Amplify Financial : Basics

Basics

Frequently asked questions when people are just starting out.

How long should I keep copies of my tax returns?

Generally, you should keep your tax returns and supporting information (i.e., receipts, W-2 forms, bank statements) for six to seven years. The IRS has three years to audit a return, or two years after you have paid the tax, whichever is later. However, if income was underreported by at least 25 percent, the IRS can look back six years, and there is no time limit for fraudulent tax returns.

How much money should I keep in a savings account for emergencies?

Many financial professionals suggest that you put away three to six months’ worth of living expenses for emergencies. If you lose your job, or become disabled and don’t have adequate disability insurance, you’ll need that money to pay your regular monthly expenses, such as mortgage payments, insurance premiums, groceries, and car payments, until you can find another job. Without such an emergency fund, a period of unemployment could put your assets at risk. Similarly, if your car breaks down or your spouse has a medical emergency, you’ll want to have the necessary cash to pay the bills. You don’t want to be faced with an immediate need for cash, only to discover that you don’t have any.

You may have already set up an emergency fund. Did you put the cash in a five-year certificate of deposit (CD) or other long-term investment? In an emergency, you will need to get at those funds immediately. You can certainly pull your money out of the CD early, but you’ll pay a penalty. It’s better to keep some funds more liquid, in a traditional savings account, a money market deposit account, or a six-month CD, for example. That way, the cash will be readily available when you need it.

Finally, keep your emergency fund separate from your everyday accounts. You might even want to use a different bank. Unless you are extremely disciplined, you’ll be tempted to spend those extra funds if you keep them in your checking account. Remember, if you can put off an expense until next week, it is probably not an emergency.

How can I reduce my spending?

To reduce your spending, you first need to know where your money goes. Start out by creating a log of your expenses for the past year. Going back over a year’s time will account for seasonal fluctuations and purchases and give you a more accurate average monthly number. Next, categorize the expenses so you can see what you spend and where you spend it.

Expenses generally fall into two categories. Essential expenses are ones you can’t avoid (e.g., rent, utilities, groceries, car insurance). Discretionary expenses are ones you choose to incur (e.g., eating out, entertainment, gifts, videos). Discretionary expenses are the ones over which you will have the most control. Do you buy a lot of books? Try the library instead. Take coffee or lunch to work rather than buy it once you get there. Limit eating out to once a week rather than twice. Quit smoking, or at least begin to cut back on the number of packs you smoke each week.

Although essential expenses are fixed, there may be ways to reduce them. Make sure you shut off the lights and TV when you leave the room. E-mail your distant friends and relatives rather than call them long-distance. Change the oil in your car on a regular basis to avoid more costly repairs due to neglect. Review your insurance policies: Can you save on your premiums by taking a nonsmoker discount or increasing your deductibles? Clip the grocery store coupons, always shop from a list, and avoid the impulse items at the end of the aisles.
Pick a realistic goal for your monthly spending reduction and try not to make too many changes all at once. To see how big a difference this can make, do the math. If you start by committing to reduce your spending by $2 a day, that’s $730 a year! Set the saved money aside, perhaps in a savings account for your planned vacation, or use it for a specific purpose, such as reducing debt faster.

Will debt consolidation hurt or help my credit rating?

Debt consolidation can lead to an improvement in your credit rating by making your debt easier to manage. Sometimes, debt consolidation means taking a loan at a lower interest rate to pay off several smaller loans at higher interest rates. Making one payment instead of many may help you keep your debt under better control, make it easier for you to make timely payments, and thus improve your credit rating.

Although managing your debt will improve your credit record in the long run, consolidation can have a more immediate impact. For example, if you have 10 accounts in default on your credit report, your lenders will consider you a bad credit risk. But if you can pay off those accounts with a consolidation loan, you have eliminated the problem. Your new credit report will now show that you cured the defaults and retired the debts. And you have only one open account—your consolidation loan. As long as you stay current on the consolidation loan payments, your credit rating will be viewed more favorably than before.

Remember, your goal is to manage your debt by making your payments more affordable. You can do this by lowering your interest rate or increasing the number of months you have to pay off the debt. There is no point in consolidating if you don’t achieve one or both of these goals—you’ll want to be sure you can afford the consolidation loan and make the payments. Otherwise, you’ll end up back where you started.

