A new featured article from George Chamberlin's national newsletter, Investing For Rookies, will be posted each month. Read our past articles here.

Featured Article for February 2012:Dealing with Debt
Featured Article for January 2012:10 Tips for 2012
Featured Article for December 2011: Start Planning for Retirement
Featured Article for November 2011: Retirement
Featured Article for October 2011: Compounding Interest II
Featured Article for September 2011: Compounding Interest I
Featured Article for August 2011: Teaching Children
Featured Article for July 2011: Small Business
Featured Article for June 2011: Consumer Action
Featured Article for April/May 2011: Tax Returns
Featured Article for March 2011: A Grandfather's Advice
Featured Article for February 2011: Marriage Financial Planning
Featured Article for January 2011: Taxes
Featured Article for November 2010: Legacy Planning
Featured Article for October 2010: Money and Marriage
Featured Article for September 2010: Retirement
Featured Article for August 2010: Wall Street Reform
Featured Article for July 2010: Saving for College
Featured Article for June 2010: Savings Bonds
Featured Article for May 2010: Top 10 Investor Traps

Dealing with Debt
There is growing evidence the economy is quickly moving down the road to recovery. For instance, a report from Equifax® Information Solutions finds bankruptcy filings have declined sharply in recent quarters. Commercial bankruptcy filings have decreased 44 percent from the peak in the second quarter of 2009. And, personal bankruptcy applications are down 26 percent since peaking in the second quarter of 2010.

“The downward trend in the number of bankruptcies is an indication of the improvement in economic conditions,” said Dr. Reza Barazesh of Equifax. Of course, there are still a lot of people out there having a difficult time dealing with debt as a result of losing a job, unexpected medical expenses or any number of other circumstances. As a result, they often reach out for help. Unfortunately, that often leads to people signing up with debt settlement companies or other programs promising to clean up damaged credit, but in reality often dig the consumer deeper into trouble.

The Consumer Federation of America warns debt settlement programs are flawed. They require consumers to make monthly payments, usually to a special bank account, until there is enough to make a lump sum settlement offer to their creditors. While consumers are putting money into their accounts, the debt settlement company is taking a portion in fees. The CFA says fees can range from 14 to 20 percent of the money set aside. That means for debts totaling $20,000, a consumer could pay fees of $2,800 to $4,000.

“There is no guarantee that your debts will be settled. The industry’s own statistics show that debt settlement doesn’t eliminate all of the debt for most consumers. The full fee can be deducted from your savings even if you are still stuck with your debts,” said Gail Hillebrand of Consumers Union®.

So, what should a troubled consumer do? The best option is to immediately contact creditors when you are facing a hardship and may not be able to pay your bills on time. There is always a possibility you might get the interest rate on your debt lowered, late charges forgiven, and monthly payments reduced. Learn more about SDCCU workout loans here.

It may be necessary to contact a non-profit credit counseling service for advice. They may be able to assist you in setting up a plan to pay off your debts over time. And, unlike for-profit debt settlement services, there will be no hefty fee but possibly a small administrative charge. The National Foundation for Credit Counseling (www.nfcc.org) can help you find a service near you to meet with for guidance.

10 Tips for 2012
Tough economic times have taken a toll on many Americans over the last couple of years. But making sound financial decisions and saving for the future can help you weather financial storms. The start of a new year is a great time to take stock of your finances, so the FINRA Investor Education Foundation has put together these 10 practical tips that can help keep your finances on course in 2012.

1. Start a Rainy Day Fund. Set aside at least one month of your current salary (and work your way up to three months) in a federally insured savings account. This will give you a cushion to handle medical bills, a short job loss, a surprise car repair or other financial emergency—and help keep your finances under control.
   
2. Handle Credit Cards With Care. Keep your credit card spending in check and try to pay your credit cards in full. If you have accumulated holiday debt, pay it off as quickly as possible. If you cannot pay your whole monthly bill, at least pay more than the minimum due. Every dollar you pay above the minimum payment can reduce the amount of interest you will pay. Getting a handle on monthly bills and expenses can help keep you from overusing credit cards. 
   
3. Check Your Credit Report and Score. Good credit and financial fitness go hand in hand. Start the new year by requesting a copy of your free credit report. Call (877) 322-8228 or visit AnnualCreditReport.com. Check to be sure your credit history is accurate and correct any discrepancies immediately. You can also request your score from the site. There will likely be a fee to obtain your score—but it’s an important number to know, since it’s what lenders use to help them decide not only whether you get a mortgage, a credit card or some other line of credit but also the interest rate you are charged for this credit.
   
4. Don’t Leave Money on the Table: Contribute to Your 401(k). Too many workers leave free money on the table by not contributing enough to their 401(k) to receive their full employer match. According to a recent study, nearly 3 in 10 workers (29.4 percent)—and 43 percent of workers age 20 – 29—fail to contribute to the full extent of their employer's match. Here’s another way of looking at it—taking full advantage of the match literally doubles your savings, even assuming no increase in the value of your investments.
   
5. Avoid Payday Loans and Other Money Drains. During difficult economic conditions, some Americans might be more tempted to use alternative forms of borrowing, including auto title or payday loans, advances on tax refunds, pawn shops or rent-to-own plans. Steer clear, since these borrowing methods are likely to levy higher interest rates than those charged by banks, credit unions or credit card companies and can drain away your money.
   
6. Don’t Overdraw Your Checking Account or Debit Card. Making ends meet during an economic downturn can put a strain on family budgets. While overdraft protection may seem like a helpful feature on a checking account or debit card, overdraft fees can add up. To avoid that expense, balance your checkbook regularly and check your overdraft protection options.
   
