Meeting cancellation

Today's meeting is being cancelled. It appears as though it is becoming more difficult to match everyone's schedules. Would anyone like to suggest meeting times that would be convienient for everyone?

Meeting rescheduled again!

Meeting is rescheduled to Sunday, September 24th at 6:30 at Jen's house.
Can you please email me to let me know you got the info and let me know if you plan to attend?
Thanks!!!!!!!!

Date for Rescheduled Meeting

The meeting that was cancelled has been rescheduled for Sunday, September 16th at 6:30 at Jen's house in Sellersville. If you need directions, please email me.

Assignments are listed in one of the posts below. Hope to see you there!

Comments on budgeting

Just wanted to share some thoughts on budgeting that others might find helpful. I do not have a very strict budget per se, but I have been tracking all of my expenditures (monthly and annual) for the past few years. This has allowed me to see where my money is being spent, what areas I might want to consider cutting back, and ultimately how much I am able to save. Here is a sketch of how I currently categorize my expenses, which may serve as a general guide.

Start with your monthly net pay and subtract the following:
· Mortgage payment (or rent)
· Utilities: gas, electric, cable, cell phone, water, etc.
· Basic necessities: groceries, toiletries, household products
· Gas, travel (e.g. tolls, parking)
· Apparel, accessories
· Media (books, music, etc.)
· Home, lawn, garden
· Restaurants, purchased foods
· Pet supplies
· Entertainment, going out
· Other (everything else)

Track annual expenses separately. Annual expenses include:
· Previous year's income taxes
· Car insurance
· Car maintenance/repairs
· Homeowner's insurance
· Property taxes
· Home improvement/repairs (major)
· Vacation
· Major purchases (e.g. big TV)

For those of you interested in becoming more rigid about saving, I would recommend tracking your expenditures for a few months first. If you find you have some money left over at the end of each month (hopefully you will), initiate a monthly automatic investment plan in a high-yield savings account starting with that leftover amount. As you continue monitoring your budget, you may identify some areas in which you can reduce spending (e.g. buying lunch from FLIK less often) and thereby increase saving. Also, assuming your expenses remain fairly stable, your monthly savings (automatic investment) amount should increase over time in line with (presumed) salary increases – just because you're making more doesn't mean you have to spend more.

Health Care Costs During Retirement

From Fidelity's website:
"Fidelity views medical costs as one of the biggest retirement issues facing the country. Many Americans may not be aware of the significant health care costs they will face in retirement or the importance of factoring these costs into their retirement planning.

Fidelity estimates that a couple retiring today at age 65 will need approximately $200,000 in savings to cover their health care expenses, including insurance premiums and out-of-pocket costs, assuming that they do not have any employer-provided retiree health care. A couple retiring earlier may need even more. This estimate does not include the cost of nursing home care. It is important to note that Medicare provides only very limited coverage for this coverage.

Of course, each person's situation is different. Your retirement medical costs will depend upon your health status, how long you live, available insurance plans, and medical costs in your area."

Using Fidelity's retirement health care calculator with the following inputs:
Male, 32 years old, single
Retirement age: 65
Life expectancy: 90
Medical inflation rate: 6%

Click on image below to open in new window:


HELPFUL LINKS (copy & paste in browser)
https://powertools.fidelity.com//healthcost/intro.do
https://powertools.fidelity.com/healthcost/glossary/paper.pdf
http://www.fool.com/personal-finance/general/2003/09/03/health-care-retirements-fourth-leg.aspx
http://www.choosetosave.org/calculators/index.cfm?fa=retireeCalc

New Technology

Fuel Cells
Busses run on water, company is Ballard Power Systems.
Normally made with platinum, switching to tungsten carbide.
Speculation?
Joint venture with Japan?

voice recognition: the wave of the future?http://money.cnn.com/magazines/business2/business2_archive/2007/02/01/8398978/index.htm?postversion=2007031512

up and coming tech companies...is the boom back?http://money.cnn.com/magazines/business2/business2_archive/2007/03/01/8401021/index.htm

keep an eye on zappo's...

create an account on investopedia to watch stocks.

Bins and definition-assignments

Next meeting is 29th July 2007, 6pm at Jen's

Short term 0-5 years how to maximize short term savings
Money Markets - Vere
Savings account (online vs traditional) - Chris
CDs -Vere
Home Equity Loan - Mike
401K Loan - Gary
Amount for emergency funds - Jason and Amanda
credit cards-how many is too many, effect of not carrying balance, best rates, cash back rewards -Damon
credit ratings - Jen

Mid Term 5-15 years

Long Term 15+ years

Minutes from 24JUN2007

HOW MUCH TO SAVE

How much is a personal decision.



