The Jacobs Financial Group

The 4 Percent Rule — What is the Right Amount to Withdraw from Your Retirement fund each year?

With stagnant incomes and roller-coaster investment returns over the past decade, individuals on the brink of retirement might wonder what became of all those “rules of thumb” affecting how they handle their nest egg once they walk away from their jobs.

They’re still there. But the question of how well they work comes down to the individual.

Chief among them is the “Four Percent Drawdown Rule” first revealed by William Bengen in the October 1994 Journal of Financial Planning. Bengen wrote that retirees who took out no more than 4.2 percent of their mostly stock-based portfolio in the initial year and adjusted their remaining portfolio toward a 60/40 split in stocks and bonds each year, that money could last an average of 30 years. That approach made Bengen’s work a gospel in the financial planning industry.

But after this decade, which ended with the worst recession in 70 years, some experts are taking a new look at the 4 percent rule.

1990 Nobel Laureate William Sharpe of the Stanford Graduate School of Business reported last month that this particular rule can be harmful to many simply because of its level of risk tied to stocks and other assumptions including lifespan. He suggests that planners and investors need to do a better job of assessing client risk tolerance and consider more stable investment choices like TIPS (treasury inflation protected securities) among other low-risk options as a foundation for post-retirement drawdowns.

In other words, consider client risk tolerance and the content of the portfolio more, a standard percentage of drawdown less. In fact, Sharpe points out that investors actually risk wasting money by adhering to a percentage drawdown that actually could leave more money behind after a few good investment years – in essence, the annual strict drawdown concept could lower a retiree’s standard of life unnecessarily.

So what do you do? You work on the big questions first, not the numbers, and the best time to do this is as far in advance of your retirement date as possible. Here are some conversation starters for key discussions you should have with your financial planner as well as your tax and estate experts:

Set a vision of retirement and revisit it every year before and after you’re retired: If you’ve already been working with an investment manager or financial planner, you might have already done this. But retirement goals change as most life goals do, so treat the subject organically. Talk about the fun stuff, but state your objectives for a post-retirement work picture if you want to create a new career or simply want healthier finances. Set your lifestyle expectations now and revisit them as necessary.

Track your working-life expenses for 3-6 months and examine how well your current retirement nest egg and other resources could support that spending: This is where your imagined vision of retirement becomes real — or falls apart. A thorough examination of your current spending habits is a great first step in determining how realistic your preparation for retirement has actually been. It will also provide a picture of what else has to be done.

Consider worst-case scenarios: For many retirees, increasing healthcare expenses and the cost of end-of-life-care account for significant spending. As a result, many retirees may pay for expensive experimental treatments to fight disease or long-term home or nursing home care. Current statistics from AARP show that the average home health care aide makes $18 an hour and a private nursing home room costs $78,000 a year. While public aid picks up medical expenses for those who exhaust their assets in most states, most of us desire more than minimal standards of care. Health care reform is not even close to solving this problem, so it’s time to plan.

Build a phased-in retirement: Many companies are becoming more open-minded about keeping older workers on the payroll or actually hiring more workers over age 60. Keep apprised of such opportunities and the skills it will take to take advantage of them – a successful phased-in or post-retirement work plan will require more than sensible financial planning. It may also require training and other personal investments, so keep your ear to the ground and always be ready to consider a fresh perspective on your value in the workplace.

September 2010 — This column is produced and is provided by The Jacobs Financial Group. (07-10)

A Family Mission Statement Can Help Any Family Manage Assets, Philanthropy and Direction

A family doesn’t need a surname like Vanderbilt to benefit from a family mission statement. A mission statement is a collaborative document created by one or more generations of family so standards and goals can be set for the handling of all family assets, including businesses and philanthropy in particular.

While mission statements aren’t legal documents – in fact, many are done both in written form and on videotape as a companion to legal wills and directives — their purpose is to make a record of the family’s values, goals and aspirations and how those sentiments should drive future decisions about family wealth management, business succession plans and charitable pursuits. Multi-national companies have mission statements. Non-profit corporations have mission statements. A mission statement for your family, helps identify and clarify specific values and goals, facilitates group decisions, instills confidence and encourages unity.