7. Do a Background Check on Your Financial Professional. Far too few investors have reported checking the background of their investment professional with a state or federal regulator. Investing a few minutes of your time to take this free and easy step could save you time, money and other trouble down the road. FINRA BrokerCheck®, finra.org, is a free tool that allows investors to check the professional background of brokerage firms and individual brokers.
8. Keep Your Insurance Coverage Current. The start of a new year is a good time to assess whether your insurance coverage aligns with your needs. You want to make sure that recent life changes have not left you under- or over-insured. If your children have left the home and you have paid off your house, you might need less life insurance than someone who is financially responsible for others, or has a mortgage.
   
9. Diversify Your Investments. Volatile markets can make investing a challenge, but spreading your investments both among different asset classes—meaning stocks, bonds and cash—and within each asset class can reduce your risk.
   
10. Save for College Using Tax-Advantaged Accounts. If you have children, save for college using tax-advantaged savings accounts such as a 529 plan or Coverdell Education Savings Account. The FINRA Foundation’s state-by-state survey found that less than one-third (only 31 percent) of respondents with financially dependent children have money set aside for college. Of those who are saving for college, less than one-third reported having used a tax-advantaged savings account. The earlier you start—the more financially prepared you will be to cover the rising costs of higher education.

Start Planning for Retirement
The arrival of a new year is a great opportunity to seriously make plans for the future. And, study after study suggests people need to get very serious about planning for their retirement.

Here are a few examples:

• A new survey from Yahoo! Finance finds 37 percent of adults overall – and 41 percent of women – have NO retirement savings. Nearly four in ten (38 percent) say they plan to live exclusively off Social Security when they retire.
  
• Another survey finds 25 percent of middle-class Americans say they will “need to work until at least age 80” to live comfortably in retirement.
  
• And, 75 percent of small business owners agree that so many Americans are financially unprepared for retirement that it has reached crisis levels.

Retirement
There are many things that preoccupy Americans these days, but planning for retirement should be at the top of the list.

A new survey by the National Endowment for Financial Education finds that 47 percent of adults over the age of 18 say having enough money for retirement is their top financial priority. That ranks well above owning a home, which was picked by 17 percent of those surveyed, followed by retiring early and paying for children's education.

However, those surveyed said achieving their financial goals is blocked by serious problems. Quite simply, 70 percent doubted their ability to save enough money to accomplish the task. And, 54 percent believe managing their debt will also be a barrier to success. Of course, the trick to hitting your financial targets is not difficult if you are willing to work hard and make a plan.

When it comes to retirement there is no shortage of ways to get started, stay committed and successfully reach the finish line. For instance, the sooner a worker signs on to an employer-sponsored retirement plan, the better the chance to build the nest egg to meet their goal. Remember, it's time, not timing, that makes for great investments.

Many employers today are automatically enrolling workers into their 401(k) or other plan. In many cases the employer will contribute to the retirement account along with money from the worker. That is just half of the process. It is critical to opt for investments - usually mutual funds - that match your goals and objectives, time horizon and tolerance for risk. It is appropriate to get some professional assistance in making these decisions.

For 2012, the IRS has raised the annual contribution limit for employer-sponsored plans to $17,000. Workers over the age of 50 can also make what are called "catch-up contributions." This allows an additional $5,500 to be added to the regular contribution each year. By the way, the Employee Benefit Research Institute finds that only nine percent of eligible workers made the maximum contribution to their retirement fund in 2005, the most recent year for which data is available.

Retirement savings do not have to stop at work. If eligible, consider funding an individual retirement account - IRA - that allows for additional tax-deferred saving. And, regular personal investments can also allow for money to be set aside for retirement.

Compounding Interest
A recent study of high-wealth families found 52 percent of parents have not fully disclosed their wealth to their children and 15 percent have disclosed nothing about the family’s wealth to their children. This is evidence that one of the hardest things to talk about between parents and children is money – especially if it touches on the subject of estate planning and, ultimately, mortality.

Trillions of dollars in wealth are potentially going to be moved from one generation to the next within the next twenty years. Consider the two generations: one is likely the children of the Great Depression, fearful of any discussion that involves money. The other is the baby boomers, a generation often mired in debt and woefully behind in retirement savings.

In the new book, “Protecting Your Parents' Money, The Essential Guide to Helping Mom and Dad Navigate the Finances of Retirement” (Harper Business 2011), author Jeff Opdyke suggests the only way to break down the barrier is to start talking about some sensitive issues.

“This lack of communications can be a major problem in the unique relationship between elderly parents and their grown children. Because once it's too late, it's much too late. When a parent falls ill or dies, you're suddenly thrown into the tempest – unprepared for all you will have to confront in managing the situation,” writes Opdyke.

Ask anyone who has been through this situation and they will tell you one of two things: either they were prepared for the eventuality of a parent falling critically ill or dying, or they were not prepared and had to deal with a lot of difficult decisions at a time when they were emotionally stressed.

Parents are defensive of the fact that their children think they are no longer capable of making smart investment decisions. At the same time, the children simply want to make sure parents are not exposing themselves to fraud or financial difficulties.

