All about bank lending

In this article, we learn that such bank loans and bank lending. Let us first consider the concept of "credits". Loans in its designation, is to provide a loan of money or things as an advance, the advance payment, deferred payment or deferred payment for goods, works and services.
'm Just cost loans when available budget entities on a reimbursable basis, and return, as well as tax credits - deferment of payment of income tax or other tax.
Bank loans, by definition, are considered banking product, as a product of the bank. Bank lending is understood on two levels - as a sum of money that is allocated by the bank on a certain goal, and as a technology to meet the financial requirements stated by the borrower.
It is also proposed to distinguish between these technologies and methods of its application. Having considered these approaches, we can say that the bank loans as the product of the bank, is the amount of money provided by the borrower and satisfying the above basic features of credit, reflecting its specific economic and legal nature.

Bank loans, is the product of a deeper level, namely the specific way in which the bank has or is ready to provide credit services to the client needs it, ie, structured, internally consistent and documented set of interrelated organizational, technical, technological, informational, financial, legal and other actions (procedures) that make up the holistic interaction of regulation of bank employees (units associated with the loan process) to serve clients, a single and complete technology for credit customer service.
Bank loans are those types of loans as loans to active and passive credits. Bank loans are divided into active and passive. In the first case, the bank makes a loan, ie stands the creditor, the second takes the credit, m e is the borrower.
The Bank may enter into credit relationships (take or give loans) and other banks (in other credit institutions), including the central bank, performing in the appropriate active or passive function. In this case we are dealing with the inter-bank lending.
As for all other companies, organizations, institutions and individuals (non-financial sector), the credit relationship with the bank has a different character - the bank is almost always a party, giving the loan. Further, we are talking about active bank lending.
Bank loans provided by commercial banks are divided by economic purpose: tied loan, unrelated bank loan. The form of the loan: a non-cash, in cash - cash, a line of credit, combined options.
By way of a loan: the individual, syndicated.
As time and technology maturity of bank loans: repayable in one lump sum at maturity, repayable in equal installments at regular intervals, unequal shares redeemable at different time intervals.

How to protect yourself when you make a bank loan

In life, every situation can arise when an urgent need money, and then requiring people go to the bank to get bank loans at interest, without considering the consequences which may face in the future. So you need to know and what precautions should be observed to take bank loans.

1. Before signing a contract, you should carefully examine all the conditions of bank lending, check that it was specified the exact amount, and pay attention to the points where the prescribed penalties in the event of default or early repayment of debt.

2. Repaying the debt on a monthly basis, it is best to make a little more than specified in the contract that in future no problems with penalties and interest. It often happens that by making the required final payment, the account is still a small amount by which the time did not pay attention, and several years later, the client can apply to court to pay the debt, which would be several tens of times larger than the original credit. Thus, when you close the account, require proof of full repayment of debt.

3. Each document and receipt should be preserved and not to throw that in court could prove his honesty, otherwise the decision will not be in favor of the defendant.

4. If you have problems with solvency, you can try to contact the bank branch where the loan was taken, with a request to postpone or change the credit terms. You must submit a certificate evidencing a temporary problem with the money and convince the employees of the bank, that soon the entire debt will be repaid. After a deep check, most likely, the client will go to a meeting, but if you identify facts of fraud, in this case, the unfortunate debtor a problem with the law.
Five. If the debt of a bank loan you can not repay, and the debtor has filed a lawsuit, do not despair. First, according to the law, banks do not have to take a single housing, even if it is put up as collateral, personal hygiene items, some appliances, food and all that is needed for the job.

Repayment of bank loan. The percentage of payment for bank lending

At maturity of bank loans there is a certain process, which includes the repayment and interest payments for the loan. In this article we will discuss ways of repayment and interest payment.
The first way is to withdraw funds from customer's account on its payment order.
The second way is to withdraw funds from an account of the borrower, served with another bank, payment method requirements of the lending bank. In this case, funds may be debited without acceptance of the account holder, if this is available in the contract, the borrower must notify the bank, which opened its account of its consent to a withdrawal of funds in accordance with the signed contract / agreement.

