Best Christmas Presents (2009-11-30)

Best Christmas Presents

(2009-11-30) by David John Marotta

Many people spend more during the holiday season than they can afford. Guilt or shame drives them to put too many big-ticket items under the tree. But the satisfaction is both short-lived and shortsighted. Understanding the economics of gift giving may help you decide when and what to buy for Christmas.

You might take comfort in Wharton School professor Joel Waldfogel's book, "Scroogenomics: Why You Shouldn't Buy Presents for the Holidays." In his economic analysis, people are the most efficient when spending their own money, producing at least a dollar in satisfaction for every dollar they spend. But spending money on those we don't know well results in what Waldfogel calls a "deadweight loss" of about 20%.

A deadweight loss is an economic term signifying a loss by one party (in this case the giver) that is not offset by a corresponding gain by another party (in this case the receiver).

With Christmas spending in the United States at $100 billion, this loss results in "an orgy of wealth destruction" to the tune of about $20 billion.

Waldfogel's study found that givers with infrequent contact were those most likely to give less appreciated gifts. This group includes aunts, uncles and grandparents who live in another town. He compares these gift givers to the loss experienced when some government bureaucrat guesses at what we really need and makes choices for us. According to economists, people are better off when they make their own choices. For this obvious reason, Waldfogel suggests giving money or gift cards instead.

His original 1993 paper, "The Deadweight Loss of Christmas," was perceived as an attack on the holiday. So Waldfogel clarified that his critique is a study of the economic inefficiencies caused by the commercialization of Christmas and gift giving to strangers.

To the criticism that he had taken the joy out of Christmas, he responds that after watching desperate last-minute shoppers, he thinks the joy was taken out of Christmas long before his critique.

Of course railing against the commercialism and waste of Christmas is a cliché. Finding creative ways of showing your love and caring for others is more complex and nuanced. Here are some categories of gift giving and receiving you may find helpful.

First, learn to distinguish between a gift and a present. It's a gift when you give something the other person wants to have. It's a present when you give something you want the other person to have. When we offer a dictator military support, it is a gift. When we give him a copy of the Constitution, it is a present. At Christmas, sometimes we are trying to give gifts; other times we are trying to give presents.

Some gift giving is a social expectation and a test of the relationship. For example, for couples who are dating seriously, the message is much more important than the medium. Give a book the other person despises, and you have revealed how little you pay attention to your loved one's opinions. But a pair of gloves, with a heartfelt note saying, "These will keep your hands warm when I'm not there to hold them" would show your affectionate side. Or perhaps the receiver doesn't like romantic mush, and you are expected to know better.

Parents can help extended family members select gifts for their children by providing specific wish lists to ensure that what they buy will truly be appreciated. If you aren't confident, include a gift receipt. You are guarding against deadweight loss when the recipient can exchange the gift or return it for cash.

Families can help make exchanging a gift more socially acceptable. It doesn't mean that the recipient did not appreciate the gesture or does not love the giver. Sometimes with after-Christmas sales, if you have the receipt you can get the original value back, purchase a different make or model at a discount and still pocket a sizable amount of cash.

And in families where children don't have any spending money, cash may be the best possible gift. Handling cash with all the complexity of choice is an experience that offers irreplaceable life lessons.

Presents are handled differently. A present is when you buy Grandpa an iPod because you know he would never buy it for himself. Or when you give Grandma a computer with a built-in video camera so she can enjoy more contact with her grandchildren. It is a present if you want the recipients to have it more than they realize they want it.

Thoughtful presents may kindle new interests or prove inspiring. For example, they can encourage children to develop their talents or expand their horizons. My favorite Christmas gift idea comes from "The Homecoming," the first movie about the Waltons, in which the father buys John Boy paper and pencils. His gift, which affirms his son's choice of writing as a career, is the emotional climax of the story.

Try asking people, "What Christmas present changed the course of your life the most?" to see how much influence you can have. A pair of binoculars sparks a love of ornithology. A telescope fuels a fascination with astrophysics. A microscope leads to a biology career. An electronic toy prompts your daughter to join a robotics competition.