It is probably very likely that both sides want to have “the conversation.” Yet neither knows how to get it started. Opdyke admits there is no perfect time to start talking. He says to start by being direct and honest. If the conversation begins with mutual respect it will ultimately end the same way. Begin by discussing things like the location of important documents and other issues. Do your parents have a will or living trust? If so, are you the executor or successor trustee? Are there powers of attorney in place to deal with health and finance issues if your parents can no longer make necessary decisions? Some families decide to bring in a trusted third-party like an attorney, accountant or financial advisor to assist in these talks.

Bottom line, starting these discussions will not be easy. But, once the door has been opened it can often lead to tremendous peace of mind for all parties involved. By switching from a discussion about estate planning to creating a legacy that will live long after the parents are gone, the children will have done a great service to the family.

Compounding Interest
Considering the recent volatility – to put it mildly – in the financial markets, I thought it might be a good idea to revisit some of the core principles on investing. Sure, when you watch the major stock market indexes drop day after day it can rattle your confidence and make you wonder if it is better to stay on the sidelines, put your money someplace where there is no market risk and ride out the storm. While that may seem like a good idea, the challenge is knowing when it is time to jump back into stocks. After all, you’ll never pick up the Wall Street Journal and there is a headline saying, “Rally starts tomorrow.”

The first thing to do is calculate your tolerance for risk. Every one of us is different when it comes to the amount of risk we are willing to take. Factors such as the length of time before the funds are needed in retirement, past experience as an investor and knowledge of how the system works may impact your decision. I always suggest people consider what I call the “pillow test.” Quite simply, if the last thing you think about when your head hits the pillow at night and the first thing you think about when your head lifts off the pillow in the morning are your investments, by all means reconsider your exposure in the stocks. Never let your investments interfere with your ability to sleep.

Benjamin Graham, perhaps one of the greatest investors of all time and the guy that taught Warren Buffett how to invest, once said, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.” My take away from that statement is the profit perspective. And, while I can certainly understand why people in or nearing retirement might shy away from stocks, I cannot grasp why younger folks, those in their 20’s, 30’s and 40’s, would be afraid.

Consider two investors. The first is 25 and decides to start investing $100 a month. She does that for ten years, putting a total of $12,000 into a solid mutual fund that averages an annual return of eight percent. Even if she doesn’t invest another dime, she will have seen that investment grow to more than $201,000 when she reaches age 65. Another investor waits until age 35 to get started and also invests $100 a month - but does so from the age of 35 all the way to 65, totaling $36,000 in contributions to the same mutual fund. Yet, at 65 that investment would only be worth a bit more than $150,000.

Why the difference? Compounding. The first investors would have benefited from what Albert Einstein called the eighth wonder of the world. Bottom line, it’s time, not timing, that makes for successful investing.

Teaching Children
My seven-year-old granddaughter, Sophia, recently lost her second front tooth. She, of course, used the opportunity to joyfully sing, “All I want for Christmas is my two front teeth.” She also used the lost tooth as a way to collect a rather sizeable bounty. As a dutiful grandfather, I asked what she would like to buy with the windfall. I was pleasantly surprised when she responded by saying, “Nothing, I’m a saver.”

Obviously, I was both surprised and pleased with what she said. Of course, she certainly was aware she didn’t need to spend any of the money because her loving grandfather would probably buy her whatever she wanted. But even more impressive was that she even knew the word “save.” Hopefully, this is just the start of a lifelong commitment to financial responsibility on her part. I doubt she knows what a recession is and I hope she never has to learn what a depression is. But, some of her elders – kids in their teens today – are aware that making smart money decisions is a lesson best learned early.

A new survey from Junior Achievement finds that 90 percent of teens plan to save more and 78 percent will spend less in the wake of the troubled economy. And, 73 percent of teens currently use a savings account compared to 66 percent in 2009.

Hopefully, Sophia will, over time, transition to being an investor as well as a saver. If her grandfather has any influence, that will happen sooner rather than later. While we currently invest for her and our other grandchildren, I anxiously look forward to the time we will be able to invest with them. Young people today are much better consumers than previous generations. Sophia already has preferences when it comes to clothes and other things. That could provide the spark for her to make stock selections.

Peter Lynch, one of the greatest mutual fund managers of all time, said people should invest in companies that make products they use and understand. Sophia certainly knows about Disneyland® and the many movies and products that come from the Walt Disney Company. It will be easy for her grandfather to use a company like that to explain to her the nuts and bolts of using the stock market. She also has her favorite restaurants – she’s a big Rubio’s fan and likes the smoothies from Jack in the Box®. She doesn’t go anywhere without her Nintendo DS™ device and can work around the Internet on her home computer with little hesitancy.

Whether or not she decides to invest in any of these companies is something we will discuss in detail. But getting her started at a young age will allow her to benefit from the greatest asset any investor could use: time.

Small Business
“We're from the government and we're here to help you.”

For most people, that statement would send up alarms to be careful and that something bad is about to happen. But when it comes to the variety of services that are available to small businesses, indeed, the folks from the government can be a big help.

San Diego County is home to two Small Business Development Centers (SBDC) that offer services to people looking to start a business or existing entrepreneurs who are ready to go to the next level. Best of all, most of the services are free. Well, maybe not exactly free because these programs are funded with federal dollars through the Small Business Administration. So, in a roundabout way, people who use these programs have actually paid in advance.

The Southwestern College SBDC (www.sbditc.org) and the SBDC North San Diego County (www.sandiegosmallbiz.com), housed at Mira Costa College in Oceanside, provide one-on-one counseling to help individuals prepare a business plan that is critical to success.

Another especially timely service available through the SBDC is their procurement assistance. With many government contracts requiring participation by local businesses, there is a great opportunity to find excellent business opportunities. A series of workshops are held at the centers to provide assistance as well as individual counseling.