If debiting from the account of the borrower - legal entity that serves in the creditor bank, on the basis of the last payment request without acceptance, if it is stipulated in the contract.
Finally, another means of repayment of bank loans - to transfer funds from customer accounts, an individual on the basis of their written orders, transfer of money through the company bond or other credit institutions, payment of cash to the cashier of the bank, lender, retention of the amounts due for payment Labour borrowers who are employees of the lending bank on their application or on the basis of the contract.
As prescribed in the contract / agreement date (the date of payment of interest and / or repayment of principal) an employee of accounting, which is responsible for keeping account of the borrower, on the basis of the relevant order, signed by an authorized officer of the bank, prepares accounting entries, or the fact of payment of interest and / or repayment of principal debt, or (for non-fulfillment or improper fulfillment of customer obligations under the contract) transfers the debt to the client's account to account for arrears.
It should be noted that the debt on loans, hopeless and / or recognized as uncollectible in the established order is deducted from the balance sheet by means of a specially formed in such a case reserve, and with a lack of funds refers to the loss of the year.
Before giving the bank loan bank lender must examine carefully all documents submitted by the borrower, including a business plan, marketing plans, production and management.
Besides bank loans issued after studying the forecast cash flows of the borrower for the period of repayment of bank loans granted to him, studied the schedule of receipts and payments of the borrower, as well as a feasibility study credited the transaction.
Next, what do the banks before making a decision to grant a bank loan, it is credited validate the transaction, the borrower's credit history study to find out whether the debt repayment of bank loans for the obligations of the borrower.
To carry out bank loans the bank verifies the authority of officials of the borrower, who will sign the loan agreement, and quality checks to ensure this guarantee, warranty, guarantee, insurance policy.
After analyzing all the data decide on the granting of bank credit.

Why Women Need To Save More Than Men

Men and women may not be on equal footing when it comes to investing for the future. On average, women work fewer years and earn less than men, but they also tend to live longer. Therefore, women must focus on the concerns that are unique to them when planning for retirement.
Studies show that the majority of married women actively participate or take the leading role in managing family finances. Moreover, women outnumber men in participation in investment clubs across America.

Obstacles Remain: Lower Pay Compounded By Fewer Working Years

Women earn only about 80 cents for every dollar earned by men.* Because they earn less, women often are unable to invest as much as men. In order to make up for other discrepancies in retirement benefits, women may actually need to invest more.
For example, because women often leave work to bring up children or care for elderly relatives, they have fewer total working years. On average, they spend seven years out of the workforce to care for family members.**
This often means that women qualify for much lower pension benefits. Fewer years in the workforce, fewer years with a single employer, and lower pay are all factors that may contribute to a lower average pension for female retirees. At the same time, women on average live longer than men, so they must provide for more years in retirement than their male counterparts.

Social Security Statistics Favor Men

Women also tend to receive lower Social Security benefits than men.** Social Security benefits are calculated based on a person's highest 35 years of earnings. If a benefit recipient doesn't have 35 years in the workforce, the Social Security Administration will add zero-earnings years to his or her record to equal 35 years. This will lower the average monthly earnings figure and may result in lower benefits for women who have not worked for a total of 35 years.

Women Live Longer

Finally, because women generally tend to live longer than men, not only can they expect to spend more years in retirement, but they must consider that a couple's retirement savings may be diminished by health care costs for the spouse who dies first. According to the National Center for Health Statistics, the average life span of a woman today is approximately five years longer than the average man's life span.***
*Sources: Bureau of Labor Statistics, June 2010.
**Source: Social Security Administration, 2010.
***Source: National Center for Health Statistics, 2009.

Saving More Just To Catch Up

According to the Bureau of Labor Statistics, the earnings of women have increased in recent years. This could mean that potentially more investments will be made by women.
Nonetheless, the bottom line is that in order to make up for differences in earnings and benefits, and more retirement years due to longer life spans, women have to invest more to fund their retirement.

What Smart Women Need To Do

• Carefully consider how much risk you are willing to take in exchange for the potential to earn higher returns. Historically, equity investments have provided higher returns over the long term than less-risky investments like money markets and short-term bonds.^†† Keep in mind that stocks offer long-term growth potential but may fluctuate more and provide less current income than other investments.

• Obtain information about the retirement benefits that are available through your employer, and actively participate in any plans offered.

• Learn about the investment vehicles that can help you reach your retirement goals. Your financial professional is an excellent source of information and guidance to help you sort through the many choices available.

• Contact local professional/trade associations, women's groups, community colleges, and adult education centers in your area for information on investment or personal finance seminars taking place.

• Recognize the unique challenges you may face and start saving and investing as early as possible to overcome them.

It's always a good idea to consult your financial professional before you develop a savings and investment program.
Source: Standard & Poor's, 2010. Past performance is no guarantee of future results. Stocks are represented by Standard & Poor's Composite index of 500 Stocks, an unmanaged index of common stocks generally considered representative of the U.S. stock market. The performance of any index is not indicative of the performance of any particular investment. Individuals cannot invest directly in any index.

