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Getting Ahead
3rd Quarter 2012

In this issue:

Nine Principles to Help Generate Retirement Income

5 Cheap Tips to Boost Your Home's Value

Budgeting When You're Broke

Nine Principles to Help Generate Retirement Income

Older peopleSo you've saved diligently and carefully for retirement; now it's time to turn your savings into income. Moving from saving to living off of your nest egg may seem difficult at first, but following a few fundamental principles can help with the transition. The nine fundamentals described here will show you how to take control of your retirement and create the cash flow you'll need. The important thing to remember is that you don't just create a plan, set it and forget it. Rather, this is an ongoing process you'll want to continue throughout your retirement.

1. Review your situation. Determining exactly what you have and what you need will enable you to create a workable income plan. Start by thinking carefully about what you currently spend, then divide it into "must haves" (what you really need) and "nice to haves" (what you've worked hard to have so you can live a comfortable retirement). Breaking out a budget this way, and looking at your existing portfolio and income sources, can help you create an investment plan.

2. Maintain a year of cash. Every good plan starts with the question, "What do I need now?" Tabulate what you'll receive from non-portfolio income sources like Social Security or a pension for the next 12 months. How much more will you need to cover your "must haves"? That's the amount of cash you need to set aside. Treat this money as "spent." It's the first "bucket" of your cash flow plan—a cash reserve for your current expenditures. The second bucket will be the rest of your portfolio. Consider putting this cash into a single, easily accessible place—a checking account, a money market account or a combination of accounts, depending on your personal preferences. This money can generate a bit of return, but that's not its primary purpose. It's there to help meet your expenses throughout the year.

3. Consolidate income in a single account.
This makes it easier to measure your cash flow and track income and spending over time. Your income sources could include Social Security, a pension or other non-portfolio sources as well as portfolio income-interest and dividends on stocks and bonds, dividends paid from mutual funds, annuity payments or periodic IRA withdrawals. This can serve as your first source of cash flow to replenish your year of cash. You may wish to continue reinvesting your interest and dividend payments, taking withdrawals when you need them from your entire portfolio. That's okay too.

4. Match your investments to your goals and needs.
At this point, you can revisit your investment plan, including your asset allocation. We recommend that investors entering retirement start with a moderate allocation—a mix of roughly 60% stocks and 40% bonds and cash investments. This can help protect you against market volatility while keeping you invested for long-term needs. Bonds provide both a cushion that is generally less volatile than stocks and a regular source of income. Stocks provide potential for growth, as well as dividends that can increase over time. If you have a shorter time horizon or less comfort with market risk, consider a more conservative allocation. Unless you have large estate or bequest motives, you'll want to adjust your allocation to be more conservative over time.

5. Cover essentials with predictable income.
Assuming more money is needed to cover expenses than what is generated by non-portfolio sources (like Social Security and pensions), many retirees may choose to build up more reliable sources of cash flow from portfolio-based sources.

Interest payments on bonds, fixed income investments and any returns on cash investments like money market funds or CDs are generally the first source of predictable income for most portfolios. A portion of these interest payments can be used to cover essential expenditures. But be careful; in a low interest rate environment, you'd need a very large portfolio to cover your essential expenditures from interest payments alone.

To help create reliable cash flow, you might also add annuities that pay out guaranteed income from a lump sum (immediate fixed annuities) or that guarantee a minimum withdrawal rate on a portfolio that stays invested (variable annuities with guaranteed living benefits).

6. Don't be afraid to tap into your principal.
Retirees with very large portfolios may be able to live comfortably off interest and dividend payments spun off from predictable income sources alone. But most folks will want to tap into a portion of their principal to support their cash flow needs. This makes you the boss, not having to rely on interest rates or market conditions. The key is to have a smart and systematic plan for tapping your portfolio, to keep your investments working for you.

7. Follow a smart portfolio drawdown strategy.
If you've created some predictable sources of interest and dividend payments from your bond and stock portfolio, you have laid the groundwork for a tax-efficient drawdown strategy. These can be the first sources of withdrawals from your portfolio.

