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The Valley News & The Herald-Journal Copyright 2012 The Valley News & The Herald-Journal
SIMPLE STEPS TO MANAGE YOUR PERSONAL DEBT
TRADITIONAL or ROTH?
CONSERVATIVE approach with INVESTMENTS
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Traditional or Roth? The great IRA debate By JASON GLENN Staff Writer
In deciding between a Traditional or Roth IRA, the single most important thing to know is what the tax rate will be when you retire. However, unless you have a crystal ball or the single greatest nugget of insider information ever, having that knowledge is highly unlikely. The primary difference between the Traditional and Roth IRAs is when taxes are paid. In a Traditional IRA, the contributions are generally deductible and the taxes come due upon withdrawal after retirement. In a Roth, it’s just the opposite, taxes are paid up front on the contribution and then the money, whatever you earn from your investments over the lifetime of the IRA, is tax-free at the back end. Dan Miller, a Certified Financial Planner and Executive Vice President with Parker Norris Financial in Red Oak, uses a farm analogy he admittedly borrowed from a colleague to illustrate the difference. “You can either tax the seed or tax the harvest,” he said. It would seem a given that the former would be best but, as all farmers know, even with a good harvest you might not always get a great price. Likewise, deferring tax payments until after retirement on the assumption that tax rates will be lower due to lower income might not hold if tax rates increase between now and then, a real concern for
investors in times of astronomical national debt and deficit. Instead of guessing at the future tax code, though, Miller suggests the best way to determine what kind of IRA is best is to consider the basics of how your income now relates to what you expect to earn in the future. “If someone is very young and their income is lower and they don’t have as big a tax situation to deal with now, the Roth probably is a better option for them because they can have years and years of tax-free growth as opposed to tax-deferred growth,” Miller said. If the opposite is true – your income is higher now and you anticipate being in a lower tax bracket toward retirement age – then the Traditional is probably your best bet, Miller added. But there are other factors to consider. While the annual contribution limit of $5,000 is the same for both a Traditional and Roth IRA (including an additional $1,000 “catch up” contribu-
tion if you’re 50 or over by the end of the year), the Traditional IRA is open to anyone, regardless of income level, while the Roth is restricted to those earning less than $125,000 individually or $183,000 as married couples filing jointly. If you are eligible for the Roth, some of the added benefits of that plan are that, because the taxes have already been taken out, there are no restrictions or penalties for withdrawal on the original contribution amount prior to retirement age and there are no required minimum distributions after age 70 ½, as in a Traditional IRA. If, for instance, someone with a Roth IRA finds that they need money for a child’s education, they can withdraw some or all of their contribution without penalty or tax. Similarly, Roth IRAs can be easier for estate planning purposes because they need not be touched after retirement and can be transferred more readily in the event of death.
Though he said the Roth has grown in popularity in recent years owing largely to increased awareness and because it has become available as a 401k and 403b retirement plan option, Miller cautioned against anyone thinking that a book, magazine article or, especially, TV financial guru would have the absolute right answer for them. In many cases, the best solution for someone isn’t an either/or but a combination of the two that diversifies retirement income and, in effect, hedges any bets on what taxes may or may not be. “It’s going to be an individual situation, it’s going to be an individual decision based on each individual’s financial picture,” he said. “There is no boilerplate, cookie cutter answer for everybody. Part of being a planner is you have to look at each individual’s situation differently. It all depends on where you are and what your goals are, which one is best for you.”