Points To Remember

1. Women are not inherently "bad" money managers. In fact, they often manage family finances.
2. Women generally have longer life expectancies, so they need to save more for a longer retirement.
3. Many women generally spend fewer years in the workforce and earn less than men. These factors contribute to lower pension and Social Security benefits.
4. Lower benefits mean that many women may need to invest more aggressively depending on their risk tolerance and financial objectives and start contributing to their retirement savings as early as possible.
5. Because women tend to outlive their husbands, women should examine the household financial plan carefully to help ensure that joint assets will be sufficient should their spouse incur significant medical expenses.

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Stock Investment Basics

Own A Stock: Own A Share Of A Company

Stock represents ownership of a company. If a company is privately held, then its stock may be owned by only a few individuals and is not available for purchase by the public. If a company is publicly held, then its stock can be purchased through stockbrokers by individual investors and institutions alike. Corporations can issue different types of stock, but the most typical is common stock.
By investing in stock, you stake a claim in the future of that company and all the potential investment return that it may bring. With potential reward, however, you also have all the risks associated with owning a company. If a company is forced to liquidate, it is first obligated to pay its creditors, bondholders and those who hold preferred stock (a limited issue stock that does not hold voting rights), before those who own common stock.
As a shareholder of common stock, you have voting rights on issues such as election of a board of directors and other important issues affecting the direction of the company.
Shareholders may also receive dividends, which are paid to shareholders from the company's earnings. The amount of the dividend is decided by the board of directors, and is based on what portion of earnings needs to be reinvested in the growth of the company and what portion can be distributed to shareholders.

The Potential Rewards Of Stocks

Stocks carry higher investment risks than bonds or money market investments, but they also have historically realized higher rates of return over longer holding periods (see chart). While past performance doesn't guarantee future results, the higher return potential of stocks can make them suitable investments for long-term investors seeking to build the value of their portfolios or to stay ahead of inflation. Both of these objectives are critical to investors with specific long-term goals in mind, such as saving for retirement.

Ways of Categorizing Stock Investments
Size of Company	The market value (capitalization) of the company determines whether it is considered a large-, mid-, or small-cap stock.
Growth	Stocks of companies that are forecasted to increase earnings by 15% or more per year. Of course, there is no guarantee that this objective will be met.
Value	Stocks of companies that are priced near their asset value (with no growth in earnings assumed) are called value stocks. They may or may not be bargains, however, depending on whether their prices subsequently recover.
International	Stocks of companies headquartered outside the United States in industrialized countries.
Emerging Market	Stocks of companies headquartered in underdeveloped, fast-growing countries.
Industry Sector	Type of industry, such as technology, energy, or cyclicals.

Average Annual Rates Of Return
Consider how various stocks have performed versus other investments over the 20 years ended December 31, 2010. Sources: Standard & Poor's; Center for Research in Securities Pricing; Barclays Capital; Morgan Stanley Capital International; the Federal Reserve. Based calendar-year returns for the 20-year period ended 12/31/10. Large-cap stocks are represented by the Standard & Poor's Composite Index of 500 Stocks. Midcap stocks are represented by the S&P MidCap 400 Index. Small-cap stocks are represented by a composite of the CRSP 6th-10th decile portfolios and the S&P SmallCap 600 Index. Foreign stocks are represented by the total returns of the MSCI EAFE Index. Bonds are represented by the total returns of the Barclays U.S. Aggregate Index. Cash is represented by the total returns of the Barclays 3-month Treasury Bills Index. Different investments offer different levels of potential return and market risk. International investors are subject to higher taxation and currency risk, as well as less liquidity, compared with domestic investors. Midcap stocks and small-cap stocks are generally subject to greater price fluctuations than large-cap stocks. Bonds are guaranteed as to the timely payment of principal and interest. Past performance is not indicative of future results. Investors cannot directly purchase an index.

Tactics For Managing Risk

Before investing, weigh the potential risk of loss of principal against the risk of not meeting your investment goals or of losing purchasing power to inflation.
Stock investors can also manage risk by:

Diversification.

Investing in just one or two stocks is generally much more risky than buying stocks of 15 or 20 companies. By holding stocks of different companies in several industries, you limit your exposure to a substantial loss due to a price decline in just one stock.

Appropriate asset allocation.

This refers to how you spread your portfolio among different types of investments, such as stocks, bonds, and money market investments.
An aggressive investor with a long-term horizon might choose to keep 80% of his or her portfolio in stocks, for example, with the remaining 20% in bonds and money market funds. This adds yet another level of diversification to the portfolio and can further reduce investment risk. Your financial professional can help you select an asset allocation that is appropriate for your goals and time frame.

Weathering Market Fluctuations.

Staying invested through periods of market turbulence can also help manage risk of loss as the variability of returns tends to decrease over time.

