The markets are down – reminder to stay the course!

 

Monday, January 4, 2016

Dow end of day	17,148.94
Dow 52 week high (all time high) (5/19/15)	18,351.40
Dow 52 week low (8/24/15)	15,370.30
S & P 500 end of day	2,012.66
S & P 500 52 week high (all time high) 5/20/15	2,134.72
S & P 500 52 week low (8/24/15)	1,867.01

The Dow was down 276.09 points today (1.58%), and the S&P 500 was down 31.28 points (1.53%).  At the session lows, the Dow was down 467.40 points and the S&P 500 was down 54.26 points, recovering some of the losses in the last half hour or so of trading.

As bad as it seems, we are still not in a correction.  A correction is a decrease of 10% or more.  Currently the Dow is down 1,202 points, or 6.6% off of its highs and the S&P 500 is down 122.06 points or 5.7% off its highs.

When you see the markets down this much, panic can start to set in.  When that happens, look at the opportunity instead of the losses.  If you are still investing through your 401(k) plan, you have the opportunity to purchase shares through your payroll at lower prices, which means that you will purchase more shares than you normally do.  You don’t have to “do” anything.  You have already selected to have a percentage of your paycheck to be deducted and invested in your 401(k) plan.  For as long as the market remains low or goes even lower, you will be purchasing a greater quantity of shares.  This is good news!

If you are close to retirement, this is not the time to get out of the market.  If you sell now, you make it a real loss and not just a paper loss.  The market will come back, and will hit new all-time highs at some point – it always does.

In my case, I had some money sitting on the side, and I invested some of it into the S&P 500 Index fund today because the markets are down so much.  When you purchase a mutual fund, you cannot purchase it at the lows of the day, the trade happens as of the end of the trading day.  (There is a way to purchase the Index at anytime during the day by purchasing an ETF which is an exchange traded fund, but those can be more volatile during the day so I wanted the actual mutual fund.)  So I didn’t push the button on the purchase until the last 5 minutes of the trading day because markets can change direction quickly, and if it had recovered much more, I may not have purchased the shares.   I’m already invested in this fund, but had some money in cash also, and saw this as an opportunity to pick up more shares at a good price.  I may leave this additional amount in the market until it makes a good profit, and then pull it back out again as I still want a percentage of my money in “cash” or “cash equivalents” since I am already retired.

No matter what stage of life you are in, when markets go down, stay the course.  The markets have been much worse than this and history has shown us they always come back.

Be prepared that markets may go down even more tomorrow.  Think about the opportunities and stay the course.

 

Year End: Review your Financial Choices

As we approach the end of the year, it is a good idea to review some of your financial choices.  One of the most important is your 401(k) account and / or your IRA accounts.  The following are some areas you should look at.

1. Review your investment choices for your 401(k) account. You should take a look at what investments you are in with your 401(k) or IRA accounts.  For the portion you wish to be in stocks, a good choice is an index fund:  either S&P 500 index fund or Total stock index fund. Most 401(k) plans offer index fund options.  (See my post on where to invest your retirement dollars posted on 9/25/15).  If you are not happy with your investment choices, you can change your investments for future contributions.  You can also transfer your current balances in funds that you do not want, into funds that you do want (all within your 401(k) account).   You can create an online account for your 401(k) if you do not have one set up and make the changes yourself.  Or you can call whoever your money is invested with and ask them to make the changes for you.

2. It’s a good time to look at your balances by investment type. You may need to re-balance your account.  Your contributions may be set up to invest 75% in stocks, and 25% in other funds.  Although your contributions are investing those percentages, different investments grow at different rates, so your balances may not reflect the percentages you want.  For example, your stocks may be higher or lower than the 75% you wanted in stocks (I’m not recommending 75%, just using that as an example.  The percentage you want in stocks is based on your age and your risk tolerance – see my post from 9/25/15).   For example, if you want 75% in stocks, check that your stock funds total 75%.  If not, transfer balances so that you do have 75% in stocks.   You should re-balance your account once a year to make sure you have the investment percentages you want.

3. Remember that bond funds are risky as interest rates go up. We just had a ¼% interest rate increase on December 16^th.   As interest rates go up, the value of your bonds go down.  If you own individual bonds, and you hold the bonds to maturity, then the value of your bonds will not go down.  But when you own bond funds, the fund managers do not hold the bonds until maturity, and if they sell the bonds when current interest rates are higher than the bond interest rates, they will have to sell the bond at less than face value of the bond (in other words, they have to take a loss when they sell it, therefore you take a loss).  So you may want to consider other investment choices.