Of special interest in San Diego County is the emphasis on programs for military veterans including the Entrepreneurship Bootcamp for Veterans with Disabilities. In addition, the SBA, through the SBDC, offers the Patriot Express Loan program which can provide funds to veterans starting businesses.

One local business that has benefited from SBDC programs is Vista-based E-World Online, a company that works with large companies across the United States to facilitate recycling of electronic equipment that contain dangerous chemical content. In 2005, co-founder and President Cindy Erie went to the SBDC in Oceanside to seek help in getting her business started. Last month, Erie was honored as the Small Business Person of the Year by the SBA.

She, and many others, credit their success to the assistance they received from these programs.

Consumer Action
We all have a tendency to whine and moan once in a while about the way the federal government spends our money. But, sometimes we do get our money's worth.

The 2011 Consumer Action Handbook is one of those occasions. Each year, the U.S. General Services Administration compiles a mother lode of information that every consumer should have at their fingertips. And, it is no small tome, checking in this year at a hefty 159 pages. Best of all, it's free.

The book provides detailed information on how to be a savvy consumer. Everything from buying a car to writing a will is included. For instance, did you know that there are four different government websites that provide information on product recalls?  They include recalls.gov, which is a site that gathers information from various government agencies. There are separate websites for vehicle and equipment recalls, food recalls and medical products recalls.

Each section of the handbook also includes tips on how to avoid becoming a victim of fraud. However, my favorite section of the handbook deals with filing a complaint if you feel you have been wronged as a consumer. It provides a step-by-step of how to get things resolved, beginning with the proper way to go to the source to try to get things fixed to your satisfaction.

Included in the handbook is a list of manufacturers and appropriate contact information. Also available is another list of industry trade associations that may also be helpful in getting a problem fixed.

One of the real gems in this area is a sample letter you can write using the contact information provided, that will present your problem and offer a suggested resolution. I have actually used the letter many times with positive results.

If that doesn't work, the handbook provides an extensive list of local, state and federal agencies to contact for assistance.

Tax Returns
Each year, Americans lend a staggering amount of money to the federal government and don't earn a single penny in interest for their generosity. 2010 was a record setter for tax refunds. The Internal Revenue Service refunded $328 billion to taxpayers, with the average refund topping $3,000. This year, the refunds are going to be even bigger.

Of course, common wisdom suggests that getting a tax refund is poor financial planning. Letting anyone, including Uncle Sam, hold your money for a year without some reward is not very smart. Others would suggest that a tax refund is a form of forced saving that provides an annual windfall that can be used to pay for a summer vacation, back-to-school clothes or needed home repair.

So, what is the best way to either eliminate the refund to put it to good use?

Many people who get refunds also complain that they lack the money to save for retirement. Instead of having money withheld from your paycheck and sent off to the U.S. Treasury, why not have the money diverted to a 401(k) or other employer sponsored retirement account? Your take-home pay will remain the same but you will now be investing for your future and the money will grow in a tax-free account. By the way, this strategy will pay even bigger dividends if your employer matches a part of your contribution.

Some would say that putting $3,000 a year into a retirement account is a small effort with limited benefits. But, before you know it, putting the money to work for you will result in a sizable nest egg that will pay dividends for many years to come.

However, if you can't break the habit of getting a tax refund, try to put the money to good use. The first thing that comes to mind is paying down any outstanding credit cards or other types of personal loans that carry a high rate of interest. Other options for a refund could include funding your childrens' education accounts, saving for a down payment on your first home or starting that small business you've always dreamed about.

Then again, I guess you could use it to buy that giant flat screen TV you think is an absolute necessity.

A Grandfather's Advice
Legendary investor Warren Buffett recently sent out his annual letter to shareholders in his company, Berkshire Hathaway. The letter has always been a folksy message to investors who have benefited over the years from the success Buffett has realized in the 46 years he has been at the helm of what was originally a textile company and has grown into a diversified business that is the largest shareholder in companies like Coca-Cola®, Procter & Gamble® and Walmart®.

This year, Buffett used the shareholder letter as an opportunity to talk about one of the financial lessons he learned early in his life from his grandfather. “My grandfather’s name was Ernest, and perhaps no man was more aptly named. No one worked for Ernest, even as a stock boy, without being shaped by the experience,” wrote Buffett.

His grandfather owned and operated a grocery store in Omaha, Nebraska, and indeed, Warren Buffett worked as a stock boy in that store.

“Ernest never went to business school – he never in fact finished high school – but he understood the importance of liquidity as a condition for assured survival,” added Buffett.

In his letter to shareholders, Buffett also included another letter that his grandfather wrote to his two children in 1939. Included with the letter was $1,000 in cash, a mighty sum back 70 years ago. “Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash,” wrote Ernest at the beginning of the letter.

He then went on to explain why he was gifting the money to his children, saying, “I feel that everyone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money, and need it badly... It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose that it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.”

By the way, Warren Buffett never knew about this gift until 1970 when he was named the executor of his Aunt Alice’s estate and, indeed, opened the safe deposit box and found the letter from her father – and the $1,000 in cash.

It is no wonder that Buffett has gone on to become one of the wealthiest people in the world. Certainly his skills as an investor have accounted for much of his financial success. Obviously, no one could ever save $50 billion. But, at the core of his financial philosophy are the lessons learned from a mentor like his grandfather. We should all hope to pass along a legacy such as this that will follow us.