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Simple steps to manage your personal debt By TESS GRUBER NELSON Staff Writer
When it comes to managing personal debt, it’s more often easier said than done. However, with a few easy, simple tips from Gregg Ritchey, president of City National Bank and Megan Brown, assistant vice president of Bank Iowa, both in Shenandoah, it is at least a possibility. First, Ritchey said to keep debt manageable. “Debt should only be used for major purposes, such as homes, automobiles, and student loans,” Ritchey said. “Avoid using credit cards or debt for vacations, meals, or "splurge" type purchases. Next, Ritchey said to make a detailed budget of monthly expenses. “Look for ways to cut expenses that aren't needed, as well as budget for unexpected costs that will undoubtedly pop up,” Ritchey said. “Make sure that large purchases, such as a home or a car, have plenty of room in the budget to meet unexpected needs.” Controlling expenses and getting rid of
unnecessary services is the fastest way to cut debt he added. “Build up a cash cushion in the way of a savings account, so that job changes or unexpected bills can be absorbed without borrowing.” Another step, said Ritchey, is to manage the debt you have. Ritchey recommended that if you do have multiple sources of debt, be smart about paying debt down or re-finance when it is advantageous. “Higher rate debt should be paid down first. A good lender can help you analyze when re-financing makes sense - understanding the up front costs and how long it will take to realize savings.” Finally, Ritchey said don’t be afraid to ask for help. “If you start feeling over your head, ask for help. A good lender, again, will help look at your situation to determine if there are ways that you can reduce rates on debt, better position payments around your income stream, re-organize etc…to help reduce debt more quickly.” Brown said the way to manage personal
debt is summed up in one word – budget. “A budget is a great tool to assist in many financial situations,” explained Brown. “A budget is commonly done on a monthly basis, but can be done on a weekly basis depending on what best fits your situation and what you're comfortable with. Working with a budget can help distinguish your needs versus wants, as well as help you control spending and build your sav-
ings.” Brown added creating a budget is simple and there are even several free forms available for download on the Internet. “Simply search for "personal budget forms" and select one that fits your situation,” Brown said. For more information on how to manage personal debt, contact your local bank.
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4 May 2012
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A more conservative approach with investments By KENT DINNEBIER Staff Writer
With the volatility of United States economy over the last decade, the fear of financial loss has caused many area residents to take a more conservative approach with their investments. “The current economic volatility has caused many investors to stay on the sidelines,” Duane Sturm, branch manager of the Raymond James Financial Services Inc. offices in Duane Sturm Clarinda and Red Oak, said. “However, at some point in time, the need for increasing their income becomes a higher priority than capital preservation.” Sturm has served with Raymond James
Financial Services Inc. since 1999 and worked in the investment business since 1992. Prior to that he worked in banking for 12 years. A key reason people are being prompted to take a closer look at their savings and investment options is because people are living longer. Currently, a 65-year-old person in the United States is expected to live another 19.2 years, according to WHO, Credit Suisse. Then, if a person reaches the age of 80, that individual has a life expectancy of another 9.3 years. As a result, Sturm said many baby boomers are finding that they have to work longer to achieve the comfortable retirement they desire. In addition, they will also be relying more heavily on Social Security and other government programs than they initially intended. “The longer life expectancies have increased the need for people to think more
long-term with their investments,” Sturm said. “It has also caused people to ask themselves if they are more or less conservative investors.” More conservative investors often consider fixed income options like CDs, government bonds, corporate bonds, taxadvantaged bonds and fixed annuities. Meanwhile, less conservative investors usually consider stocks, commodities and income producing real estate. The younger a person is, Sturm said, the more they need to look at investing in stocks. People wishing to take a more conservative approach should consider cash alternatives and fixed income options. However, Sturm said given the current economic conditions, the problem with the more conservative approach is that CDs and fixed income investments are not keeping up with the rate of inflation. “With interest rates as low as they are, people are looking for other sources of income besides CDs,”
he said. Finally, with the uncertainty in the tax rates and the fact that 2012 is an election year, Sturm said tax-advantaged bonds for upper tax bracket investors have also seen a recent resurgence. “This is an excellent option to consider based on individual circumstances,” he said. Raymond James Financial Services, Inc. is a member of FINRA/SIPC. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Sturm and not necessarily those of RFJS or Raymond James. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results.