It should also identify family leadership who will work with other relatives in implementing those goals.

While the end product should produce a document built from discussion, argument and consensus, it’s not so much about the piece of paper as the process. Many families start the process as a way to build consensus about long-term financial, business, estate and philanthropic goals, but the conversation can take twists and turns that don’t directly involve the family money. In this process, a family can identify the strengths, weaknesses and unearthed priorities of all family members and might reveal leadership few had expected.

Trained financial advisors including financial planners, tax experts and estate attorneys, can help explain the process and set an agenda for families to follow in creating the mission statement. While some extended families may elect to bring in a facilitator to guide their process, there are generally four components to a family mission statement – estate issues, philanthropy, business planning and family dynamics in general.

It also helps to start with some questions that can guide the discussion. Many experts start with questions that first get family members talking about their relationships and how their dynamics work, and then move into business and money matters.

• What’s most important about our family?
• What do you think our goals should be?
• When do you feel most connected to the rest of us?
• How should we relate to one another?
• What are our strengths as a family?
• Where do you think we’ll be as individuals in 5, 10 and 15 years?
• In order, what are the five things you value most in life?
• How should we behave toward each other?
• How should we take care of relatives who are or become sick or disabled?
• How should we resolve our disputes?
• How important is the family business to you?
• What should we be doing differently with our family money as well as our assets inside the business?
• What professionals or structures should we bring in to help us manage our wealth?
• What’s the best way for us to be building our wealth?
• What do you think the role of our family should be in helping the community?
• What should we be doing individually and as a family with regard to philanthropy?

Structurally, the written mission statement can be whatever you agree it should be – most experts say it should be no more than a paragraph long, but that’s a guideline, not a rule. It is also very important to focus on the positive, meaning what you want to accomplish and achieve as a family, as opposed to want you want to avoid. And it needn’t be set in stone – a family should have a meeting every year or two to revise or approve its mission. The family mission statement helps a family establish its identity and the variety of voices within, and those voices may be subject to change over time. The family mission statement is a living, breathing document that can evolve over time. In today’s fast paced world, it is easy to get caught up in the here and now, a family mission statement can help you stay true to your family’s values. As a result, families may not feel the pressure to keep up with the Joneses because their mission statement helps achieve balance. It is also very important to focus on the positive, meaning what we want to accomplish and achieve as a family, as opposed to want we want to avoid.

The right mission statement can help reset goals and diffuse tensions later. It can also be used to moderate discussions that inevitably happen after major changes within the family – death, divorce or happily, an increase in the number of heirs and participants.

As for the age of the participants, it can start in very basic form with younger children and the process can mature as they age. It’s actually a good idea to bring young members into a customized version of the process for youngsters so they can comfortably adjust to working as adults with the older members of the family.

For additional resources on how to create a family mission statement, please consider utilizing any of these websites

Nightingale.com

Write Family Mission Statement

Franklincovey.com

August 2010 — This column is produced and is provided by The Jacobs Financial Group. (06-10)

A Midyear Financial Checkup Can Make For a Smarter Second Half

This is not the time of year when everyone wants to stay indoors with their finances. But a midyear review of your tax situation, retirement and spending issues can be far more valuable than the rushed attempt most people make at the end of the year — or when it’s too late at tax time.

Summer’s actually a good time to do this task because there’s still enough time to correct lapses in savings, spending or tax planning. Here’s what most people should cover:

Budget: How’s your spending going? It’s a good time to see what’s being spent on non-essentials and whether you can make some cuts and redirect those funds towards bills or savings. A look at the last six months of spending may reveal opportunities to reduce spending and redirect money toward more necessary goals. Also, take a look at such things as gym memberships, magazines that are piled up and coffee expenses. If you’re not using these things, you can probably live without them. Doing this exercise can identify a surprisingly large amount that’s unaccounted for that can be redirected to debt payment, savings and investments.

