PPS Advisors Certified Financial Planner® Colette Frey-Bitzas concludes her interview with estate planning attorney, Linda M. Toga about the importance and misconceptions of Estate Planning in Part 2 of this informative two-part video series.

PPS Advisors Certified Financial Planner®, Colette Frey-Bitzas interviews estate planning attorney, Linda M. Toga about the importance and misconceptions of Estate Planning in Part One of a two-part video series.

Reinvesting your dividends can help to grow your account balance over time.

Entering your 50s and behind in your retirement planning goals? Don’t fret. You’ve still got time to get your financial plan back on track.

There are many steps that older investors can take to better prepare themselves financially for retirement. Here are six tips that may help you make the most of your final working years.

1. Catch up. If you have access to a 401(k) or other workplace-sponsored plan at work, make the $5,500 catch-up contribution that is available to participants aged 50 and older. Note that you are first required to contribute the annual employee maximum, $17,500 for 2013, before making the catch-up contribution.
2. Fund an IRA. Investors aged 50 and older can contribute $6,500 annually (the $5,500 annual contribution plus an additional catch-up contribution of $1,000). An investor in his or her 50s who contributes the maximum amounts to both a 401(k) and an IRA could accelerate retirement savings by more than $25,000 a year.
3. Consider dividends. If you do not have access to a workplace-sponsored retirement plan, or you already contribute the maximum to your qualified retirement accounts, consider stocks that offer dividend reinvestment. 1 Reinvesting your dividends can help to grow your account balance over time.
4. Make little cuts. Consider how you can trim expenses while continuing to enjoy life. Some suggestions for quick savings: eliminate or reduce premium cable channels that you do not watch, memberships that you do not use regularly, and frequent splurges on dining out or coffee runs. An extra $100 a month saved today could make a big difference down the road.
5. Review strategies for postponing retirement. You may be able to learn new skills that could increase your marketability to potential employers. Even a part-time job could reduce your need to deplete retirement assets.
6. Don’t give up. Many preretirees falsely believe that there is nothing they can do to build retirement assets and, as a result, do nothing. Remember that you control how much you invest and, in many areas, how much you spend. Make a plan — and stick with it.

1Investing in stocks involves risk, including loss of principal.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Will You Outlive Your Assets?

The first step in tackling longevity risk is to figure out how much you can realistically afford to withdraw each year from your personal savings and investments

Many Americans do not realize that one of the greatest risks to their financial security in retirement may be outliving their money. According to pension mortality tables, at least one member of a 65-year-old couple has a 72% chance of living to age 85 and a 45% chance of living to age 90.¹ This suggests that many of us will need to plan carefully to ensure that we don’t outlast our assets.

The first step in tackling longevity risk is to figure out how much you can realistically afford to withdraw each year from your personal savings and investments. You can tap the expertise of a qualified financial professional to assist you with this task or you can use an online calculator to help you estimate how long your money might last.

One strategy to help your money last is to withdraw a conservative 4% to 5% of your principal each year. However, your annual withdrawal amount will depend on a number of factors, including the overall amount of your retirement pot, your estimated length of retirement, annual market conditions and inflation rate, and your financial goals. For example do you wish to spend down all of your assets or pass along part of your wealth to family or a charity?

Tips to consider

No matter what your goals, there are ways to potentially make the most out of your nest egg. Here are a few suggestions.

• Start a cash reserves fund. You’ll likely need ready access cash reserve to help pay for daily expenditures. A common rule of thumb is to keep at least 12 months of living expenses in an interest-bearing savings account, though your needs may vary. Then, consider refilling your cash reserve bucket on an annual basis by selectively liquidating different longer-term investments, timing gains and losses to offset one another whenever possible.
• Be aware of interest rates. Responding to the current interest rate environment is one way to potentially squeeze more income from your savings and stretch out the money you’ve accumulated for retirement. For example, if rates are trending upward, you might consider keeping more money in short-term certificates of deposit (CDs).²  The opposite strategy may be employed when rates appear to be declining.
• Look into income-generated investments. Most retirees need their investments to generate income. Bonds and dividend-paying stocks may help fill this need. “Laddering” of bonds—purchasing bonds with varying maturity dates at different times—can potentially create a steady income stream while helping reduce long-term investment exposure. Dividend-paying stocks potentially offer the opportunity for supplemental income by paying part of their earnings to shareholders on a regular basis.⁴ Additionally, investing an equity-income mutual fund, which generally holds many dividend-paying stocks, may help reduce risk compared with investing in a handful of individual stocks.⁵

¹ source: Social Security Administration, Period Life Table, April 2012

² Certificates of deposit (CDs) offer a guaranteed rate of return, guaranteed principal and interest, and are generally insured by the FDIC, but do not necessarily protect against the rising cost of living.