The next source can be principal from maturing short-term bonds, CDs or cash investments. When bonds or CDs mature, you can tap those proceeds or, if the value of long-term investments has fallen, you could choose instead to cash out of short-term bond funds to lessen your need to take money out of longer-term investments when the market isn't favorable. You should also watch for other tax issues, such as required minimum distributions (RMDs) from IRA accounts or capital gains (or losses) on other investments in taxable accounts.

8. Rebalance annually to stay aligned with your goals.
You may sell investments that have appreciated in value to generate cash, but you'll want to find those opportunities within the context of an annual rebalance as much as you can so your overall portfolio allocation stays in line with your longer-term goals. Your needs, risk tolerance and time horizon may change as well. So make sure your targeted balance between stocks, bonds and cash still makes sense for you.

9. Stay flexible and re-evaluate as needed.
You'll want to watch and steadily revise your plan. When markets are down, you may spend a little less. Or you'll want to change your balance of stocks and bonds to decrease risk in your portfolio over time. You may also consider annuities, which can act like a personal pension by turning a portion of your investments into lifetime income or can help to provide a reliable, guaranteed source of portfolio withdrawals. If you follow these fundamentals, stay flexible and re-evaluate annually, you'll be on the path to a solid income plan.

Article courtesy of charlesSCHWAB

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5 Cheap Tips to Boost Your Home's Value

HouseHere are five inexpensive ways to increase the value of your home for sale. With home prices falling again, it might be foolish to spend thousands on a new kitchen or bath. Instead, say veteran real estate agents, you can wow buyers by using a few household cleaners, generous amounts of elbow grease and some thoughtful staging.

1. Make sure your house smells okay. A house that smells right sells right. This is something you must get just right. You don't want to gross out buyers, but neither can you afford to freak them out. Any whiff of cat urine or dog bed, and your prospective buyer, unless he or she runs an animal rescue mission, is likely to make a quick exit. The same goes for that musty old basement smell. However, you don't want to go to town with chemicals to the point that your house smells like a hospital corridor. If there is an overpowering smell of bleach in your now spotless basement, buyers will let their imaginations run wild about what you are hiding.

2. Wash the windows, buy new bedspreads and change the light bulbs.
More light is best if you want to sell your house. That means windows that sparkle, bedspreads that are clean and bright and new, and higher-wattage bulbs to seal the deal. Light sells. Dark and dim doesn't.

3. Water those plants. Maybe your idea of gardening involves mowing the lawn just before the neighbors complain. A buyer will likely see photos of your house online and drive past it for a quick look before taking an official visit. If your lawn looks like a wheat field with a couple of dead and dying planters scattered about, a buyer might keep on driving.

No need to sprout a green thumb, but mowing once a week and watering a few plants will go far. "The way we buy real estate has changed. People will pay a premium for houses that are all done and well maintained," said Richard Goulet, president of The Appraisers Group, an appraisal services company based in Belmont, Mass.

4. Plunk a piece of furniture in the front entryway. Real estate veterans say putting a chair or table in a front entryway, where you take off your boots and shoes, seems to trigger a chemical reaction in the brains of buyers. It's just a nice welcoming touch.

5. Clean up, but don't overdo it. This isn't time to get in touch with your inner slob. Clear off that half-empty coffee cup from the counter and remove the Sunday paper from the couch. But don't remove signs of family life in an effort to give your dwelling the look of a Better Homes & Gardens centerpiece.

No prospective buyer will be fooled by a child's room that's all but stripped bare except for a single doll or teddy bear atop a perfectly made bed. Either buyers will figure it is staged, or worse, that you are a Martha Stewart clone. Don't hide the toys. Rather, buy baskets or containers to hold all those cars and dolls. The house will look real to buyers, as opposed to a house that is so perfectly arranged and choreographed it would make any normal person stressed out just to think of living like that.

Article courtesy of Yahoo Finance

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Budgeting When You're Broke

StressSuffering from a lack of cash? It's likely that you don't follow a budget that reflects your earnings. Smart budgeting prevents eviction, increased credit card debt and ruined credit scores. It's never too late to achieve your financial goals. Get started now with these 10 steps to make your financial life less stressful.