75-80% of your salary according to Mike, Vere has heard 40%

Merck has a good match-75cent to the dollar. Don't count on the pension.



Don't count on SS, pension, etc. This are personal opinions.



Bonds are safe, a company must pay back bonds before paying stocks.



HEALTH INSURANCE

fidelity.com

Medical inflation rate is difficult to determine-default 6%

270,000 saved for healthcare in today's dollars.

PA has $200,000 asset limit for nursing homes-if you turn everything over with a minimum of $200K in assets, you can stay at the nursing home until you die.

ANNUITIES

questions about dividends, tax rate, how do they figure out how long you will live-do you have any say about it, fees are about the same as the inflation rate.

Annuities

A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years. The most attractive feature to most folks about an annuity is tax-deferred growth. And, indeed, as long as the money remains inside the annuity, the government won't tax any of the earnings. But all good things must come to an end, and sooner or later a tax-deferred annuity is going to get taxed. Let's take a look, then, at how and when that happens.

A deferred annuity has two phases, the accumulation phase and the distribution phase. During the accumulation phase, the annuity grows untaxed through the years as the investment compounds. In the distribution phase, the annuity is paid out. The payment may be made as one lump sum or as a series of scheduled payouts over a specific period or a lifetime. In insurance-speak, a series of scheduled payments is called "annuitization," and the recipient is called the "annuitant."

Types of Annuities
1) Fixed vs. variable annuities With a fixed annuity, your payment amount remains the same each month. Some think of this as creating your own "pension plan" in these days when fewer and fewer companies provide a "traditional" pension.

With a variable annuity, the amount you collect each month depends on how the stocks, bonds, or other investments in the underlying portfolio do. It can go up, but be careful: It can also go down.

2) Annuities indexed to inflation If you buy an inflation-indexed annuity, the true value of your monthly payments is less likely to shrink because of the erosion power of inflation. But this protection isn't free: your initial payments under the annuity will be lower, in anticipation of higher inflation-indexed payments years from now.

3) Annuities indexed to stock market performance Known as "equity-indexed annuities," these claim to shield you the investor from stock market losses by going up when share prices rise but not dropping when they fall.

If this sounds like a foolproof deal, many investors agree. The Wall Street Journal reports that, in 2004, sales of equity-indexed annuities rose 67%, to $23.4 billion. But to get a handle on your true yield, you must know whether the annuity calculates gains on a "point to point" basis or an "annual reset with monthly averaging" basis.

4) Immediate vs. deferred annuities An immediate annuity starts paying as soon as you buy it (or transfer funds into it.) A deferred annuity, by contrast, includes an "accumulation period" during which you pay premiums before your payments begin. Which you choose will depend on both your age and your financial health when taking out the annuity.


Which to Choose, If Any
Whether any of these products is right for you depends on several factors: your age at retirement, whether or not you'll continue to work, your other sources of income and the cost of your lifestyle. But before plunking down any hard-earned dollars, a few warnings are in order:

• Many people see annuities as solid, unchanging vehicles which deliver a certain amount of cash per month. Not always true. For example, an equity-indexed annuity might limit the amount of money you lose, but it also limits the amount of money you gain by measures such as restricting investors from participating in stock dividend payments. And watch for your company's reserving the right to change the formula for that "guaranteed return," based on variables like a longer-than-normal life expectancy.

• American consumers/investors have relied on the Securities and Exchange Commission (SEC) to protect their investments since just after the Great Depression. Many continue to believe that most investments are regulated by the federal government. Not necessarily so with annuities. For example, equity-indexed annuities are considered "insurance products" rather than securities, and regulated by each state's insurance regulator. Not exactly across-the-board protection.

• Annuities may be long-lived, but there's one things they're not: easy cash. Withdrawing from an annuity contract, should you need the money, can be painful. If you take your money out during the "accumulation period" (typically 6-10 years,) you can be charged a surrender fee (typically 7-20%.) One other caveat: tap your funds before age 59 1/2, and you'll owe the IRS a 10% penalty. So keep a couple of eggs outside this basket.

• Monthly payments for women are usually less than those for men, simply because women tend to outlive men. Keep this in mind when planning your retirement budget.

Taxes on Annuitizing
If you annuitize, part of each payment is considered as a return of previously taxed principal (i.e., your investment) and part as earnings. (Think of it as the reverse of paying a mortgage, where part is principal and part is an interest payment.) You will owe income taxes on the part of the payment that's considered earnings. The amount of each payment that won't be taxed is computed by establishing an "exclusion ratio" that's determined by dividing your investment in the contract by the total amount you expect to a receive during the payout period.