Taxes: If you got a sizable refund in April or found it necessary to empty savings to pay Uncle Sam, it’s definitely time to reassess what you’ll owe at tax time next year. Also, if you think you’ll have some losing stocks in your taxable investment accounts, keep an eye on those in case you’ll need to offset gains in your portfolio at the end of the year.

Retirement savings: If you are on schedule to max out your contributions to your company retirement plan this year, great. But don’t forget to check your existing IRAs and other retirement accounts to see if you’ll have enough cash on hand to contribute the maximum in each account by their respective deadlines next year.

Health and health insurance: Increasingly, what we pay for health insurance will be tied to the state of our health. While the weather is good, commit to a plan to walk or hit the gym a specific number of hours a week. Many insurers reset premiums at mid-year in a rising cost environment, so make sure you’re ready to switch plans or negotiate different coverage if necessary during open enrollment in the fall.

Emergency fund: Most financial experts encourage you to have between three to six months of living expenses in an emergency fund. If you don’t have that minimum, go back to your spending review and see where you can start socking money away.

College savings: If you are saving for your child’s education or your own, check to see if you’re on track with the goals you made for the year. It’s also a good idea to read the latest news on financial aid since schools change their financial aid policies annually. Even if your kid’s still in grade school, it’s a good idea to learn as much about college financial aid while you’ve got plenty of time to learn.

Special goals: If your car is suddenly looking like it will need to be replaced or if this might be the last year for your furnace, see if you can direct more money into a reserve fund to cover replacement costs or at least a heavy down payment. If there’s a vacation you want to take by the end of the year or a special household purchase you want to make, focus on the cash you’ll set aside to make that happen. Of course, if you have credit card debt rolling over from one month to the next, maybe that should be your initial focus.

Credit: If you haven’t set a schedule for receiving your three credit reports throughout the year, do it now. You have the right to get all three of your credit reports – from Experian, TransUnion and Equifax – once a year for free. You can do so by ordering them at http://www.annualcreditreport.com. By staggering each receipt of your credit reports at different points in the year, you’ll get a continuous picture of how your credit picture looks. Also, you’ll have the opportunity to focus on possible errors in a single report, which will give the other two credit agencies time to update their files.

August 2010 — This column is produced and is provided by The Jacobs Financial Group. (07-10)

Does It Make Sense to Get Into The Market for Troubled Homes?

In March, RealtyTrac, a leading online market for foreclosure properties, reported that February 2010 foreclosures were actually down 2 percent from the previous month.

Yet, RealtyTrac indicates this break might not last long. Even though the 6 percent year-to-year increase in February foreclosures was “the smallest annual increase” RealtyTrac recorded in 50 straight months, it believes that current foreclosure prevention programs and processing delays are keeping a lid on the numbers. If those programs end and processing glitches lift without an upswing in the economy or job market, or the foreclosure could accelerate.

For individuals with some money to spend and invest, the troubled home market has its attractions. First, there’s the possibility of attractive real estate – albeit some in need of serious repair – at a bargain price. Then there are the sellers, both banks and individuals, who are at best eager, at worst, desperate to get out from under their obligations. But the trail to ownership of properties that are under a cloud can be treacherous and it’s best to know what you’re doing. It’s wise to consult a tax planner and a financial planning professional before making a move into this risky arena. Here are some of the things potential investors should know:

How foreclosure works:
A foreclosure happens when a buyer defaults on their payments and their lender takes legal steps to take back the property. Rules vary by state and local government, but generally, when a lender decides to foreclose on a property it files a notice of default or a lis pendens (Latin for “lawsuit pending”). This document is a public record, and for buyers – including other lenders — it’s the first step in locating a property in foreclosure. A buyer looking for foreclosures can look online (RealtyTrac is a good source) for lists of properties in default, but individuals with contacts inside lenders holding these properties have a particularly good leg up.

Pre-foreclosure sales are attractive, but often tough to close.
With so many homeowners struggling with payments, “pre-foreclosure” or “short sale” transactions are currently common, but fraught with obstacles. Short sales essentially allow a seller to sell their home for less than they owe as long as they get their lender to buy their story about a lost job or other financial hardships. The second obstacle is getting a real estate agent to work to sell the property for a far lower commission than they usually get. Third, many states allow for very tight timeframes between the notice of default – the first news a homeowner is facing foreclosure, if they’re checking their mail – and an actual foreclosure notice. Deals of this variety need to close within days, not months.

