Thursday, March 14, 2013

News Round Up: Happy Pi Day

What a crazy week it has been.  It felt like only one day passed between Daylight Savings and Pi Day, instead of four.

In personal news: my husband has been out of town all week, leaving me to take care of the house.  That definitely didn't happen.   I get a lot of long days at work, which is why he takes care of the house in the first place.  They were longer this week, so I was away from the house 14 hrs instead of the usual 11-12.  

Work-life balance is on my to-do list.

In non-financial news:  The Conclave elected a new Argentinian Pope (Francis I).  I didn't expect Benedict to step down, but it is very exciting to see a pope elected from the global south. Does it count as non-European if the new pope's parents are Italian?

In blogging news: Google Reader is getting the boot.  I also hit my first two blogging milestones: 100 page views, and my first comment.  Thanks to Mrs. Pop at Planting Our Pennies!

SEC is pressing fraud charges against the State of Illinois.  WOW. The SEC reports that in multiple bond offerings from 2005 to 2009 "the State of Illinois misled bond investors about the adequacy of its statutory plan to fund its pension obligations and the risks created by the State's underfunding of its pension systems."

I find this legal drama to be very interesting, and really pretty scary.  Most government pension systems are underfunded (around 75%).  Illinois' pension system was only 40% funded.  I don't know how funded Social Security is, although the Social Security Trust Fund is owed something like $2.7 billion.  It's really disheartening how many 'safe' investments like bonds are really just run by a bunch of corrupt criminals who will destroy your life savings.  Be mindful of the risk involved in all of your financial dealings.

What news story caught your eyes this week? 

Sunday, March 10, 2013

Maximize Your Social Security Benefits with "File and Suspend"

Social Security is the primary retirement plan for many Baby Boomers, even though the health of the program is highly suspect for younger Americans.  Deciding when to start taking Social Security benefits can be really tough, and is entirely dependent on your personal situation.

Today we are going to do a case study and help Paul and Gail figure out when they should start taking Social Security.   Paul and Gail are both 60 years old.  They plan on working for as long as possible because they do not feel they can afford to retire.  Paul earns about $30,000 per year, while Gail earns about $20,000 per year.  Paul only has about $50,000 saved up for retirement through his employer's pension plan.  Social Security will be the financial lifeline of their twilight years.

For people who have long life expectancies, waiting as long as possible to take Social Security benefits is a real boon.  Your monthly payment continues to grow at 8% if you do not take the benefits as soon as you qualify for them.  This is part of Social Security's Delayed Retirement Credit program.  If you take Social Security benefits at the youngest age possible, your monthly payment is locked at a low rate.  See the amounts below:



Monthly Annual
Monthly Annual
Monthly Annual
Age 62 $754 $9,048
$617 $7,404
$1,371 $16,452
Age 66 $1,047 $12,564
$850 $10,200
$1,897 $22,764
Age 70 $1,439 $17,268
$1,160 $13,920
$2,599 $31,188

As you can see, waiting until age 70 will maximize the benefit amount. Although Social Security benefits are significantly below what Paul and Gail are currently earning at their jobs, there are also significant tax savings associated with Social Security income, as well as reduced job and transportation costs.

Luckily, Paul and Gail have another option available: File and Suspend.  When both spouses reach retirement age, the higher-earning spouse files for social security benefits and then immediately suspends their own benefits and delays claiming them until they are on an older age.  One you have filed for benefits, your spouse can now file for spousal benefits on your social security record.  The spouse's social security benefits will continue to grow.

  • Age 66: Paul files and suspends his Social Security benefits.  Gail applies for spousal benefits, and receives $524 per month or $6,282 per year to supplement their wages.  
    • I recommend that while they are working full time, they save their entire Social Security income against future years when their pay will decrease.
  • Age 70: Paul reverses the suspension on his Social Security benefits.  Gail files for her Social Security benefits.  They both receive their maximum income amount, totaling $31,188. 
The Social Security website has a lot of helpful benefit calculators available online.  

Additional reading can also be found with the AARP: How to Maximize Your Social Security Benefit  and the National Association of Personal Financial Advisors: How to File and Suspend Your Social Security Benefits.  

Saturday, March 9, 2013

Bank Failures in the Peach State

Five Cent Nickel posted a quick post this morning about Bank Failure Rates.   I found one of the statistics very interesting:

  • Between 2005 and 2007, there were 3 failed banks
    • Average: 1 failed bank every year. 
  • Between 2008 and 2012, there were 465 failed banks
    • Average: 1 failed bank every 4 days

Thankfully, bank failures have slowed down since the peak of the Great Recession.   An additional characteristic of this failure spree is that almost 30% of the failed banks were in just two states - Georgia and Florida.  

The inset picture to the left is courtesy of the Federal Reserve Bank of St. Louis.  They have this really cool interactive tool of all the bank failures since 2007. 

What is it about these two southern states that has caused so much financial distress?  Florida had a big real estate bubble, of course. 

