People who have already exhausted their unemployment benefits can reapply for additional benefits under this bill.

The bill still has to get through the House and then must be signed by the President, but it is not expected to change much before the final passing.  This is expected to be the last extension for unemployment benefits.

Data shows that one out of three unemployed people have been unemployed for more than six months.  Normal unemployment benefits run for 26 weeks, so this bill is intended to help those who have suffered extended unemployment periods.

On the bright side, the number of people filing for unemployment benefits declined last week, indicating that we might be at the peak of the unemployment for this recession.  Currently the national unemployment rate is 8.9%; it was expected to climb to over 10% before the labor market started recovering.  Hopefully the decline in new unemployment claims indicates an earlier than expected recovery in the labor market.

It’s hard to say what 2009 will look like. While there are still several concerns (the housing market, rising unemployment, etc.), there will also be considerable government intervention to help improve the economy this year, both in the U.S. and worldwide.

So what should you do in 2009 to make your portfolio and overall financial picture better? Here are some general ideas to employ as markets and economies hopefully stabilize in the New Year:

Start with a plan (or review an old one): If you’ve worked with a financial planner in the past, now is a good time to review your plan to make sure you are still on track to meet your goals. If you haven’t worked with a financial planner before, or if you haven’t prepared a financial plan before, it might be time to meet with a Certified Financial Planner™ to create a plan. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.

Check all your assets in banks: As a result of federal economic bailout legislation, the Federal Deposit Insurance Corporation (FDIC) temporarily raised the per-deposit account, per bank coverage level from $100,000 to $250,000 through Dec. 31, 2009. Certain retirement-related accounts carry $250,000 of FDIC coverage, but again, check in with your bank to make sure you’re covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability or fees.

Review your risk tolerance: Having a plan doesn’t mean make the plan and leave it to sit for years. You and your planner should decide when it’s time for a review of your investment goals and your feelings about them. An annual conversation makes sense if nothing’s going on, but when unusual circumstances in life or the markets take place, a phone call might be a good idea.

Prepare to stay invested: Stock downturns are always filled with panic selling – and buying. If your financial plan is sound, be prepared to stay the course, but work with your advisor to make sure you have your priorities covered. While times are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford in. You’ll reap rewards when the market returns.

Check your credit: No one knows how long it might take to unravel the nation’s current credit situation. That’s why creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely a good time to schedule review of each of your latest credit reports at staggered intervals throughout the next year. Why? Because in tough economies and times of tight credit, identity theft might be on the rise, and you’ll need to make sure the information on your credit data is truly your own.

Pay attention to your cash: You should have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash on reserve so you can capitalize on legitimate opportunities.

Re-budget: It’s a good time to make a budget or re-assess the one you have. Though the federal government would love for consumers to start spending again to lift the economy, that doesn’t mean you have to jump in with both feet. Keep your spending smart, your debt low so it’s easier to set savings and investment priorities that will do you the most good when the economy and the market come back.

Check your retirement: How will the activity in the market affect your retirement timetable? You might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.

December 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided (and edited) by Kristine McKinley, a local member of FPA.

Here’s what Walter Updegrave with Money Magazine has to say about this:

But as understandable as the urge may be to transfer all your money into the investments that seem safest – stable value funds, capital preservation funds, money market funds and the like – that would be a mistake.

Yes, you have the option of switching back into stock and bond funds later on. But getting the timing right is difficult, if not impossible. You could easily end up missing the early stages of a market rebound, which would make it even harder for your 401(k) to regain lost ground.”

Updegrave goes on to say that now may be a great opportunity to take a more comprehensive review of your retirement planning strategy.  While you should review your retirement plan on a regular basis anyway, it’s even more important after a bad year like 2008 to make sure you’re still on track to retire on time.

Updegrave has three retirement resolutions for investors for the new year:

Resolution #1: Kick up your savings a notch

For example, if someone 35 years old who makes $40,000 a year and gets 3% annual raises contributes 10% of salary to a 401(k) that earns 7% a year, that person would have $535,000 by age 65. But if the markets whack that 401(k) for a 25% loss on the eve of retirement, its value would fall to just over $400,000, requiring this would-be retiree to significantly scale back his retirement lifestyle or postpone retiring altogether.

