Hark. In This Issue: April 2008

Transcription

1 A R E S O U R C E F O R R E T I R E M E N T P L A N N I N G Hark April 2008 In This Issue: Ernst & Young Offers Free Debt Management Help Ernst & Young s Debt Management Assistance: Two Success Stories Tax Time Is a Good Time for Retirement Planning An Overview of the Federal Reserve System Required Annual Disclosure to Church Plan Participants Ernst & Young Offers Free Debt Management Help The General Board celebrates a century of service in 2008 to the clergy and lay workers of The United Methodist Church. Serving the Church is a privilege and a ministry for us. We are proud of our 100-year history and look forward to the next century of caring for those who serve. For more information about our centennial celebration, visit our Web site at Having trouble staying on top of your bills? You re not alone. Many people face financial difficulties at some point in their lives. While being knee-deep in debt can seem overwhelming, the situation doesn t have to go from bad to worse. Eligible participants in General Board-administered retirement plans* have free access this year to Ernst & Young Financial Planning Services. Ernst & Young financial planners can work with you to develop a realistic, personalized strategy to deal with debt. This strategy might include the following steps: * Eligible participants include active participants, terminated and retired participants with an account balance of at least $10,000 and surviving spouses. (continued on page 2) Caring For Those Who Serve

2 Ernst & Young Offers Free Debt Management Help (continued) Crunch the Numbers The first step in getting out from under debt is to realistically and honestly assess your finances. Consider using personal finance software, such as Quicken or Microsoft Money. These programs can help you with a wide variety of moneymanagement tasks, including balancing your checkbook, tracking your investments, paying your bills and organizing your expenses. Here are some suggestions for evaluating your finances: List your income. Include everything take-home pay, honorariums, money you make doing odd jobs, interest earned on savings and checking accounts, stock dividends, alimony and child support. Track your expenses. Next, keep a record of all your expenses for at least one month. Start by listing the obvious ones: rent or mortgage payments, tuition, utility costs, cable TV charges, phone bills, credit card payments and insurance premiums. It s also important to record your daily, less significant purchases that add up for example, what you spend on groceries, a night at the movies, restaurant meals, your morning coffee, gas, dry cleaning, parking and clothes. Carry a small notebook to log these expenditures right away, or save all your receipts and tally them up daily or weekly. Categorize your costs. Arranging your expenses into the following groups can help you better understand your spending habits: fixed nondiscretionary expenses which are the same amount every payment period and are unavoidable, including rent or mortgage payments, condominium association fees, student loan payments, insurance premiums, vehicle loan payments and tithes; variable nondiscretionary expenses which vary in amount and are unavoidable, such as credit card bills, unexpected medical expenses, quarterly tax payments, gas, groceries, home and vehicle repairs, phone bills and utilities; fixed discretionary expenses which are the same amount every payment period and are avoidable, like health club membership fees, cable TV bills, club dues and magazine subscription payments; and variable discretionary expenses which vary in amount and are avoidable, including restaurant meals, books, CDs, vacations, DVDs, concerts, movies and plays. Develop a budget. After listing your income and expenses and categorizing the expenses, use this information to create a budget. A budget is a schedule of income and expenses, typically broken up into monthly intervals and usually covering a one-year period. Simply put, a budget helps you track where your money is going. Take stock of your assets. List items such as vehicles, home and other real estate, jewelry, furniture, electronic equipment, artwork, silverware, china, rare books, stock, bonds and antiques. This list might reveal assets that you could sell to pay down your debt. Come Up with a Plan The next step is to take a good, hard look at your budget and assets to figure out ways to lower your debt. Could you boost your income or sell assets? If increasing your income isn t possible, then you ll have to decrease your expenses. Easier said than done, right? Consider these suggestions: (continued on page 3) 2 Hark

