Category: Columns

5 Surprising Sources of Debt

This is a summary of an article from DailyFinance.com.

  1. Your New Job: Many people quickly get into a trap of spending more money when they get a new job with higher income. Instead of expanding your life style, try to keep your current spending and save the extra income. If you want a new car or a house, save up enough money to put at least 20% of down payment.
  2. Financial Windfall: So many people waste or buy expensive stuff, often getting into debt, when they suddenly get a large sum of money, whether it's divorce settlement, lottery winning, or inheritance. Instead of spending without a plan, save 1/3 for taxes, 1/3 for savings, and the rest 1/3 for fun.
  3. Leasing a car: Leasing a car sounds attractive because it looks like you can get more car for your money. But it comes with many fine prints and costs such as limited mileages and and disposition fees, that many people don't pay attention to at the time of lease contract. That may trap people into continuous leasing cycle. So, fully understand conditions and fees before signing up for a lease.
  4. A New Cellphone: Getting a "free phone" by signing a contract can be attempting. But it's a loan that may end up costing consumers more, and it's almost impossible to get out of the contract without paying hefty penalties. Consider purchasing a refurbished or cheaper phone outright and look into plans with no contracts.
  5. Buying a House: People want to update/renovate features and buy new stuff such as appliance and furniture when they get a house. Stay within the budget to avoid debt trap.

 

Understanding True Costs

Like any other purchases consumers make, it's imperative that people understand the costs of the financial service that they receive. There are largely three types of fees that financial professionals charge:

  1. Commission: Commissions are paid to the person (financial advisor or broker) who sold the products to a client, by the company whose product is sold. In mutual fund investment, commissions are paid by clients as Points. The type of mutual funds that pay commission is called "Loaded" or "A-share". The commission usually starts at 5%. For example, if one invests $10,000, the commission of $500 is deducted from the initial amount and only $9,500 will be invested in the client's account. The percentage of fees goes down once the client reaches a certain amount, called a "Break Point". See the chart below from FINRA.org):

Sample Breakpoint Schedule
Class A Shares (Front-end Sales Load)


  1. Investment Amount Sales Load
    Less than $25,000 5.0%
    $25,000 but less than $50,000 4.25%
    $50,000 but less than $100,000 3.75%
    $100,000 but less than $250,000 3.25%
    $250,000 but less than $500,000 2.75%
    $500,000 but less than $1 million 2.0%
    $1 million or more 0.0%

    According to this schedule, if one invests a total of $100,000 in payments over years, he would have paid about $4,187 in commission/fees. Any new money invested will continue to be charged at a certain percentage, until the total assets hit $1,000,000. But even if one invested 1 million dollars and avoided any commission, these actively managed funds have associated fees, called expense ratio, that's charged at a flat rate regardless of amount of asset. According to MorningStar, the average A-class mutual funds is 1.25% per year (See related article on US News here)

    Fee-base

     

  2. Fee-only

As Forbes explains in the article, Brokers Are Salespeople, Not Financial Advisers,

You need to decide if saving costs value of service you receive. If you ask me, I'd say both are absolutely important factors.

This video can save you $$$

Watch what John Oliver (HBO's Last Week Tonight) says about retirement plans. He points out the problems associated with retirement savings, especially high fees on 401k plans and non-fiduciary advisors, which most people don't know/think about.
As he said in the show, "As a favor to your future self, it's worth watching this" This 20 min. video can save you so much money!

https://www.youtube.com/watch?v=94Rqmf98PLs

How to Start Retirement Planning

This is a column that was published on The Korean-American Journal (September 2015), a news paper located in St. Louis, MO. Some contents may be specific to Korean immigrants in the US.  

How to Start Retirement Planning

As problems regarding retirement planning were emphasized in the last column (Aug. 2015), let’s now find out how to start planning for your retirement.

First, the beginning of retirement planning is to know how much money you need at retirement: write down monthly expenses you need at your retirement. It is often recommended that people need about 80% of pre-retirement income, but it really depends on your desired life style. CNN Money says that people who want to retire at 65 need to save (or should have saved) the following amounts at different ages.

Income$40,000$65,000$90,000$115,000
Age 254,0006,5009,00011,500
Age 3560,00097,500135,000172,500
Age 45148,000240,500333,000425,500
Age 55248,000461,500639,000816,500
Age 65480,000780,0001,100,0001,400,000

(Source: CNNmoney.com -How much you should have saved for retirement right now - Sep. 2, 2015)

For example, if you are 45 with an annual income of $65,000, then you should have $240,500 by now, and if you are 65 with that income and about to retire, you need $780,000 to be able to continue your current life style.