But if this person had socked away just two percentage points more a year, or 12% of salary, he’d have a 401(k) worth about $642,000. That same 25% hit would drop his account’s value to roughly 482,000. While still a big loss, he might be able to retire on schedule by scaling back his spending a bit rather than postponing retirement altogether. Or he might not need to put off retiring for as long.

The point is that by saving more during your career, you’ll end up with a larger nest egg than you otherwise would, which gives you more maneuvering room if the markets turn against you or, for that matter, if you find you’re forced out of the workforce sooner than you would like.

Resolution #2: Create an actual retirement plan

Clearly, there are lots of moving parts here, so you can’t nail down all these variables with decimal-point precision. But you can make reasonable estimates. You can then fine tune your planning as your circumstances change and as you near retirement (and even once you begin living it).

Resolution #3: Resist the impulse to overreact when the markets go haywire

This is probably the hardest resolution to keep. The point of having a comprehensive plan is to set you on a course that can lead to a secure retirement even though the economy and financial markets will go through major upheavals along the way.

You can’t predict these ups and downs in advance or insulate yourself from them entirely. But a plan based on reasonable savings and realistic investing should allow you to roll with the economic punches and improve your chances of reaching retirement with the resources you’ll need.

The problem is sticking with the plan. When the markets take a dive as they have over the past year, there’s a natural tendency to feel you must take quick action to protect your nest egg. The same impulse to act arises when the markets soar to absurd heights as they did in the late 90s. Unfortunately, following these urges usually leads to trouble. It makes us more apt to invest too conservatively after a market setback and more likely to take on too much risk when the market is approaching unsustainable highs.

So once you’ve gone to the trouble to create a plan, don’t be so quick to dump it. Review it? Sure. Maybe you were overconfident when you originally set your stocks-bond mix, in which case you might want to re-think your asset allocation and re-assess how much you should be saving.

But if you abandon your plan whenever the economy slumps (or soars) or the stock market crashes (or takes off), then you don’t really have a plan at all. You’re winging it, which is the same as entrusting your retirement security to luck.”

You can read the complete article here: http://money.cnn.com/2009/01/05/pf/expert/retirement_resolutions.moneymag/index.htm?postversion=2009010609

Similarly, if you’re investing for long-term goals such as retirement, you will encounter some market volatility, probably several times along your journey.  While you may be tempted to pull over and wait out the rough times, it will delay or may even prevent you from reaching your goals.

So what should you do when the road to investing gets bumpy?

Buy Low, Sell High:  The whole premise behind investing is to buy low and sell high.  You can’t do that if you pull out of the market or stop investing when the market goes down.  If you’re investing for the long-term, you should be glad when the market is down, because then stocks are “on sale” and you can pick up more shares at a lower price.  Who doesn’t love a good sale?

Diversify: One of the best ways to defend your portfolio against market losses is to have a portfolio that is properly diversified.  If you review the history of the stock market, you’ll see that the best performing assets vary from year to year and that it’s not easy to predict which asset class will perform well in any given year.  Therefore, by having a mix of asset classes, based on your risk tolerance, your goals and your timeframe, you are more likely to meet your goals.  In addition, having a mix of asset classes reduces your risk of loss, since you won’t have all of your eggs in one basket.

Rebalance Once a Year:  Just like keeping your car maintained, you should review and rebalance your portfolio once a year.  You should have an asset allocation that is right for your risk tolerance, goals and time frame.  Once a year, you need to review your portfolio to ensure that your assets are still allocated properly to meet your goals.  Doing this periodic maintenance will help ensure that your portfolio performs well on a long-term basis, and will help you reach your investment goals.

Stay the Course: When the market gets volatile, your best bet is to stay the course. If you pull out of the market when it’s down, you could do more harm than good.  In addition, if you pull out of the market with the intent of getting back in when the market recovers, you will likely miss the best days, months or even years of the market, which could result in a much smaller nest egg than if you had just stayed in the market.

It’s normal to be nervous when the market gets volatile, but it’s important to continue to follow your long-term investment plan so that you remain on the road to reaching your financial goals.