While debt consolidation has its advantages, you must recognize that by extending the time to pay off your debt, you will ultimately be paying more in interest charges. Also, once you get a consolidation loan, you should consider closing some of your credit card accounts so that you can’t simply run up your bills again.

A caution about debt consolidation

Debt consolidation, in it’s pure form, is taking out one loan to pay off other debts. This is often done to lower interest rates, monthly payments, or both.

These loans can be unsecured bank loans, or secured by assets you offer as collateral – e.g. second mortgages or home equity loans. Secured loans are less risky to lenders, so the interest rates are usually lower than rates on unsecured loans.

The FTC has this to say about debt consolidation:

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can’t make the payments – or if your payments are late – you could lose your home.

What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.

A quick Googling of “debt consolidation”, however, turns up a seemingly unlimited number of companies that are offering to help consolidate your debt. Proceed with caution. While many legitimate options exist that can help you consolidate your debt, there are also companies that prey on people who are desperate to avoid bankruptcy.

How can I lower the interest rate on my credit card?

One way is to call your existing lender and try to negotiate a lower rate. Often, the threat of losing a customer and the associated income from your finance charges can inspire a card company to accept a lower interest rate and keep the relationship. Negotiation is most effective if you have a stable payment history with the company.

If your present card company won’t negotiate, you can transfer your existing balance to a new lender with a lower rate. Be careful, however, that it isn’t a teaser rate that’s offered for a few months and then will be raised higher than your existing rate. Ask for a clear accounting of what the rate applies to (e.g., balance transfers, new purchases, cash advances), as well as all other card limitations and penalties. Find out if there is a transaction fee before you agree to the transfer.

Keep in mind that lenders are making it increasingly difficult to continuously “surf” for low credit card rates. Some card companies now restrict balance transfers during a set time (e.g., a year) after you sign up. If you try to transfer to another card during that period, you may be retroactively charged a higher rate.

Should I pay cash for a car or finance it?

The least expensive way to buy a car is to pay cash for it, because with cash, you can buy only what you can afford, and you avoid paying the finance charges associated with a car loan. Nonetheless, the reality is that you may not be able to afford to pay cash for a new car. If you buy a used car with your cash, you may be saving the purchase price and the interest payments. However, you run the risk of the potentially higher cost of repairs, and you could also be buying someone else’s car problems.

Conversely, financing your car allows you to pay off other debts with your cash. For example, suppose you have credit card debts charging interest at the rate of 18 percent and you can get a car loan at the rate of 10 percent. Here, it makes good financial sense to use your cash to pay off the debt with the highest interest rate and then take out a car loan at a lower interest rate.

How much will my monthly car payment be?

If you’re financing all or some part of your new car’s cost, and you want to calculate your monthly payment in advance, you will need to know the amount you are financing, the interest rate, and the loan term (i.e., the number of months to full repayment). If you have these three numbers, an inexpensive financial calculator can give you the amount of your payments. You can also get the information from the automobile dealer or your own bank. You can even search the Internet for any of the websites that feature automobile payment calculators.

It is important to remember that the amount you are financing may include taxes, title and registration fees, delivery charges, and add-ons such as extended warranties, service agreements, and credit life insurance. The simplest ways to minimize the amount you are financing are to increase your down payment, shop around for a lower interest rate, or waive optional add-ons. Minimizing the amount you are financing will also minimize your monthly payment. However, be aware that extended terms of up to 72 months are often available when larger amounts are financed, whereas you may only qualify for 48-month financing with a smaller loan. You will usually pay a higher interest rate to get extended terms, but the additional months should lower your payment. Consider this carefully. Six years of payments may outlast the value of your car, and you will pay an additional two years of interest charges.

If you decide to lease a car, your monthly payment may be lower than if you purchased the same vehicle with a minimal down payment. With a lease, you aren’t buying the car—you’re paying only for the depreciation of the car’s value over the period that you plan to use it (plus a lease fee). It is a little more difficult to estimate the monthly payment for a lease because it’s based on the car’s expected depreciation over the lease term. That amount varies, depending on the make and model of the automobile. However, several Internet sites provide lease calculators to estimate your lease payments. You can also ask the car dealership (or lease company) to quote you a payment amount.

