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February 8, 2010

Getting the most bang for your buck

Posted: 12:42 PM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

Pennie:
My husband recently retired from civil service and has $181,000 in his Thrift Savings Plan. We aren't sure whether to move this with our stockbroker into the market, or we have been offered a variable annuity through our bank. The money would more than double if something were to happen to him and if we decided in the near future that we didn't need this, we could cash it in with no surrender fee and the money would have earned 5% during this time.

What do you suggest that we do with this money to earn its greatest potential at this time of our lives?

Clark:
First things first: I'm so impressed with how much money you saved with the TSP. Second, the TSP is the best retirement plan offered in America.

Of the three options you have, you didn't mention the third one: to leave the money in the TSP. And I would avail yourself of that, because no other option is as low-cost for your money as that.

As for a variable annuity, don't walk but run away from the bank officer who encouraged you to do a variable annuity. Those are massive fee investments, and I use the word "investment" loosely.

It would be dangerous to your wallet.

Filed under: Banking • Clark Howard • Finance • Living • Retirement


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January 25, 2010

Too early to retire?

Posted: 01:13 PM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

Laverne:
I'd like to retire this year, but I still have a small mortgage. I've heard of reverse mortgages, but is there such a thing as "deferred payment" options, to discontinue making house payments? At my death, my heirs would pay off the balance plus any interest which might have accrued. I have no other debt.

Clark:
If there is such a product, I've never heard of such a thing. A reverse mortgage would protect you in that it would provide you a set amount of income for the rest of your life. Or it would make it possible for you to have a reverse mortgage line of credit. That would put you in a position where you don't have to necessarily pay on the mortgage anymore. But that is a pretty desperate series of steps. If you have a small mortgage, I would prefer for you early in retirement to, if you need to, work a little part-time job so you can handle that mortgage until it's paid off. The really important thing when you have an obligation like that is, it's pretty small and eventually will go away. Work when you're a younger retiree and still healthy enough to work some part-time hours. Don’t wait until later on in retirement and say, "Uh oh, I need more money." And you may not be well enough or feel like working at all.

Filed under: Clark Howard • Finance • Mortgage • Real Estate • Retirement


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January 8, 2010

A bad decade financially? Not really...

Posted: 06:00 AM ET

Clark Behind The Headlines
From HLN's Money Expert Clark Howard

We use arbitrary time periods to try to encapsulate things.

An example is the turn to 2010. Financial writers posted their first stories of the new year, all about the decade from 2000-2009.

Everywhere I turn there are articles with titles like "The Lost Decade" talking about how it was the worst decade in modern stock market history going back to 1830, to the worst since the Stone Age when they used to count how many rocks each family had.

Ok, first thing: the last decade stunk. Job growth was really crummy, income growth for most Americans non-existent. The stock market went sideways for a decade.

All true. But in terms of the investing side, do you know that the typical person in a 401k plan made money? It's true. Do you know that someone who just put money in, steady as you go, made money?

Here's why. You can look at investing as something frozen in time: on the first day of January that the markets were open in 2000, somebody put in a lump sum of money and just let it sit for ten years.

But most people don’t do that. What most people do is they have a retirement plan at work and money goes in from every paycheck. If you look at it that way and you look at how money is added paycheck by paycheck, somebody who put money in over the last decade, how much money do they have?

I have an article from the February issue of Money Magazine. In it, they show that if somebody put in money over time in a typical investment allocation for somebody who's under age 40 - 80% in stocks, 20% in bonds - at the end of the ten year period, they end up with their money almost tripled!

The big message I want you to think about with your 401k, IRA, Roth account or regular investment account, is this: don't lose your nerve. You can't go and hide under a rock. It doesn't work. It doesn't build financial security over time.

It is so key to have a well-diversified plan and fund it steady as you go. Don't let short term disasters throw you off your mark.