4. If your company offers a match on your 401(k) account, are you taking advantage of the full company match? If your company matches (for example) 50% on the first 5% then you should have at a minimum 5% invested.  If your company matches up to the first 10% then you should be investing 10% at a minimum.  When you do not take advantage of the full company match, the expression is leaving money on the table.  If you are not getting the full company match, you are turning down free money.

5. If you can afford it, you should be investing 10% to 15% into your 401(k) account. If you do not have a pension plan, then your 401(k) (or your IRA accounts)  have to accumulate enough to supplement your social security in your retirement.  People are living longer, and you do not want to run short of money if you live a long life.  The more you invest now, the better your retirement years will be.

6. Review your beneficiaries named for your 401(k) accounts and your IRA accounts. Typically your spouse is the primary beneficiary (I believe they have to sign a form if they are not your primary beneficiary).  If you are naming your children as secondary beneficiary (or primary if you do not have a spouse), once they have children you should consider using the term “My Children Per Stirpes”.  That way, if one of your children should pass before you, their share will go to their children when you pass. If you do not stipulate per stirpes, then their share will revert to their siblings that you have named as beneficiary.  I’ll be posting on this topic in the near future.

7. Annuities can be a way to supplement your retirement to make sure that you do not outlive your money, but the type of annuity you choose is important.  Up until recently I have not been in favor of annuities, and I’m still not in favor of many of them.  However, there are some annuities available now, that are actually a good supplement to your retirement.  With these annuities you would receive an annual amount for the rest of your life, ensuring that you will never outlive your money.  If you should pass before or while you are collecting, this money can be left to your beneficiaries.  It’s a little involved, so I’ll be posting about annuities soon.

In addition to reviewing your 401(k) account, some other areas you may want to review are listed below:

1. Do you have a will? (see my post from 9/17/15)
2. Do you have 6 months of your expenses in an Emergency Fund? (see my post from 10/24/15)
3. Do you have life insurance? (I’ll be posting about life insurance in the near future).
4. Do you have adequate auto insurance? (see my post from 9/2/15)
5. Do you have adequate home owners insurance?

If you have any questions, please leave your question in a comment.

Good Morning America’s “Super Shopping Secrets”

On Good Morning America this morning they had some great tips for your holiday shopping, they call “Super Shopping Secrets”.

Purchase gift cards at a discount:  An example is that you can purchase a $100 gift card for $80 (a 20% discount).  They gave another example where they purchased a $100 Bloomingdales gift card for $86 and purchased $100 worth of makeup that never goes on sale, for a savings of 15%.  Or you can take advantage of store sales, and use the discounted gift card so that you are stacking your discounts.

We all think of using gift cards as gifts for others, but we don’t typically think of them as a way to purchase other gifts or items for ourselves.

Best ways to purchase gift cards (this is also from the Good Morning America story):

Method #1:  Gift card clearing houses:  you can purchase discounted gift cards at Cardcash.com, Raise, and Gift Card Granny.  Some of these gift cards are electronic – you print them out, others are a physical card they will mail you.  GMA purchased many and had only 1 that was “empty” and didn’t work, but they received a full refund when they contacted customer service.  So buy from a website that has a guarantee!  I checked these 3 websites:  Cardcash.com has a 45 day card balance guarantee, Raise.com has a 100 day guarantee (from date of purchase), and GiftCardGranny.com doesn’t actually sell you the card, they are a service that can find whatever card you are looking for and hook you up with a broker who will guarantee the card (the guarantee term may vary depending on who you go with).

Method #2:  Gift Cards go on sale “big time” this week per GMA.  Warehouse clubs like Costco, Sam’s Club and BJ’s always sell discounted gift cards, but this week they will have “sales” on them with even lower prices.  Stores like Target will offer packages of multiple cards at a discount.  GMA mentioned that last week they bought Target cards at 10% off.

Method #3:  Purchase gift cards from Ebay – but not from Ebay sellers – purchase direct from Ebay the company.  Per GMA these cards are discounted, vetted and good to go.  On the Ebay home page, on the top right of the screen click on deals and gifts.  Then you will see Featured, Tech, etc – choose Other Deals then Gift Cards from the drop down list.  Currently I only see 3 gift cards offered.  This is the first time I have ever looked here so I don’t know how many they normally have.

