February 5, 2009
Vol 2, Issue 2
Jean Keener
Jean Keener
Good afternoon.  I hope this newsletter finds you well and enjoying your day.
The markets have been on a bumpy ride.  The S&P 500 is down about 8% year-to-date, but still more than 10% higher than our low on November 20.  Reduced consumer spending seems to be a big part of the problem, but retail sales numbers for Wal-Mart and Macy's out this morning were higher than expected.  In my book, while we all want to see the market rebound as quickly as possible, reduced spending and increased personal savings levels are not a bad thing.  It may make the economic recovery a bit slower, but it will be more sustainable long-term.
In this newsletter, I've highlighted some upcoming events that may interest you, as well as some information on a very-current issue of what to do when your employer stops contributing to your 401k, working in retirement, college costs, and keeping your credit score high.  The coming weeks may yield numerous legislative updates depending on the outcome of the stimulus bill, so I'll be updating you as those occur.

As always, feel free to e-mail me at jean@keenerfinancial.com with requests for newsletter topics you'd like to see covered.  Thank you, and Live Well.
In This Issue
Your Money Bus Tour
When an Employer Stops Matching
Working During Retirement
College Costs Update
Your credit score and why you should care
Free Women & Money Seminar
KFP is Chamber Member of the Month
Join Our E-Mail List!
Quick Links
Our Services
Your Money Bus Tour to Stop in Southlake at Central Market

Your Money Bus

Mark your calendars for February 23 from 11:30 to 1:30.  The national Your Money Bus tour will be making a stop at a place near and dear to my heart -- Southlake Central Market.  Local financial advisors, including me, will be there to answer your financial questions at no charge.
We're all keenly aware of the economic challenges our country and many individuals are facing right now.  An unstable economy, rising unemployment rates and home foreclosures continue to impact residents throughout our area.
To help individuals address these issues, we'll be delivering complimentary financial advice from independent registered investment advisors along with free educational materials focusing on savings and debt reduction.
Central Market has generously agreed to host the bus, and will be providing space in theirCentral Market cooking school for the complimentary financial sessions.  It will be a great opportunity to get your questions answered in a fun, upbeat atmosphere.  Thanks to Central Market's Community Relations Manager Ren Knight for arranging the stop!
The bus tour itself is presented by the National Association of Personal Financial Advisors Foundation, Kiplingers, and TD Ameritrade.  The bus will also be making stops at UT Arlington and in Dallas.   Click here for more information including schedules for other D-FW stops, videos and blog entries of prior stops.
Should you keep contributing to your 401(k) if your employer stops matching?
Person ThinkingMany employers have recently announced reductions or elimination of the company 401(k) match.  A lot of people are wondering if they should stop contributing because of this.  As with most financial questions, the answer is, "it depends."
First, you should definitely keep saving.  Even if you think you never plan to retire, you may get to a point in your life where you want to have the choice of working or not, starting a business, or taking a less-demanding job.  Saving is the only way to create that option for yourself.  And even a couple years of a "savings vacation" can put a serious dent in achieving your goals.  The only good reason to temporarily stop saving is in the event of severe financial hardship, but don't let yourself off the hook too easily in evaluating whether the situation is severe enough to stop saving or not.
Second, the question becomes, should you use your employer 401(k) or other methods now that the match is gone?  The answer here really depends on the quality of your employer's plan and the amount you're saving. 
You can evaluate plan quality based on the number of choices available and the expenses of the plan.  Good investment choices include a full range of domestic and international stock and bond funds and expense ratios well under 1% (many index funds are under 0.25%).  Ideally real estate, commodities, and emerging markets funds would also be available.
If your plan has a good variety of investment choices and the costs are low, then consider how much you're saving.  If you are saving more than $5,000 per year ($6,000 if you're over 50), you won't be able to save as much in another tax-advantaged account as the employer 401(k) unless you also have self-employment income.  So the 401(k) stays attractive simply for your own tax purposes.  The plan would have to have really lousy investment choices to justify losing the tax preferences of traditional or Roth 401(k) contributions.
If you are saving less than $5,000 per year and are under the income limits, you have the option of contributing to a pre-tax traditional IRA or a post-tax Roth IRA.   In this situation, you could stop contributing to the 401(k) and start contributing to an individual IRA without losing any tax advantages.  If your employer's plan selections aren't good, costs are too high, and you're contributing less than $5,000 per year, switching to the individual IRA makes sense.
In general, you will want to err on the side of sticking with your employer plan.  After all, you are in the habit of doing this and a new habit might be harder to start and stick with.  Your employer will also hopefully start matching again as soon as the economy improves. You also might want to consider temporarily increasing your personal contribution to make up for the lost employer contributions if at all possible. If you would like assistance evaluating the best option for you, give me a call.
Working During Retirement
Retired CoupleWorking during retirement has become a bigger part of many people's retirement plans in recent years.  There are a bunch of reasons for this including stock market losses, living longer, desire to start a new career or business, affordable health care coverage, the desire to stay active, and the social relationships found in the workplace.
There are several considerations in deciding whether this is the right strategy for you.  Clearly, if you work during retirement, you'll be earning money and relying less on your retirement savings--leaving more to potentially grow for the future and making your savings last longer.  This can allow increased security and/or a higher standard of living.  I have a chart that shows several scenarios of this, but it's not included here for space.  Follow this link to go to my website and see it.