The interested reader should see IRS Publication 939, General Rule for Pensions and Annuities, for the details on how to calculate taxes due on annuity payments. As an illustration, assume you have a fixed annuity in which you've invested $100,000 that will pay you a sum of $750 per month for life starting at age 62. According to IRS life expectancy tables, you will receive those payments for 22.5 years, so your contract's value is $202,500 (12 X $750 X 22.5). Your exclusion ratio is 49.4% ($100,000/$202,500). Therefore, out of the $9,000 the annuity pays each year, you may exclude $4,446 from income. The remaining $4,554 of that payment will be subject to ordinary income taxes.



what to watch out for
Fees, Fees and More Fees
Variable annuities are notorious for the fees they charge. Indeed, the average annual expense on variable annuity subaccounts currently stands at 2.08% of assets, according to Morningstar. (This figure includes fund expenses plus insurance expenses.) The average mutual fund, on the other hand, charges just 1.38%. Unfortunately, variable annuity fees don't stop there. Many variable annuities also have loads on their subaccounts, surrender charges for selling within, say, seven years and an annual contract charge of about $37.

What Death Benefit?
The death benefit basically guarantees that your account will hold a certain value should you die before the annuity payments begin. With basic accounts, this typically means that your beneficiary will at least receive the total amount invested — even if the account has lost money. For an added fee, this figure can be periodically "stepped-up" or earn a small amount of interest. (If you opt not to annuitize, then the death benefit typically expires at a certain age, often around 75 years old.) Well, given the fact that stocks have returned an average of 12% annually (assuming dividends are reinvested) from 1926 to 2004, according to the Center for Research in Security Prices, over the long haul you need this insurance about as much as a duck needs a paddle to swim.

OK, investors who bought annuities and then died within the next two months probably got their money's worth. But currently only three out of every 1,000 variable annuities are surrendered due to death or disabilities, according to Limra International, an insurance-industry research group. And this report doesn't even measure whether those four accounts were made whole by the death benefit!

The price of this questionable feature: an annual 1.03%, according to Morningstar.

http://www.smartmoney.com/retirement/investing/index.cfm?story=wrongannuities

http://www.investopedia.com/terms/a/annuity.asp

http://www.sec.gov/answers/annuity.htm

http://www.consumeraffairs.com/news04/2006/03/annuities_fools_gold.html

Next meeting is scheduled...

Our next meeting is scheduled for Sunday, June 24th at 6pm at Danielle and Mike's house. Danielle and Mike, can you please provide directions?

Assignments

Feel free to comment on what has been posted, and pass along any edits you have. Also, if your notes were in electronic form, please send them to the email address associated with this blog and I will post them. Finally, if you would like to send your notes to the blog prior to the meeting, I can post them. Finally, all suggestions are welcome to make this club and blog more effective. Also please

Here are the assignments for the next meeting...

1) Add this blog to your favorites, subscribe to it and email the blog with the email address you would like to receive messages from this group.
2)we need a volunteer for this months' financial club to be held on Sunday, June 24th at 6pm.
3) find 2 retirement calculators and see how you are doing on meeting your goals for retirement.
4) do you have a budget? if not, draft one (VERE!)
5 look for one new technology/company
6) anyone who didn't present their topics from last meeting are asked to present this month.
Damon-wills
Jen-annuities
Mike-how much
Chris-health care costs

INVESTMENT DISCUSSION

The last portion of each meeting will be devoted to investment options. The group will look for new technology that we might be worth investing in the near term.
First we need to learn more about stocks: dividends, growth, hi and lo for the week, stock tickers, etc.

Vere suggested checking out this website
http://www.investopedia.com/

The following websites provide opportunitites for trading:
http://content.sharebuilder.com/mgdcon/jump/Web/welcome/trading/index.htm
http://www.tdameritrade.com/offer/independence.html?a=pqm&GCID=S17904x001&KEYWORD=ameritrade&MATCHTYPE=search
https://us.etrade.com/e/t/welcome/openanaccount?SC=NPNQE45&WT.mc_id=NPNQE45&WT.srch=1

Financial Club Minutes: May 23 2007

RETIREMENT

Roth 401K

-after-tax limit of $15,500, increases 500/yr with inflation
-minimum of 5 years
-can start taking money from it at 59.5
-no income stipulation

CONS: taxes increase now, smaller take home pay, not available through all employers, can only roll over to Roth IRA and not a traditional IRA