GMA’s Shopping Secret:  Use discounted gift cards to pay for items on sale and then use a percentage off coupon to get your best bang for your buck!

Warning:  Only purchase gift cards if you are going to use them.  As GMA reminds us, since 2008, 44 billion dollars of gift cards were never used.

Other tips from the story:

1. Gather all your gift cards, put a hole punch in the corner, and put them all on a key ring so that you always have them (be careful not to punch the hole where the card number or pin are). This is a great way to make sure you use your cards – you won’t lose them or forget about them and they will always be available when you want to use them.
2. If you have a gift card that you will not use, exchange or sell it on cardcash.com. GMA says you may only receive $80 on your $100 card, but if you will never use it anyway, it’s better to have the money.
3. If you have a gift card for iTunes or Amazon (or other online stores), redeem them right away – it will show up as a credit in your account so that you can use it the next time you make a purchase.

 

 

DRIP’s: An idea for Gift Giving

Need an idea for the Holidays for someone on your list?  Well you can give shares of stock as a gift.  An inexpensive way to give stock as a gift is through a Dividend Reinvestment Plan (DRIP).  It’s a great gift for your children, grandchildren, nieces, nephews, or anyone!  This is a gift you can give to children or adults.  It is a great idea for Birthdays, Holidays, and Special Occasions.

A quick overview of how it works:

1. You choose a stock that has a dividend reinvestment plan.
2. Acquire the number of shares required to get into the plan (many only require 1 share)
3. Put the shares in the name of the gift recipient – not with a broker. If you are gifting to a minor child, make sure you set up a custodial account (easy to do, you just have to name a custodian – usually a parent).
4. Whenever you choose (i.e. Birthday, Holiday, Graduation, or any other time you choose) you can purchase additional shares in their accounts by sending in at least the minimum amount to purchase additional shares, for example: $25 or $50 or whatever amount you want as long as it is at least the minimum.  Another option is to have a fixed amount sent to their account from your checking account on a regular basis.  For example – you could set up automatic payments of $100 per month (or whatever amount as long as it satisfies the minimum for the company you have chosen).
5. Dividends are automatically reinvested in additional shares.
6. This method of purchasing stock takes advantage of dollar cost averaging.
7. It’s a fun way for kids (or anyone) to learn about stock ownership.

What do you need to do?

1. You choose a stock to acquire as a gift. There are over 1600 stocks to choose from that offer Dividend Reinvestment Plans.  To choose a stock, you can go to any of the following websites:
   1. firstshare.com (click on available DRIPS for a list of DRIP companies)
   2. or directinvesting.com
   3. or dripcentral.com (for a list of direct purchase no fee DRIP companies). You can also narrow down your choices by clicking on DRIPS with no fees and no commissions.
   4. Computershare.com is an excellent source for DRIP investors since it is the transfer agent for many companies that offer DRIPs. When you arrive at the site, click “buy stock direct” listed under the company’s services on the home page. The link brings you to another page titled Buy Stock Direct. Under the heading Quick Search, you can click “dividend reinvestment plans” to view a list of companies that offer dividend reinvestment plans. This isn’t a list of all companies that offer DRIPs, however they have many of them. From the Buy Stock Direct page, you can search for a specific company’s DRIP information by inputting a ticker symbol or company name into the designated search box under the section titled Plan Search and clicking “search.”
2. It is a good idea to research the stock you choose to be sure it has good fundamentals. Brokers offer free online tools and research so you can check on a stock before purchasing it.
3. Purchase or transfer the minimum number of shares of the stock you have chosen.   You acquire the required number of shares (usually 1 but could be 10 or more shares).  To acquire the initial shares, you have 3 choices.
   1. 1) If you own the stock that you want to gift, you can transfer the  minimum share(s) required for the DRIP plan you have chosen, into the name of the person you want to gift it to, at no cost (if the shares are in your name vs. your broker).
   2. 2) If you do not own the stock, you can use a discount broker and register the stock in the name of the gift recipient.  You will only purchase the required number of shares to get into the plan from a broker – future shares will be purchased direct from the DRIP Plan.
   3. 3) Many companies have direct purchase allowing you to purchase your first share(s) directly from them for free or a nominal fee.  At firstshare.com, click on available drips, and then click on the company you are interested in.  It will bring you to another screen that will give you the purchase fees, dividend reinvestment fees, it will tell you if it has a direct enrollment, gives you the minimum investment, tells you if it accepts Optional Cash Purchases (OCP), and what the minimum OCP is.  (Optional Cash Purchases is how you will purchase additional shares as gifts – or for yourself, once the account is set up).  Although you can purchase the initial shares at any of the websites listed previously, they may not be the best prices.  You need to compare the fee for the first share with that of a discount broker (for example, discount brokers such as TD Ameritrade charge $9.99 and Fidelity charges $7.95 per trade).
4. Initial share(s) must be in the recipient’s name – they cannot be held by the broker. If you are gifting to a minor child, make sure you set up a custodial account.  You need to name a custodian – usually the child’s parent.  You will use the social security number of the child.
5.  Enroll in the Dividend Reinvestment Plan: After purchasing your initial shares, request the form to sign up for the dividend reinvestment plan. It needs to be signed by the owner of the shares, or in the case of a minor, signed by the custodian (usually parent).
6. Dividends will be automatically reinvested: In a Dividend reinvestment plan, the dividends are automatically reinvested into additional shares.  In other words, instead of you getting a check for the dividends, the plan automatically purchases additional shares for you with the dividends.
7. Purchase Additional Shares through Optional Cash Payments: Once you are in the Dividend Reinvestment Plan, the plan allows you to purchase additional shares of stock directly from them (no broker) at a nominal fee and some stocks have no fee.  You can do an “optional payment” whenever you want – for example, Birthday, Holidays, and special occasions.  You can send in as little as $25 for some stocks, while other stocks have a minimum payment of $50 or more.