Avoid Immediate Disasters
Don't be afraid to request bill extensions or payment plans. These requests are often granted. If your biggest worry is eviction from your apartment, talk to your landlord, but also see if you can get extensions on any other expenses to free up money for keeping your home. For instance, suppose that your rent is $650 and you're $200 short. Your bundled phone bill and cable bill is $60, your electric bill is $100 and your cell phone bill is $40. If these bill payments are postponed until your next paycheck, you can pay your rent now and avoid eviction.

Review Credit Card Payments and Due Dates
If you are only making the minimum payments on your credit card(s), you are flirting with a disastrous credit score. However, avoiding credit card payments will only worsen your debt. For example, suppose that your minimum payment on a $1,000 balance is $40. You fail to pay $40 on time, so you are charged a $35 late fee. In addition, your interest on future charges is charged at the default rate of 25%. Now your credit card is even more difficult to pay off. Before you know it, you have an overwhelming collection of piled up late fees and missed payments.

Prioritize Bills
Go over all your bills to see what must be paid first and then set up a payment schedule based on your pay days. You will want to leave yourself some catch-up time if some of your bills are already late. If this is the case, call the bill companies to see how much you can pay now to get back on track toward positive status. Tell them you are catching up and going on a stricter budget. Be honest about what you can afford to pay. Sometimes it's instinctual to say you'll pay the full amount on your next paycheck, but you may not have the full amount available after other expenses take their cut.

Ignore the 10% Savings Rule, For Now
Stashing 10% of your income into your savings account is daunting when you're living paycheck to paycheck. Balance your budget before starting incremental savings. It doesn't make sense to have $100 in a savings plan if you are fending off debt collectors. Your piggy bank will have to starve until you can find stability in your finances.

Review Your Past Month's Spending
Online banking and online budgeting software help you categorize spending so you can make adjustments. For instance, with online banking, with a few mouse clicks you can categorize your money for expenses, such as dining, food and utilities.

Negotiate Credit Card Interest Rates
If you have good credit, call your credit card companies and ask for an interest rate reduction. If you don't ask, you won't know, as it's unlikely that credit card companies are going to initiate a reduction on their own.

Eliminate Unnecessary Expenses
Do you need to cut back on coffees? Or movies? Or do you often have spoiled groceries? All cutbacks should start with items you wouldn't miss, such as switching car insurance companies to get a cheaper rate, or reducing your fresh food purchases if you find food spoiling before you can eat it. Eating out is even more costly, so examine how much and how often you really need to do this.

Journal New Budget for One Month
Once you've gone through the first eight steps, monitor your progress by journaling for one month. You can do this by noting everything you spend in a notebook, budgeting apps on your phone, or with financial software. How you track your money isn't as important as how much you are tracking. Focus on ensuring that every cent is tracked by dividing your expenses into categories, such as rent, food, clothing and utilities.

Adjust Spending as Needed
If, after journaling for one month, you've found your budget isn't where it needs it be, get prepared to make changes. Look at how much you are over budget and decide where you can cut. Don't rule out items that are viewed as basics, such as groceries, utilities or rent. Cooking from scratch can eliminate the cost of pre-packaged foods, and opting for generic brands over brand names will equal big savings on a cart of groceries. Utilities can be reduced by turning off lights when you leave the room or using a lamp instead of elaborate track lighting. You may be able to negotiate better rent the next time your lease is up, or you could always move to a less expensive place.

Seek Out New Sources of Income
If your current budget doesn't balance or you're barely scraping by, you may need to look at working overtime, getting a second job, or possibly getting a new, higher-paying job. Often there is work that pays more, but the nature of the work is unattractive. You may need to decide if it's better to be unhappy at work or unhappy with debt.

When you're short on cash, a strict budget is your best tool for correcting your situation. Employing sound money management can mean the difference between financial disaster and financial stability.

Article courtesy of Yahoo Finance

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