Costco Connection - June 2008

Book

giveaway
Too many balls to juggle?

By Eric Tyson

COSTCO HAS five sets of books to give away. Each set includes The Total Money Makeover, by Dave Ramsey; Spend ’Til The End, by Laurence Kotlikoff and Scott Burns; Let’s Get Real About Money!, by Eric Tyson; and Easy Money, by Liz Pulliam Weston. To enter, print your name, membership number, address and daytime phone number on a postcard or letter and send it to: Personal Finance, The Costco Connection, P.O. Box 34088, Seattle, WA 98124-1088. Or send an e-mail to giveaway@costco. com, with “Personal Finance” in the subject line.

No purchase is necessary. Open to legal residents of the U. S. (except Puerto Rico) who are age 18 or older at the time of entry and who are current Costco members. One entry per household. Entries must be received or postmarked by July 1, 2008. Winners will be randomly selected and notified by mail on or before August 1, 2008. The value of the prize is $88.97. Void where prohibited. Winners are responsible for all applicable federal, state and local taxes. Odds of winning depend on the number of eligible entries received. Employees of Costco, Thomas Nelson, Simon & Schuster or F T Press and their families are not eligible.

BY THEIR 40s and early 50s, most folks find themselves juggling many different balls financially and personally. Here are some key issues to keep in mind during these important years.

If you’re behind on your retirement goals, you can make up for lost time. Complete a retirement-planning worksheet that tells you where you stand. If you find that you need to save more per month to meet your retirement goals, you can:

•Question your spending. There are almost certainly expenses you can cut down without feeling too much pain.

•Be more realistic about your retirement age—retire later.

You’ll earn and save for more years and spend your nest egg over fewer years.

•Use your home equity in retirement.

You can sell your home and move to a lower-cost property, or rent, or consider a reverse mortgage.

• Turn a hobby into supplemental retirement income. Pick something you enjoy and are good at, develop a business plan and get smart about marketing. Sock your profits away in retirement accounts.

AGE
40– 54

Be smart about new investment vehicles. Mutual funds aren’t the only game in town when it comes to hiring a professional money manager, but they are still the best choice for most investors. Alternatives increasingly promoted to individual investors include exchange-traded funds,

hedge funds and managed accounts.

Also take advantage of education tax breaks. Money invested in

Education Savings Accounts (ESAs) and in Section 529 plans is sheltered from taxation and is not taxed upon withdrawal so long as the money is used to pay for eligible education expenses. Subject to eligibility requirements, you may contribute up to $2,000 annually to ESAs. 529 plans allow you to sock away much more. (Note: These accounts may have an adverse affect on financial-aid awards.)

Not feeling in control of your financial destiny takes an emotional toll. When you don’t master your money, you experience increased stress and anxiety. Put yourself in charge of your finances and you are certain to have greater peace of mind. C

The sandwich generation
By Laurence J. Kotlikof
AGE 55 –
retirement

I’M WITH YOU. I’m 57, face two college tuitions, spend time and money helping an older parent and worry, particularly of late, where my investments are heading. But I’m also an economist with all the answers, right? Wrong. But I can suggest a few things.

• The goal is not to work like crazy, save every penny and drop dead at 65. So forget the astronomical saving targets your planner is setting and the high-fee, high-risk securities he’s peddling. The goal is a stable living standard.

•Maximize your spending power. Get paid what you’re worth. Move to a low-tax state. Buy inflation-indexed annuities. Move in together (two live cheaper than one). Fire your broker, and buy low-cost index funds. And pay off your mortgage— the safest and cheapest way to invest.

•Beat Uncle Sam at his own game. Take Social Security at age 70, use Roth savings accounts to avoid tax hikes and time your 401(k) retirement account withdrawals to minimize taxes.

26 The

•Inflation is coming! Dump your long-term bonds, and make sure your mortgage is fixed.

•Price your passions. Understand the living-standard costs of retiring early, redecorating your house, buying your dream boat, getting divorced, etc. Then make the lifestyle choices with the biggest bang for the buck.

• Protect your living standard. Switch to a low-stress job that lasts longer. Don’t count on dying on time; plan to live and spend to 100. Make sure you have enough life insurance to sustain survivors’ living standards. Plan for huge Medicare premiums and out-of-pocket medical costs. Take a careful look at long-term-care policies. If you invest aggressively, spend defensively. Stocks can be very risky, as we’ve seen. And holding stocks longer does not guarantee higher returns. Treasury infla-tion-protected bonds can help you play it safe.