How can I get credit if I have no credit history?

It’s the old catch-22. You cannot establish a credit history without having credit, and you cannot get credit without a credit history. But if you work at it, this problem can be overcome. While you create a history, be sure your efforts will be reported to the credit bureaus.
Use the credit history of a family member or friend to leverage yourself into credit in your own name. If you are added as a joint party or authorized user to another person’s credit card, the lender may report the account’s payment history on your credit report.

If you have a checking account, ask your bank for overdraft protection (or cash reserve) privileges. With this feature added to your account, you can create credit by writing a check for an amount greater than the balance in your account (but not greater than the limit of your cash reserve line!). Alternatively, ask the bank for a small personal loan. As you repay these debts, you establish a credit history. Make sure the bank reports that history to the credit bureaus.

Secured credit cards are also a good way to get started. Your credit line is secured by your deposit in the bank, minimizing the creditor’s risk. For example, if you deposit $500 in the bank, you get a credit card with a maximum limit of $500. As you use the card and make payments, you establish a credit history. These cards have high interest rates, but your goal is only to charge what you can afford to repay. As you repay the debt, you establish a repayment pattern seen by other creditors.

You may qualify for a department store charge card or gas card. Because these cards have lower credit limits and may be used only with the companies that issue them, the lending guidelines may be more liberal than those for major credit cards.

If you still have difficulty obtaining credit in your own name, consider a collateralized or cosigned loan. With a collateralized loan, the item you pledge as collateral (such as a car) minimizes the risk to the credit grantor. With a cosigned loan, your cosigner is equally liable for the balance. Spreading the responsibility for repayment in this fashion minimizes the lender’s risk. Successful repayment of these types of loans can then be used to establish your own credit history.

Should I buy a home or continue renting?

Most people face this question at some time in their lives. Buying a home is part of the American dream. It’s also one of the biggest financial investments you’ll ever make.

One of the main advantages of buying a home is that you build equity in your property. For example, if you paid rent at $1,000 per month for 10 years, you would have spent $120,000 on rent and have nothing to show for it. However, if you had purchased your home and made $1,000-per-month mortgage payments for 10 years, you would have paid off a sizable portion of your mortgage. And if you decided to sell your home, you might make a profit.

Before buying a house, remember that your lending institution will want proof that you have money saved for the down payment and closing costs. If your savings won’t cover these costs, you should probably continue to rent for the short term while establishing an ambitious savings plan.

Even though buying allows you to accumulate a valuable asset, renting also has advantages. You may spend less time doing maintenance than if you owned the home, and you could relocate to another home more easily. In addition, you would probably pay less per month for rent than you would for a typical mortgage payment. This would leave you with more money to spend on whatever you choose.

Remember, it’s not easy to buy and own a home. Many people continue to rent throughout their lives. But if you decide to buy a home, start saving now so that someday you will own the home of your dreams.

Should I buy or lease a car?

There is no definitive answer—you must determine which option works best for you. Use these simple guidelines to help you decide.

How long will you keep the car? Leases typically run two to four years. If you like the idea of driving a new car every few years, consider leasing. If you prefer to keep a car until you drive it into the ground, or like the idea of ownership because it gives you equity in the car, consider buying.

How large of a monthly payment can you afford? When you buy a car, your payments are based on the total purchase price of that car. Compare this with leasing, where your payments are based on the car’s expected decrease in value over the term of the lease (its depreciation). The lease payments may be low enough to put you behind the wheel of your dream car, without the need to worry about a down payment. Usually, you will only need to come up with your first payment and a security deposit to secure a lease.

How will you treat the car? Analyze your driving habits. A typical lease will include 12,000 to 15,000 miles per year. If you exceed this amount, you may have to pay extra (e.g., $0.15 per mile) at the end of your lease. Therefore, if you travel great distances for work or intend to take any cross-country trips, buying may be the better option.