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May 2012 5
How to ask for a raise As the economy has struggled over the last several years, many employees have felt happy to have a job, no matter what it pays. However, for those who feel they have been doing an exemplary job at work, they shouldn't let the economy prevent them from asking for a raise they deserve. Chances are employers are not going to walk up to employees and offer them pay raises. After all, bosses are in the business of having the company operate at the least possible cost. Men and women who want a raise should recognize that it is their responsibility to approach higher-ups about a pay increase. Asking for a raise can put employees on edge and raise a couple of questions. What is the best way to approach the topic? What if the boss decides against a pay increase? What is a reasonable salary? Preparing for a meeting with a supervisor is essential for men and women about to request a raise. • Research what others in your position are being paid. There are a number of salary calculators available online that will provide a good indication of the regional pay rate for a particular job description. Compare a few of them and take the average. Print out these salary rates and bring them with you to the meeting. • Calculate how long you have been working at the company. It generally costs more money for an employer to replace an employee -- even if the new one will be paid less than you -- rather than just giving you a raise. That's because there is the potential of lost business and productivity should you choose to leave the company. Hiring and training takes time. If you have been with the organization for quite some time, that should work in your favor, as it shows loyalty and the boss can review your lengthy work history. Be prepared to say how much you enjoy working for the company and indicate your long-standing record for getting the job done. • Determine the financial position of the company first. You can probably get a good indication of how well the business is doing based on happenings around the
office. If the employer has eliminated jobs, merged jobs, taken away incentives or other morale boosters like office parties, or done anything else that might be indicative of financial struggles, you may want to wait until things level out before asking for a raise. • Practice your sales pitch. Sit down and go over all of the reasons why you deserve a raise. Think about what proof you can use to support your request. If yours is a salesbased job, offer a spreadsheet that shows how many sales you have made. For recruiters, show how much new business you have brought in. If you have any customer testimonials, present them as well. To get a raise you have to sell yourself. Don't think of it as making threats or ultimatums. An employer is smart enough to realize that, if you are asking for a raise, you could be unhappy with your current situation. • Think about how you will react if the raise is turned down. Perhaps asking for a raise is the last step before looking for a new job. You might stay if you get more money, but leave if your request is denied. Maybe you have a comfortable enough relationship with your boss that you can ask when might be the right time for a raise, or when you can broach the subject again. Also, there is the opportunity to negotiate: If I cannot get a pay increase, are there any other benefits I can receive, such as better health insurance, gym membership, covered child care expenses, or some other benefit that isn't financial? • Choose a good time for an appointment with your boss. Wait until deadlines are over or after your supervisor has returned from a vacation. You want an uninterrupted time to sit down and present your case when there will be no distractions. After all, you want him or her relaxed and in a good mood, which will only improve your chances of getting what you want. Asking for a raise can sometimes be uncomfortable. However, for employees who think they are going above and beyond at work, they should state their cases for a raise.
6 May 2012
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The cost of travel continues to increase, especially for those travelers who prefer to travel by air. According to the Bureau of Transportation Statistics, the average round-trip flight in 2011 cost consumers $362, a 7.8 percent increase from the previous year. What's more, that figure does not include taxes or additional costs paid at the airport, which can include potentially expensive baggage fees. It's no surprise then that many would-be travelers are somewhat reticent to fly, especially if those travelers have kids in tow. However, there are ways to save on flights; it just takes a little flexibility and a willingness to shop around. • Don't insist on nonstop flights. No one likes layovers, but they might just save you a substantial amount of money. Compare the cost of a nonstop flight to your desired destination to one that has one or even multiple stops. Chances are the cost of a nonstop flight will be considerably more than a flight that includes at least one layover. Though connecting flights are not ideal,
many international airports now offer a host of stores and restaurants that can help make those layovers more bearable. • Don't necessarily choose a round-trip ticket. Though it's almost second nature for travelers to purchase a round-trip ticket, it might be more affordable to buy two oneway tickets instead. This allows consumers to compare prices of tickets from different airlines, which can make the overall cost lower. • Be flexible with airports. Many online travel sites, including Orbitz and Expedia, allow consumers to search for flights departing from and arriving to multiple airports. This is done to give travelers more flexibility and ultimately to help them find the most affordable flight. Take advantage of this option. However, before booking the flight, consider the costs associated with getting to and from an airport that's farther away from home or your desired destination than the airport that's closest to both. The cost of transportation to and from an airport that's off the beaten path might offset the savings on the cost of the flight.