How do people invest in foreclosure properties?
There are three primary ways this happens. First, you will see buyers coming in at the “pre-foreclosure” stage. Second, you will see buyers going after “REO” (real estate owned) properties – literally foreclosed real estate still on the books of a lender. Third, you’ll see foreclosures auctioned off at the public courthouse or in private auctions, depending on how the lender wants to market such properties to get them off their hands. Each process has its own conventions for inspecting the properties – sometimes prospective buyers get time to inspect what they might buy, other times little or none. It’s best to learn the process as a bystander before putting any skin in the game. The most knowledgeable foreclosure investors also have good intelligence on how heavy the lender’s inventory is with troubled properties – the more headaches they want to get rid of, the faster they’ll get rid of them.

Is it wise to borrow?
Given the current state of the lending industry, such a question might be a moot point even for the most-creditworthy individuals. Buying distressed property is primarily a cash game. It lowers the cost of entry and speeds these kinds of transactions where time is definitely of the essence. Even sophisticated foreclosure investors often discover ugly surprises when buying – property with greater damage than they anticipated, for example – and they may not have the flexibility to borrow to fix those unexpected problems after they borrowed to buy in the first place.

July 2010 — This column is produced and is provided by The Jacobs Financial Group. (04-10)

Understanding Actively Managed Exchange Traded Funds

With so many investors and their advisors questioning traditional market thinking about index-based investing, exchange traded funds (ETFs) are starting to move beyond their traditional passive, index territory into more active management.

To some, it’s a fad. To others, it’s a serious threat to the territory traditionally held by mutual funds. Yet one thing so far is clear. Many of the biggest names in the mutual fund world are now seeking permission from the Securities and Exchange Commission to offer actively managed ETFs. For advice on this new generation of securities, investors should speak with a qualified financial advisor.

ETFs are baskets of securities that trade like stocks and until recently have almost always tracked market indexes like the Standard & Poor’s 500. ETFs have certain advantages over mutual funds – they generally have offered lower fees and tax advantages than mutual funds, and clearer tracking of their underlying investments because they are require to make that disclosure daily.

Here’s what’s changing. After the ETF industry won regulatory approval for actively managed funds after a 10-year effort, and so the first actively managed bond ETF surfaced spring 2009 with a few more based on stocks. What does active management mean? That managers have more leeway to choose the underlying investments within a fund, while indexed funds require holdings to mirror its chosen index.

What will make things interesting in the new ETF world is the continuing requirement that these active managers disclose every step they make. This is why active management is a challenge, because in the traditional mutual fund world, managers don’t have competitors looking over their shoulders when they try to build or exit positions. In the ETF world, disclosure is made on a daily basis, so managers have to worry about competitors mimicking their strategy and foiling their efforts to get the best price for their investments.

Some experts believe that as this category develops, the first baby steps for investing will go toward major stocks that are generally less volatile and therefore tougher for competitors to mimic. Others believe that actively managed ETFs will operate with a series of managers whose moves would be tougher to spot on any particular ETF’s disclosure list. However actively managed ETFs evolve, it makes sense to ask the following questions:

How will these investments fit into my overall portfolio? It makes sense to look at how ETFs fit into one’s overall portfolio mix given particular retirement and investment objectives as well as tax considerations.

How about fees? One of the chief advantages of index-based ETFs was low expense ratios. Actively managed funds generally do cost more. Try and get an idea of what the fee structure will be before you invest, and compare them to similar investments in the mutual fund arena.

What are the tax issues? Active ETFs have better tax advantages because the fund manager can sell the lowest-basis stocks via in-kind stock transfers through the creation and redemption process. This helps systematically reduce the tax exposure for investors.

What about the track record? This is a very good point, because as a relatively new investment category, it’s important to realize that these new categories of ETFs won’t have terribly long investment records to compare to other investments. Do your homework first.