Not all presents need to be academic. A graphics tablet can lead to a design career. A guitar can inspire your son to form a new band. Or a video camera can lead to a later career choice in filmmaking.

Discovering talent, calling and vocation is never foolproof. Every success will be accompanied by many more failures, but that's what it takes to help children find their passion. Sometimes the risk of giving a present that may or may not be wanted is worth the possible deadweight loss. It is like research and development in the pharmaceutical industry. Most experiments are dead ends, but the whole process is worth the one success. Think of presents as R&D for the course of someone's life.

Presents that expand a child's horizons are a satisfying way to fight the commercialism. Another way is to work toward redefining our expectations for Christmas. That's what www.redefine-christmas.org is all about. Their website explains, "It's not about reinventing the holiday. It's about changing the way we look at gift giving and receiving."

At the site you can arrange for gifts to nonprofit organizations in lieu of personal gifts and send gifts in someone else's name to his or her favorite charity. Consider their wise words: "There is no question we are in the midst of difficult financial times. And if it has you feeling unsure or uncomfortable this holiday season, imagine how purely difficult it's becoming for people who already, or are about to, depend on the generosity of others for the things that only a donation can provide."

Finally, some parents who are still unemployed will disappoint their children if they are hoping for expensive gifts this year. I've known a few families who had to tell their children that celebrating a traditional American credit card Christmas would jeopardize the family's financial security. Many parents are experiencing the first economic setback in their adult lives. Being financially cautious doesn't mean you love your children any less. And if you can be positive and reassuring, you needn't try to shelter you children from household economics.

The greatest joy of the holiday season is not bought in a store and does not increase your credit card debt. There is a better way to celebrate that builds long-lasting family ties.

Recognize that serenity during the holidays comes from taking time to celebrate values that don't show up in your net worth statement. Start by asking your family to share their fondest holiday memories. Make a list of all the things you have gotten right in past years and make them annual family traditions. Add a few new ideas each Christmas. The best holiday traditions don't cost a lot of money, and they aren't wrapped and put under the Christmas tree.

from http://www.emarotta.com/article.php?ID=365

Fourteen Tax Management Techniques (2009-11-23)

Fourteen Tax Management Techniques

(2009-11-23) by David John Marotta

No one approaches financial planning with the goal of paying more taxes. Tax management, like all financial planning, is based on the premise that small changes made over time can achieve big goals. Good investment returns are important. But over the next few years, comprehensive tax management may reap even greater gains.

Don't file your taxes in April and then forget about them for the next 10 months. By investing a little time throughout the year, you can create compounded value. The 14 techniques described here may help you lighten your tax burden.

1. Check line 45 on your 2008 IRS form 1040 to see if you paid any alternative minimum tax (AMT) last year. People subject to AMT pay an average of $6,000 more than they would otherwise. AMT turns tax planning upside down. Because conventional wisdom may not apply, be sure to review your financial affairs with a professional.

2. This year offered a spectacular opportunity for realizing capital losses. Realized losses can offset realized gains. They can also be deducted against ordinary income up to $3,000 a year. Any excess above $3,000 is carried forward and can be deducted in future years.

3. You can realize capital losses and still stay fully invested. Sell the security, and then wait 31 days before buying it back. Alternately, double up. Purchase the same number of shares you currently hold. Wait 31 days. Then sell the original shares for a tax loss. Waiting a month between the sale and the buyback avoids a so-called wash sale, which would prevent you from taking the tax loss.

4. Individual stocks offer more opportunities to realize capital losses or gift capital gains. This is useful primarily in larger portfolios. A portfolio of individual stocks collectively may mimic the return of an exchange-traded fund and still provide additional tax savings. For example, although the total return might be 10% for the year, one of the individual stocks has doubled and two others lost 50% of their value. By holding individual stocks instead of the fund, you are able to sell the two stocks that have a 50% negative return and take the loss on your taxes. Holding the stock that has doubled in value postpones paying capital gains.

5. Using appreciated stock for charitable giving can avoid paying capital gains entirely. This allows you to contribute up to 15% more than you could with a cash gift.