I have been doing stock gifts for many years now, and you would be surprised to learn how much these accounts accumulate!  Pick a good company!

Questions?  If so, please put them in a comment, and I’ll answer them.

Are Google and others storing all of your activity?

In case you missed the 11:00 news last night (Phila Channel 3, CBS), they had a story about how Google collects your data and stores it – everything (unless you tell them not to)!  If your smart phone is linked to your Google account, everything you do with your smart phone may be stored, i.e. websites you visit, info from email, voice commands, etc.  This includes your laptop, ipad, and smart phone.  Even pictures you take may be stored by Google.

According to the news report, the purpose of Google storing that data is to make your Google experience better.  Google does a good job of telling you what they are storing and also tell you how to delete it if you choose.   You can look at the data that has been stored by Google by going to your history page.  To check your history, go to www.google.com/history.  The report also says that if you can access the data, google can and anyone who gets access to the data through hacking can also access your data.

My iPhone is not directly linked to a gmail account, but I do have a gmail in one of my mailboxes I access through my phone.  When I checked my history on Google, I was amazed to see that all my web searches and much more, along with the dates and time of day, were stored by Google (from my laptop and my iPhone).

To change your privacy settings so that Google does not store your data, you need to go to the Activity Controls.  You can get there by doing one of the following:

1. Go to your gmail account, go to settings (gear wheel on top right of screen), privacy, Activity Controls.
2. Or you can go to “My Account”, Personal info and privacy, Activity Controls.

In Activity Controls, you disable the storing feature by hitting pause for any activity you do not want Google to track.  By clicking the button to the right of the activity you can pause or unpause.  If it is on pause, then Google will not collect and store that data.

You can control the activity stored by Google for the following activities:

1. Your searches and browsing activity
2. Places you go
3. Information from your devices (contacts, calenders, apps, and other device data)
4. Your voice searches and commands
5. Videos you search for on YouTube
6. Videos you watch on YouTube

If you use Outlook, or Yahoo or any other web service, you should go to those privacy settings to be sure that they are not tracking and storing your data as well.

Stock Market: Best Month in 4 years – October 2015

Per Evelyn Cheng, CNBC, “U.S. stocks ended lower Friday but closed out their best month in four years, helped by a recover in oil prices and hopes of easy monetary policy”.

The Dow closed the month at $17,663.54 while the S&P 500 closed at $2,079.36.