Buy Stocks Individually Or Grouped In Mutual Funds

Individuals can buy stocks directly or can purchase mutual funds or annuities which may invest in individual stocks. An employee may also have an opportunity to buy stock in his or her company through a company stock purchase plan or retirement plan.
Many financial analysts believe that most people can best access the stock market by buying shares of mutual funds that invest in stocks. Currently, there are over 8,000 mutual funds investing within a variety of stock market categories and sectors. Mutual funds offer the potential advantages of professional money management, diversification, and liquidity. These advantages are particularly apparent when investing in international and emerging market stocks, which are often less accessible to individual investors. Your financial professional can help you assess which types of mutual funds may be suitable for your portfolio.
Investors with, say, $20,000 or more to invest and who want to manage their own portfolio can build a diversified portfolio with just 15 to 30 stocks. Even though it may seem to be a daunting task to find companies in which to invest, basic information on most publicly traded companies is available at libraries, online, and best of all, through information and guidance provided by your financial professional.

A Glossary: Demystifying The Language Of Investing

Price Range.

The price of a stock is determined according to the rules of supply and demand. Tracking the price over time can give you a partial picture of the company and its recent performance. Daily information in national newspapers includes the high and low price for the stock in the previous 52 weeks.

Price-to-Earnings Ratio (A.K.A. "P/E").

This number, which is derived by dividing the stock price by the company's earnings per share, is used to determine what an investor is paying for the earning power of the company. It is one figure that can be used in comparing the value of several companies even though their prices may be vastly different.

Dividend Yield.

The dividend yield, determined by dividing the amount of the dividend by the share price, simply indicates what percent return the company is paying its investors. National newspapers report the return on both the initial investment at the time of the first public offering and the return on the current value of the stock. This number can also be used in a comparison of companies.

Payout Ratio.

This figure represents the percentage of earnings a company is paying out to its investors. It is an indication of whether most of a company's earnings are being paid to its investors, or whether they are being reinvested in the growth of the company.
In addition, a fundamental approach to stock investing considers the following questions:

• How does the company compare to its competitors in earnings growth and profitability?
• Are there any outside factors such as government regulations that may affect the entire industry?
• What is the projected demand for the company's product?
• Is the industry a cyclical one; i.e., does it move up and down in cycles?
• What are management's goals and how are they going to achieve them?

Because of their long-term potential, stocks have a place in nearly every portfolio.
Speak with your financial professional about how you can best include stocks in your portfolio.

Points To Remember

1. Stock represents the shares of ownership in a company.
2. By investing in stock, you stake a claim in the future of that company.
3. As a shareholder of common stock, you have voting rights.
4. Shareholders generally receive dividends, which are paid to shareholders from the company's earnings.
5. Even though investing in stocks seems a daunting task, it needn't be. The Internet and most libraries carry information on many publicly traded companies. Your financial professional can also provide guidance.
6. Your financial professional can help you decide how you can best include stocks in your portfolio.

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Understanding Long-Term Care Insurance

What is long-term care?

Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

Why you need long-term care insurance (LTCI)

Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.
However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:

• You are between the ages of 40 and 84
• You have significant assets that you would like to protect
• You can afford to pay the premiums now and in the future
• You are in good health and are insurable

How does LTCI work?

Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.
Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three).
Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

Comparing LTCI policies

Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best, Moody's, and Standard & Poor's to make sure that the company is financially stable.
When comparing policies, you'll want to pay close attention to these common features and provisions:

• Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.
• Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
• Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
• Optional inflation rider: Protection against inflation.
• Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).
• Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
• Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease).
• Premium increases: Whether or not your premiums will increase during the policy period.
• Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
• Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.
• Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.
• Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.

When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.

What's it going to cost?

There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.

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Health Insurance in Retirement

Retirement--your changing health insurance needs

If you are 65 or older when you retire, your worries may lessen when it comes to paying for health care--you are most likely eligible for certain health benefits from Medicare, a federal health insurance program, upon your 65th birthday. But if you retire before age 65, you'll need some way to pay for your health care until Medicare kicks in. Generous employers may offer extensive health insurance coverage to their retiring employees, but this is the exception rather than the rule. If your employer doesn't extend health benefits to you, you may need to buy a private health insurance policy (which will be costly) or extend your employer-sponsored coverage through COBRA.
But remember, Medicare won't pay for long-term care if you ever need it. You'll need to pay for that out of pocket or rely on benefits from long-term care insurance (LTCI) or, if your assets and/or income are low enough to allow you to qualify, Medicaid.