Also, consider your surroundings. Most lease agreements allow only normal wear and tear. If you know you are tough on your car, or if you live in a neighborhood with only on-street parking, a lease may not be right for you. Remember, if you lease a car, you must pay for any nonwarranty repairs (e.g., a dent in the door), but those repairs benefit the leasing agency, not you. When you buy a car, it’s yours to do with as you please—you decide if the dent in the door gets fixed.

I get a lot of credit card offers. How can I tell which one is best?

Start by carefully reading the advertisement or application you’ve seen or received. It may seem like a lot of jargon, but that fine print contains important information about terms and costs. Here are three points to consider when comparing credit card offers:

Annual percentage rate (APR): What interest rate will apply to outstanding balances? If you plan to carry a balance, it’s especially important to choose a card that has a low APR. But don’t be fooled by a low introductory rate. It may apply for only a few months, and only to balance transfers, not new purchases. It’s essential to understand what rate will apply once the introductory period is over.

Find out, too, if the APR will change over time. If the rate is variable, you can expect it to go up or down periodically because it’s tied to an index (often the prime rate) that changes. If the rate is fixed, it won’t fluctuate, but that doesn’t mean it will stay the same forever. A credit card issuer can change your rate at any time, as long as you’re given written notice 15 days in advance of the rate change. Note: After August, 2009, you must receive written notice of a rate change 45 days in advance.) And find out what will happen to your APR if you make a late payment. Some card issuers send your rate skyrocketing if you pay your bill late just one or two times. (Note: After February, 2010, a creditor generally may only raise the rate on an existing balance if the account is 60 days past due.)

Grace period: How long will you have to pay your balance in full before interest starts accruing? If you plan to pay off your balance every month, you’ll want to look for a card that offers a relatively long grace period (e.g., 25 to 30 days).

Fees: What fees will apply? If you plan to pay off your balance every month, avoid signing up for a card that has an annual fee. If you plan to carry a balance, it may be worth paying a fee if the interest rate is low enough. And watch out for hidden transaction costs. Compare the fees you’ll be charged for transferring your balance, using your card to get a cash advance, exceeding your credit limit, or paying your bill late.

Finally, even if you’ve carefully read through the offer, you may still have questions. If so, call the credit card issuer before signing an application.

Are my student loan payments tax deductible?

The interest portion might be, thanks to the student loan interest deduction. The maximum deduction is $2,500. You don’t need to itemize to claim this deduction. To qualify, you must meet two requirements:

First, the student loan on which you’re paying interest must be one that you incurred to pay college expenses when you were at least a half-time student. This requirement excludes part-time adult learners or other nontraditional students.

Second, you must meet income limits. In 2009, to take the full student loan interest deduction, single filers must have a modified adjusted gross income (MAGI) below $60,000 (below $120,000 for married filing jointly). A partial deduction is available for single filers with an MAGI between $60,000 and $75,000 (between $120,000 and $150,000 for married filing jointly). These income limits are adjusted annually for inflation.

If you paid over $600 of interest to a single lender on a qualified student loan during the year, you should receive Form 1098-E from your lender, showing the total amount of interest you paid for the year. If not, contact your lender to request this information.

How will I ever pay off my student loans?

As the cost of post-secondary education continues to increase and you take on further student loan indebtedness to pay for it, you may feel as if you are leaving the ivory tower with a mortgage on your back. You may be surprised to discover that some or all of your indebtedness can be forgiven if you are employed in certain public-service sectors, teach in teacher-shortage areas, or go into the Peace Corps.

If these choices aren’t available to you, you must find a way to budget for your student loan payments. Review your household income and expenses. Can you reduce your spending on entertainment, luxuries, and discretionary items? If so, you can divert these saved funds toward monthly principal prepayment of your student loans, thus shortening the overall repayment term and saving on interest charges. You are always permitted to prepay the principal of student loans, partially or in full, without penalty.

Would consolidating your loans or refinancing your loans make the payment schedule easier? Check with your current lender to see what options you might have.

Are you in a position to take on a second, part-time job? The income from this job could be used to reduce your student loan indebtedness. Can you devote a tax refund, gift money, or inheritance to principal prepayment? Even infrequent payments of this sort will ultimately reduce your loan balance and save you both time (repaying the debt) and money (the interest on the debt).

Can I refinance my student loan?