Second, you need to know what your Social Security benefits and/or pension benefits are. You can find out about your pension through the person in charge at work, and Social Security benefits can be found using Benefits Estimator on www.ssa.gov.

Third, now you need to find out how much you should save/invest based on your pension/Social Security benefits and the amount that you have saved so far. You can use the Retirement Calculator on YuFinancialAdvice.com.

Finally, let’s discuss retirement accounts that you can utilize for your retirement savings/investing. Generally speaking, there are two types of accounts with tax and other benefits that individuals can take advantage of for retirement savings: an IRA that anyone with an earned income can open, and one that is offered through work. An IRA that anyone (including a non-working spouse) can open has its limitations because the maximum contribution as of 2015 is $5,500 ($6,500 for 50 or older). That’s why having a plan through work is important, and most people need both accounts. A 401k plan that is commonly used by corporations allows maximum contribution of $18,000 ($24,000 if 50 or older) in 2015, and a SIMPLE IRA that is popular among small business owners because of simple filing and low costs allows the maximum yearly contribution of $12,500 ($15,500 if 50 or older). Retirement plans that are through work commonly offer a match for those who save above a certain amount, so understand your plan and take advantage of it. Also, different plans and securities have different costs, so it’s important to pay attention to them. It’s recommended to consult a professional on investment decisions as they differ by individuals based on their age and risk tolerance.

I assume that many people may have found out, through this column, that their retirement savings are not adequate at all. Some may have found themselves desperate because they don’t see any potential for financial improvement in the foreseeable future. But like many other problems in life, retirement planning, no matter how difficult it may seem now, can get easier as you plan and follow through longer. The important thing is to have and implement a realistic plan. If it seems hard to save adequately, you need to know the discrepancy, seek savings by analyzing other expenses, and have an alternative plan. The longer you wait to prepare for your retirement, the more money you’ll need to save, and the harder it becomes. So start your plan as soon as possible.

*This column contains opinion of Misook Yu, and it may not apply to everybody. Please consult a financial advisor for your retirement planning.

 

노후 준비, 어떻게 시작 하나?

지난 달 (2015년 8월호) 칼럼에서 노후 문제의 심각성을 강조 하였으니, 이제 노후 준비를 어떻게 할 것인지에 대해서 알아 보자.
첫째, 노후 준비의 시작은 본인에게 필요한 노후 자금이 얼마인지 아는것 이다. 은퇴후 매월 필요한 금액을 적어 보시라. 흔히 은퇴전 인컴의 80%정도가 필요 하다고 하지만, 원하는 은퇴후 라이프 스타일에 따라 개인마다 다르다. 아래는 CNNMoney.com이 65세 은퇴를 기준으로 권장하는 나이별 모아야(모았어야) 하는 총액이니 참고 하기 바란다.

Income$40,000$65,000$90,000$115,000
Age 254,0006,5009,00011,500
Age 3560,00097,500135,000172,500
Age 45148,000240,500333,000425,500
Age 55248,000461,500639,000816,500
Age 65480,000780,0001,100,0001,400,000

(Source: CNNmoney.com -How much you should have saved for retirement right now - Sep. 2, 2015)

즉, 당신의 현재 연 수입이 $65,000이고 나이가 45세 라면, 지금 $240,500 를 모았어야 하고, 은퇴하는 65세 라면 $780,000이 있어야 은퇴전의 라이프 스타일 유지가 가능하다고 한다.
둘째, 본인의 기대 소셜 시큐리티나 기타 연금이 얼마나 되는지 알아야 한다. 펜션은 직장의 담당자를 통해서, 소셜 시큐리티 연금은 www.ssa.gov의 Benefits Estimator에서 알아볼 수 있다.

셋째, 본인에게 필요한 은퇴자금과 기대 연금 수령액, 그리고 본인이 이미 모아 놓은 금액 대비, 지금 부터 저축/투자 해야 하는 금액이 얼마인지 알아야 한다. 계산은 YuFinancialAdvice.com의 Retirement Calculator를 참고 하기 바란다.