Some milestones for the Dow Jones Industrial Average, from FedPrimeRate.com are as follows:

DJIA Closes Above the 10,000 Mark: March 29, 1999 (10,006.78)

DJIA Closes Above the 11,000 Mark: May 3, 1999 (11,014.69)

DJIA Closes Above the 12,000 Mark: October 19, 2006 (12,011.73)

DJIA Closes Above the 13,000 Mark: April 25, 2007 (13,089.89)

DJIA Closes Above the 14,000 Mark: July 19, 2007 (14,000.41)

DJIA Closes Above the 15,000 Mark: May 7, 2013 (15,056.20)

DJIA Closes Above the 16,000 Mark: November 21, 2013 (16,009.99)

DJIA Closes Above the 17,000 Mark: July 3, 2014 (17,068.26)

DJIA Closes Above the 18,000 Mark: December 23, 2014 (18,024.17)

DJIA All Time, Record-High Close: May 19, 2015 (18,312.39)

Stock Market – Are We Still in a Correction?

As of 10/27/15, the stock market balances were as follows:

Dow end of day (10/27/15)	17581.43
Dow 52 week high (all time high) (5/19/15)	18351.40
Dow 52 week low	15370.30
S & P 500 end of day (10/27/15)	2065.89
S & P 500 52 week high (all time high) 5/20/15	2134.72
S & P 500 52 week low (8/24/15)	1867.01

When the market declines by 10%, it is considered a correction.  As most of you know, the stock market declined substantially in August and September 2015.  Since more of us invest in the S&P 500 than in the DJIA, I want to show you how the S&P 500 performed over the last few months, recovering substantially from the declines in August and September.

Between August 24^th, (when the market hit a 52 week low), and September 30^th, the S&P 500 had reached levels that showed we were in a “correction” (more than 10% decline off the highs on May 20, 2015).   In the following chart (stock market data from Yahoo finance) I added a column to show the percentage the market declined from the all time high on May 20, 2015.  This chart shows all the dates where the market was 10% or more below the high set on May 20^th.

Date	Open	High	Low	Close	Adj Close	% down from highs
9/30/2015	1887.14	1920.53	1887.14	1920.03	1920.03	10.06%
9/29/2015	1881.9	1899.48	1871.91	1884.09	1884.09	11.74%
9/28/2015	1929.18	1929.18	1879.21	1881.77	1881.77	11.85%
9/4/2015	1947.76	1947.76	1911.21	1921.22	1921.22	10.00%
9/1/2015	1970.09	1970.09	1903.07	1913.85	1913.85	10.35%
8/25/2015	1898.08	1948.04	1867.08	1867.61	1867.61	12.51%
8/24/2015	1965.15	1965.15	1867.01	1893.21	1893.21	11.31%

The market however has come back substantially, and is no longer in a correction range.  As of October 27^th, the market (S&P 500) is 3.22% off it’s all time high.   Since it had been down by 12.51% on August 25^th, it has rebounded substantially.   It has actually gone up by 10.65% from the lows of August 24^th  (the intraday low on 8/24/15 was the 52 week low although the market did not close at that level).  The following chart shows the S&P 500 for the last 4 days, with the percentage decrease from the all time highs of May 20th.

Date	Open	High	Low	Close	Adj Close	% down from highs
10/27/2015	2068.75	2070.37	2058.84	2065.89	2065.89	3.22%
10/26/2015	2075.08	2075.14	2066.53	2071.18	2071.18	2.98%
10/23/2015	2058.19	2079.74	2058.19	2075.15	2075.15	2.79%
10/22/2015	2021.88	2055.2	2021.88	2052.51	2052.51	3.85%

The takeaway from all of this, is a reminder that you should never sell when the stock market is dropping!  If you don’t have the time to wait until the market recovers, then you should not be in the market.  If you have the time before you need the money, but you panic when the market goes down, then you should also not be in the market (or at least have a small percent in the market).  To sell when the market is down, makes it a real loss and not just a paper loss.  You have to wait it out.

If you are still investing through your retirement plans, these corrections are a little bonus because you purchase more shares at lower prices.

The market goes up and down, and you cannot predict the market with any certainty.  But as history has shown us, in the long term, the market goes up.  Recoveries from corrections however, can be quick or they can take years to recover.

Emergency Fund: Why you need it, How much you should have, and How to set it up

Savings:  You should always be saving, and there are three separate savings funds you should have:  Emergency Fund, Life Event Fund, and Retirement Fund.  All three of these are important.  In this post, I will explain Emergency Funds; why they are needed, how much you should have, etc.  In future posts I’ll explain the Life Event Fund and more on Retirement Funds.