Generally, the standard repayment option for student loans involves a fixed monthly payment for a 5- to 10-year term. With increasing tuition costs, however, it’s possible you may graduate with student loan payments that are simply unaffordable. Moreover, if you have multiple student loans, you may be required to make several different monthly payments to different loan servicers. Consolidation of your loans may thus make your debt more manageable.

You can consolidate your federally subsidized student loans through a variety of programs. The process pays off your existing loans with a single new loan. Most consolidation programs offer a variety of repayment options. You can choose an extended payment option, a graduated payment option, or (in some cases) an income-sensitive repayment option.

An extended payment option allows the term for repayment to be as long as 30 years. Although this can dramatically lower your monthly payment, it can also dramatically increase the total cost of the loan. The interest rate may be higher, and interest charged on any unpaid principal will continue to accrue for a longer period of time. However, as with all consolidation programs, you can make prepayments against principal at any time without penalty.

A graduated payment option starts off with lower monthly payments that increase over the term of the loan. Theoretically, as your income increases, you are better able to afford the higher payments.

An income-sensitive repayment option ties your monthly payments to your income level. The higher your income, the higher the required payment. Conversely, if your income drops, the required monthly payments may be reduced. This option requires you to allow the lender access to your federal tax return information.

Of course, you are always free to explore other refinancing options, such as an equity loan or a loan against a retirement plan. However, you should explore carefully the advantages and disadvantages of these options before pursuing any one of them.

My friend and I share an apartment. Will her renters policy cover my possessions?

Unfortunately, renters insurance and other homeowners insurance policies are designed for single people and traditional families. So when unrelated people share a residence (in this case, you and your friend), insurance coverage can become complicated.

Insurance laws on this topic vary from state to state, and policies vary from one company to the next. However, most insurance companies recommend that each tenant maintain a separate renters insurance policy to cover his or her personal property.

Some insurance companies do allow multiple roommates to be listed on a single renters insurance policy. If your insurance company structures policies in this way, you and your roommate can purchase one renters insurance policy to cover all of your collective possessions.

How much health insurance coverage do I need?

Unless you’re one of the lucky few who can afford to pay all of their medical expenses out of pocket, you need enough health insurance to cover your medical expenses, both anticipated and unanticipated. In addition to routine exams, prescription coverage, and minor illnesses, you need to consider the expense of emergency-room visits and the possibility of surgery.

Health insurance is usually sold in take-it-or-leave-it packages. Within each package, little or no flexibility exists in terms of coverage, dollar limits, deductibles, or co-payments. The only choice you may have is which package to buy, and that depends on how much you can afford or want to pay.

Employers often offer health insurance as part of their employee benefits package and pay a portion of the premiums. If possible, you’ll want to buy coverage through your employer, since it’s less expensive than if you purchased an individual policy on your own. As for the type of coverage you can purchase, you really don’t have that much choice. Most employers offer only one or two options (e.g., HMO, PPO, or traditional indemnity plan).

If your employer doesn’t offer health insurance, contact your state insurance department for information on possible individual health insurance programs for which you may qualify. If you are self-employed, check to see if you can join business or industry associations that offer group health insurance. Naturally, you’ll want to purchase the best package you can afford. If you’re retired and relying on Medicare, look into buying a Medigap policy that covers medical expenses that Medicare doesn’t, such as the inpatient deductible.

Do I need disability insurance?

Everyone who works and earns a living probably needs disability insurance. If you suddenly became disabled and were unable to work, could you still meet your financial obligations? Could you get by without having to use savings or borrow from relatives? If not, you’ll want to make sure that you have adequate disability insurance coverage that is designed to pay your expenses while you are disabled and cannot work.

Because you have to meet a strict definition of disability to qualify for benefits from government programs (e.g., Social Security), you shouldn’t rely on them as your only sources of income if you became disabled. Instead, find out if you have group disability insurance through your employer. It may be paid for by the company, or you may pay part of the premium. If disability coverage is not available at work or if you are self-employed, you should consider purchasing an individual policy from a private insurer. Most policies pay between 50 and 70 percent of your gross income and can last anywhere from a couple of months to age 65.

How can I reduce my auto insurance bill?