끝으로, 필요한 금액을 저축/투자할 수 있는 은퇴 계좌에 대하여 알아 보자. 정부에서 은퇴준비를 장려하기 위해 세금 및 각종 혜택을 주는 은퇴계좌는 근로소득(earned income) 이 있는 사람 이라면 누구나 할 수 있는 IRA 와 회사를 통한 플랜, 크게 두가지가 있다. IRA는 누구나(일 하지 않는 배우자 포함) 오픈할 수 있지만, 최고 적립금이 2015년 현재 연 $5,500 (50세 또는 이상이면 $6,500)로 적다는 한계가 있다. 그래서 그 보다 적립금이 높은 직장을 통한 은퇴 플랜이 중요하며, 대부분의 사람들은 두개가 다 필요하다. 회사에서 흔히 사용 되는 401k는 개인 최대 적립금이 2015년 현재 연 $18,000 (50세 또는 이상이면 $24,000)이고, 서류가 간단하고 비용이 적어서 소규모 자영업자들에게 인기 있는 SIMPLE IRA는 연 $12,500 (50세 또는 이상이면 $15,500) 이다. 직장을 통한 은퇴 계좌는 직원이 일정 금액 이상을 저축하면 회사에서 매치 (match) 해주기도 하므로, 본인 회사의 은퇴 플랜을 잘 이해하고 적극 활용 하여야 한다. 또한, 플랜이나 금융상품마다 비용의 차이가 클 수 있으니 꼼꼼히 살피는게 중요하다. 어떤 금융상품에 투자 할지는 개인의 나이나 투자위험 허용치 (investment risk tolerance)등에 따라 다르므로 전문가와 직접 상담 하는것이 권장 된다.

많은 분들이 은퇴준비가 ‘충분히’ 되지 않았음을 이 칼럼을 통해 아셨으리라. 앞으로도 크게 달라질게 없어 보여서 절망스러운 분들도 있을거다. 하지만 인생의 많은 일이 그렇듯, 아무리 힘들어 보이는 은퇴 준비도 계획을 세우고 꾸준히 실천 하다보면 문제가 작아지게 마련이다. 중요한건, 현실적인 계획을 세우고 실천하는거다. 만약 충분히 모으는게 힘들면, 얼마가 부족한지, 다른 곳에서 비용을 줄여 저축을 더 할 수는 없는지등을 분석하고 대책을 마련해야 한다. 은퇴 준비는 기다릴수록 저축해야하는 돈이 많아지고 힘들어지므로 계획을 하루라도 빨리 세울수록 유리하다.

* 이 칼럼은 미조리주의 센루이스 소재 한겨레신문에(The Korean-American Journal -2015년 9월호) 게제되었습니다. 이 글은 유미숙의 사견이며, 모든사람에게 해당이 되지 않을 수 있습니다. 본인의 은퇴 준비는 재무설계사와 직접 상담 하시기 바랍니다.

 

 

Practice Retirement

Retirement is a big turning point in life. Some people enjoy the free time that they longed for, while others find themselves depressed without “purpose." Regardless of how you view this change, practicing would help you ease into a whole new life. We strongly suggest practicing for a life after retirement at least three years before actual retirement.

First, try to live with the amount of your expected income after retirement. Many people think they need much less money once retired, so see how your lifestyle changes with less money. If you currently need $5,000 to maintain your lifestyle, but you think you can live on only $3,000 at retirement, try to do that now. If you currently have a monthly $1,000 mortgage payment and expect to pay it off by retirement, exclude that amount from your retirement expense for your practice. Understand that people can receive only one Social Security check. For example, if your monthly Social Security check is $1,500 and your spouse's is $2,000, your combined monthly income will be $3,500, as long as you both live. But if your spouse passes away, you will only receive the bigger check: $2,000. However, your medical expense would increase as your health deteriorates with age.

Second, know what you would do everyday. Once you retire, you may no longer have a regular schedule. While you may initially feel free and enjoy it, many studies show that retirees soon feel a lack of purpose followed by depression. Having a new “schedule” is important to avoid such a pitfall. If you plan to spend time taking care of your little grandchildren, understand that they will grow up soon and may not need your care anymore. What would you do then? If you want to volunteer, then know exactly where and what you can do. If you want to travel, research your destination and costs. If you think you would want to spend time with your friends and family, would they want the same? (Hint: They may not have the time or desire to do what you plan to do with them.)

Finally, learn from the mistakes of other retirees. One of their biggest regrets is retiring too early. They often realize that they need more money to keep the lifestyle they desire at retirement, and they also miss the regularity and intellectual stimulation that they used to get from work. But in most cases, they can’t reverse the retirement. Therefore, no matter what your retirement plan may be, practicing in advance is the best way to find out how realistic it is. Give yourself plenty of practice and seek alternatives, if needed, before it’s too late.

