield is down to 2.3% from 4.4%. On one-year maturities, you get a minuscule 0.3%, down from more than 4% in 2007.

Energy Savings = Tax Savings

If you have made recent upgrades to your house then you may qualify for additional tax credits. There are many different home improvements that qualify for the energy credits including insulation, water heaters, air conditioners, fans, furnaces, skylights, windows, doors, solar panels, and certain roofs. The credit is usually around ten percent of the cost, but can vary depending on the type of upgrades. Keep in mind that only home improvements that reduce a home’s "heat loss or gain" are eligible for the credit. Thus, the credit may not apply to common household appliances such as dishwashers or refrigerators even if they bear the Energy Star label. For more details on getting an energy credit, visit DailyNews.com.