Insurers usually base their auto insurance rates on criteria such as your age, driving record, and the type of car you drive. Rates vary from company to company, however, so a good way to save money is to shop around—you may find that another insurer offers the same coverage at a lower rate.

Some of your coverages may be subject to deductibles (money you must pay before your insurance kicks in). Raising your deductibles can also help you save money. For the most part, the higher your deductibles, the lower your premiums. Before you raise a deductible, though, you’ll want to be sure you can cover the out-of-pocket expense should an accident occur. Are you more concerned with lower premiums or full insurance coverage?

Many insurance companies offer credits or discounts. For example, an insurer might provide discounts to those who have safe driving records or to those who insure more than one car with them. Check to see what types of credits and discounts your insurer offers.

To save money, you may also want to rethink your optional coverages. For example, if you have an older car in poor condition, it may make sense to drop your collision and comprehensive coverage if possible. A claim paid by your insurance company on such a car may be minimal and might not even exceed what you’d pay in premiums and deductibles.

What’s the difference between an HMO and a PPO?

A health maintenance organization (HMO) and a preferred provider organization (PPO) are both managed care plans. A managed care plan is a method of paying for and providing health care for a set fee using a network of hospitals, doctors, and other health-care professionals. The managed care plan monitors (and sometimes limits) the care that its doctors provide to members. Its goal is to ensure that unnecessary and expensive services to its members are minimized.

HMOs are the most popular form of managed care. Here, all health services and financing go through one organization. Services include inpatient and outpatient care and prescription drug benefits. The HMO offers a network of hospitals and health-care professionals that its members must use. These health-care professionals are either employed by or under contract to the HMO. Members pay a monthly fee that does not change (unless, for example, the entire fee structure changes annually) regardless of the care they may need.

PPOs are far less restrictive than HMOs. A PPO consists of a group of hospitals and health-care professionals who agree to provide care to members at a reduced cost. A PPO is designed to provide affordable health care while maintaining flexibility for its members, who do not have to use the services within the network but are encouraged to do so. Staying within the network means that their costs are lower. If members go outside the network, they are still covered but must pay a higher deductible and contribute a higher co-payment.

Do I need to get auto insurance before I buy a new car?

You don’t need automobile insurance before you buy a new car, but you will need it before you can drive the car home from the dealer’s lot.
If you know ahead of time the exact car you’re going to buy, you can call your insurance agent with the information. After asking you several questions and getting all the necessary information, the agent will add the new car to your existing insurance policy.

If you’re at the automobile dealership and want to buy a car and immediately drive it home, call your agent from the dealership. Give the agent all the necessary information over the telephone, and the agent will issue an insurance binder that is effective immediately. This binder will serve as your insurance policy for the new car until your agent can add the new car to your existing policy.

If you do not have an insurance agent, the car dealer may be able to refer you to one. Chances are, though, that the agent will not insure you over the telephone. Most agents require that you visit them in person to fill out an application and put down a deposit. The best thing to do is to establish a relationship with an insurance agent before you buy a car. This is to your advantage, as the agent will have time to research the best markets for you.

Never drive a car without insurance. If you were in an accident and had no insurance, you could quickly be in severe financial and legal trouble. If you cannot get your new car insured right away, leave the car at the dealership. Get the insurance as soon as you can and then go pick up your car.

I’m considered a “risky driver.” How can I get insurance?

First, check with your insurance agent to be sure you really are considered a risky driver. Of course, you’ll want to avoid the classification if possible, and such definitions vary by company and by state. The classification of risky driver includes the number and type of accidents that you’re involved in, whether you are at fault in the accidents, and the type of automobile you drive. The last three to six years of your driving history will determine the classification.

Some private insurance companies specialize in providing automobile insurance for risky drivers and those who drive racing or sports cars. This insurance is very expensive, however. If you can’t buy insurance from a private company, you may be able to buy it through your state program, but again, it will be expensive. The available coverages and amounts of insurance will probably be far more limited than those in the regular or preferred market. Check with your state’s insurance department.

There are ways you can avoid the label of risky driver. The most important is to become a safe driver. You can also change the car you drive—premiums for sports cars are much more expensive than for regular sedans. You don’t have to sell your favorite sports car, but you can save money by limiting the miles you put on it annually.