While you may not be able to make the market go back up or keep banks from failing, there are steps you can take to make your finances as strong as possible in these tough times:

1.  Fund your emergency fund.  It’s more important than ever to have an emergency fund, in case you lose your job, have unexpected medical expenses, or have a major house repair, so that you don’t have to sell investments (while they’re down), or rack up credit card debt.  The general rule of thumb is to have three to six months of living expenses set aside for emergencies.

2.  Reduce debt.  If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt.  Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent).  Then make the minimum payments on all of your credit cards except the highest interest rate card until paid off.

3.  Review your spending.  I’m always amazed at how many people have no idea where their money is going each month.  How can you reach your goals if you don’t know where your money is going?  If you aren’t already doing so, now is a great time to start tracking your spending using a software program (such as Quicken) or even spreadsheets that you create on your own.

4.  Increase your retirement contributions.  Many people panic and stop investing in their 401Ks or other retirement accounts when the market is down.  When the market is down is actually the best time to invest.  Remember “buy low, sell high”?  Well, the time to buy low is when the market is down!  Make sure that you are investing in a diversified portfolio that meets your risk tolerance, time frame and goals, and that you rebalance once a year.

5.  Refinance your mortgage or other debts.  Interest rates are at historical lows, so why not take advantage of these low rates to do something good for your checkbook?  Remember, you will pay closing costs anytime you refinance, so it’s best to refinance if you expect to be in your home for five years or more and only if you can get your interest rate reduced 0.75-1.0%.

6.  Check your credit report at least once a year.  With the rise in credit card fraud and identity theft, it’s crucial that you check your credit report periodically.  You should check your credit report at least once a year, but 2-3 times per year would be even better.  To check your credit report for free (doesn’t include your credit score) go to www.annualcreditreport.com.

7.  Review your insurance coverage.  Check your car, home, life and health policies to make sure you have the right coverage at the right price.  The last thing you want to do in a recession is to incur a financial loss because your insurance isn’t up to date, and you might even save a few dollars by raising your deductible or by discovering discounts that you are entitled to.

8.  Finally, turn off the news!  A CNBC reporter said it best, on one of the many volatile days we’ve experienced this year… “If you’re invested for the long-term, turn off the news, it doesn’t affect you today”.

Thankfully, there are safety measures in place for various types of accounts and investments.  Here is a rundown of the different safetynets in place for each type of account or investment you may have:

Banks:  Bank deposits are ensured by the Federal Deposit Insurance Corporation (FDIC).  Basically, the FDIC insures deposits up to $100,000 per owner, per bank.  If you have $100,000 or less in your name at any FDIC-insured bank or savings association, you have nothing to fear.   Since the limit is per owner, that means you could actually have more coverage than you think (for example, if you and your spouse have a joint account with $300,000 at one bank, $200,000 is insured – $100,000 for each “owner”).

In addition, if you have certain types of retirement accounts, such as an individual retirement account, you’re eligible for even more coverage – up to $250,000 per owner, per bank.  However, the FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities and municipal securities, even if you bought those investments at an FDIC insured bank.

If you want to make sure that your deposits are below the FDIC limits, please visit EDIE The Estimator.   EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts.

Credit unions have similar coverage through the National Credit Union Administration (NCUA).

Mutual Funds and Brokerages:  Some investors are wondering what would happen in the event that the mutual fund or brokerage company they hold their investments at would fail.  The funds that you own at a mutual fund company or a brokerage account are separate from the company’s assets.  So in the event of a company failure, your assets would not be liquidated to pay the company’s debts.  If the mutual fund or brokerage company failed, your assets would just be transferred to another brokerage company.

However, if any of your assets come up missing, whether it’s due to company failure, fraud or poor recordkeeping, you are protected.  The Securities Investor Protection Corporation (SIPC) is a non-profit corporation that protects investors if a broker/dealer defaults.  Investors are protected up to $500,000 per account, per brokerage company.