July 2010 — This column is produced and is provided by The Jacobs Financial Group. (08-09)

Feel Like Un-Retiring? How to Prepare

In October 2008, the MetLife Mature Market Institute released a study that said the over-55 workforce will account for almost 93 percent of the net increase in the U.S. civilian labor force between 2006 and 2016. At the same time, MetLife reported that many American workers plan to stay on the job “at least” until age 69.

The Pew Research Center’s Social & Demographic Trends Project echoed those findings in May 2009, saying that just over half of all working adults aged 50-65 plan to delay their retirement, with 16 percent saying they never plan to stop working. The issue, says the Pew study, is not about what these Americans earn, but how much they lost during the investment meltdown and the worst economic downturn in more than 70 years.

Add all these factors together and you have one of the most interesting labor situations for older Americans ever. That’s why that for every retiree or potential retiree who feels they need to return or stay on the job, it’s particularly important to review investment, insurance and tax issues. Here are some critical points to address:

How are your skills? This is a valid point for current and potential retirees. The best job candidates are those with current skills in technology and procedures specific to an industry, so staying in the workforce may mean retraining. If there’s a way to get an employer to pay, do it. But if you have to pay for your own education, you really need to weigh whether your earnings will justify it.

Be realistic about your demographic in the workplace: While age discrimination is illegal, there are some workplace cultures where older workers frankly seem out of place. You have to ask whether you are going to be happy staying in a field that’s populated by younger workers with different interests or whether you might try another line of work.

Consider how a return to the workplace will affect you personally and socially: If you’re 40, 50 or 60, working right now probably feels like breathing – when have you not worked? But it may not be the best option after a year or two out of the workplace.

Consider health insurance issues: If a retiree returning to the workforce is already receiving Medicare or is covered by a “Medigap” policy, they may be able to lower their costs or improve their coverage by accepting group coverage as primary underwriter of their medical expenses. Since people over age 55 are generally the greatest users of the healthcare system, coverage issues are particularly important to run by a financial advisor.

Know your tax picture: Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider the impact full or part-time income will have on your finances. Most retirees realize that it doesn’t take much income to knock them into a higher bracket. Look for ways to control the taxes you’ll ultimately pay, including continued participation in qualified plans, IRAs, and other tax-favored accumulation vehicles and using annuity income to fill the gap between the beginning of the “post-retirement” period and the age when full Social Security benefits can be drawn without an offset for employment income.

Consider what earnings will do to all your retirement payments: If you are planning to continue working or returning to work, consider not only the tax impact, but also how that might change the way you plan to draw on your retirement savings and investments as well as Social Security. If you are planning to work, it’s important you consider suspending or delaying receipt of those benefits for as long as you can.

Look for work-related incentives: Particularly for public sector workers, there are opportunities to return to state employment and actually augment existing pensions. Keep an eye out for these programs and see if they work for you.

Keep saving: If you return to the workplace, see what you can do to take advantage of your new employer’s 401(k) plan or any other tax-advantaged retirement savings benefit, particularly if an employer matches your contribution. Don’t miss a chance to enhance your retirement savings.

July 2010 — This column is produced and is provided by The Jacobs Financial Group. (06-09)

What to Know and Ask About Disability Insurance

The commercial featuring that loud, quacking duck has gone a long way to making people think about individual disability coverage as a way to keep bills paid if the family breadwinner gets sick or injured over an extended period of time.

It’s true — individual disability insurance is more important than ever, and every working individual should have it.

The key is shopping smart for that coverage. A financial planning professional is a good first stop for advice on that coverage, which should be considered as part of an overall financial plan.

Why is it a good idea to have personal disability coverage, particularly when most employees can buy such coverage at work for a nominal fee? That’s because most employers offer disability coverage that lasts 12 weeks or less and covers less than 60 percent of a worker’s pretax income. That might be workable for a surgery or injury with a relatively quick recovery time on the couch, but a diagnosis for even the most curable cancers can put workers with even the best financial coverage into a devastating financial bind.

And if you are self-employed, the need for the best, most flexible long-term disability insurance is even more important because other than your own resources, that coverage will be your own safety net.