6. This year also extended the opportunity to make qualified charitable distributions. If you are 70 1/2 or older, gifts you make directly to charity from your IRA are not counted as income. In this way you can reduce your tax deduction phaseouts for additional savings.

7. Perhaps you are considering funding a 529 college savings plans for your children or grandchildren. Contributions in some states (including Virginia) qualify for a state tax deduction if executed before the end of the year. Up to $4,000 per account can be taken, with the remaining amount carried forward to future years. Account owners over age 70 are allowed to deduct any amount they contribute to a 529 plan in 2009.

8. Keep in mind that if you make your fourth-quarter state estimated tax payment prior to year-end, you can use it as an itemized deduction next year.

9. You may also give $13,000 per person in 2009 to an unlimited number of individuals without gift tax implications. Families interested in maximizing intergenerational wealth transfers should explore with a professional how trusts can minimize their tax burden and maximize estate planning.

10. Putting investments in the correct investment accounts can also generate significant savings. Fixed-income investments belong in traditional IRA accounts. Interest is taxed at ordinary income tax rates, but the entire value of an IRA account is taxed at ordinary income tax rates anyway upon withdrawal. Appreciating assets should be in taxable investment accounts where the growth will be at a 15% capital gains rate, which is likely much lower than your ordinary income tax rate. Additionally, any foreign tax paid on foreign stock investments is tax deductible in a taxable account. Finally, those investments with the greatest potential for growth belong in Roth accounts where no tax will ever be paid. This tax management alone may boost your after-tax returns by as much as 1% annually.

11. Although small business owners shoulder much of the tax burden, they also enjoy more tax-maneuvering flexibility than other taxpayers. Reducing your taxes may be as simple as deferring income until next year or accelerating Section 179 expenses in the current year.

12. If you own a business, consider stashing cash in a retirement fund to reduce your tax liability. With a solo 401(k), you can contribute to the plan both as the employer and as the employee. As the employer, you can contribute either 20% of self-employment income or 25% of compensation income, depending on your company's structure. Plus, as the employee, you can contribute another $16,000 ($22,000 if age 50 or older). Finally, for the employee portion, tax planning can help you choose between a Roth 401(k) or a traditional pretax contribution.

13. Converting traditional IRA assets to Roth IRA accounts offers a chance for additional tax savings. Couples with an adjusted gross income below $100,000 can always consider a Roth conversion. Next year everyone, regardless of their tax bracket, can convert or contribute to a Roth IRA. And because 2010 is also the last year of the Bush tax cuts, you can use the conversion as a way to avoid the coming tax tsunami in 2011. Make plans now to prepare for next year's conversions.

14. Finally, a complex technique called "Roth segregation accounts" could earn your investments even more savings over the next two years. By segregating your Roth conversions in 2010, you can undo (or "recharacterize") those that underperform and keep the winners. This strategy offers you 20 months to determine which accounts to keep. It's as profitable as betting on the horse race after you know the winner.

Although just a small part of a larger comprehensive financial plan, savvy tax management requires professional assistance. Seek the guidance of a personal fee-only financial planner and certified public accountant (CPA), fiduciaries with a legal obligation to act in your best interests. The laws and ensuing complexities are changing annually, and as a result so is the optimum path.

from http://www.emarotta.com/article.php?ID=364

Mindless Spending 2: You'll Get By with a Little Help from Your Friends (2009-11-16)

Mindless Spending 2: You'll Get By with a Little Help from Your Friends

(2009-11-16) by David John Marotta

Both mindless eating and mindless spending rely on our subconscious need to follow scripts to pace our consumption. Community plays a huge role in regulating our financial destiny--either a path of savings that builds real wealth or a path of spending that leads to impoverishment.

In one study cited in Brian Wansink's book "Mindless Eating," people were invited several times to a lunch of pizza, cookies and soft drinks. They were watched both eating by themselves as well as in groups of four or eight. When the subjects ate alone, researchers used a baseline that allowed them to categorize people as typically light or heavy eaters. Interestingly, when people dined in the groups, the quantity they ate changed.

Light eaters ate more in a group, and heavy eaters ate less. Both kinds of eaters conformed somewhat to the average pace and quantity of the group's consumption. Mindless spending works the same way.