Roth IRA

-individual IRA with strict limits you obtain through a brokerage
-after-tax
-under 49 the limit is 4,000/yr
-if you are single, you must make less than 99,000/yr
-if you are married, you must make less than 156,000/yr
-10% penalty for early withdrawal
-can take up to $10,000 for primary residence



FINANCIAL CALCULATORS

-target needed for retirement is 40% of your current salary
-try Principle Company Calculator http://www.principal.com/calculators/retire.htm
-Merck has a great resource called Financial Engines
-a conservative inflation rate is 3%, salary inflation is about 2% and an average gain of investment is 4%
-assume you will live to the age of 92

Housing For Retirement
-current mortgage rate is 6-7%
-reverse mortgages are available to people 62 or older and are a tax free loan with interest
-generally believed to be a "last ditch effort"
-you may get a lump sum or monthly payment
-one should weigh the option of reverse mortgage vs a home equity loan

Possible additional topics for retirement: medicare and medicaid

Roth 401K Info

Thanks to Gary for providing his notes!

The Pension Protection Act of 2006, signed into law by President Bush on 8/17/06, makes the Roth 401(k) permanent, removing the 12/31/10 expiration date that previously was in force.
The Roth 401(k) was enacted in Economic Growth and Tax Relief Reconciliation Act of 2001.

• Combines features of the traditional 401(k) with those of the Roth IRA
• Offered by employers like a regular 401(k) plan, but as with a Roth IRA, contributions will be made with after-tax dollars.
• Will not get an upfront tax deduction, but the account will grow tax-free and withdrawals taken during retirement will not be subject to income tax, provided you're at least 59 1/2 and you've held the account for five years or more.
• One advantage is that there are no income stipulations for Roth 401(k)s.
• Another advantage is that they are subject to the contribution limits of regular 401(k)s, which allows for the saving of more tax-free retirement income than they would through a Roth IRA.
  
• Disadvantage: Bigger annual tax bill the year contributions are made.
  
• Disadvantage: Slightly smaller take home paycheck.
  
• One limitation: the limited contribution applies to both 401(k) plans. No new opportunity to save, but to save tax-free.
  
• Three options: Contribute to a Roth 401(k) and suffer a cut in take-home pay or stick with a traditional 401(k) and hope that in retirement, their tax rate will be lower than it is now. Or contribute to both Roth 401(k) and traditional 401(k).
  
• How much you contribute in a Roth 401(k) depends on the estimation of income taxes you think you will pay in retirement. If you expect your tax rate to be higher, go for the Roth 401(k). If you expect it to be lower, do not go for the Roth 401(k). However, it is hard to predict what the taxes will be in the future.
  
• Eligibility: Anyone whose employer offers it. However, the employer is not required to offer it. They might not because of costs of implementing the plan and educating the workforce. Ask your employer!!
  
• Employer match: Still made with pre-tax dollars and the match will accumulate in a separate account that will be taxed as ordinary income at withdrawal.
  
• Early withdrawal rules: Same requirements as traditional 401(k) but not set in stone.
  If you leave job, the Roth 401(k) can be rolled into a Roth IRA.
  Money in a Roth 401(k) cannot be moved to a traditional 401(k).
  
• Question: Which 401(k) option will allow them to amass a bigger nest egg over the long run?
  Note: According to an article, tax rates are at all-time lows and many experts believe they will rise in coming years.
  
• Recommendation: Contribute a percentage to both traditional and Roth 401(k)s. Ask your employer if they offer it!

Financial Club Minutes-APRIL 2007

Meeting Format
-one topic per meeting
-monthly
-new members must be approved by all current members
-begin with retirement because must save for that first, then allocate funds for other things
-meeting minutes, as well as research, will be posted on blogger.com-Jen will capture minutes and set up/maintain blog
-next meeting is May 23, 7pm, at Gary's house

Group Assignment
Determine what items/topics are important to you in the follow bins:
1. Emergency Fund
2. Short Term
i.e. money market accounts, savings accounts
3. Mid Term
i.e. college funds, major purchases, home improvement
4. Long Term
i.e. second home, major purchases, home improvement
5. Retirement
i.e. wills, real estate, roth, IRA, annuities, roth 401K, reverse mortgage, bonds

FIRST TOPIC: RETIREMENT
INDIVIDUAL ASSIGNMENTS
Wills-Damon
Bonds
Real Estate-Jason
Roth IRA-Vere
Trad IRA-Damon
Annuities-Jen
Roth 401K-Gary
401K-Vere
How much to save-Mike
Health care costs-Chris