Filed under: 401K • Clark Howard • Economy • Finance • Living • Retirement


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December 24, 2009

How to decipher annuities

Posted: 06:00 AM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

Tara:
Please explain the difference between annuities and variable annuities. My financial advisor is trying to get me to invest part of my 401K in a variable annuity. It sounds good, but what am I missing?

Clark:
Well, first, an annuity is an insurance contract.

They come in many different flavors such as immediate annuity, variable annuity, fixed annuity and indexed annuity. The annuity market is an extremely complicated one.

Variable annuities have massive commissions to them and you would never, ever put 401k money in a variable annuity. Because with a variable annuity, you're paying big fees and commissions to have it in a tax-sheltered account.

But a 401k already is a tax-sheltered account. So it would be completely inappropriate to have a variable annuity, which is a deferred plan, invested in mutual funds when a 401k is already a deferred plan with access to mutual funds.

Filed under: 401K • Clark Howard • Finance • Living • Retirement


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November 12, 2009

How can we save for our son's future?

Posted: 11:52 AM ET

Money Coach with HLN's Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!

We’re looking for individuals or families who are willing to be profiled on HLN .

Those chosen will get money advice and information from Clark Howard.
This week’s question comes from Dan and Heather Sostrom of Gainesville, Florida.

Clark:
Wow you’ve got a lot of mouths to feed in that household, now another one on the way. Three children that you’re going to have to raise and pay for college for.

But the thing is, do you know what? You paid for your own college you said that set you back. But the truth is there are so many ways to pay for college, but you know what? There’s only one way to pay for your own retirement.

So you love your children, you want the best for the them but key thing, your primary focus and goal should be to beef up your savings for retirement. You need to contribute more each and every month to that and then if there’s money left over, put it toward your kids’ college in a prepaid plan or the 529 plan.

This conflict I’ve just talked about, I hear this over and over and over again. And when I talk with older couples whose kids are now grown and then I ask 'What did you save for retirement?' They kind of can’t look at me because they’ve taken all the money and put it toward their kids’ college.

Remember what I just said. Your primary goal with your long term savings is not your kids’ college. There’s work, there’s loans, there’s grants, there’s scholarships but for retirement you’ve got one thing and that’s you.

Posted by:
Filed under: Children • Clark Howard • Finance • Living • Money Coach • Retirement


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October 22, 2009

Should I cash out my 401K?

Posted: 06:00 AM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KRIS:

I've fallen into severe debt and am trying to cash out my 401k to satisfy my debts. When I told my investment company I wanted to do so, they told me that since I'm still repaying a loan from my 401k, I can't cash it out. When I asked if I could use the available funds to satisfy the existing loan and have the remainder cashed out and sent to me, they balked. Is there any recourse I have and what steps do I need to take in order to have the funds ASAP?

CLARK:

Well first, everybody's telling you can't do this and I'm telling you not to do it, even if they say you can.

You don't solve a problem by wiping out your retirement funds to deal with the debt.

The real thing that eats you up with that is the tax burden.

A typical person who does a withdrawal from a 401k pays, with taxes and penalties, 40% of that amount of money in taxes.

So if you take out $10,000 you actually only have $6,000 that you can use for debt, you're going to have to have that other $4,000 to pay tax next April.

Instead, attack debt one step at a time.

If you need help negotiating, you need help working out a plan, go to your NFCC affiliate, check them out at nfcc.org, that's the National Foundation for Credit Counseling.

Filed under: 401K • Clark Howard • Living • Retirement


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October 19, 2009

How to best save for college

Posted: 06:00 AM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

SALLY:

My husband and I are expecting our first child later this year. We are both in our early 40s now, so we'll be 60 before our son goes to college. Would it be better to save in a 529 plan now, or save more in our current retirement plans which may have better tax consequences when we are retirement age and using the money for his education?

CLARK:

That is a very interesting question.

If you were to put money in a Roth account or instead put money in a 529 account - a 529 is used for college, tax-free, a Roth can be used for any purpose once you reach retirement age, tax-free – you do the Roth.