If you tend to be a conservative spender, shopping in a group can easily entice you to buy more than you would normally. Conversely, if you have trouble saving money, taking along a frugal friend will help you resist. In fact, following the lead of penny-pinching friends or family can help you evaluate your own lifestyle and change the way you view money.

Millionaire couples may have very little in common except that they all answer "yes" to these three questions: "Are you frugal? Were your parents frugal? Is your spouse even more frugal than you are?" A culture of frugality builds a lifestyle of wealth. You subconsciously learn an appropriate lifestyle from those around you.

My wife and I formed our spending habits right out of college. Our first community of friends earned very little. Their lifestyle made even ordering pizza an extravagance. Combined with the example of my parents' depression-era thrift, we started saving and investing early.

In contrast, if your parents golf at Farmington or play tennis at the Boar's Head Country Club, you may struggle to maintain a frugal lifestyle. If your friends live rich, you will too. Your spending scripts will be based on comfort and convenience. You will get the deluxe model with all the features. And you will invariably buy the added service, protection and accessories.

Spending money just to socialize with friends is an especially common trap. Teenagers who work all day for minimum wage and then go out for dinner and a movie can easily end the day having spent more than they earned. Meals out in expensive restaurants with elaborate appetizers, drinks and desserts add both to the bottom line as well as to your waistline. Consider inviting friends over for potluck and a game night, and everyone might afford to send their children to college.

Spending money is contagious. If you go to the mall and a friend is hunting for the perfect purchase, it's easy to get caught up in the excitement. If you want your turn in the spotlight, you have to be shopping as well. Even if what you buy is small, the expense still depletes your finances.

And if you don't spend money or you resist going to the fancy restaurant or the full-priced movie, you risk being perceived as cheap. You may even worry that your friends won't invite you because you spoil the party.

By voicing your concerns, however, you may allow others to agree without feeling as uncomfortable. Truth be told, the person most worried about the expense is often the most secure financially. After all, wealth is what you save, not what you spend. And if your friends won't adjust to help you meet your financial goals, maybe you need different friends.

A life of country clubs, facials and galas will obligate you to spend money. If your social life includes such activities, budgeting will be difficult. Your financial stability may ultimately require developing relationships with people who are more fiscally conservative. It's your choice either to live rich or actually be rich.

Spending habits begin very early as we follow the lead modeled by our parents. In many homes, financial matters are a well-kept secret. Children are left to guess and infer from their elders’ actions and cryptic remarks. As a result many children learn habits that threaten their ultimate happiness and success.

George Kinder, author of "The Seven Stages of Money Maturity," asks his clients to write an autobiography that focuses on their relationship to money and the beliefs they have acquired. This exercise can help you examine your ingrained assumptions about money. Belief is powerful. As people think, so they will act.

And if everyone around you is doing something, it seems normal. Consequently, one person in a family can't single-handedly change the family's financial DNA. Deeply entrenched traditions generally will overwhelm any one family member who tries to question them.

So galvanize the whole family behind budget changes. It takes explicit communication. Children as young as four years old can contribute and learn from the process. There's no stigma attached to living within your means. If a budget isn't a team effort, then one family member will end up holding the purse strings and everyone else will be resentful.

Both spouses must start on the same page and with the same degree of humility. Every financially struggling family has one partner who believes he or she is the careful one with money and that any financial problems are the other person's fault. Most of the time, this generalization is untrue. It is relatively easy to be frugal by comparison if you abdicate all the spending decisions to your spouse. That way you can enjoy the results of spending without any of the guilt.

Serving as a role model in the family includes setting the pace and nature of spending. Learn to regulate when and how much money gets spent. Norms are set in the trenches of everyday spending, not in criticizing the number of presents on Christmas morning.

Even the most reclusive among us relies on spending scripts and norms to regulate when to open their wallet and when to refrain. If you are happy with your spending scripts, that's great. But if you are trying to change them, you need a little help from your friends.

Behavioral changes are best reinforced when you ask everyone you know to help you make the change permanent. It takes explicit thought and energy within your social network to overcome mindless spending scripts. And it takes a consistent effort for at least a month or more before new habits begin to take root.