More about Medicare

As mentioned, most Americans automatically become entitled to Medicare when they turn 65. In fact, if you're already receiving Social Security benefits, you won't even have to apply--you'll be automatically enrolled in Medicare. However, you will have to decide whether you need only Part A coverage (which is premium-free for most retirees) or if you want to also purchase Part B coverage. Part A, commonly referred to as the hospital insurance portion of Medicare, can help pay for your home health care, hospice care, and inpatient hospital care. Part B helps cover other medical care such as physician care, laboratory tests, and physical therapy. You may also choose to enroll in a managed care plan or private fee-for-service plan under Medicare Part C (Medicare Advantage) if you want to pay fewer out-of-pocket health-care costs. If you don't already have adequate prescription drug coverage, you should also consider joining a Medicare prescription drug plan offered in your area by a private company or insurer that has been approved by Medicare.
Unfortunately, Medicare won't cover all of your health-care expenses. For some types of care, you'll have to satisfy a deductible and make co-payments. That's why many retirees purchase a Medigap policy.

What is Medigap?

Unless you can afford to pay for the things that Medicare doesn't cover, including the annual co-payments and deductibles that apply to certain types of care, you may want to buy some type of Medigap policy when you sign up for Medicare Part B. There are 10 standard Medigap policies available. Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not. Although not all Medigap plans are available in every state, you should be able to find a plan that best meets your needs and your budget.
When you first enroll in Medicare Part B at age 65 or older, you have a six-month Medigap open enrollment period. During that time, you have a right to buy the Medigap policy of your choice from a private insurance company, regardless of any health problems you may have. The company cannot refuse you a policy or charge you more than other open enrollment applicants.

Thinking about the future--long-term care insurance and Medicaid

The possibility of a prolonged stay in a nursing home weighs heavily on the minds of many older Americans and their families. That's hardly surprising, especially considering the high cost of long-term care.
Many people in their 50s and 60s look into purchasing LTCI. A good LTCI policy can cover the cost of care in a nursing home, an assisted-living facility, or even your own home. But if you're interested, don't wait too long to buy it--you'll need to be in good health. In addition, the older you are, the higher the premium you'll pay.
You may also be able to rely on Medicaid to pay for long-term care if your assets and/or income are low enough to allow you to qualify. But check first with a financial professional or an attorney experienced in Medicaid planning. The rules surrounding this issue are numerous and complicated and can affect you, your spouse, and your beneficiaries and/or heirs.

Redefining Retirement In The 21st Century

The days may be over when a gold watch is a somewhat ironic and less-than-useful gift for a retiree.
If the experts are on target, retirement in the next century will scarcely resemble the conventional image of lazy days spent on cruise ships and golf courses. For example, you might plan to open a business of your own. Or perhaps you'll return to school for that graduate degree you never had the chance to complete. Of course, you'll probably still find time to sit back and put your feet up.

A New Life Cycle For The New Millennium: Longer And Healthier

At the turn of the 20th century, the average life expectancy was 47 years. Today, the average American can look forward to about 78 years of life. By 2040, among individuals who reach age 65, average life expectancy is projected to rise from 82 to 85 for men and from 85 to 88 for women, according to the National Center for Health Statistics.
What's behind this trend? Some causes are obvious, such as improved health care, both early on in the form of preventative medicine and during the later years of life. Medical advances, ranging from beta blockers that control hypertension to hip replacements, allow older Americans to remain active. Healthier lifestyles are also a contributing factor.

Age 65: Getting Younger All The Time

The result is a new way of thinking about age. In her best-selling book, New Passages, Gail Sheehy argues that the "midlife passage" generally thought to take place at age 40 now occurs a decade later. The period between ages 45 and 65 is no longer middle and old age, according to Sheehy, but a "second adulthood."* Psychologist Ken Dychtwald, chief executive officer of Age Wave Inc., a California-based consulting firm, also sees new lines being drawn. Using his model, ages 25 to 40 represent young adulthood, while ages 40 to 60 comprise a new stage known as "middlescence." Next comes late adulthood (60 to 80), followed by old age (80 to 100), and very old age (100+).**
But perhaps more important than the categories is the effect that longer, healthier lives may have on the traditional life cycle of education, work, and retirement. It will be replaced by a less linear cycle, according to Dychtwald, who forecasts short-term retirements, followed by any combination of career shifts, part- or flex-time work, entrepreneurial endeavors, and continuing education peppered with occasional "mini-retirements."**
Today's older American doesn't hesitate to change jobs -- or careers -- in the pursuit of keeping life interesting. This trend should accelerate. A nationwide survey of workers revealed that 70% of respondents plan to continue working in some capacity after retirement.***
*Source: Gail Sheehy, New Passages: Mapping Your Life Across Time, 1995.
**Source: Ken Dychtwald, Age Wave - How the Most Important Trend Will Change Your Future, 1990.
***Source: Employee Benefit Research Institute, 2010.

What Does Retirement Mean To You?