Note that the SIPC doesn’t cover all investments.  Some that aren’t covered includ annuities, commodity futures contracts, foreign currencies, limited partnerships and precious metals.  Also, the SIPC isn’t providing protection against market losses or bad investments. The purpose of the SIPC is to replace securities that are missing from customer accounts, up to the limits of its coverage.

Now that you are aware of the limits, both at banks and brokerage or mutual fund companies, the best way to protect yourself is to make sure that you are not above the insured limit at any of the financial institutions you do business with.  If you are, you may need to open different ownership type accounts or open new accounts at different institutions to ensure that your money is safe.  In addition, not all CDs and deposit accounts are FDIC insured.  Before you purchase an investment, make sure it is covered by the appropriate agency, and do your research to determine if you are investing with a reputable company.

I have always loved the convenience of debit cards, but this recent experience has me re-thinking the cost of that convenience.

First, your liability if you are a victim of debit card fraud is greater than if someone steals your credit card or uses your credit card to make unauthorized purchases.

With credit cards, your liability for unauthorized transactions is limited to $50. However, most major credit card issuers have a zero liability policy, so you typically aren’t liable for anything if you are a victim of credit card fraud.

With debit card fraud, your liability is limited to $50 only if you notify your financial institution within two business days after realizing their card has been lost or stolen. After that, your liability is limited to $500 if you report any suspicious activity within 60 days of receiving your account statement. After 60 days, your liability is unlimited, so it’s very important to check your statements on a regular basis.

Another big difference is that with debit card fraud the thief is stealing money directly from your checking account. Which can mean bounced checks, late fees, or even black marks on your credit report while you’re fighting to get your money back. With credit card fraud, you are fighting unauthorized charges, which can reduce the amount of credit you have available, but it doesn’t affect your cash flow like debit card fraud.

Even if you detect the fraud early and you are able to recover all of the money taken from your checking account, with debit card fraud you may be without your money for a period of time while your bank is investigating the fraud. I was very discouraged to find out that my bank can take up to 10 days to refund the money to my checking account (a previous bank refunded my money the same day when I was a victim years ago). And in some cases, your bank has up to 45 days to refund your money!

So what can you do to avoid debit card fraud (or credit card fraud)? While you may not be able to avoid it completely (if a thief really wants your money he’s probably going to get it no matter how cautious you are), here are some steps you can take to minimize your risk for fraud:

• Check your account balance and activity frequently – I check mine at least once a week, and usually more, but since I was on vacation this past week it took a little over a week to discover the unauthorized transaction in my checking account.
• Call your bank immediately if your debit card is lost or stolen.
• Check your bank statements immediately (no throwing them in a pile or drawer to review a month later).
• Notify your bank by phone (or in person) and in writing as soon as you discover the fraud.
• If it’s an unauthorized transaction, contact the company the thief purchased goods through immediately upon discovering the fraud – in writing.
• Be cautious about where you use your debit card. I’m not sure how the thief got my debit card information since I use my debit card frequently, but I’m pretty careful about not using my card on websites that don’t look secure, or stores where I don’t shop regularly.
• Keep receipts or other records to back up all of your purchases. If you use your debit card frequently but don’t keep good records, it’s possible that an unauthorized transaction could slip by you unnoticed.
• Use a credit card instead of a debit card if you are shopping online or with someone you don’t know.

Money Makeover: Couple frets over saving at the same time for their retirement, kids’ college expenses

by Gene Meyer
The Kansas City Star

Steven and Angie Cortez look into the future and see a financial dilemma they want to resolve now.

The couple, who both are educators and not yet 40, theoretically will be eligible to retire when Steven turns 53 and achieves the combination of age and years in service to qualify for Kansas Public Employees Retirement System teachers’ benefits.

That doesn’t seem realistic, the Olathe residents say, because their children, twins Kennedy and Carson, who turn 6 Monday, will still be in college when the milestone arrives.

They don’t mind postponing retirement for a few years. But they are concerned about how best to prepare now to hit two humungous savings targets — college and retirement — so potentially close together.

“We’ve been told that we should max out our Roth IRA savings before we contribute anything to college funds, but I’m not sure that’s the best way to go,” Steven Cortez said.

Neither target is an easy one.