Marriage Financial Planning
About two million people a year get married. That works out to 6,000 people a day tying the knot. Getting ready for that special day takes a tremendous amount of planning and, according to The Wedding Report, the average wedding costs more than $29,000.

While every marriage begins with the belief that it will last forever, the truth is that money matters are the most common cause for divorce that, unfortunately, results from about half of all unions. The good news is that if each married couple put as much effort into dealing with their personal finances as they did planning their wedding, the chances of success would go way up.

The first thing to do is lay all the cards on the table before you get married. There’s a good chance that one or both of the people will bring some financial baggage into their new relationship. Add to that the debt that might be added from the wedding and they are likely to begin their new life in a financial hole.

So, make paying off those credit card bills and other debts a top priority. If necessary, use a qualified, non-profit credit counseling service to help you come up with a plan to consolidate and eliminate what you owe.

It is also very important to address your spending habits. In every marriage, there is usually a spender and a saver. When those two personalities clash, bad things can happen. That’s when the B-word – budget – comes into play. This is just one area where balance and compromise will be important.

In today’s world it is not uncommon that both people in a marriage will have jobs. Sit down and compare health insurance programs that are offered by each employer and see which is most appropriate for your situation.

Also, start the marriage with a commitment to plan for the future. Take advantage of any employer-sponsored retirement plan such as a 401(k) or other such programs. More and more, employers are now matching a portion of the contributions that are made by the workers and there is absolutely no reason to turn down the free money. You should also consider opening a Roth IRA account that will allow your retirement savings to grow tax-free.

Finally, even though you may think you will live forever, it is never too early to consider estate planning. Creating a will or, even better, a living trust will give you the tools necessary to make sure your assets will go where you want them to go. And, this is the appropriate way to appoint guardianship for any children if you were to die while they are still minors.

Just like any other part of your married life, some simple financial planning can go a long way toward making the relationship a long and lasting love affair. And, like so many other things, never take money matters for granted.

2011 Taxes
Every time Congress talks about taxes there is cause to be concerned. However, for 2011 there is some good news for workers, investors and taxpayers.

The passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides a number of features that are designed to leave more money in the pockets of investors and wage earners.

The most immediate benefit will be a one-year reduction in the Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. For a worker earning $80,000 a year, take home pay will increase by an additional $1,600 in 2011.

The extra pay can be used in a number of ways. Obviously, for many families the windfall can be used to pay for normal living expenses. It can also be used to pay down credit cards and other forms of consumer debt.

It can also be used to increase savings through employer-sponsored retirement plans like 401(k) or 403(b) accounts. The maximum contribution level for 2011 is $16,500, or up to $22,000 if you are over the age of 50 and eligible for catchup contributions. This can be especially beneficial if you are not taking full advantage of the company match that is offered by many employers. Although many companies eliminated their matching contributions several years ago during the recession, many have restored the benefit. It is prudent to take advantage of the free money that is offered by simply making a large enough personal contribution to maximize the matching amount. If you are uncertain if your company offers such a benefit, simply talk with the human resources representative where you work.

Congress also extended the lower tax on personal income for two years. While no one knows what will happen when the current extension expires in 2013, taxpayers should be temporarily encouraged by the opportunity to take advantage of the lower tax rates.

The same also applies to the reduced tax rates on capital gains and dividends. In particular, income-oriented investors may want to explore the investment opportunities in dividend-paying stocks. The maximum tax rate on qualifying distributions is just 15 percent compared to ordinary income that can be taxed as high as 35 percent.

Finally, because the reduced income tax rates have been extended for two years, it is still appropriate to consider a Roth IRA conversion. This allows for the transfer of tax-deferred funds in a traditional IRA to a tax-free Roth IRA. Such a move does trigger a tax liability in the year of the conversion. However, it allows taxes to be paid at the current tax rates rather that at rates which could be higher in the future.

All of these steps should be considered with the advice of a tax professional. But, actions taken now could save you a tremendous amount of money down the road.

Legacy Planning
It is hard to believe, but the year 2010 is quickly winding down. Now we enter into the final two months of the year and they will be filled with parties and family gatherings as the holiday season gets into full swing. Under normal circumstances you might think this would likely be the worst time of the year to bring up the subject of finances. Yet, in many ways, it is actually the best.

Think about it, how often do you get a chance to have your family together at one time and have their undivided attention? Maybe it would be on Thanksgiving Day or another holiday. Using this time effectively could be time well spent.

I speak from experience. My mother passed away earlier this year and the family last year used the holidays to have the “meeting” about finances and other matters that needed to be discussed as her health began to decline.

This was not easy for my mother. She was a Depression baby, growing up at a time when the economy was in shambles and, accordingly, money matters became a taboo subject. Very rarely in our family did discussions center around dollars and cents issues. But, as a result of our meeting, things were in order when she finally passed on.

So, how do you bring up the subject of money without stepping on some sensitive toes or bruising some tender egos? Ideally, the elders in the family would be the ones to call the clan together. But, remember, they may be very defensive about disclosing their finances to their children.

To be sure, many people will think that the kids are prying into their finances or may be trying to figure out how much they will inherit. In most cases, just the opposite is true. They simply want to make sure that their parents are secure and, if necessary, help them make sure they are capable to live comfortably.

An estate planning friend of mine suggests that there are easier ways to start the conversation. Something as simple as, “mom and dad, we recently had an attorney prepare a living trust for our use and it really is a big relief. Do you guys have a trust?”

That can open the door for a conversation about making sure their assets – financial and otherwise – go to the members of the family where they would like them to be after they are gone.