The reason you do the Roth is that if your child ends up getting a scholarship or, heaven forbid, ends up not going to college, the money in the 529 becomes taxable and is subject to penalty.

The Roth can be used for any purpose.

That's why it's a much higher priority to save the max each of you can in a Roth before you would do one penny in a 529.

Filed under: Clark Howard • Finance • Living • Retirement


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October 12, 2009

How to choose a 401K

Posted: 06:00 AM ET

HELP ME CLARK!
From HLN's Money Expert Clark Howard

NISHITA:

My husband's work offers a Roth 401k and a traditional 401k, but we can only choose one. Which one is best? The company matches the traditional but not the Roth. Are there other investments that we can do, because we're not qualified for a Roth IRA due to income.

CLARK:

I think there may be a misunderstanding in how the company has communicated this.

What happens with a Roth 401k is the company would match it just as they would a regular 401k, but the match goes into the pre-tax side of the 401k rather than the after-tax Roth portion of the 401k.

Unless there's some kind of odd exception that the company's not doing that, you would go in to the regular 401k.

Otherwise, I want you in the Roth 401k because tax rates are very likely headed higher over the next generation and you want to have the tax bill already paid as you would have with the Roth 401k.

Plus, you'll love this: you're effectively saving about 30% more in your retirement account if you max out a Roth 401k vs. maxing out a regular 401k, because with one you're putting in pre-tax dollars, the other you're putting after-tax dollars.

Filed under: 401K • Clark Howard • Finance • Living • Retirement


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September 23, 2009

Clark Howard: Money Coach Diaries

Posted: 06:00 AM ET

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you! We're looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week's question comes from Carmen and Ray Zych in Des Plaines, IL.

One of the things that I'm concerned about is that we don't have enough money to put aside.

I currently have a Roth IRA through my employer, and my husband and I each have one through our bank. What we are trying to do is sort of play catch-up. So I work part-time at a second job, and most of that money I'm putting into a retirement fund.

My husband thinks that putting everything away is foolish because if you are saving and saving and saving, you are not enjoying your life now and he has a good point. We would like to get a small little house, live in a small little town and just quietly spend the rest of our life relaxing.

We need a Money Coach!

Hear Clark’s advice for Carmen and Ray this weekend at noon on HLN

Do you need a Money Coach? Send us an iReport video with your money questions and tell us why you need the Money Coach.

Posted by:
Filed under: 401K • Clark Howard • Living • Money Coach • Retirement • Uncategorized


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September 17, 2009

What should I do with my 401K?

Posted: 06:00 AM ET

HELP ME CLARK!
From HLN's Money Expert
Clark Howard

DIANE:

I am planning an early retirement in the next five years. I was advised that perhaps I should roll my 401k into a Roth IRA and take the next three years to pay off the tax. Is this a good idea? We are planning to pay our house off in the next two years, we have a mutual fund, we have 401ks, and I have a pension retirement account with my company.

CLARK:

If you're approaching retirement, the argument to be made for converting a regular IRA to a Roth is that you're not likely to need that money for a long, long time or even in your lifetime.

Because a Roth is a fantastic asset to inherit, much better to inherit than a regular IRA which has all kinds of bear traps of tax. So if that's your situation, that it's money you may not ever need, dealing with all the tax burden now is a good idea. But now is not now, now is January.

The reason you want to wait until January 2010 is that there's a special deal in 2010 for conversions of IRAs to Roths that allow anyone of any income to convert a regular IRA to a Roth and spread the tax over 2011 and 2012.

Filed under: 401K • Clark Howard • Living • Retirement


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About this blog

Clark Howard helps you become a wise consumer. We know you're busy, and that's why Clark's tips are quick and effective. He'll arm you with the information you need to make smart choices. During these tough economic times, Clark wants to help you save more, spend less and avoid getting ripped off!