The task is challenging but certainly not impossible. And small behavioral changes can result in building significant long-term wealth. The reward of financial peace and security is worth developing a prudent and thoughtful lifestyle.

from http://www.emarotta.com/article.php?ID=363

Mindless Spending: Frequency Matters More Than Height (2009-11-09)

Mindless Spending: Frequency Matters More Than Height

(2009-11-09) by David John Marotta

Dieting and budgeting face similar hurdles in the American lifestyle. Some of us live to eat; others eat to live. Attempting to reduce our spending is every bit as challenging as trying to slim our waistlines. Some shop to live; others live to shop.

We can better understand mindless spending by looking at some of the psychological studies that Dr. Brian Wansink describes in his book "Mindless Eating." He explains, "Everyone--every single one of us--eats how much we eat largely because of what is around us. We overeat not because of hunger but because of family and friends, packages and plates, names and numbers, labels and lights, colors and candles, shapes and smells, distractions and distances, cupboards and containers."

"We all think we are too smart to be tricked," warns Wansink. "That is what makes mindless eating so dangerous."

One study compared the amount people would drink using two differently shaped glasses. One glass was tall and skinny. The other was short and wide. Each glass had the same capacity, but people would drink 25% to 30% more from the short glasses than the tall ones.

Interestingly, our brains focus too much on the height of objects and underestimate the effect of their width. So people with short wide glasses had to fill them more before they believed they had consumed the same amount as those with the tall skinny glasses.

We all think we can't be fooled by something as obvious as the shape of a glass. But our brains are wired that way, without exception. If you want to drink less, you can measure every portion or simply buy tall skinny glasses. Better yet, buy glasses that are very narrow at the bottom or elevated on a stem.

Finances work the same way, and by extension, so does mindless spending. Many families are struggling to get a handle on their savings. They are trying, often in vain, to find ways to cut back. But when we are worried about our expenditures, we tend to look at the dollar amounts more than the frequency of our purchases.

For example, a young woman named Emily inherited a sizable sum of money. She could have used it to make a sizable down payment on her first house. But instead of protecting her windfall, Emily attached a debit card to the account for the convenience of paying for a few items she needed.

In less than two years she had spent most of her inheritance in increments of no more than $35. That doesn't seem like a lot of money because the $35 height is relatively small. Given a width of three times a week, the height isn't even noticeable. The same $105 Emily spent would have seemed like a much larger budget item if it had been in a single purchase. In that case she might have refrained from handing over her debit card so casually.

Other purchases were $50 monthly memberships or $100 a month services. Very few of these purchases were over $100, but when they were added up, Emily had drained her account.

The frequency of a purchase matters even more than its height. But our brains tell us to be more concerned about the height.

Marketing firms use this principle all the time to bypass our defenses when they break annual purchases down into low monthly payments.

An offer I received in the mail recently explained its cost as "Only $4.99 per month with an annual subscription (billed as one payment of $59.88)." The advertised rate only applied if you were willing to purchase the entire year. If you wanted to be billed monthly, the rate was $9.99.

Advertising a $59.88 annual subscription fee as $4.99 per month relies on the fact that consumers are more sensitive about height than breadth. Note that the primary way they advertised the subscription, $4.99 a month, was not one of the options! Even more deceptive would have been making the offer 16.4 cents a day for an annual subscription. Less than a penny an hour!

They even marketed as a feature the service of charging your credit card automatically each year: "All subscribers get the hassle-free advantage of the Unlimited Automatic Renewal Program. At the conclusion of your first term and each subsequent term (one year or one month) we will automatically renew your membership upon expiration for the same period so you get continuous service unless you tell us otherwise."

Madison Avenue takes advantage all the time of the way your brain works. So it's in your best interest to learn to use your brain to your own benefit.

We recommend that every household have a dollar limit that domestic partners agree not to exceed without consulting the other. This way they can avoid budget busters, single items that can wreak havoc on a spending plan. The same caution ought to be put in place for any reoccurring charge, no matter what the price.

Similarly, when people are seeking ways to reduce their spending, they tend to look at big-ticket items or daily needs. A much less painful and more productive alternative is to look at the purchases you don't have to decide about every day (e.g., automatic subscription services).