How will working affect Social Security?

If you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit check. Your monthly benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration calculates your primary insurance amount (PIA), upon which your retirement benefit will be based. Your PIA is recalculated annually if you have any new earnings that might increase your benefit. So if you continue to work after you start receiving retirement benefits, these earnings may increase your PIA and thus your future Social Security retirement benefit.

But working may also cause a reduction in your current benefit. If you've reached full retirement age (65 to 67, depending on when you were born), you don't need to worry about this-- you can earn as much as you want without affecting your Social Security retirement benefit.

If you haven't yet reached full retirement age, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($14,160 in 2009). A special rule applies in your first year of Social Security retirement--you'll get your full benefit for any month you earn less than one-twelfth of the annual earnings limit, regardless of how much you earn during the entire year. A higher earnings limit applies in the year you reach full retirement age. If you earn more than this higher limit ($37,680 in 2009), $1 in benefits will be withheld for every $3 you earn over that amount, until the month you reach full retirement age--then you'll get your full benefit no matter how much you earn. (If your current benefit is reduced because of excess earnings, you may be entitled to an upward adjustment in your benefit once you reach full retirement age.)

Not all income reduces your Social Security benefit. In general, Social Security only takes into account wages you've earned as an employee, net earnings from self-employment and other types of work-related income, such as bonuses, commissions, and fees. Pensions, annuities, IRA distributions, and investment income won't reduce your benefit.

Also, keep in mind that working may enable you to put off receiving your Social Security benefit until a later date. In general, the later you begin receiving benefit payments, the greater your benefit will be. Whether delaying the start of Social Security benefits is the right decision for you, however, depends on your personal circumstances.

One last important point to consider: in general, your Social Security benefit won't be subject to federal income tax if that's the only income you receive during the year. But if you work during retirement (or receive any other taxable income or tax-exempt interest), a portion of your benefit may become taxable. IRS Publication 915 has a worksheet that can help you determine whether any part of your Social Security benefit is subject to federal income tax. 
There are also other considerations including how it will affect any pensions and healthcare benefits.   For more details on this question, see the full article at www.KeenerFinancial.com. 
College Costs: Increases and Trends
Many of the developments we saw last year in the world of higher education will continue to play out in 2009, as the largest high school class in American history heads off to college.

Costs, costs, costs

For the 2008/09 school year, the total average cost (tuition and fees, room and board, books and supplies, transportation, and other miscellaneous expenses) for an in-state public college student is $18,326; for an out-of-state public college student, $29,193; and for a private college student, a whopping $37,390 (Source: The College Board's Trends in Student Pricing 2008 Report). According to the College Board, over the past decade, college costs have increased an average of 5% to 6% a year.

This year, the ever-increasing cost of college comes at a time when many parents may be grappling with reduced college savings due to the ailing economy. With less savings, lower home equity against which to borrow, and possibly stagnating incomes or a recent job loss, parents may be less able to contribute to their children's ever-growing college financial need.


Enter student loans. The amount of borrowing for college has increased tremendously over college buildingthe past decade, especially in the area of private student loans. Last year, private loans comprised 23% of total education loan dollars, compared to 5% ten years ago (Source: The College Board and The Project on Student Debt). The reason for the increase? The borrowing limits on federal student loans haven't kept pace with the rise in college costs.
However, the ongoing credit crunch has altered the marketplace this year. Many private lenders have dropped out of the student lending business completely, and those still in it are charging higher interest rates and requiring more stringent credit checks.
A study conducted last August by educational lender Sallie Mae concluded that 70% of families didn't even consider their child's likely post-graduation income when deciding how much to borrow for college, and 40% said they paid no attention to cost when searching for a college. But there's evidence this pattern may be changing. Around the country, college administrators report an increased focus on price at college fairs, and a majority of families say in online surveys that they are seeking less prestigious schools for money reasons.

Public college trends

But just as public colleges find themselves more in demand than ever by cash-strapped students and employees looking to gain a leg up in the workforce, state budget deficits are forcing many states to reduce their public higher education expenditures, resulting in markedly higher tuition and fees. So far, at least 20 states have made cuts to their public university budgets or are planning large tuition increases. And more states are expected to be in financial peril in 2009, jeopardizing future public higher education expenditures (Source: The Wall Street Journal, October 17, 2008, "State Budget Cuts Push Tuition Higher").