Here are some essential things to know about long-term disability coverage. Remember that policy language is critical, and a financial planner can give you a second, helpful set of eyes to review what your insurance agent recommends:

If you’re considering becoming self-employed or might lose your job due to layoff: The time to buy long-term disability coverage is NOW. Insurers will base your initial coverage limits on what you’re earning in your current job, which is important since entrepreneurs and unemployed often earn considerably less – at least for awhile — once they’ve left their current employer.

Make sure you can purchase more coverage as your income increases: Because you stand to earn more in future working years – if only based on inflation – you should make sure your benefit levels can rise to meet the demands of replacing that income if you need to in the future. Obviously, people who expect to make vastly higher salaries in the future need to plan for this.

Check for a non-cancellation feature: Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates based on the benefits you’re to receive.
Compare benefits and premium cost: Get bids from several carriers and consider going to more than one agent. The premium you pay will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they currently tend to live and work longer, for example) will be a factor in what you pay.
Go for “own occupation” coverage: Even if you are able to work in a different capacity, own-occupation disability insurance will provide you with the income replacement you need if you are unable to work in your current occupation. Make sure you understand how that coverage fits your current profession.
Know what “elimination period” means: Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. (It’s actually a big factor in long-term care policies as well.) Most long-term disability policies will kick in after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and make sure you have a cash cushion to cover that need in your emergency fund.
What’s your benefit term: For each disabling incident, your policy may pay benefits for a certain period – two, five years or until retirement. It’s all in how your policy is constructed. Many policies may pay for life if you purchase this benefit and you are disabled prior to age 60. Also, make sure there’s language that increases your benefits as your income increases over time.
See if there’s a residual benefit feature: Some policies may offer you ‘residual benefits’ or a partial payment if you’re less than 100 percent disabled, but still can’t perform all the duties of your job.

June 2010 — This column is produced and is provided by The Jacobs Financial Group. (04-10)

Ways to Afford Your Retirement Account Catch-Up Contributions

Turning 50 might not be everyone’s idea of excitement, but when it comes to saving for retirement, 50 is when things start getting a lot more interesting.

That’s because people age 50 and over can make what are known as “catch-up” contributions to IRAs and most workplace-based retirement plans. These special contributions are in addition to regular contribution limits and allow individuals to maximize the amount of tax-advantaged retirement savings they can stash away.

The catch-up phenomenon has never been more important as American workers attempt to rebuild retirement savings devastated by recent market losses. Taxpayers 50 or older are permitted to make additional contributions beyond standard limits. For calendar year 2010, here are the standard contribution limits with their catch-up amount:

• Traditional and Roth IRAs have a standard contribution limit of $5,000 with an over-50 catch-up
contribution of $1,000 for a total contribution limit of $6,000.

• SIMPLE IRAs have a standard contribution limit of $11,500 with an over-50 catch-up contribution
of $2,500 for a total contribution limit of $14,000.

• 401(k), 403(b), 457(b), Roth 401(k) and Roth 403(b) plans have a standard contribution limit of
$16,500 with a catch-up contribution of $5,500 for a total contribution limit of $22,000.

So, where to find the money? Here are some suggestions to make it happen:

Earn more: Yes, a tall order in a tough economy. But if you can take on extra freelance work or a part-time job that you enjoy, you can work to extinguish debt and maximize your savings.

Cut out the extras: Either on paper or on the computer, write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start marking out non-essential items just to see how much you could live without. Start with gourmet coffee and restaurant or carryout meals and work backward from there. And don’t forget those regular monthly expenditures that can really add up. Do you really need premium cable? Can you surrender your landline in favor of a cell phone that’s matched to the exact number of minutes you’ll need? Can you afford a higher deductible on your health, home or auto insurance to save on premiums?

Set a budget: Once you’ve established how your income covers the essential expenses you must plan for and a few inexpensive treats that should stay in, build a budget that includes specific amounts you can allocate toward debt. Going forward, keep a running total of your spending and revisit how that budget is working on a monthly basis until you start to see some positive results, and then you can review the performance of that budget a little less frequently.