Consider that the average family spends hundreds of dollars on a host of monthly services such as iPhone, Skype, TiVo, Netflix, Palm Pre, GPS Pet Locator, World of Warcraft, The Sims Online, anime subscriptions, comic subscriptions, health clubs, season tickets, and online file sharing or backup. Average people who can't afford to pay for their own health-care costs pay twice that amount in monthly subscription fees.

And each of these monthly fees is laden with extra features for an additional charge. Before the era of cell phones, I would save my quarters. If I needed to call home, I would stop at a pay phone. In addition to driving safely without the distraction of talking at the same time, which of course is still advisable, my phone expenses for the month were minimal. The latest base cost for an iPhone over two years is about $4,000, which could go a long way toward covering a family's annual health-care costs.

If you can afford a full-featured cell phone, by all means indulge. I assume you've done your retirement planning and are saving more than enough each month. If not, and you only need a cell phone for emergencies, however, buy a single-use cell phone and keep it in your car. You will only pay for the minutes you use, and the money you save will be significant.

If you saved and invested $2,000 a year at market rates of 10% a year, you would have about a million dollars in 40 years. Every young person with an iPhone is missing a million dollars at retirement to fund that trendy subscription.

Cutting back on reoccurring spending is easier because you don't have to decide every day to refrain from spending. Sometimes it is as simple as deciding to eliminate features. Extra charges accrue for voice mail, another for call waiting and still another for unlimited text messaging. If after you have dropped all these subscriptions and features you decide you really miss them, you can always add them back later.

If you are trying to cut back on your spending and save money, review every reoccurring charge on your credit card. Try living without the service or at least eliminating features. Many companies will release you from your contract and cancel your service for reasons of financial hardship. If you need to stop paying immediately, cancel the credit card being charged and get a new one.

Take your savings and set up an automatic transfer to your investment account. You can achieve big goals by making small changes consistently over time, which is the cornerstone of successful financial planning.

And although our brains aren't wired to realize it, frequency matters even more than height.

from http://www.emarotta.com/article.php?ID=362

Women Have Unique Financial Needs (2009-11-02)

Women Have Unique Financial Needs

(2009-11-02) by David John Marotta

Retirement planning is even more crucial for women than for men. Although most women are married, 85% outlive their husbands and are alone during their last years. Financial planning must address the unique issues facing older women who probably worked fewer years and earned less money than their spouses.

Sophie Tucker, whose early claim to fame was the song "The Last of the Red Hot Mamas," said at age 69, "From birth to age 18, a girl needs good parents. From 18 to 35 she needs good looks. From 35 to 55, she needs a good personality. From 55 on, she needs good cash. I'm saving my money."

Sadly, many older women lack good cash. Five of eight women rely on a husband's work records to receive their Social Security benefits. And for almost three of eight, those benefits represent 90% of their total income. Of those seniors who live in poverty, more than half are women.

Planning to have good cash must begin long before retirement. Many frugal and hardworking parents sacrifice to give their children the comforts that money can buy. In the process, however, they rob their children of character-building lessons they can only learn through personal experience.

This psychology is especially true for daughters, who are often protected from the discipline of handling money. Our daughters can only gain experience if we give them real responsibility. In other words, they need a safe way to learn the lessons of irresponsibility. As early as possible daughters should be given the slice of the family's budget that most directly affects them. By the time they are teenagers, they could be handling much of their own money.

A teenage budget offers financial training wheels. Only if teenage daughters are given money for clothes can they learn the tradeoffs between expensive outfits and other spending choices. Remember, not having sufficient money for everything you want provides a financial lesson that cannot be learned any other way. By giving your daughter enough money for all her wants, you're actually depriving her of future financial satisfaction and stability.

Be sure to include your daughter in family discussions about charitable contributions too. As children take charge of their own money, they can also learn generosity by choosing the organizations they want to support.

Parents are apt to require their sons to take a first job and protect their daughters from the working world. But by age 14 daughters should be working and funding their Roth IRA accounts. If you want to help, offer to match whatever your daughter earns so she can put your contribution into her Roth and still have spending money.