Some rough, back-of-the-envelope calculations based on College Board projections show that the $50,000 it costs to send a student to a public college for four years now may more than double by the time Kennedy and Carson are freshmen. For a private school, the already higher costs will almost double too.

But a financial planner who analyzed the Cortezes’ situation more thoroughly calculates Steven and Angie also need to accumulate $1.97 million in the next two decades to supplement his KPERS and their other projected retirement benefits so he can retire at 60 and live as comfortably as they do now.

“Retirement savings should be your higher priority,” said Kristine McKinley, the certified financial planner from Lee’s Summit who examined the Cortez’s circumstances.

Saving for retirement often is more urgent than saving for college, McKinley said. First, as is the case with the Cortezes, retirement requires more money than college. Second, families have resources such as loans, grants or scholarships to turn to if savings come up short. Retirees have far fewer alternate choices.

But there’s good news too, McKinley told the couple.

Saving more aggressively and more efficiently now for retirement should also provide a potential cushion to help with the college funding if that’s needed.

The keys are Roth IRAs that the Cortezes opened to provide tax-free income when they retire. In a jam, Roth savers also can withdraw money they’ve contributed — but not the investment profits earned — before retirement without incurring penalties, she said. Pulling money out also will trim the account’s potential growth, however, so it shouldn’t be done lightly.

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Despite a limited income, I’ve invested wisely in my IRA over the years and could retire next year at age 62. However, I don’t know if I will be able to get medical insurance or how much it will cost after the COBRA provisions expire in 18 months. Given that I take medication for depression, it is likely that any future coverage would have major restrictions — that is, if I were able to get coverage at all. Are there any alternatives for health insurance for people like me?

You ask such a great question. So many of our readers have saved carefully through the years and could retire early, except for one unknown: How much they’ll have to pay for health insurance until they’re eligible for Medicare at age 65. You’re very wise to start thinking about that now and get an idea of how much those extra costs will be.

The good news is that several consumer-protection laws can help you qualify for health insurance on your own, even if you have medical conditions.

Your first step should be to continue coverage through your employer’s plan through COBRA, a federal law that requires employers with 20 or more employees to let them keep their coverage for up to 18 months after they leave their jobs. Your premiums will be a lot higher than they had been as an employee — after you leave the job you have to pay both the employer’s and employee’s share of the cost, and most employers subsidize about 75% of the premiums for employees. But at least you can’t be rejected or charged a higher rate because of your health.

If you’re healthy or have moderate medical conditions, check out your other options right away because you may find a better deal on your own. The prices and rules about covering medical conditions can vary enormously from insurer to insurer, so it’s a good idea to contact an insurance broker who knows which insurers in the area are likely to offer the best deal for someone with your condition (you can find a health insurance broker in your area through the National Association of Health Underwriters). You can also visit eHealthInsurance.com to get price quotes for several companies’ policies (or call 800-977-8860 if you have medical conditions to explain them up front).

If you have a medical condition, some insurers may reject you while others may offer you a decent rate. Or some may offer you a policy but exclude the condition, while others could boost your premiums by 25% to 150%. It’s generally better to pay extra than to accept an exclusion for a potentially expensive condition.

And if insurers do reject you, you generally have other options. Thirty-three states have high-risk pools, which must accept people with medical conditions who have been rejected elsewhere (for more information, go to the National Association of State Comprehensive Health Insurance Plans Web site. And a few states, such as New York, New Jersey and Massachusetts, must cover everyone regardless of their medical condition — this is called “guaranteed issue.” This leads to very expensive insurance for younger, healthier people, but does provide an option for people who have health problems.

A few states don’t offer high-risk pools or guaranteed issue policies, but you should still have some options if you’re coming off an eligible group policy. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that states provide some kind of coverage after you exhaust COBRA as long as you haven’t been without coverage for more than 63 days in the preceding 18 months. For more information, see Health Coverage for All.

The rules and strategies vary a lot from state to state, but you should be able to get a lot of information at your state insurance department Web site (go to our insurance page for links). The Georgetown University Health Policy Institute also publishes excellent consumer guides for getting and keeping coverage in each state.

Tags: health insurance, insurance for early retirees