3 Ernst & Young Offers Free Debt Management Help (continued) Make small lifestyle changes. Small changes can lead to big savings over time. Use your budget to identify simple ways to cut everyday costs. Here are some ideas to get you started: Skip that morning trip to the café. Brew coffee at home and bring it along in a commuter mug. Drink tap water instead of buying bottled water. Borrow books, DVDs and CDs from the library rather than buying or renting them. Save money on groceries by switching to generic or store brands, shopping the sales and looking for coupons in the newspaper and on the Internet. Pack a lunch and bring it to work instead of eating out. Cook and enjoy dinner with your family instead of going out on weekends. Take stock of your communication and home entertainment costs. For example, you might not need long-distance service for both your cell phone and home phone. Some people eliminate their home lines and rely entirely on cell phones. If your cell phone contract is up for renewal, consider how you use your cell phone, and shop for new plans that might save you money, like a family plan. You also could cut costs by buying a package from one company that bundles multiple services such as cable, cell phone, home phone and Internet but watch out for high setup fees and introductory pricing. Or better yet, eliminate cable entirely the savings can be significant. Negotiate with your creditors. They may be willing to work with you. If you agree to a payment plan, for example, they might agree to lower your interest rate. Taking the previously mentioned steps could free up enough cash to make payment plans feasible. Consolidate your debt. It might make sense to consolidate your debt through a home equity line of credit or a second mortgage. But keep in mind that these loans require you to put up your home as collateral. If you can t make the payments or if they re late you could lose your home. Consider bankruptcy only as a last resort! Don t rush into filing for bankruptcy weigh this option very carefully. Before declaring bankruptcy, make sure that doing so will actually accomplish your goals. Bankruptcy only wipes out certain debts it won t, for example, erase tax debt, alimony or child support. And bankruptcy will remain on your credit report for as long as 10 years, seriously hindering your ability to buy a home, purchase a vehicle, obtain life insurance and even get a job. Evaluate your insurance policies. You can lower your insurance premiums by raising your deductibles. If you have an older car, dropping collision coverage can save money, too. You might also be able to cut costs by buying all your insurance policies from the same company. And if your children are grown, reassess your life insurance needs. Before switching insurance companies, shop around for the best rates. Transfer credit card balances. Consider applying for a new credit card offering a lower interest rate and transferring balances from higher-rate cards to the new card. But be sure to read the fine print before applying! If you make just one late payment, the new card s rate could skyrocket, defeating your purpose for transferring balances. Hark 3

4 Ernst & Young s Debt Management Assistance: Two Success Stories Still wondering if Ernst & Young can help you manage debt? Here are a couple of true stories about General Board participants who have turned to Ernst & Young for assistance with debt management. To maintain confidentiality, we have changed their names. Michelle and Steve Michelle, a pastor, and her spouse, Steve, incurred unexpected medical bills a few years ago and were forced to use credit cards with high interest rates to pay for these expenses. As a result, their debt skyrocketed so much that they were considering bankruptcy. So, they called Ernst & Young for advice. Their Ernst &Young financial planner helped them develop a budget. This budget revealed several steps they could take to reduce their monthly expenses such as dropping collision coverage on their car, raising their auto insurance deductible, skipping that daily $3.50 cappuccino at the café and bringing sack lunches to work instead of eating out. They committed to making these changes and using the extra money to pay off their credit card debt. Armed with the confidence of an increase in cash flow, Michelle, Steve and their planner contacted their credit card companies together using threeway calling to negotiate more favorable terms. Fortunately, one of the companies agreed to lower the interest rate from 24% to 10%! Michelle and Steve now anticipate paying off their credit card debt in just a few years which had seemed unthinkable before they called Ernst & Young. Tom and Judy Tom and his spouse, Judy, bought a home two years ago. After this purchase which already was stretching their finances their car broke down and they had to take out a loan to buy a new car. They ve been using their credit cards to pay some monthly bills. To make matters worse, they ve fallen behind with some of their monthly payments, which has lowered their credit rating. Concerned that he and Judy are accumulating more and more debt and not reducing what they owe, Tom contacted Ernst & Young. The financial planner reviewed Tom and Judy s credit card debt with them. They found that transferring some balances to a card with a lower interest rate would drastically cut Tom and Judy s monthly payments and allow them to pay off their credit card debt more quickly than they d ever thought possible. The Ernst & Young financial planner also used an IRS W-4 calculator to review their incomes and found that they were significantly overwithholding taxes. The planner suggested they lower their withholding rates, which would increase their takehome pay. They committed to putting this extra money toward their monthly bills. That way, they wouldn t be forced to use their credit cards to pay bills as often. Tom and Judy are still exploring various strategies with their financial planner, but they re already well on their way to getting out of debt! 4 Hark