Your insurance agent will know the best markets for risky drivers and can guide you.

How aggressive should I be when I invest for retirement?

It depends. The right answer in your case will depend on a number of key factors. These include, among others, your income and assets, your attitude toward risk, whether you have access to an employer-sponsored plan at work, the age at which you plan to retire, and your projected expenses during retirement. But it’s possible to lay down some guidelines that may be of help to you.

The conventional wisdom used to be that you should invest aggressively when you’re young and then move gradually toward a more conservative approach. By the time you retired, you would probably end up with a portfolio made up mostly of high-grade bonds and other low-risk investments. This model may have worked at one time, but the retirement landscape has changed dramatically in the past 20 years or so. As a result, many of our basic assumptions about retirement planning have been overturned.

The dwindling number of traditional pension plans and concerns about Social Security have led people to take greater responsibility for their own retirement. Investing more aggressively over the long term has become common as people realize that, without anyone else to take care of them, they need to build the largest retirement nest egg they possibly can. In fact, many people these days primarily use growth vehicles (e.g., certain stocks and mutual funds) for their investment portfolios and tax-deferred retirement plans (e.g., 401(k)s and IRAs).

Other factors have changed the way we think about and invest for retirement as well. People tend to retire younger, live longer, and do more during retirement than they used to. With the likelihood that you will have well over 20 years of activity to fund, it’s probably a good idea to invest more aggressively for retirement than previous generations did. And there’s no reason to switch over to fixed-income securities upon reaching retirement. Many financial planners suggest that you keep a suitably balanced portfolio, including some of your assets in growth-oriented investments, even after you retire.

I think it’s time to start planning for retirement. Where do I begin?

Although most of us recognize the importance of sound retirement planning, few of us embrace the nitty-gritty work involved. With thousands of investment possibilities, complex rules governing retirement plans, and so on, most people don’t even know where to begin. Here are some suggestions to help you get started.

First, set lifestyle goals for your retirement. At what age do you see yourself retiring, and what would you like to do during retirement? If you hope to retire at age 50 and travel extensively, you’ll require more planning than other people. You’ll also need to account for basic living expenses, from food to utilities to transportation. Most of these expenses don’t disappear when you retire. And don’t forget that you may still be paying off your mortgage or funding a child’s education well into retirement. Finally, be realistic about how many years of retirement you’ll have to fund. With people living longer, your retirement could span 30 years or more. The longer your retirement, the more money you’ll need.

Next, project your annual retirement income and see if that income will be enough to meet your expenses. Identify the sources of income you’ll have during retirement, and the yearly amount you can expect to receive from each source. Common sources of retirement income include Social Security benefits, pension payments, distributions from retirement plans (e.g., IRAs and 401(k)s), and dividends and interest from investments. If you find that your retirement income will probably meet or exceed your retirement expenses, you’re in good shape. If not, you need to take steps to bridge the gap. Consider delaying retirement, saving more money, or taking more investment risk.
This is just a starting point. The further you are from retirement, the harder it is to project your future income and expenses. If you’re ready for more detailed planning, consult a financial professional.

How can I protect myself against identity theft?

The chance that someone will assume your identity to open fraudulent bank or credit accounts is increasing as thieves become more sophisticated. The best way to protect yourself is to try to prevent this from happening in the first place. Here are some ideas:

• Make a list of all of your credit cards, even those you don’t carry in your wallet. Include account numbers and the names and emergency phone numbers of each issuer. Store this in a secure place that’s quickly accessible to you. Don’t keep it in your wallet!
• If possible, don’t let your credit card out of your sight when you use it to pay for a store or restaurant purchase.
• Don’t carry your birth certificate or Social Security card in your wallet.
• Install a locked mailbox to prevent mail theft. Call your credit card company or bank immediately if your statement doesn’t show up on time.
• When dining out, keep your purse or wallet secure. Leaving it on the table when you go to the salad bar is a no-no.
• Use drive-through ATMs if possible. If you can’t, use ATMs inside stores or in well-lit, well-trafficked areas. Never let anyone see you type in your personal identification number, and don’t write it on your ATM card.
• Shred preapproved credit card or loan applications, and those checks your credit card company mails you, before you throw them in the trash.
• Check your bank statements as soon as you receive them, and order a copy of your credit report at least once a year. Check it over for signs of fraudulent activity.
• If you live in a state that uses Social Security numbers on your driver’s license, ask for a randomly assigned number.
• Don’t give out your Social Security, credit card, or bank account number to anyone who calls you. Give them out only when you have initiated the call.
• If you are concerned about a potential scam, call the local police.
• If your wallet or personal identification is stolen, don’t wait. Minimize potential damage by calling the police and other parties such as your credit card companies, your bank, and the three major credit bureaus (Experian (888) 397-3742, Equifax (800) 685-1111, and Trans Union (800) 680-7289). Ask each credit bureau to place a fraud alert on your credit report to alert creditors that your financial information is or may be compromised.