There is no one answer. In this century, "retirement" will mean something different to each of us. Regardless of your decision, you'll need to design a financial plan suited to your specific vision of the future.
First, look at your sources of retirement income. If you pay attention to the financial press, you've probably come across at least a few commentators who speak in gloom-and-doom terms about the future for American retirees, decrying a lack of savings and warning of the imminent growth of the elderly population.

The Risk Of Solely Depending On Your Pension And Social Security

True, there is widespread concern about at least one traditional source of income for retirees - Social Security. Under current conditions, Social Security funds could fall short of needs by 2040.¹ But the reality is that Social Security was intended only to supplement other sources of retirement income. In fact, Social Security benefits account for only 36% of all income received by retirees, and one-third of retirees rely on Social Security for 90% or more of their income.¹
Even pension plans, once considered a staple of retirement income, only account for 18% of the retirement-income pie. In recent years, employers have been moving from traditional defined-benefit plans based on salary and years of service to defined-contribution plans, such as 401(k) plans, funded primarily by the employees.¹
This shift makes it even more important for individuals to understand their goals and have a well-thought-out financial plan that focuses on the key source of retirement income: personal savings and investments. Given the potential duration and changing nature of retirement, you may want to seek the assistance of a financial professional who can help you assess your needs and develop appropriate investment strategies.
¹Source: Social Security Administration, 2010.

Important Variables: Time Horizon, Inflation, And Taxes

As you move through the various stages of the new retirement, perhaps working at times and resting at others, your plan may require adjustments along the way. A financial professional can help you monitor your plan and make changes when necessary. Among the factors you'll need to consider:

Time Horizon

You can project periods of retirement, reeducation, and full employment. Then concentrate on a plan to fund each of the separate periods. The number of years until you retire will influence the types of investments you include in your portfolio. If retirement is a short-term goal, investments that provide liquidity and help preserve your principal may be most suitable. On the other hand, if retirement is many years away, you may be able to include more aggressive investments in your portfolio. You will also need to keep in mind the number of years you may spend in retirement. Thirty years of retirement could soon be commonplace, requiring a larger nest egg than in the past.

Inflation

One scenario: An automobile with a price tag of $20,000 today may cost $29,600 in just 10 years, given a hypothetical inflation rate of 4%. While lower-risk fixed-income and money market investments¹ may play an important role in your investment portfolio, if used alone they may leave you susceptible to the erosive effects of inflation. To help your portfolio keep pace with inflation, you may need to maintain some growth-oriented investments. Over the long-term, stocks have generally provided returns superior to other asset classes. Past performance is not indicative of future results.² But also keep in mind that stocks generally involve greater short-term volatility.
¹An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
²Sources: Standard & Poor's; the Federal Reserve. Based on the 40-year period ended 12/31/10.

Taxes

Even after you retire, taxes will remain an important factor in your overall financial plan. If you return to work or open a business, for example, your tax bracket could change. In addition, should you move from one state to another, state or local taxes could affect your bottom line. Tax-advantaged investments, such as annuities and tax-advantaged mutual funds, may be effective tools for helping you to meet your retirement goals. Tax deferral offered by 401(k) plans and IRAs may also help your retirement savings potentially grow. Keep in mind that withdrawals made from annuities, 401(k) plans and IRAs prior to age 59½ are taxed as ordinary income and may be subject to a 10% federal penalty.

Think Long-Term: Begin Planning Now

To help ensure that retirement lives up to your expectations, begin developing your plan as soon as possible and consider consulting a professional. With proper planning and the support of a qualified financial professional, you can make your retirement whatever you want it to be.

Points To Remember

1. As people live longer and healthier lives, retirement begins to take on a whole new look.
2. You'll need to develop a financial plan suited to your specific vision of the future.
3. Under current conditions, Social Security funds could fall short of needs after 2040.
4. You may need to rely on your own personal savings and investments for the majority of your income in retirement.
5. Keys to determining your financial plan are time, inflation, and taxes.

How Much Do You Need To Retire?

Picturing yourself as a retiree may be hard if not impossible. But if you could envision those future years, you'd probably see a life full of activity and decades of health, happiness, and prosperity. No rocking chairs and lap shawls need apply.

Your Retirement Lifestyle Is In Your Hands

The reality, however, is probably somewhere in between. The problem with the picture is that the pleasure and comfort of your later years depend, to an ever-increasing degree, on the action you take today.
So many changing facets of the American workplace have made it more important than ever to take control of your financial future. By investing now with a long-term focus, you can greatly improve your chances of having a fulfilling retirement.
Americans used to count on a pension and Social Security to get them through those "golden years." These days, people change jobs more often, sometimes forgoing pension benefits. They may also rely on dual incomes and manage their own retirement funds through defined contribution plans. By most estimates, you'll generally need at least 70% of your final working years' income each year to maintain your lifestyle after retiring.