5 Tax Time Is a Good Time for Retirement Planning Tax season is coming to a close. If you re like many people, you still have your year-end statements, W-2 forms and other financial documents out. Don t put them away just yet! Now might be the perfect time to use these documents to make some progress with retirement planning. Need retirement planning assistance? Ernst & Young Financial Planning Services can provide you with a personalized retirement planning report. This valuable tool can help you address these and other questions you might have about your retirement: Will I have enough money when I retire? What can I do if I m not on track to meet my retirement income goals? When can I retire? How should I invest my assets before and during retirement? How much can I safely withdraw from my account(s) each year after I retire? Your Ernst & Young financial planner will help you complete a questionnaire and use it to develop a written report that includes: a Retirement Funding Analysis, detailing your retirement income sources, strategies for withdrawals from your account(s) and any surplus or shortfall of funds; and an Asset Allocation Analysis, suggesting investment strategies for your retirement assets. For help with retirement planning, debt management and many other financial matters, call Ernst & Young at between 9:00 a.m. and 8:00 p.m., Eastern time, Monday through Friday (excluding holidays). An Overview of the Federal Reserve System The Federal Reserve System commonly called the Fed has been in the news a lot lately, given the recent problems in the housing market and their impact on the stock markets. What is the Federal Reserve System? What does it do? Why is it important? If you can t answer these questions, you re not alone. Many Americans don t know much about the Fed and don t understand the crucial role it plays in our economy. What Is the Fed? The strength of any country s economy depends on a disciplined and well-managed monetary system the system that controls the supply of money and regulates banking practices. Supervising and regulating a country s monetary system is the role of a country s central bank. In the United States, this central bank is called the Federal Reserve System. Congress created the Federal Reserve System in 1913 in response to frequent instability and resulting panics in the banking industry. What Does the Fed Do? As the banker to the nation s commercial banks, the Fed stores excess currency, processes checks and electronic payments, maintains the Treasury Department s checking account and clears U.S. Treasury checks. The Fed also lends money to banks and other depository institutions to help them endure temporary, unexpected (continued on page 6) Hark 5

6 An Overview of the Federal Reserve System (continued) changes in their deposits or loan portfolios, assists institutions that have seasonal or emergency credit needs and serves as the lender of last resort to the nation s largest banks. In addition, the Fed supervises and regulates financial institutions to ensure their fiscal soundness and compliance with laws. The Fed monitors bank holding companies (companies with significant ownership of one or more banks), state-chartered banks that are members of the Fed and various international banking operations. It also enforces several laws protecting consumers in their financial dealings. Using input from many sources, the Fed implements policies to manage the flow of money and credit in the economy by setting the federal funds rate. The federal funds rate is the rate charged by banks to other banks for overnight lending of funds held at the Fed. The federal funds rate is a key determinant of lending rates and credit practices throughout the banking system, since most banks take their cue from the Fed when deciding what to charge their borrowers. Why Is the Fed Important? The Fed helps to guide economic policy, provide a robust banking network and ensure an effective payment system all of which contribute to a healthy national economy. By setting a target federal funds rate and using monetary policy to achieve this target rate, the Fed seeks to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates, as required under the Federal Reserve Act. However, a national economy is a highly complex system, and the Fed s actions are only one influence among many on citizens economic behavior. The Fed is neither omniscient nor omnipotent, as some in the media would have us believe, and its policies are only as good as the research informing its members and shaping their decisions. Required Annual Disclosure to Church Plan Participants Retirement plans administered by the General Board of Pension and Health Benefits are church plans that are not subject to registration, regulation or reporting under the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, Title 15 of the United States Code or state securities laws. Similarly, the administrator and the trustee of the plans and the entities maintaining any investment funds under the plans are not subject to those provisions of those acts or laws. Therefore, plan participants and beneficiaries will not be afforded the protection of those provisions. 6 Hark