³Diversification does not ensure a profit or protect against a loss.

⁴Companies that offer dividend-paying stock cannot guarantee that they will always be able to pay or increase their dividend payments.

⁵ Investing in mutual funds involves risk, including loss of principal.

The recession — and subsequent slow recovery — has caused millions of Americans to focus even more closely on living within their means. If you are ready to face up to your own financial realities, one crucial step is to set out a plan of action. Here are some key considerations to keep in mind.

Tip 1: Keep Track of Your Spending

It’s hard to reduce your spending if you don’t have a good idea of how much you are spending. Keep track of your typical monthly expenses for three months to find out where your money is going. To get an even more realistic idea, factor in some unexpected expenses — such as auto and home repairs. Once you have a record of your spending, compare your average monthly outlay to your monthly income. If you have a surplus, this is the amount you can apply each month to paying down debt and building savings. If you have a shortfall, you’ll need to examine your expenses more closely to see what you can potentially cut back or cut out.

Tip 2: Keep Saving

One way to establish good saving habits is to make saving even easier than spending. A handy tip is to set up separate savings accounts with separate goals attached to them. Here are three suggestions that can help you better allocate your savings.

• “Emergency Account” — Your goal for this account should be to build up at least three to six months of living expenses. This way, if you lose your job or need a lump sum to pay for a significant expense, you may not have to tap into your other savings or ring up more debt.
• “Family Account” — This account can help fund your children’s school expenses (such as class trips and team uniforms) or vacations.
• “Investment Account” — This account should be reserved for general or long-term saving goals. Hopefully, you already have a retirement savings account (either through your workplace or on your own) and perhaps a college savings plan. But having another account to save for other longer-term goals — maybe to start your own business or remodel your home — can be a smart move.

Tip 3: Keep a Tight Watch on Your Credit Cards

• If you’ve accumulated significant credit card debt, you’ve first got to stop the bad behavior. Paying off debt is easier once you stop using your credit cards.
• Pay off your highest interest credit card debt first, making sure you avoid the “minimum balance trap.” Paying more than the minimum can make a big difference.
• Consolidate your debt by transferring outstanding balances to lower-rate cards. If you don’t want to transfer your balances, you may be able to get your current credit card company to match the interest rate of a competitor.
• Cancel all cards except for the one that offers the lowest interest rate.
• Finally, set up a realistic payment timetable and stick with it. If you have trouble keeping pace, talk to a professional. The counselors at the nonprofit National Foundation for Credit Counseling can help develop a more structured plan for you. To find the nearest location, call 800-388-2227 or visit www.nfcc.org.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Like buying a house or car with the help of a loan, investing on margin simply means purchasing securities with borrowed funds.

A margin account can be a valuable tool for investors seeking flexibility in managing their portfolios. Margin accounts offer convenience,sophistication, and an integrated approach that allows you to fully capitalize on market opportunities. But investing on margin isn’t for everybody. It involves elevated risk and is not appropriate for many situations.

How It Works

Like buying a house or car with the help of a loan, investing on margin simply means purchasing securities with borrowed funds. To purchase a stock on margin, you first need to have a margin account with a broker.1 Depending on the account, different securities may be permitted different levels of margin purchases. For example, you may be allowed to buy up to 75% of one stock on margin, while another may only allow up to 40%.

Margin accounts are typically subject to minimum account balances, which are often based on the loan-to-value ratio of the account (LTV). A margin call occurs when the total loan amount outstanding exceeds the security value of your investment portfolio. A margin call may occur due to a reduction to an LTV held within your investment portfolio. Alternatively, adverse market movements causing a decline in your investment portfolio may trigger a margin call.

To meet a margin call you would need to reduce your loan by depositing funds, provide additional approved investments to increase the security value of your investment portfolio, and/or sell sufficient investments to reduce your overall LTV level. If you do not meet a margin call within the specified time period, your broker may sell sufficient investments held by you to bring your loan back to an acceptable level.

Margin Strategies

To use margin successfully, it helps to set certain parameters and follow the best practices of seasoned margin investors.

