Boost Your After-Tax Investment Returns
By Susan B. Garland
How to extend the life of your nest egg by carefully managing the tax bite on your portfolio
A smart plan to juggle saving for retirement and college
It's not easy. As parents, we overestimate the degree to which our efforts on our children's behalf determine their success. If we deliver the best education that money can buy for our children and fail to save enough for our future, our children could be hampered with a seemingly limitless financial "obligation" to support us in our retirement (See our Rethinking Retirement column: Close the
My wife and I have chosen to cap the cost that we're willing to bear to the equivalent of an in-state public university. If our children choose that path, they'll get a free ride. If our children choose to double the cost by going to an out-of-state public school--or triple the cost at an elite private school--they'll be on the hook for the balance.
We're saving in the
Faced with this situation, you need to save more or invest more aggressively. But if you have, say, a six-year time horizon before college, you don't want to take too many risks with the college money. So then the strategy would be to save more.
You could reduce retirement contributions, but don't give up the company match. If you ratchet the amount down to pay for college, make sure that later you get back to saving 12% to 15% of salary, or even more.
APPLY FOR COLLEGE FINANCIAL AID --- AGAIN
I'd tell them to file the Free Application for Federal Student Aid (FAFSA) every year, even if you got nothing last year. The financial aid formula is complicated enough that even small changes can have a big impact on the amount and types of financial aid a student will receive. Examples of what can change: the number of children enrolled in college, the amount of the child's assets and the amount of your income.
SAVE HUNDREDS BY SHOPPING YOUR CAR INSURANCE
People do not shop. When I was
I suggest you get your state insurance department's auto insurance buyer's guide, find the example closest to your situation, and look at the premiums. Select the six lowest-priced insurers in your area. Then go to the Web site of the
GET THE LOWEST RATE ON A MORTGAGE
If you're buying a home, start with your real estate agent's referral to a lender known to get deals done reliably. Also call your bank or credit union, another local lender or mortgage broker, or an online lender, such as
Apply with at least two lenders simultaneously. You'll find out what the lenders are offering, and you'll gain the leverage necessary to get them to bid against each other on the rate and points [interest that you prepay at closing; one point equals 1% of the loan amount]. That's especially true in the eleventh hour, when both lenders have incurred costs to assess your qualifications as a borrower and have presold the loan to investors in the secondary market. They'll lose money if you go away. This process isn't for the faint of heart, because once lenders know you're working with someone else (and they will as soon as the other lender pulls your credit report), they'll try to make you feel guilty.
FIND THE BEST DEALS ON TECH PRODUCTS
You'd be amazed at how much money you can save by doing a
If you're not a tech fiend, buy last year's model to save money. A product will often fall in price when a new version comes out, and the differences are usually so subtle that you won't miss them. Early adopters can sell gadgets to
Don't buy a new device directly from Apple--you'll pay full retail price. A lot of other retailers have deals on Apple products.
SAVE ON YOUR SMART-PHONE PLAN
My husband and I have separate phone plans with unlimited data usage--his plan is with
CHECK UP ON YOUR CREDIT
I get my credit reports from each of the three big agencies once a year free through AnnualCreditReport.com. I usually check all of my reports at the same time. The first time you check your credit reports, I highly recommend pulling all three because the agencies don't share information with each other, and you'll want to spot any problems right away. After that, it's fine to wait a year until your reports become free again and then check a different report every four months or so. I recently found a mistake on my
I wouldn't pay for one. There are more than 50 versions of the FICO score available from the three big credit bureaus. It's a crapshoot whether you'll get the exact score that your lender is going to use.
A lot of free scores consider the same information from your credit report as your FICO score does. I get free scores from CreditSesame.com, Credit.com and CreditKarma.com, which are all updated monthly. They're a great proxy for what's happening on my credit report.
How to manage a financial windfall
First, make sure money has been set aside to pay income taxes. Then pay off all consumer debt.
With the remainder, invest in your ability to earn money--for example, tuition and possibly time off to get an education. Once you have adequate cash reserves, invest the balance for retirement in low-cost, tax-efficient index funds and exchange-traded funds, and leave it alone. Investments in yourself and your retirement last a lifetime.
AVOID MARITAL MONEY FIGHTS
I'm personally a fan of having both individual and joint accounts: yours, mine and ours. I think that retaining some independence can be very healthy for most couples. Couples should maintain their own bank accounts and have paychecks automatically deposited into their respective personal accounts. Individual expenses, such as for hobbies or personal debts, could be paid from the individual accounts. They should also have a joint checking account for shared monthly household expenses, such as housing, groceries and utilities. Each person could contribute the same amount to the joint account or a different amount if there's a significant gap in earnings or obligations.
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Susan B. Garland is Editor of Kiplinger's Retirement Report.
All contents copyright 2013