To not do this could lead to squabbles that often tear families apart after the parents die. We all know families where siblings no longer talk to each other because of disputes over who gets what.

Some time ago I stopped referring to estate planning and began calling it legacy planning. It comes down to this: How do you want to be remembered – your legacy - after you are gone? Hopefully it will be with positive thoughts about the good in your life and the things you did to create a loving and happy family. Without having the “meeting,” your memory might be mixed with fighting children who greedily argue about every last dollar and item.

Trust me, the sense of well being that will follow your family gathering will create a peace of mind that would be hard to achieve any other way.

Money and Marriage
Each year, millions of people take the walk down the aisle to get married. And, while love is blind, it probably would be best if the couples entered into this new part of their lives with their eyes financially wide open.

More marriages end because of money problems than anything else. So, even before getting married, it would be wise to put all their cards – including credit cards – on the table to make sure that there are no surprises later on.

The first step would be to discuss debt. While it has been said that two can live as cheap as one, that won’t be the case if one partner brings a truckload of bills into the relationship.

It is not very romantic, but find the time to sit down and do a serious review of what is owed and what is coming in so that there are no surprises. If there is a problem, consider using a non-profit credit counseling service to help consolidate your debt and get rid of the burden as soon as possible. You can get a reference through the Better Business Bureau® (bbb.org).

Most relationships usually match up a saver with a spender. I must admit that in the Chamberlin household I am the spender. But, after more than 35 years of marriage, we have been able to work things out and have found budgeting to be the only way to keep things in balance.

The beginning of a wedded relationship is also a great time to start planning for the future. If you have not done so yet, this would be a great time to finally start saving and investing through your employer-sponsored retirement accounts like a 401(k) plan. Any forced savings plan where the money is taken out of your paycheck is likely to be easier to stay with even when times get tight.

Also, the younger you are the more ambitious you should be with your investments. The best friend of investors is time, so the longer your horizon to retirement the more likely you should be committed to quality stocks for the long-run. With that said, most marriages combine savers and investors so make sure you reach an agreement on how much risk you should be taking with retirement dollars.

By the way, if you already have retirement accounts or life insurance, make sure that the beneficiaries on the accounts are actually the people you want to have receive your assets after you are gone. Few things are worse than having your hard earned dollars wind up in the hands of people you no longer care for or that don’t deserve the money.

If both spouses work, compare health insurance coverage. There is no reason for you both to pay for health insurance when the option exists to picks the best option and save money doing so.

Many of these issues – and others – can be addressed with the help of the financial team at San Diego County Credit Union. Talk to the people in your branch to find out about their financial services and other tools, like Balance™ Financial Fitness, they have available to help you get this part of your life off to a good start.

Retirement
Another year is quickly passing by and that, of course, means retirement is drawing ever so near. For many people, that is a chilling thought as they see their savings and investments failing to grow fast enough to allow them to live a life of leisure in their senior years.

Fortunately, there are a number of tools available that allow people to put their retirement savings and investments into overdrive. Probably the one that could help many people who are drawing near to retirement is called a catch-up contribution.

Originally created in the Economic Growth and Tax Relief Reconciliation Act of 2001, the catch-up contribution allows people over the age of 50 to make additional contributions to their individual retirement accounts as well as employer-sponsored plans like 401(k) accounts.

Here’s how it works. Any eligible worker can contribute up to $5,000 in 2010 to a Traditional or Roth IRA. A person over 50 can invest an extra $1,000 to the account as well. Maximum contributions to 401(k) or other employer-sponsored plans this year are $16,500, with catch-up contributions allowing qualified workers to kick in another $5,500 to their plans.

This is very good news for people who perhaps lagged earlier in their careers and did not set aside as much money as they should have to pay for their retirement. The catch-up provision allows them to make up lost ground.

Of course, taking advantage of the regular and catch-up contributions to your retirement plans is one thing. What you do with the money is another. The fact that this person is eligible to make catch-up contributions also means that their time horizon for investing is shorter than a person who is just beginning to work and putting money away into IRAs or other accounts.

The longer the time horizon, the more risk a person can theoretically assume. However, that is not always the case. Many young people may be hesitant to get involved with stocks and mutual funds because they don’t really understand the process. And, at the same time, many older people are afraid to enter the markets because they worry about possible losses that would be hard to recover.

The biggest risk that many people face with their savings and investments is the impact of inflation. While the cost of living today is the lowest we have seen in decades, the risk of higher costs exists and, over time, stocks can be the best hedge against inflation.

Unfortunately, there is no one investing formula that is right for everyone. Some people have a high tolerance for risk, others a low tolerance. The most prudent thing to do is to sit down with your advisors to come up with a plan that works for you. That would include a tax expert to discuss your eligibility to make regular and catch-up contributions to your retirement plans. That person should also be able to determine whether a Traditional or Roth IRA is your best option. At the same time, a qualified financial planner can help you determine your true risk tolerance and come up with investments that meet your goals and objectives.

Remember, this is serious stuff that should not be delayed. The sooner you get to work and come up with a plan that is right for you, the sooner you will have peace of mind about how you will spend your life in retirement.

Wall Street Reform
It has a very impressive title – The Dodd-Frank Wall Street Reform and Consumer Protection Act – but what does the recently passed legislation really mean for consumers?

While the legislation itself is more than 2,300 pages, the ultimate outcome of the reform will be another 5,000 pages of regulations to be developed from 67 separate studies that are mandated by the Act and 200 rulemaking responsibilities that need to be worked out between various entities.