Private college trends

The highest tier private colleges--the Ivies and a few select institutions--have enjoyed record endowment growth over the past few years (not counting the economic downturn) and have translated those gains into increased merit aid awards (which aren't based on financial need) for the best students. Many of these institutions have even gone so far as to offer a free education to students whose families earn up to $150,000 or $200,000 per year.

But go one or two levels below, and many colleges in the second and third tiers aren't in a position to meet all of their students' financial need. These colleges continue to hand out merit aid, but are more selective (and less generous) in their awards. So students at these schools could end up paying more out-of-pocket.

Federal legislation

Against this backdrop, the federal government passed the Higher Education Opportunity Act last year. Among other things, the Act will make it easier for students to apply for federal student loans and to research college costs on a new website, www.college.gov.
And in 2009, it will be interesting to see what ideas and policies President Obama, who just finished paying off his own student loans in 2004, brings to the college table.
Your credit score and why you should care
Man who knows his credit scoreCredit scores.  We all have one.  They affect us in lots of big and little ways.  A few points difference on your credit score can mean thousands in additional costs when you finance a home or car.  Fannie and Freddie have recently increased the fees associated with a lower credit score when you get a new loan.  Even if you're not planning on financing a house or car anytime soon, it can affect the rate you pay for auto insurance or your ability to pass an employment background check.  Not paying attention to your credit score is one of the most common financial mistakes people make.
 You're entitled to a free credit report once a year from each of the three major credit reporting bureaus. To request your report, call 877-322-8228 or visit www.annualcreditreport.com. There are lots of other web sites out there with similar addresses that will try to get you to purchase a service as part of your "free" credit report.  Be skeptical of these.

Your credit score is the result of a mathematical formula that's applied to all the information in your credit report (both positive and negative) and then compared to millions of other credit reports. The most common credit score is a FICO score, developed by the Fair Isaac Corporation. A variation of the basic FICO model is used by each of the three major credit reporting agencies: Equifax, Experian, and TransUnion.

Your FICO score is based on five categories, each of which accounts for a percentage of your total score:
  • Your payment history: 35%
  • An analysis of your debt: 30%
  • The length of your credit history: 15%
  • Recent inquiries/new credit activity: 10%
  • Types of credit in use: 10%
The result is a three-digit number between 300 and 850 that estimates your level of credit risk. The higher the number, the lower the risk.

This number significantly affects your ability to get credit and the terms you're offered. Generally, lenders consider people with scores above 700 to be in good financial health, and worthy of the best interest rates and credit terms. Those with scores below 600 are considered to be financially risky, and may be turned down for credit or offered stricter terms (higher interest rates, lower credit limits, and/or requirements for collateral or a cosigner or both).

To keep your score high:

  • Pay your bills on time
  • Repair any damage (i.e., overdue payments) as quickly as possible
  • Keep your balances on your credit cards low (especially in relation to your credit limits)
  • Pay off your debt
  • Don't open new accounts you don't need
One more thing to be aware of -- I was recently cautioned by Mortgage Banker Susan Rodgers with Prime Lending that many borrowers inadvertently sabotage themselves by trying to take steps to clean up their credit before applying for a mortgage.  If you close accounts or pay off over-due accounts from the ancient past, you may actually make your credit score worse.  Closing accounts reduces the total credit available to you which affects the ratio of credit available to debt.  Paying off old past-due accounts brings that past-due record into the present.  If you are getting ready to apply for a mortgage and are considering these kinds of actions, you should consult your mortgage banker before you do anything to make sure you are helping rather than hurting.
Free Women & Money Seminar
Business WomanThis seminar is in a quiz format, and is a lot of fun for me and participants.  We recently did an abbreviated version of the seminar with the Keller Women's Club and had a blast. 
Women have unique opportunities and challenges when it comes to managing money.  Among the challenges, we tend to live longer and earn less than men and are sometimes hesitant to take ownership of our financial situation.   Among the opportunities, we tend to stick to a plan once we have it and get statistically better long-term investment results than men.  Attendees at this seminar will be educated on these trends so they can avoid pitfalls and plan to fund the life they desire.  A free copy of Investing in an Uncertain Economy for Dummies will also be given away to one of the attendees.  It will be a light evening, but educational!  Would love to see you there.

Keller Public Library
640 Johnson Drive, Keller, TX
March 2, 2009, 6:30 pm - 8:00 pm
Advance registration recommended: (817) 743-4840
KFP is Chamber Member of the Month
Keener Financial Planning
 Finally, I want to share an honor with you that I'm very proud of.  The Keller Chamber of Commerce named Keener Financial Planning as its member of the month for January.  I very much appreciate their  providing this recognition for the contributions KFP is making to the Chamber and the community.   Thank you Keller Chamber board and staff!
I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process.  To learn more or schedule a time, call 817-993-0401 or e-mail jean@keenerfinancial.com.
Jean Keener, CRPC (Chartered Retirement Planning Counselor)
Keener Financial Planning

Keener Financial Planning provides hourly, as-needed financial planning and advice on a commission-free basis to people at all financial levels.