Why have an Emergency Fund?  The reason for creating an Emergency Fund, is so that you don’t get caught off guard when “life happens”, i.e. your car breaks down and needs a few thousand dollars of work on it, or you have a crisis in your home requiring that you fix it immediately, or any other number of things that can and do happen.  If you own a home, you may have to replace a heater, air conditioning unit, your roof, a major appliance or any other unexpected expense.

Another important reason for having an Emergency Fund, is that you could lose your job.  Even if you are a great employee and do everything perfectly, companies still go out of business, downsize, or have to lay people off for any number of reasons. You need sufficient money to live on until you find another job.  By having an emergency fund, you know you will be ok in the event of a layoff.  This money should buy you the time you need to find another job.  Having an emergency fund gives you security so that you do not feel you must take the first job offered to you, it allows you the time to hold out for the job that’s most important to you.

If you do not have an Emergency Fund, you would be forced to use credit to pay for these unexpected expenses, and you may not even have enough available credit.  And even if you do, you would be paying interest on this additional debt, and the monthly payments would put you further behind.

How much do you need in your Emergency Fund?  You should have at least 6 months of living expenses in your Emergency Fund.  If possible, 8 to 12 months would be even better.  However, if you still have credit card debt, it is more important to get that paid off first before starting an Emergency Fund.

How to save for your Emergency Fund?  The best way to save in your Emergency Fund is through your paychecks with automatic direct deposits to your Emergency Fund account.   Choose an amount that you want to put into this account each paycheck.  If you never see the money in your checking account, you won’t miss it.  Most employers allow you to set up multiple direct deposits for your paycheck  so you can have a separate direct deposit for your Emergency Fund and then the balance to your checking account.  Continue this until you reach a minimum of 6 months living expenses in your account, and for added security you could save 8 to 12 months.

Once you use your Emergency Fund to pay for these unexpected expenses, you need to start building it back up again right away – so you will always be prepared for anything.

What kind of account should you put your Emergency Fund money in?  Your Emergency Fund needs to be “liquid” (converts to cash easily).  This means that it is readily available when you need it.  So this money should be in a Money Market account, Savings account, or a portion could be in a Certificate of Deposit (CD).  None of your Emergency Fund should be in the stock market.  If you needed the money immediately, and it was in the stock market, you could be forced to sell the stock when the market is down, resulting in a loss on your investment.

How are American’s doing with their Emergency Funds?  Not very well.  In an article by Huffington Post (July 21, 2015), they report that a Bankrate.com survey shows “75 Percent Of Americans Don’t Have Enough Savings To Cover Their Bills For Six Months”.

Referencing the same Bankrate.com survey, USA Today reported “More than a quarter of Americans have no emergency savings, according to an annual survey released Monday by Bankrate.com. Of those who do have savings, 67% have less than six months’ worth of expenses, what Bankrate calls the recommended amount, and those with at least three months’ of expenses declined from 45% in 2013 to 40%”.

How to Handle Your Mail

On October 11^th, I posted about the cost of disorganization.  This is one step you can take to get organized.

If you do not already have a system for addressing your mail, here is a system that may help you organize your mail process.  Mail is the largest source of paper that comes into the home and if not handled right away, things can get lost or misplaced.  This system is great because you will always know where everything is.  If you spend time looking for paperwork, looking for that invitation you received, looking for anything that came in the mail, then I have a great solution for you.  You can also use this file for school papers that come home with your children that need some sort of action, and any other papers that come into the home.  Years ago, while watching an organization TV show called “Neat” (a Canadian TV show that was on HGTV), I learned about the “Action File”.

How does the system work?  When your mail comes in, you first get rid of all the junk mail (use a shredder to shred any junk mail that has personal information on it).  After you have sorted through and know what mail you want to keep, you use the action file.  Chances are that when you bring in the mail, you don’t have the time right then to take care of what needs taking care of in the mail.  The action file is where everything goes right now.  Once you set up the necessary folders, it literally takes 2 minutes or less to sort your mail and put it in the action file when it comes in.