Sources of Retirement Income

The above chart represents a breakdown of typical income sources for a current retiree. Source: Social Security Administration, 2010.

Start Investing Now

The accompanying pie chart shows the importance of saving now toward a retirement fund. Not only are Social Security benefits less significant, but the sums are diminishing and the age at which you can begin to receive benefits is higher. You can contact Social Security at (800) 772-1213 to learn what you can expect in benefits, and when. Benefits are calculated on your earnings, with certain variable factors.

Alas, the responsibility for the bulk of your nest egg rests with you. Social Security represents approximately 36% of the total income received by retirees, and one-third of all retirees rely on Social Security for 90% or more of their income.*

Beware: The High Cost Of Healthcare And Inflation

As you begin thinking about how much you'll need for a comfortable retirement, you may be startled to learn the impact of inflation. At an average annual inflation rate of 3%, your cost of living would double every 24 years.* Your annual income will need to increase each year, even during retirement, in order to keep up with the gradual rise in prices of everyday goods.
You'll also have to consider the likelihood of increased medical costs and health insurance as you grow older. The average nursing home stay, for instance, now costs more than $83,000 per year and could rise to almost $150,000 per year by 2030, assuming an annual inflation rate of 3%.*
*Source: Standard & Poor's, 2010.

The Risk Of Relying On Social Security And Your Pension

Now that you have an idea how much you'll need to finance your retirement years -- of which there can easily be 25 or more -- you may better understand the importance of building your assets.
Many of us may need at least 70% of our annual pre-retirement income to live on each year after we retire. Of this, only about 54% comes from Social Security and qualified retirement plans, including pensions, for today's average retiree.* The rest must come from other sources, including personal investments, such as mutual funds and other investment products. Find out how close you are to meeting your goal by completing the exercise below.

*Source: Social Security Administration, 2010. Based on average annual benefit in 2008 (most recent report published) for all retired workers.

Your Retirement Needs: A Worksheet

1. Estimate your last working year's salary. Multiply your current salary by the inflation factor from the table below, based on the number of years you have until retirement. _____________ Example: If you are currently making $40,000 and have 20 years until retirement, your formula is $40,000 x 1.81 = $72,400 2. Estimate 80% of your last working year's salary. ____________ Example: $72,400 x .80 = $57,920 3. Estimate the amount that you'll need from your savings and investments by multiplying line 2 by 12.591. _____________ Example: $57,920 x 12.591 = $729,254 4. Enter the amount of your current savings and investments and multiply it by the growth factor from the accompanying table. This is what your savings would be worth by the time you reach retirement, assuming a 5% return compounded annually. _____________ Example: If you currently have $11,000 x 2.65 = $29,150 5A. If line 4 is larger than line 3, congratulations! You may be on your way to meeting your retirement goal. Keep saving! B. If line 3 is larger than line 4, subtract line 4 from line 3. Enter that amount here. This is the additional amount you may need. _____________ Example: $729,254 - $29,150 = $700,104 C. Divide line 5B by the multiplier in the table below for the number of years to your retirement. The result is the approximate amount you may want to set aside each year.*** _____________ Example: $700,104/34.72 = $20,164 Years to Retirement Inflation Factor Growth Factor Multiplier 5 1.16 1.28 5.80 10 1.34 1.63 13.21 15 1.56 2.08 22.66 20 1.81 2.65 34.72 25 2.10 3.39 50.11 30 2.43 4.32 69.76 35 2.81 5.52 94.84 ***Assumes 3% annual inflation and a 5% annual return.

Traditional pensions are estimated to supply only 18% of retirement needs, according to the Social Security Administration. Add that to the income you might expect from Social Security and you'll probably still fall far short of your goal. A reduced standard of living for a quarter century or more is hardly the stuff "golden age" dreams are made of.

Current Tax Deferral And Time: Two Allies Working For You

Time can help you, due to the potential benefit of compounding. The other great benefit in preparing for retirement is tax deferral. Using investment vehicles such as 401(k) plans or individual retirement accounts (IRAs), you can defer paying current taxes on your earnings until you are retired and potentially in a lower tax bracket. Meanwhile, depending on the type of retirement account and your current income, your contributions may be tax-deductible, helping reduce current tax bills. Keep in mind that withdrawals made prior to age 59½ are taxed as ordinary income and may be subject to a 10% federal penalty.
Example. An investment of $10,000 could grow to more than $100,000 after 30 years, at an annual hypothetical return of 8%, if all the returns were reinvested and the account grew tax-deferred. As with all hypothetical examples, individual investor results will vary. This example does not represent the performance of any specific investment, and the earnings would be subject to taxation upon withdrawal at then-current rates and subject to a 10% federal penalty for early withdrawal made prior to age 59½.
The more time you have until retirement, the more fortunate you may be. Delaying just months -- never mind years -- can reduce your results.
Example. Jane begins investing $100 a month in her employer-sponsored 401(k) plan when she's 25. Mark does the same - beginning when he's 35. Assuming a hypothetical 9% annual rate of return compounded monthly, when Mark retires at 65, he'll have $183,074. Jane will have $468,132.
While this is only a hypothetical example and does not represent the performance of a specific investment, you can see the remarkable difference starting early can potentially make.