Every seven years a woman waits to start funding her retirement halves the amount of money she can save. Helping your daughter add $2,000 annually to her Roth IRA for the years between age 14 and 19 actually is a better choice than starting her at age 20 and funding her account for the rest of her life.

From age 18 to 35, Sophie says women need good looks. What they really need is a fiscally responsible husband. Often women leave the workplace completely to raise a family. Yet because women generally live longer and earn less, they cannot leave their retirement planning to later in life. A loving husband makes sure his wife's retirement isn't sacrificed to his career and the children's needs.

My advice to all women: Make your retirement a priority. You may be more concerned for your family's needs than for your own safety. Just as you must do in an airplane emergency, put on your own oxygen mask first so you'll be able to help those around you.

Fund your retirement even if you don't work. Unemployed spouses can still fund their retirement through traditional or Roth IRA accounts or simply by savings in a taxable portfolio.

Don't guess at the amounts you should be saving. Know what goal you are trying to achieve.

In addition to inflation and interest, retirement planning needs to take into account taxes, capital gains and the different ways to save: taxable, tax deferred and Roth. Retirement planning also involves projections of accumulating assets for 40 years and spending during a retirement nearly as long. You can't compute how much you should be saving on the back of a napkin.

Know what percentage of your retirement goal your current assets can grow and cover, so you can determine if you are ahead or behind schedule. It also helps to calculate if you are pacing yourself correctly. And then you can decide how much you need to be saving each month toward your retirement.

Pay yourself first. Your savings should be automatic. You won't miss what you don't see.

Automating your contribution to an employer-defined contribution plan is easy. If you aren't employed, you can still automate a taxable savings plan. Most brokers offer a link between your investment account and your checking account and also an automatic transfer between the two. It's a painless way to move money each month into your retirement or savings account.

Save and invest as little as $100 a month for 46 years earning 10%, and you can retire with a million dollars. And $500 a month grows to an astounding $5 million. Those gains can only happen if you start saving while you are young. If you are beginning later in life, you will have to save and invest more each month.

From age 35 to 55, Sophie says a woman needs a good personality. By that time in her life, Sophie was running her own company. At this point many women have finished raising young children and have time for business ventures. Serendipity in the business world often arises from our reputation for kindness. Sophie showed kindness even to strangers as a part of the Jewish practice of "tzedakah."

Best translated as "righteousness" or "justice," tzedakah goes beyond charity. It is the responsibility to reach out to others, giving of our time and money. According to the great philosopher Maimonides, the highest form of tzedakah is providing a person work so he or she can remain independent and self-supporting. Thus age 35 to 55 is a perfect time for women to turn their success into significance by starting a business.

From 55 on, Sophie continued to use her economic independence to help and empower others. She founded the Sophie Tucker Foundation, which contributed to a host of worthy causes.

Sophie Tucker continued working until weeks before her death at age 82. "The secret to longevity," she said, "is to keep breathing." Today's women are likely to keep breathing a lot longer. We recommend that women anticipate a retirement well into their 90s. Dying young isn't a good plan.

Preparing for retirement is more than putting money in an account. You must work periodically through mathematical assumptions and projections to ensure you will meet your retirement goals. Annual financial physicals ensure that your portfolio will remain as strong and healthy as you want to be.

Financial success is only one of the three components of a successful retirement. Having a healthy diet and staying active physically is equally important. And maintaining a good relationship with engaging and meaningful work is the most critical of all.

Sophie's gusto for enjoying a full life provided several generations with an example of a strong independent woman. Women at every age should be saving and investing at least 15% of the lifestyle they want in retirement. For every seven years they delay saving and investing, they cut that lifestyle in half.

Any plan older than two years is out of date. As your savings change, their projected value will cover a different percentage of your retirement goal. While market returns fluctuate and your standard of living increases, you may need to adjust your monthly savings. And your investments should grow gradually more conservative as you approach retirement age.

Financial independence opens doors for success and significance later in life. As Sophie Tucker reminds us, "I've been rich and I've been poor--and believe me, rich is better."

from http://www.emarotta.com/article.php?ID=361