• Use margin for appropriate assets. Your investing goals for a given investment account should dictate whether or not a margin investing strategy is appropriate. An everyday trading account seeking long-term growth that is used for multiple purposes might be the most appropriate, especially if you are an active trader.
• Be selective. As with any investment, it pays to know what you are investing in before you buy it. This is particularly important in a margin purchase, where a wrong guess can cost much more. Consider companies with strong fundamentals and those in growth industries with an established track record of long-term growth. Using margin accounts for the latest hot stock or to chase momentum stocks is risky.
• Keep it short. Investment professionals typically recommend limiting margin purchases to short periods of time. Consider setting one- or two-month windows for margin purchases so that you are not exposed for too long a period to unforeseen price drops or market corrections. And keep in mind that you are paying interest on your borrowed funds, which will lower your net investment return.
• Avoid margin calls. A margin call can force you to sell a holding at an inopportune time, locking in losses or missing out on a rally. Worse yet, your broker could liquidate your account for you. To avoid this situation, calculate up front your minimum maintenance requirement –typically 30% of the current value of the account — and make sure it does not go below this limit.
• Know when to get out. This holds true on both the winning and losing sides of a trade. If you’ve purchased a stock on margin that has subsequently had a good run, don’t get greedy. Likewise, set a limit as to how much of a loss you are willing to take before you sell, and stick to it. One of the most common mistakes investors make is to hold on to a loser too long.

A margin strategy executed prudently can be a valuable tool. But you have to be disciplined, know what you’re doing, and accept a high amount of risk.

1Investing in stocks involves risk, including loss of principal.

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.

Expecting a bundle of joy and wondering if you will be able to afford sending him or her off to college? Fortunately, you have a number of tax-advantaged federal and state college savings vehicles at your disposal, including the 529 plan, which comes in two varieties: the prepaid tuition plan and the savings plan.

The Prepaid 529 Plan

A prepaid plan allows you to pay now at today’s rates for school tomorrow. In return, your account is guaranteed to pay for the tuition and fees at the state’s public universities and colleges by the time your child graduates from high school. Note that prepaid plans often do not cover the costs for room and board. Your child also may use the prepaid account to attend a private or out-of-state school, but you might risk forfeiting some of its value depending on how the plan values its contracts. Note, too, that most prepaid plans require that you or your child be a resident of the state in which the plan is offered.

The 529 Savings Plan

The 529 college savings plan is far more flexible than the prepaid tuition schemes. The money accumulated may be used at any school you choose and for all qualified higher education expenses, including room and board.

Each state determines what the lifetime contribution limit or account balance cap will be in its 529 plan, but typically such limits range between $100,000 and $270,000. Investment minimums are low (most plans let you sock away as little as $25 a month as long as a minimum of $500 is accumulated within two years of the initial purchase date), and there is no restriction on how much you may contribute every year unless the account is nearing the lifetime cap.

However, since 529 contributions are treated as gifts subject to gift-tax limitations, if you want to make a tax-free contribution, it shouldn’t exceed $13,000 annually ($26,000 if you’re contributing with your spouse). There’s one exception, however: You may contribute as much as $65,000 tax free in one year ($130,000 with your spouse), but that contribution will be treated as if it were being made in $13,000 installments over the next five years. That means you can’t make other tax-free gifts to the beneficiary during that time.

Most 529 savings plans offer a menu of age-based portfolios, and some also offer a small selection of stock and bond funds. In the former case, your annual contributions get invested in a pre-selected portfolio of stocks and bonds. Early on, the portfolio is tilted toward stocks, and as the time for college nears, the weighting shifts toward bonds. You can switch investments up to twice a year.

The quality of 529 college savings plans varies by state, but in most instances you may open an account in any state you’d like. All 529 plans offer generous tax breaks, provided you use the money for qualified expenses. While your contribution is not deductible on your federal taxes, your investment will grow tax-deferred and withdrawals will not be subject to federal tax.

You should always compare the 529 plan of your choice with any 529 college savings plan offered by your home state or your beneficiary’s home state and consider, before investing, any state tax or other benefits that are only available for investments in the home state’s plan. You should always read the Plan Disclosure Document which includes investment objectives, risks, fees, charges and expenses, and other information. You should read the Plan Disclosure Document carefully before investing.

Investment Risks

Investing in college savings plans comes with some risk. Unlike prepaid tuition plans, they don’t lock in tuition prices. Nor does the state back or guarantee the investments. There also is the risk with most college savings plan investment options that you may lose money or your investment may not grow enough to pay for college.