But why does Georgia lead the nation in bank failures?  Unlike many states, Georgia has only one really major metropolitan area (Atlanta).  Economic problems in this one city will spell disaster for the whole state.  Florida has much more variation and balance between its different regions.  When the BP oil spill caused trouble on the Sunshine State's Gulf Coast beaches, for example, vacationers flocked to the Atlantic coast instead. 

Why do banks fail? According to Sal Bommarito, major reasons why banks fail include the following:
  1. Bad Loans
  2. Funding Issues
  3. Asset/Liability MisMatch
  4. Regulatory Issues
  5. Proprietary Trading
  6. Non-Bank Activities
  7. Risk Management Decisions
  8. Inappropriate Loans to Bank Insiders
  9. Rogue Employees
  10. Runs on Banks

In addition to being a one-trick metro pony, Georgia also encourages the proliferation of many small community banks versus large multi-branch behemoths.  State law previously protected small banks from competition, such as by prohibiting banks from opening branches across county lines.  With almost 160 counties in Georgia, this encourage the creation of a very large number of banks.  In 2008, there were 334 banks in Georgia.  Over 100 of these have failed in the last 5 years - only 228 banks remain in the Peach State. 

The small community banks held closer ties to the local residential housing market in and around Atlanta than national banks would.  With most of their eggs in one basket, Georgian banks had more to lose when the basket upended.  There were too many banks trying to serve too small of a banking community, and there weren't enough barriers to entry (such as backing requirements for loans) in order to prevent disaster when the small banks began to domino. 

Friday, March 8, 2013

Meet the Geek! Bonus: How I Saved $12,000 on Cable

Earlier this week, I briefly mentioned the important of goals while discussing why Everyone Should Have a Financial Planner.

I am a very goal-oriented person in many aspects of my life.  The act of setting goals, watching my progress, and achieving what my hard work has wrought brings me a lot of self-satisfaction.  I usually end up feeling really good about where I've been, where I am and where I am going.

Some areas are really easy for attaining goals.  I have always loved studying and learning.  I was a big math geek in school, and found all-around high marks to be really easy.  Intellectually challenging projects at work give me a real high from the sense of accomplishment.  "Duck yeah!" compliments my prudish AI. "Well done, mate!"

Applying this to financial goals has been a natural match.  I really love watching the numbers grow, and balancing off the costs and benefits of various options.  Finding ways to save money can be a game and a challenge.

[Tangent: One of the easiest ways I have ever saved money is by never buying cable television.  My parents still have cable, but I have never had it since I moved out upon graduating high school.  10 years x 12 months per year x $100 = $12,000 saved.  That money was saved simply because I hated commercials and could never find anything on television to watch anyway.  It wasn't a goal, but it's been a measurably valuable choice.  Not having cable TV allowed me to honeymoon for two weeks on the Mediterranean.  Not only does cutting the cable cord save you a monthly bill, it also limits your exposure to advertising pushing me to buy things you don't need with money you don't have.  There are so many cheaper options (we got Netflix a couple months ago) for getting your fix.  Better yet, step away from the screens and go outside, or connect with someone in person. Pets are people, too.]

I have achieved several financial goals and personal milestones over the last two years:

  • I graduated college, and doubled my salary at a new job. I have since received another $10,000 in raises.
  • I got married to my wonderful husband, becoming a DINK household.
  • We bought a dream house on our own little piece of paradise.  [The inset photo is from my backyard. Breathtaking out here.]
  • We have roommates to save more on housing costs.
  • We paid off my husband's student loans and two car loans in full.  Only one student loan left! 
  • We've maxed out our Roth IRAs each year, and contributed 10% to our 401(k)s including the employer match
  • We've increased our emergency funds
  • We've paid off our credit cards in full every month
Our debt is well in hand - we owe $6,000 on one student loan which we will pay off this summer. After that, we will pay extra towards our mortgage until we can get rid of the PMI fees.  That is our only debt. 

I feel really great about our retirement funding, too  We max out our Roths, and we contribute a good amount towards 401(k)s.  Over time I want to increase this until we hit the max limit on annual contributions.  This is still quite a way off. We haven't yet looked into investments outside of retirement account and our careers.  (Many financial experts recognize your career as your most important investment.) 

There are definitely areas where I feel I need to get a better handle on spending.  Food is probably the biggest.  I really love to eat out (Panera Bread is my Achilles Heel - I eat there literally every week).  I also struggle to keep grocery spending down - my husband has a 4 cans per day soda habit.  I haven't started a new carpool since moving into our new home.  

Sometimes I actually wish I had more of a spending problem in some areas.  Women generally love to shop, and therefore overspend on clothes.  I didn't get a fashion education growing up, so figuring out clothing can be a big struggle.   I've had many times where I felt out of place and insecure because of my hairstyle, clothing, or lack of makeup.  My boss called me a hippie once, and it was the first time I had ever heard the word being used in an unflattering voice. 

But generally I feel very proud of my financial stability and my values.  

Some of my goals with this personal finance blog include improving my communication skills.  I work with other people's money on a daily basis, and in the future I hope to progress to the point where I am actually working in an advisory capacity.  I need to learn what advice to give people, and how to give it.  I want to be a millionaire before I hit 40.  I want to join the fun of this personal finance community I've been lurking on for years.  I want to learn more about personal finance, and help others achieve their goals as well.  