If you can do it safely, take over home and auto maintenance yourself: The do-it-yourself movement is in a new phase with the economic downturn. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks and estimate the cost of materials and your time before doing them yourself. Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for bigger jobs, pair up with friends and family and you can help each other save money.

Turn down the thermostat and park the car: Don’t underestimate the value of energy savings in your budget. Keep the temperature down at home and opt for public transit, biking and walking where you need to go. For a look at how much public transit can save you, go to the American Public Transit Association’s gas savings calculator . And if you’re going to walk or bike, that’s not only going to save your money, it’ll do wonders for your health.

Go debit: Debit cards wearing a bankcard logo are typically welcome at most stores where credit cards are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can probably get one from your bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you have in your account. And use overdraft protection to avoid fees.

Buy used for yourself: If you need clothing, a car or a new watch to replace the old one that’s past fixing, it might be worthwhile to buy second-hand at shops or on the Internet. Plenty of people have unloaded items in relatively good shape to bring in cash during the recent downturn. Get in the habit of saving money on everything.

June 2010 — This column is produced and is provided by The Jacobs Financial Group. (03-10)

Thinking About Starting a Business? In This Economy, Don’t Quit Your Day Job – Start With Good Advice First

If you’ve ever fantasized about quitting your job and starting a business, you’re certainly not alone. However, it’s definitely not something to do on a whim – you’ll need time and good advice.

A business startup requires parallel planning in advance for your business and personal finances. That’s because business owners – even those who are acquiring ongoing businesses or starting their own companies on the cheap – quickly find their business and personal finances are inextricably linked.

That means that before you plan the business, plan your finances first. Here are some basic steps to consider right now:

Get some advice first:

You need not one, but two sets of financial advice when starting a business. The first involves the viability of your business concept. You should understand your business idea inside and out before you launch and what your new company’s immediate and long-term cash needs will be. The second set of advice involves your own finances and how prepared you are for what will surely be a major lifestyle transition. Because new business owners frequently underestimate their new business’s expenses starting out, they can find themselves funding those business needs out-of-pocket. That means less money for day-to-day living expenses as well as long-term planning for retirement. That’s why it’s critical to consult a tax and financial expert such as a financial planner at the outset.

Get rid of your debts:

With the possible exception of mortgage debt, there’s very little “good debt” in the life of a businessperson. So while you’re researching your business concept and putting together your own financial plan, start cutting back and erasing as much credit card and adjustable-rate debt from your personal life as possible. The credit crisis is making it tough for any business owner – even experienced ones – to borrow money at attractive rates. You’ll have the most flexibility when you owe as little as possible.

Work on your emergency fund:

While it’s wise for everyone to have 3-6 months of cash set aside for basic living expenses in case they lose their job or face a medical emergency, emergency funds are particularly necessary for new business owners. Startups can be particularly expensive, and most businesses are not profitable from day one. Plan a more extensive emergency fund for yourself and for the business as well.

Start thinking about your legal business structure:

Your personal financial situation and the kind of business you’re starting should determine the legal designation of your company.

Before choosing a business structure, such as a sole proprietorship, S or C corporation, partnership, Limited Liability Partnership (LLP), or Limited Liability Company (LLC), owners should reflect on their business in the context of their overall financial life and ask themselves a series of questions:

• Is the business going to be your primary source of personal wealth and daily cash flow?

• Is it a side business?

• Do you expect the business to pay for your retirement?

• Do you want it to provide other financial benefits?

• Do you want to pass it on to family members or sell it to existing employees or outside buyers?

The answers to these questions figure importantly into the decision, along with other key factors such as what type of business you’re starting, its risk factors, current tax laws, and regulations such as workman’s compensation.

Plan your healthcare and other basic benefits:

Automatic benefits are the plus side of working for someone else. When you’re working for yourself, you become your own HR department and chances are you won’t be able to match your old employer’s buying power. If you support a family with these benefits or if you have particular health concerns, you need to price the out-of-pocket costs of such benefits before starting your own company – depending on the business and the cost of those benefits, you might want to rethink your plans.