This post contains opinion of Misook Yu and it may not apply to you . Consult a financial advisor to discuss your own situation.이 글은 유미숙의 사견을 담고 있으며, 당신에게 적용되지 않을 수도 있습니다. 당신의 상황에 대해서는 재무설계사와 직접 상담 하십시오

은퇴는 삶에서 아주 커다란 변화중 하나다. 어떤 사람들은 기다리던 은퇴후의 여유로움을 즐기지만, 어떤 사람들은 “목표”가 없어진 삶에 우울해지기도 한다. 당신이 은퇴를 어떻게 정의하든, 그것을 미리 연습하는건 새로운 삶에 쉽게 적응하는데 도움이 될 것이다. 따라서, 실제로 은퇴하기 적어도 3년 전 부터 은퇴 연습을 하는것이 권장된다.

첫째, 은퇴후의 기대 생활비로 살아보라. 많은 사람들이 은퇴후에는 훨씬 적은 금액으로도 생활이 가능하다고 생각하므로, 그것이 삶에 어떤 변화를 가져오는지 한번 보시라. 만약 지금 당신의 현재 한달 생활비가 $5,000이지만, 은퇴후에는 $3,000 정도면 살 수 있다고 생각 한다면, 지금 $3,000로 살아 보시라. 만약 당신이 현재 월 $1,000를 모기지 페이먼트를 내고 있고, 은퇴때 다 갚아 진다면, 그 금액을 제외하고 은퇴후 기대 생활비로 사는것을 연습하라. 사람은 누구나 단 하나의 소셜시큐리티만 수령할 수 있다. 만약 당신의 은퇴후 소셜시큐리티가 $1,500 이고  당신 배우자의 것은 $2,000 이라면 두 명 다 생존해 있는 동안은 월 $3,500을 받을 수 있다. 그러나 만약 당신의 배우자가 먼저 사망한다면 당신은 둘 중 더 많은것, 즉 $2,000만을 받게 된다.  반면에, 나이가 들고 몸이 약해질수록 의료비용은 높아진다.

둘째, 당신이 매일 무엇을 할 것인지 알라. 일단 은퇴를 하면, 당신은 더이상 규칙적인 삶에 얽메이지 않게 된다. 처음에는 그 자유로운 삶이 즐거울지 모르나, 자료에 의하면 많은 은퇴 노인들은 곧 목표의식을 상실하고 우울증을 겪게 된다고 한다. 그런 문제를 겪지 않으려면 나름의 스케줄을 짜는것이 중요하다. 만약 당신이 은퇴후 어린 손주들을 돌보며 살 계획이라면, 당신의 어린 손주들은 커서 당신의 손길이 더이상 필요하지 않을날이 곧 올것임을 알라. 그때 당신은 무엇을 하겠는가? 만약 자원봉사를 하며 시간을 보낼 계획이라면, 어디에서 무슨일을 할 것인지를 미리 알아보라. 그동안 못 한 여행을 하면서 노후를 보내고 싶다면 어디에 갈 것이고, 비용이 얼마나 드는지를 알아보라. 만약 특별한 계획 없이 막연하게 사랑하는 가족, 친구들과 은퇴후를 보내고 싶다면, 그들도 당신과 같은 생각을 하고 있는지 자문해 보라. (힌트: 그들은 당신이 생각하는것 만큼 당신과 보낼 시간도, 그럴 마음도 없을지도 모른다.)

끝으로, 다른 은퇴자들의 실수로부터 배워라. 많은 은퇴 노인들이 하는 후회 중 하나는 너무 일찍 은퇴했다는 거다. 그들은 은퇴후의 삶이 생각보다 더 많은 돈이 필요하다는걸 깨닫기도 하고, 또 직업으로 부터 얻는 규칙적인 일상과 지적 자극 (intellectual stimulation)을 그리워하기도 한다. 하지만 대부분의 은퇴자들은 은퇴를 다시 되돌릴 수 없다. 따라서, 당신의 은퇴계획이 어떻든간에, 그것이 얼마나 현실적인지를 알아 보기 위해서는, 지금 미리 은퇴연습을 하는것이 가장 좋은 방법이다. 가능한한 충분한 시간을 두고 은퇴연습을 통해, 필요하면 다른 방법을 강구해 보기 바란다. 정말 늦기 전에 말이다.