To be sure, the thrust of the plan is toward Wall Street and trying to regulate away the possible situation that led to the financial crisis that began in 2007 and has rippled through most of the economy. However, there are many provisions that directly impact consumers. While it may take a while to implement the plans, it is worth noting some of the areas that will be involved.

In particular, the law created a new Consumer Financial Protection Bureau (CFPB) to oversee credit and lending products such as mortgages, credit cards, overdraft loans and payday loans. The CFPB will be completely autonomous and under the leadership of a single – yet unnamed – director.

Many of the provisions of the Act in this area are somewhat repetitive of existing laws. For instance, it requires that mortgage lenders ensure that home loans are affordable to the borrower, a common sense matter that is already in place at institutions like San Diego County Credit Union and others. Perhaps helpful to some, is a restriction on prepayment penalties on mortgage loans and prohibitions on steering consumers into unaffordable loans.

Also of interest, the law says that consumers must be provided with a written or electronic credit score if any information within their credit report leads to a higher interest rate on a loan or if the loan itself is denied. Consumers already have access to their credit reports at no charge but the new law now gives them access to the actual credit score that often is the deciding factor in loan decisions. This applies to mortgage loans as well.

On the investment side, the Dodd-Frank Act imposes a fiduciary duty on brokers to work in the best interest of their customers when they give investment advice – something you might think was an expected practice. Yet, such a provision had never been set in legislative wording. The law also strengthens the tools available to the Securities and Exchange Commission in its ongoing battle to fight financial abuse.

These and other provisions of the law will not go into effect until all of the studies and rules are finally put into place which could take well more than a year. However, when completed, this could further protect consumers and, potentially, prevent another crisis like the one that has rocked the U.S. economy in recent years.

Also of great benefit to SDCCU® members, the Act made the increase in NCUA share insurance from $100,000 to $250,000 permanent. For more information on how your accouts at SDCCU are insured, click here.

Saving for College
The more you learn, the more you earn. A new study from the U.S. Census Bureau finds that a college master’s degree is worth $1.3 million more in lifetime earnings than a high school diploma.

Of course, that education comes with a pretty high price tag. The College Board finds that the cost of education is rising at a rate much higher than the rate of inflation.

For instance, the cost of attending a public college will set you back about $7,020 a year, up 6.5 percent this year from last. Attending a community college will cost an average $2,544, an increase of 7.3 percent from 2009. The biggest hit, of course, comes at private four-year institutions where the annual cost is $26,273 a year, up 4.4 percent this year.

None of these numbers comes as a big surprise. Most families know from the day a baby is born that paying for education will be a serious expense. And, the sooner you get started on saving, the more money you'll have available to help put the kids through school.

Fortunately, there are a number of tools available that not only provide a method for college savings but also provide some very helpful tax benefits.

Probably the best known college savings program is the 529 plan. Started in 1996, the program allows families to save money through a state-sponsored plan. The money grows tax-deferred and, if used for educational purposes, can actually be exempt from both state and federal income taxes.

In California the program is called the Scholarshare College Savings Plan (scholarshare.com) and offers a variety of low to moderate cash investment options. The program allows small contributions of as little as $15 a month, but also has a very high lifetime contribution level of $320,000.

Another option for college savings is a tool called a Coverdell Account. Often referred to as an educational savings account, these plans limit annual contributions to $2,000 but provide more flexibility than a 529 plan, where funds can only be used for college tuition and other qualifying expenses. A Coverdell account – named after the legislator that sponsored the plan – can be used for other education expenses such as private or parochial elementary or high school expenses, as well as learning tools such as computers. Learn more about Coverdell accounts here.

A third option would be good, old-fashioned savings bonds. Several years ago, a proposal was presented by the late Senator Edward Kennedy that would make the interest earned on savings bonds exempt from federal income taxes. It allows families who meet certain income limitations to use the money for a variety of educational expenses and not have to pay taxes on the deferred growth.

The savings bonds program has changed over the years and some of its benefits have been diminished. However, the best option now would be what is called I-bonds. The return on these savings bonds is linked to the rate of inflation. While that means the current interest rate is very low it could move up sharply if we see a rise in inflation as some experts are suggesting. The maximum contribution to savings bonds is now $5,000 a year.

There are some issues to consider before setting up any of these plans and it would be prudent to talk with a tax and financial advisor before proceeding.

Savings Bonds
The recent volatility in the stock market has sent a lot of risk-adverse investors scrambling for a safer place to put their money. And with the possibility of inflation lurking around every corner, it makes it even more difficult to make smart choices.

One option that is getting more attention is something that has been around for a long time: savings bonds. First introduced in 1935 – and called baby bonds – the securities were designed to give average Americans an opportunity to participate in government financing.

The Series E savings bonds became very popular during World War II, helping to finance the U.S. military efforts.

Although the program has lost a lot of its previous benefits, it still has some aspects worth noting.

There are two types of savings bonds. Series EE bonds are issued a fixed rate of return for the 30-year life of the security. In the past, the interest rate would be adjusted every six months to reflect current conditions.

EE bonds can be purchased for as little as $25 or a maximum of $5,000 per year. If you redeem a savings bond in the first five years, you will forfeit the three most recent months' interest. There is no penalty after five years.

The current interest rate on the most recent issue of EE bonds is 1.40 percent. A new rate for future bonds is assigned every November and May.