Hello, world.

Thursday, March 7, 2013

95% of Families Get Paid Maternity Leave - Why Doesn't Yours?

After countless years of failed fertility treatments and triplicated paperwork, one of my friends was finally able to adopt a baby.  Her beautiful son's name is Lucas.

My friend also just found out that her employer will provide paid maternity leave to adoptive parents. 

"Lucky girl," I told her.  I know my employer doesn't offer paid maternity leave, and yours probably doesn't either.

The Family Medical Leave Act (FMLA) became law in the U.S. in 1993.  FMLA provides for up to 12 weeks of unpaid leave per year to employees at certain businesses.  This leave applies to many medical emergencies, including the birth of a child or to care for a family member.

Not all employers are required to provide medical leave, depending on how many employees they have on their payroll.  Only about 60% of workers in America are even eligible for FMLA.  The leave mandated by FMLA is also unpaid.  So while you can take the time off to deal with your medical situation, you won't necessarily be able to pay your bills.  Many women will only one or two weeks off for childbirth because their families can't afford any more lost paychecks.

America is normally an outlier compared to the rest of the First World.  However, when it comes to maternity leave, we are in a category all by ourselves.  A study was done of 168 countries and what type of maternity leave they have.  All but 4 had paid maternity leave, normally around 10 to 20 weeks.  Sometimes this is paid by the employer, other times by the government (similar to Social Security or unemployment insurance).  I am not used to being outdone by a bunch of developing nations when it comes to life in America.

Below are some reasons why businesses and legislators need to readdress paid parental leave:

1) Helps business recruit and retain better staff.  Parental leave increases women's employment.  With more women graduating from college then men, employment policies that reflect the needs of your workforce just make sense.

2) Improve children's health.  Paid parental leave improves children's health, both as babies and throughout their leaves.  This decreases health costs to society over time.

3) Human beings have kids.  We have been having children for millions of years.  Babies aren't going away, and neither are parents.  Business and government need to treat the situation in a thought-out, systematic way, instead of treating the new generation like a chaotic emergency that needs fixed.

Kids these day - amiright?

Monday, March 4, 2013

Everyone Needs a Financial Planner

Do you make a lot of money? Barely scraping by? Three kids in college and aging parents in a retirement home? Living free and single in the big city?  Each one needs a financial planner.

"A financial planner is too expensive!" The cost of going without one is even higher.  Without a financial plan, hiccups in life became catastrophic emergencies.  Dreams become regrets.

More importantly, a financial planner is free. All it takes is time.  Time spent reading personal finance books, blogs, and advice.  Time spent building better habits and growing your savings.  Time spent thinking through what you want in life and what you need to do in order to achieve those goals.

What are your goals in life? A financial plan is how you get there.  A financial plan will help you:

  • Put food on the table
  • Get out of debt
  • Pay for school
  • Buy a dream home
  • Get a tattoo
  • Open a business
  • Vacation in Europe
  • Minimize taxes
  • Work less and spend more time with family
  • Take a sabbatical
  • Retire early
  • Seek regular medical treatment
  • Protect your family from catastrophe
  • Give back to your community
And so much more.  

Who is the financial planner in your family? 
What financial goals are you currently trying to achieve?

Sunday, March 3, 2013

What Does Sequestration Mean For Your Family?

Last week, my husband was informed that he will receive a 20% pay cut for the indefinite future.

I didn't know how to react to this.  Like most families, my husband is the primary breadwinner.  A 20% pay cut is huge, especially when we have struggled with pay freezes and below-market wages for years under this employer.  Three things immediately flew through my mind :

  • How will we pay for grad school this summer?
  • What if I'm pregnant? 
  • We just bought a house!  Do we have still have enough savings to handle a furlough?

Many of you are facing the same emergency as my family.  On March 1, 2013, $85.4 billion in across-the-board spending cuts went into effect as Congress refused to balance the federal budget.  The White House has issued state-by-state reports detailing how programs in each state will be affected.  As a fellow citizen, I urge all voters to contact their federal representatives about their thoughts on this issue.

Political petitions take time, while large pay cuts need to be dealt with immediately.  What are some steps you can take when facing a significant decline in household income?

  • Be prepared ahead of time
    • If you are already spending less than you earn, it is much less painful when your income unexpectedly drops.
  • Make sure your emergency fund is flush
    • Emergency funds need to have enough money in them to actually deal with an emergency. As soon as we got a whiff of trouble on the horizon, we started throwing extra money into savings at our local credit union.
  • Seek out additional sources of income
    • If you lost your job, apply for unemployment
    • Start a side businesses
    • Get a new or second job
  • Cut expenses
    • Expenses are the easiest place to find extra money. Like our federal government, most Americans have a spending problem instead of a revenue problem. Consider that most non-Americans manage to live on less than $4 a day.
  • Ask for help
    • Sometimes we can't handle the emergency alone. Seek out help from friends, family, food banks, local churches, and government programs you are eligible for.

How is the sequester hitting your family?  
What changes are you making to your budget?