Invest Early And Often

By starting early and investing systematically you could potentially benefit from the potential of compounding and tax deferral.
Another advantage of today's retirement planning options is that you have some control over how your money is invested. Investment plans need to offer a variety of options because different people have different degrees of risk they will accept, as well as varying time frames they intend to hold their investments. A portfolio can be diversified to take these factors into account. It's a wise idea to consult a financial professional for complete information.

Points To Remember

1. The rising cost of living means you need to plan on an annual retirement income that could be substantially higher than what you spend now.
2. You may have higher expenses in some areas such as medical care, but lower expenses in others.
3. You'll generally need at least 70% of your final working years' salary in each year of retirement.
4. Retirement income may be made up of pension benefits, Social Security benefits, personal savings and investments, and income from part-time work.
5. Your financial professional can help you develop an estimate of your needs and a plan to help you accumulate a retirement fund to help provide income you'll need.

Education Tax Credits

American Opportunity credit can help with college expenses

The American Opportunity credit is a tax credit that covers the first four years of your, your spouse's or your child's undergraduate education. Graduate and professional-level courses aren't eligible. The credit is worth a maximum of $2,500 in 2012. It's calculated as 100 percent of the first $2,000 of tuition and related expenses that you've paid for the year, plus 25 percent of the next $2,000 of such expenses.
To take the credit, both you and your child must clear some hurdles:

• Your child must attend an eligible educational institution as defined by the IRS (generally, any post-secondary school that offers a degree program and is eligible to participate in federal aid programs qualifies).
• Your child must attend college on at least a half-time basis.
• Your child can't have a felony conviction.
• You must claim your child as a dependent on your tax return. If your child has paid the tuition expenses, you can still take the credit as long as you claim your child as a dependent on your return. But if your child has paid the tuition expenses and isn't claimed as a dependent on your return, your child can take the credit on his or her own return.

The American Opportunity credit can be taken for more than one student in the same year, provided each student qualifies independently. So, if you have twins who are in their freshman year of college (and you otherwise meet the requirements), your credit would be worth $5,000. However, there are other restrictions. You can't take both the American Opportunity credit and the Lifetime Learning credit in the same year for the same student. And whatever education expenses you cover with a tax-free distribution from your 529 plan or Coverdell education savings account cannot be the same expenses you use to qualify for the American Opportunity credit.

Lifetime Learning credit can help with college, graduate school, and individual course expenses

The Lifetime Learning credit is a tax credit for the qualified education expenses that you, your spouse, or your child incur for courses taken to improve or acquire job skills (even courses related to sports, games, or hobbies qualify if they meet this requirement!). The Lifetime Learning credit is much less restrictive than the American Opportunity credit. In addition to college expenses, the Lifetime Learning credit covers the tuition expenses of graduate students and students enrolled less than half-time.
The Lifetime Learning credit is generally worth a maximum of $2,000. It's calculated as 20 percent of the first $10,000 of tuition and related expenses that you've paid for the year.
One major difference between the American Opportunity credit and the Lifetime Learning credit is that the Lifetime Learning credit is generally limited to a total of $2,000 per tax return, regardless of the number of students in a family who may qualify in a given year. So if you have twins who are in their senior year of college, your Lifetime Learning credit would be worth $2,000, not $4,000.
As with the American Opportunity credit, if you withdraw money from your 529 plan or Coverdell ESA in the same year that you claim the Lifetime Learning credit, your withdrawal cannot cover the same expenses that you use to qualify for the Lifetime Learning credit.

My child is in college--how do I know which credit to take?

The American Opportunity credit and the Lifetime Learning credit cannot be claimed in the same year for the same student, so you'll need to pick one. Because the American Opportunity tax credit is available for all four years of undergraduate education, is worth more, and the income limits to qualify are higher, that credit will probably be your first choice. But if your child is attending school less than half-time, the Lifetime Learning credit will be your only option (assuming you meet the income limits).

How do I claim either credit on my tax return?

You should receive Form 1098-T from the college, showing the tuition expenses you've paid for the year. Then, at tax time, you must file Form 8863 to take either credit. If you are married, you must file a joint return to take either credit. For more information, see IRS Publication 970 or consult a tax professional.