A more practical alternative is the Series I savings bonds. The I is a reference to inflation. There are two components to I bonds. One is a fixed rate of interest that is earned throughout the life of the bond. The current rate is 0.20 percent. In addition, the Series I bonds earns an additional yield that is based on the Consumer Price Index. That rate is adjusted every six months (in May and November) to reflect the current rate of inflation.

Series I bonds, like EE, are limited to a maximum of $5,000 a year and the same interest rate penalty applies if the bonds are redeemed during the first five years.

One of the primary benefits of savings bonds is the tax-deferred compounding of interest that is paid semi-annually. When the savings bonds are redeemed or mature, the deferred interest will be taxed as ordinary income on the federal level. However, the interest is exempt from state income taxes.

For investors looking for the inflation protection of Series I savings bonds but would like to invest more than $5,000, there is another type of Treasury security to consider.

Treasury Inflation Protected Securities – often referred to as TIPS – are issued with maturities of 5, 10 or 30 years. These notes and bonds offer the same adjustable rate of return that is linked to the CPI.

Details on the savings bond program are available at treasurydirect.gov.

Top 10 Investor Traps
With the new year underway, the North American Securities Administrators Association (NASAA) reminds investors to take stock of their financial education and arm themselves with the knowledge to sidestep this year’s Top 10 Investor Traps.

Many of the traps identified by NASAA’s Enforcement Trends Project Group promise high returns to cash-strapped investors but provide little, if any, disclosure of risks and offer high commissions to aggressive sales forces.

“When it comes to investing, verify everything and everyone before you part with your money,” said Fred Joseph, president of NASAA. “Education and information are an investor’s best defense against investment fraud. State and provincial securities regulators provide detailed background information about those who sell securities or give investment advice, as well as about the products being offered. Investors should always be wary of unsolicited financial advice or investment opportunities.”

While these traps are listed alphabetically, NASAA identified real estate investment schemes, leveraged ETFs, private placement offerings, natural resources investments and Ponzi schemes as the greatest potential threats to investors this year.

Entertainment Investments. These unregistered investments, encompassing a variety of products including movies, infomercials, Internet gambling and pornography sites, promise high returns while offering little disclosure of risk.

Gold Bullion And Currency Scams. With the high price of gold, investors should beware of gold bullion scams in which the seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor as it gains in value. In many instances, the gold does not exist. Similar are the many forms of foreign exchange trading schemes. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made. In many instances there are no trades - the money is simply stolen.

Leveraged Exchange-Traded Funds (ETFs). This relatively new financial product has been offered to individual investors who may not be aware of the risks these funds carry. The funds, which trade throughout the day like a stock, use exotic financial instruments, including options and other derivatives, and promise the potential to provide greater than market returns as the value of the underlying assets rise or fall. Given their volatility, these funds typically are not suitable for most retail investors.

Life Settlements. State securities regulators long have been concerned about life settlements, or viaticals, and the rising popularity of these products among investors has prompted a recent congressional investigation. While life settlement transactions have helped some people obtain funds needed for medical expenses and other purposes, those benefits come at a high price for investors, particularly senior citizens. Wide-ranging fraudulent practices in the life settlement market include Ponzi schemes, fraudulent life expectancy evaluations, inadequate premium reserves that increase investor costs and false promises of large profits with minimal risk.

Natural Resource Investments. NASAA expects to continue to see a rise in energy and precious metals scams promising quick, high returns. Investors anxious to recover losses quickly likely will be hooked by oil and gas schemes, as well as fraudulent offerings of investments tied to natural gas, wind and solar energy, and the development of new energy-efficient technologies.

Ponzi Schemes. Despite the heightened awareness of Ponzi schemes following Bernard Madoff’s multi-billion dollar fraud and 150-year prison sentence, these scams continue to trap investors. The Ponzi scheme is a house-of-cards swindle in which high returns are paid to initial investors out of the funds of later investors, who end up losing all or most of their money to the promoter. Joseph urged investors to beware of investment opportunities promising high and steady rates of return.

Private Placement Offerings. Private placements offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors as opposed to a public offering made through national securities markets. State securities regulators have observed a steady and significant rise in the number of private placement offerings that are later discovered to be fraudulent, especially those made under a federal registration exemption (Regulation D, Rule 506). Companies using this exemption can raise an unlimited amount of money without registering the offering with the SEC as long as they meet certain standards. Although properly used by many legitimate issuers, the exemption has become an attractive option for con artists, as well as individuals barred from the securities industry and others bent on stealing money from investors through false and misleading representations.

Real Estate Investment Schemes. NASAA members have noted a rise in scams disguised as offers to help homeowners caught up in the turbulent housing market “save” their homes or “fix” their mortgages, usually in exchange for a fee paid in advance. Some homeowners, particularly seniors, may be attracted to reverse mortgages, which are a legitimate lending option. However, the resulting lump sum home equity payment makes them an attractive target for unscrupulous salesmen, who may attempt to direct these funds toward worthless or unsuitable investment products. (Learn more about loan assistance here.)

Short-Term Commercial Promissory Notes. Many seniors have lost their life savings by investing in short-term commercial promissory notes that are nine months or less in duration. These notes may be touted as being “insured” or “guaranteed,” but the insurance companies are generally located outside of the United States, are not licensed to do business in the United States and lack the resources necessary to deliver on the promised guarantees. Unlike publicly advertised promissory notes, promoters of these notes usually attempt to use commercial paper exemptions as a basis for selling the products without registration.

Speculative Inventions and New Products. New products are for venture capitalists who know how to assess the risks. They are not good investments for your retirement money even though they may promise high returns.

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