Setup:  You will use file folders and prepare labels with the following names (you can use a crate or any other container or filing cabinet to hold these folders  – Target and Walmart sell portable file crates that work great for this that are fit for pendaflex folders that you put your file folders in):

1. Read
2. Reply
3. Pay
4. File
5. Call
6. Banking
7. Statements
8. Taxes

In addition to these folders, create labels for a folder for each month of the year.  Put the current month in the front with all the other months filed behind it in order.  When the month is over, the folder should be empty and put at the back of the files (behind the last month). Now the next month is in the front (the new current month).  What goes in the monthly folder?  Anything you need to handle that month.  If you purchased birthday cards in advance you can put those in the appropriate monthly folder.  When you receive invitations, those will go in the month of the event (or in the month you need to look at it).  So when you are in the current month, that folder will be in the front, and everything you need to address will be in it for that month.

Put all bills in the “Pay” folder.  Put invitations, events, etc. in the appropriate monthly folder.  If some of the mail needs a response you put it in the “Reply” folder.  If it needs to be read you put it in the “Read” file.  Statements from banks or investment accounts should go into the “statements” file. Anything you receive that is related to your taxes will go in the “tax” folder.

Once a week you need to go through your action file to handle the folders.  Go to the current month folder, and the other folders, i.e. “read” folder or the “reply” folder and take care of that mail.  When you want to pay your bills, pull out the “pay” file and pay your bills.  After you pay your bills – you put them in the “File” folder to be filed at a later time (once a week).  The most important thing to understand about this system is that these files are temporary holding files.  It is not a stationary file.  It is called an Action File because you need to take some sort of action on everything.

Do you have enough saved for retirement at your age?

When you are young, it is difficult to predict how much you will need annually from your retirement plan.  For this reason there are retirement guidelines to give you an idea how much you should have saved at various points in your life.

On September 15, 2015, I posted  “Retirement Savings Checkpoints” which gave J.P. Morgan’s Guidelines for Retirement.

Today’s post is about another retirement guideline, and this one is reported by CNN (www.money.cnn.com).  I like this guideline more than the J.P. Morgan guideline.   If you follow the J.P. Morgan guideline, at age 65, if you make under $150,000 (which most people do), you would not have enough saved for retirement.  This is because the J.P. Morgan guideline has a different factor for each income level at the same age, and only has the correct factor if you make $150,000 or more.  This CNN guideline will help you to be prepared for retirement at all income levels.

I made the following chart from data provided in an article found on Money.cnn.com, entitled How much you should have saved for retirement right now, by Katie Lobosco, on 9/2/15:

Income		$40,000	$65,000	$90,000	$115,000
	Factor	Retirement Savings – Multiply factor times Income
Age 25	10%	$4,000	$6,500	$9,000	$11,500
Age 35	1.5	$60,000	$97,500	$135,000	$172,500
Age 45	3.7	$148,000	$240,500	$333,000	$425,500
Age 55	7.1	$284,000	$461,500	$639,000	$816,500
Age 65	12	$480,000	$780,000	$1,080,000	$1,380,000

Annual Incomes are listed across the top of the chart.  The amounts below “Retirement Savings – Multiply factor times income” are the amounts you should have saved at each age based on the annual income in the same column.

The way this works, is that you multiply the factor (to the right of each age), times your income at that age to determine what you should have saved for retirement.

At age 25, you multiply your annual income by 10% and that is how much retirement savings you should have.  If your income is $40,000, as the chart shows, you should have saved $4,000.  If your income is $50,000, you should have $5,000 saved by age 25.

At age 35, you should have 1.5 times your annual income saved for retirement.  As you can see in the chart, if your income is $65,000, you should have saved $97,500. If your income is different than the examples in the chart, just multiply 1.5 times your income if you are age 35.

At age 45 you should have 3.7 times your annual income.  If your income is $90,000, you should have saved $333,000.

By age 55, you should have 7.1 times your annual income and

At age 65 you should have 12 times your annual income in your retirement accounts.

This would allow you to withdraw between 4% and 5% each year for a 30 year retirement.

Source: Calculations come from Charlie Farrell, CEO at Northstar Investment Advisors. Figures target a 70% to 80% pre-retirement income replacement at age 65 for an assumed 30-year retirement. It assumes Social Security will account for 20% of retirement income, a 3.5% return on investments, and a withdrawal rate between 4% and 5% annually in retirement.

If you do not need to replace 70% to 80% of your pre-retirement income, then you may need less than these amounts.  This is a good guideline to use if you don’t know how much you will need.  There are retirement calculators at many websites such as fidelity.com, money.cnn.com, and vanguard.com.

If you are behind in your retirement savings, increase your retirement savings percentage.  Fidelity Investments recommends that you save between 10% and 15% of your income starting in your 20’s.