Price disability coverage now:

You might have short-term disability coverage as part of your current employee benefits, but that will likely end once you quit your job. You should price long-term disability coverage based on your present working salary so you can qualify for the highest possible benefit. Disability coverage is critical for self-employed people since they’re their own support system.

June 2010 — This column is produced and is provided by The Jacobs Financial Group. (05-09)

New Careers After Age 50 – Where The Jobs Are, How to Spruce Up Your Skills and Ready Your Finances for the Change

During the recent recession, many have found themselves back in the job market after age 50 due to layoffs or changing demands at their employers. Yet as life expectancies lengthen, a late career change isn’t always a negative. It may be a welcome chance to renew, re-educate and restart a full life.

It’s possible that in the future, an over-50 career change might become a common event, maybe even a desired event in our society – which means it’s definitely worth planning for.

A visit to a financial planner might be a good first step in planning a move to a second career or dealing with a sudden change in your career prospects. You need to plan for any possible change in income up or down in any opportunity you entertain. You’ll also need to plan how you’ll afford any training you’ll need – college or otherwise – in making that successful transition. To make an over-50 career transition successful, it’s all about preparation. So here are some ideas:

Start with research: One of the best-detailed, up-to-the-minute career resources for the types of jobs that exist in this country and their salary and hiring forecasts is the
U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook. This extensive online resource not only lists major career groups, but the leading occupations in it. If you haven’t been in the job market for awhile, this kind of research is a good way to reset your knowledge of your industry and whether its hiring prospects are bright. This database also lays out the need for the necessary training required to reach certain salary and career levels.

Check industries that are friendly to older workers: Healthcare and education are just two industries that are more welcoming to older workers. U.S. News & World Report has come up with its own list of popular over-50 occupations, and it’s a good starting point for people looking for flexible scheduling and other workers their age in the field.

Network: Face-to-face contact with people in your target fields is important. If you can, check out events at professional organizations in that field or attend casual networking functions to learn more. Being someone over 50, you can get an idea of whether there’s true age diversity in a field and how all those groups work together – or if you’re simply the oldest person in the room. Obviously if you feel welcome, networking will give you a better idea of which companies with someone with your maturity and experience might fit in.

Emphasize your up-to-date experience and training, not your birthday: Career experts suggest that older workers should lead with work experience and skills and leave off all but the most essential timeframe information. You’re not there to lie about your work experience, but the reason young workers are so valuable is that they’ve gotten the most recent training and they are generally less costly to employ. That’s why older workers should lead with every strength that makes them attractive to employers and should de-emphasize descriptors that broadcast age.

Make your perspective an asset: If you are already familiar with the industry you’re targeting, you can use your extensive work experience to position yourself as a problem solver. If you know what a company really needs in your chosen job, say so in the cover letter and be clear in stating why you’d be a great solution.

Consider timing issues at your current employer: If you are up for a salary review soon, it might make sense to have a better idea of what you’re worth in the marketplace. Also, as the end of the year is coming, you might want to use up any money in your flexible benefits accounts for medical appointments, glasses or dental work before you leave.

Don’t be shy about approaching managers who aren’t hiring – publicly: The best jobs aren’t always advertised. Instead of limiting your options to companies with posted openings, send letters of introduction to managers at firms where you’d really like to work. And again, make your perspective an asset – if you can see what a great role for you would be in their organization, tell them about it. The worst thing they could do is not respond. The best might be an interview that puts you on their radar screen.

Get in shape: It’s not just a matter of looks. Healthy employees cost less. It makes sense to lose weight if you need to and upgrade hair and wardrobe not to look like a twenty-something, but to fit in comfortably at the organization where you want to work.

Decide what you’ll be doing with your 401(k) and other retirement funds: You may not want to make any moves for awhile, but it’s good to talk with a financial professional about whether you’ll be moving that money to private accounts. Also, make sure you know when you can enroll in the company 401(k) and other retirement offerings at your new employer.

Secure your health insurance: You might wait a few months to a year for new health coverage to kick in at a new job. You might need to buy private insurance until then or go onto a spouse’s health plan in the meantime.

June 2010 — This column is produced and is provided by The Jacobs Financial Group. (03-10)