Paying Mortgage Faster Not Best Option

Americans have been paying down their high-interest credit cards like crazy. Once you do, financial advisers say, think hard about the best use of that spare cash.

With mortgage interest rates at historic lows – they’re scraping 3.5 percent on 30-year fixed loans and 2.8 percent for 15 years – paying extra on the mortgage should no longer be a priority. This simplifies what is a difficult decision for many of us: what’s next?

Saving for retirement and paying off student loans are now the top priorities, in that order, according to two financial advisers interviewed by Squared Away. But paying off the mortgage is a mistake that many people continue to make: mortgage debt outstanding has also declined in recent years, from $11.1 trillion in 2008 to $10 trillion currently, according to the Federal Reserve.

“Paying off a mortgage – I’m not a big fan of that,” said John Scherer of Trinity Financial planning near Madison, Wisconsin. He proposes that his clients funnel the extra money that had been used to pay credit cards into other personal finance “buckets.” …

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A Modest Solution to Your Financial Woes

Perhaps because our summer vacations are over and it’s time to increase our 401(k) contributions, Squared Away is on a jag about saving money.

Amitai Etzioni is one of the last old-school public intellectuals.  He has done everything from writing 24 books to serving in the Carter White House and currently directs George Washington University’s Institute for Communitarian Policy Studies.  But this video captures the wisdom of an 83-year-old man who taps deeply into the psychology of money in the 21st century. 

Etzioni also wonders why, when he suggests his prescription to people, they “get angry with me.”

Since everyone is unique – and uniquely motivated – you may prefer a video that ran last week. 

To support our blog, readers may also want to sign up for our e-alerts – just one per week – by clicking here. And there’s always Twitter!Learn More

Motivation to Save: A Simple Solution?

Quiz: by socking away $400 per month, earning 10 percent on your money, you can save $302,412 in 20 years. So, how much would you have in that same account in 40 years?

Yes, it’s more than double. But how much more?

Most Americans can’t do the math, explains Craig McKenzie of the University of California, San Diego’s Rady School of Management, in this video. And if they can’t do the math, then they are unable to comprehend how much easier their lives would be if they took advantage of the enormous benefits of starting to save early for their retirement.

That’s hardly surprising. What is surprising, however, is that McKenzie, a cognitive psychologist by training, experimented with a “simple, straightforward intervention” to get the point across to research subjects of the large boost to saving of earning compound interest over many years. Even better, it succeeded in motivating them to save, he said.


The solution is, as promised, simple – so easy that employers who offer 401ks, as well as mutual fund companies, banks and credit unions, could easily implement it…
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aluminum

Hard Labor Spells Earlier Retirement

Men with the most physically demanding jobs retire earlier – by choice or due to exhaustion or chronic pain – increasing the financial pressures facing this segment of the workforce once they reach old age.

The retirement age for most Americans continues to float upward as people delay the date so they can sock more money away or boost the eventual size of their Social Security checks. But that’s often not a viable option for people with highly physical jobs, such as the 1,500 Alcoa plant workers in a new study.

The retirement pattern for Alcoa workers studied by the Stanford University School of Medicine suggests that men in manufacturing jobs face a unique set of retirement issues related to the physicality of their work. Most of the workers in Stanford’s 2001-2008 study were employed in aluminum smelters. The study found that men in these demanding jobs retired, on average, at age 60 and six months – a full year earlier than their male Alcoa coworkers with jobs such as floor inspector or shipping clerk.

“Those with heavier jobs retire earlier. Those with more sedentary jobs retire later,” Sepideh Modrek, a Stanford medical school lecturer, said at the recent Retirement Research Consortium conference, where she presented the results of her working paper. [The Center for Retirement Research, which sponsors this blog, is a consortium member.] … Learn More

word 'debt' being erased

Student Loan Prevention: Part 2

Last week, Squared Away published the first five of 10 strategies to help parents and their college-bound kids limit their borrowing through student loans.  As promised, readers can find the remaining five ideas below.

On a complexity scale, finding a college is comparable to buying a house, and some of these debt-cutting strategies are extremely difficult to put into practice.  In addition to the financial challenges involved, the emotional aspects of parent-child dynamics and the college application process are daunting.

But the soaring cost of an undergraduate education has made student debt prevention a top priority for most families.  Here’s more help from college financial advisers.

  • Get Practical

Deborah Fox of Fox College Funding LLC in San Diego said the days of majoring in English, philosophy or history are over – or should be.  Given the financial pressures of college, she said, students can’t afford to “just study what’s interesting to you.”  When weighing future earnings for graduates with such majors, the numbers just don’t add up, especially if the English degree is from a high-cost institution like Columbia University (high cost among private colleges) or the University of Illinois at Urbana-Champaign (expensive for in-state students).

Fox asks her clients to identify skills the college-bound teenager is good at.  When entering college, they should already have a handful of potential occupations in mind.  Then they can focus on relevant internships, jobs, courses and life skills that will help them get a job when they graduate – and begin paying back their loans.  Freshmen should immediately begin testing their theories about the work they’ll want to do – “possibilities they could get excited about,” she said.  She tells clients’ kids to “start exploring them immediately, shadow [people in their field], take someone out for coffee.  Find out what is the day-to-day work like.” …Learn More

Student Loan Prevention: Part 1

It’s panic time! College-bound teenagers and their parents are excitedly touring colleges this summer, or they’re signing the dreaded Stafford loan documents to pay for college in the fall.

One thing is crystal clear in the emotional fog of this exhilarating rite of passage: parents and their teenagers both need to get serious about limiting their dependence on student loans. Squared Away asked several experts on financing a college education for their best tips on minimizing total borrowing for college.

Some of their debt-cutting strategies are difficult to swallow. But since 2005, student loans have shot up 55 percent, to $24,301 per student, for an undergraduate degree that has, as one financial adviser noted, become “ubiquitous.” Yet college places an unprecedented financial burden on parents also saving for retirement and on graduates when they get their first full-time jobs. Debt prevention also requires families to face head-on the emotional roadblocks to an affordable education.

Squared Away came up with 10 debt-prevention strategies. Here are the first five ideas, with five more scheduled for next Tuesday. Links to Web resources are also sprinkled throughout the article.

  • Aid Deadlines Are Crucial

Buy a calendar and red marker and closely track every single deadline for merit or need-based aid – they’re different for each college under consideration.

“If I could give you one piece of advice that would be it,” said Lyssa Thaden, a financial education manager for American Student Assistance, which educates and counsels student-loan borrowers.

Thaden listed four common mistakes that cost parents dearly, requiring them to borrow more: …Learn More

Newlyweds

Couples’ Rifts Increase With Age

Newlyweds beware: The longer you are married, the more you will argue about money.

U.S. married couples argue an average of three times per month about their joint finances. But once couples hit their mid-40s, these spats increase to four times per month, according to a telephone survey of a nationally representative sample of 1,005 adults by the American Institute of CPAs.

“The stakes are higher” for older couples with more money in savings, said Kelley Long, a member of the Institute’s financial literacy commission. She said middle-aged couples also argue fiercely about steep financial obligations, such as how to pay for the children’s college.

What does all this emotional “baggage” have to do with newlywed bliss? …
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