How do I stop those annoying telemarketing calls?

How many times have you just sat down to dinner with your family when the phone rings? You think the call could be important, so you pick up the phone. But on the other end is Susie from the Abracadabra Corporation. She’s calling to let you know that she has a great offer for you this evening. If you’re like most people, you either hang up on Susie in the middle of her sales pitch or wait until she’s finished to say, “I’m not interested.”

But if you want telemarketers to stop calling you, you need to say that when they call. Once you tell a telemarketing firm to put you on its “do not call” list, it is required by law to do so. If a telemarketing company continues to call, you may be able to take that firm to court. If you find yourself in this situation, be sure to document the calls (e.g., dates, times, company name, the caller’s name) and consult an attorney for more information.

Unfortunately, the effectiveness of this technique is limited. You may put an end to Susie’s calls, but Betty, Joe, Lou, and Ben are standing by, waiting to call you. A better way to end telemarketing calls is to sign up for the National Do Not Call Registry. This free federal service, managed by the Federal Trade Commission (FTC), makes it illegal for telemarketers to call you once your number is included on the registry. To sign up, visit www.donotcall.gov or call (888) 382-1222.

Many states that maintain “do not call” registries automatically transfer names from their lists to the national registry, so once you’ve signed up for your state’s registry, you may not need to re-register for the national list. You won’t receive any confirmation once your number has been added to the national registry, but you can verify your status by contacting the FTC through the website or phone number listed above.

Although you should receive far fewer dinnertime calls once you’ve signed up for the national registry, don’t expect telemarketing calls to end completely. Because certain calls don’t fall under federal rules, you may continue to receive calls from companies with which you have an established business relationship, from charities or political organizations soliciting donations, or from companies doing phone surveys. To end these calls, you’ll have to ask these callers, one by one, to put you on their organization’s “do not call” list.

Should my partner and I buy a house together even though we’re not married?

If you want to buy a home with your partner, go ahead. Together, you may be able to qualify for a larger mortgage than if one partner alone applied for the loan.

However, be aware that unmarried partners have some unique considerations that married couples don’t have. The laws dealing with the distribution of property when a couple splits up or a partner dies are few and vague when the couple is not married. So it’s crucial for unmarried partners to have a detailed written agreement regarding their respective ownership interests in the property and their intentions for distribution of the property if either partner should die or if the relationship ends. Both partners should also keep thorough and accurate records of their respective contributions.

You and your partner can own the property in one of many ways, including:

• Joint tenants with rights of survivorship
• Tenants in common
• Individually in one of your names
• In trust

Joint tenancy with rights of survivorship means that when one partner dies, the surviving partner automatically owns the entire property, bypassing the probate process. This way of owning property may make it more difficult to sell your share of the property without your partner’s consent. However, it may also offer creditor protection because neither partner owns a separate share; instead, both own equal rights in the entire property.

As tenants in common, you and your partner each can leave your portion of the property to whomever you choose in your wills. Creditors of tenants in common may have an easier time attaching the property than if it were owned jointly with rights of survivorship.

You and your partner may decide that only one of you will own the property. However, if you choose individual ownership, beware. The person named on the deed will be able to sell the property without the consent or even the knowledge of the other partner.

You can also choose to own the property in trust, with the trust agreement spelling out the rights and obligations of each partner. You’ll want to get advice from an experienced attorney on all of the ownership options available to you and your partner.