The Valley News/Herald-Journal
May 2012 7
Financial mistakes young families should avoid Young families want to start out on the right foot, and for many that means addressing finances and developing a plan so their finances help instead of hinder them in the years to come. Addressing finances often means tackling debts, and eradicating or significantly reducing debt is essential for young families. But being beholden to debt isn't the only mistake young families make. The following are a few common mistakes that young families focused on their future should avoid. • Getting by without a budget. It's possible to live without a budget, but that doesn't mean it's prudent. Living without a budget makes it hard to corral spending or to know just how much you're spending each month. When sitting down to establish a monthly budget, the task can seem daunting, especially if you have never before lived on a budget. The first step toward establishing a budget is to determine the monthly costs of
necessities (i.e., mortgage payments, car payments, groceries, etc.) and then make a list of those things you spend money on each month that aren't entirely necessary (i.e., cable television bills, dining out, and so on). This can help you trim some of those extra costs that can make it difficult to save for your future. The first couple of month living on a budget might be rocky, and you might need to make a few adjustments along the way. But establishing a budget will make it much easier for you to meet your long-term financial goals. • Failing to save money. Some young families feel their savings account is their home, the value of which they expect to appreciate considerably by the time they're finished paying off their mortgage. Unfortunately, the housing market of the last several years suggests that homes might not be as great an investment as they once were. In fact, many homeowners are currently underwater with their mortgages, meaning they have more debt on the prop-
erty than the property is worth. Though the prevalence of underwater mortgages doesn't mean families should avoid buying a home, it does shed light on the importance families must place on saving money and avoiding the assumption that their home will finance their retirement down the road. There's no telling if the value of your home will keep pace with inflation over the next several decades, so it's important to save money and keep saving as the years go by. • Saving for college as opposed to retirement. Parents, of course, want their children to go to college, and many would prefer that their kids won't end up buried in debt to afford tuition. However, it's not a good idea to make the kids' college tuition a higher priority than your own retirement. Kids can earn scholarships to college, but no such scholarships exist to finance your retirement. If your child's college savings plan is getting more of your money than your own retirement savings, reverse this
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plan immediately. You can still contribute to your child's college fund, but don't do so at the expense of your own retirement. • Living above their means. Young families in which Mom and Dad both have strong credit scores and histories will find they're attractive to prospective lenders. As a result, it can be easy for young families to fall into the trap of living above their means, whether it be buying a home that stretches their budget or a car that might be flashy but is ultimately unaffordable. This is a potentially dangerous situation to find yourself in, as the first unforeseen expense can have a devastating domino effect on your finances. Though it might be tempting, don't live above your means. Today's families face a financial future that's as uncertain as any in recent memory. That reality only emphasizes the importance families must place on making sound financial decisions that don't put their futures in jeopardy.
Duane Sturm, Branch Manager 114 W Main Street, Clarinda, IA 51632 712-542-6334 or 888-554-9601 www.raymondjames.com/duanesturm *These products are not offered through Raymond James Financial Services
8 May 2012
The Valley News/Herald-Journal
Get deals on dining out during the summer The warm weather can be a boon to the restaurant business, or it can be a disadvantage depending on how restaurant owners approach the situation. Patrons dining out can make the most of summer dining by employing strategies to eat on the cheap every time. Although some restaurants have no problem keeping customers coming back for more, the sheer volume of restaurants in most cities and towns can make competition feisty throughout the year. However, during the summer, when many individuals spend their time at home, on vacation and on weekend getaways, restaurants may have to work even harder to attract business. As a result, diners can expect new specials and incentives to get them in the door. When selecting a restaurant, there are certain things that can
help you cut some of the fat off the final bill. * Avoid the hot spots. Look for less trendy, though established, restaurants and neighborhoods to save money. At trendy establishments, you could find long wait times for tables and inflated prices to cover the cost of decor and specialty ingredients. With a long waiting list wrapping outside of the door, chances are this restaurant is not going to cater to customers looking for a bargain. Cost-conscious diners should also avoid trendy neighborhoods. Many people find the lure is too powerful to ignore in warm weather. In turn, restaurants that overlook the water or are located along the beach may be more populated and pricey than others just a short distance away. There's a good chance that if you do a little exploring you can find a comparable restaurant nearby that may
offer a better deal. • Dine out during the week. Leave the end of the week and weekends for cooking meals at home. When you want to eat out, Monday, Tuesday and Wednesday may be the best days for finding a coupon or special discount deal. That's because restaurants know patrons tend to dine out later in the week. To drum up business on slower days, restaurants may offer special menus or steep discounts. This is an advantage if the entire family is dining out. • Turn to chain restaurants in a pinch. Although there's nothing quite like the unexpected flavors and variety that independent restaurants can offer, chain restaurants offer consistency, familiarity and often hard-to-beat deals. Many of the popular franchise restaurants offer kids' meals starting at $4 and prix fixe meals where two adults can enjoy dishes
for a total of $20. • Order appetizers only. The warmer weather tends to mute hunger pangs, and smaller portions can leave you feeling full. If you want to try a higher-priced restaurant, consider only ordering appetizers and salads, which will certainly cut down the cost of the bill. • Clip coupons. At-home coupon mailers and special dining-around-town supplements are often included in the newspaper or mailed directly to your home. Browse through and take advantage of the coupons within. Discounts might be as high as 30 percent off your bill. • Choose from BYOB restaurants. Many restaurants keep overhead costs down by choosing to make their establishments BYOB, or bring your own bottle. The meal may be slightly lower in price than other restaurants, and
you will save money on the final tab by bringing your own wine or beverage. Dining out inexpensively is something anyone can do during the often competitive summer season.