SAN FRANCISCO--The recession and economic turmoil is creating a new class of casualties: Married couples who can't afford to get divorced. In these tough times many people are finding it's cheaper to stay together, even when they can't stand each other.
"The reason that the economy has such an enormous impact on divorce is that most people in the middle-income brackets are getting by on whatever income they have. They're just getting by," said Bonnie Booden, a family law and divorce attorney in Phoenix.
A major factor in the divorce downturn, Booden said, is divorced couples have to establish two separate households with current funds -- a prohibitive factor when you're looking at divorce in tough economic times.
Booden said one out of every two clients is seeking consultations because they can't afford to get divorced. They want to know what other options they might have.
"I tell them about the process, about the cost, and what a reasonable outcome might be. And once they hear the cost, and especially how you have to duplicate two households on the same money that currently funds one household, they try to think about some other options," she said.
Some clients have split up bedrooms and continue to live in the same house, she said. Some split child-care duties so they don't have to deal with each other and live that way until they can figure out what to do. "And I've had people who just throw in the towel and get divorces anyway, creating financial ruin for themselves," she said.
Circuit courts across the country report downturns in the number of divorce and separation filings. Cook County's Circuit Court in Chicago saw a 5% decrease in filings -- about 600 cases -- in the first three quarters of 2008 compared to the same period last year. Similar drops were reported in other cities across the country.
This domestic situation is also confirmed in a poll by the American Academy of Matrimonial Lawyers. The AAML surveyed its members -- all divorce lawyers -- and found that 37% of them have seen a decrease in the number of couples seeking a divorce, while just 19% saw an increase in divorce cases.
Gary Nickelson, president of the American Academy of Matrimonial Lawyers, said people are just, "toughing it out" and putting off the decision to divorce until the economy gets better.
"We're in a perfect storm as far as the divorce business is concerned," Nickelson said. "It's not a surprise to me. That's been my experience over the last 35 years. When you have an economic downturn people are not so quick to change their situation."
Out of options
Some people who come to Booden's office have come from marriage counselors, she said. By the time these couples get to her, she said, they've pretty much run out of options.
Typically, she said she tries to arrange a deal where both parties continue to own their house. She'll split up the equity and apply an interest rate to it to make it reasonable to the person not living in the house, and then distribute the cash when the house is sold after the kids go to college.
"People have to realize the financial meltdown changed everything," she said. That sentiment is echoed by the AAML's Nickelson. "As long as stocks and financials and major assets are down, you're probably going to see a lot of people wait to file for divorce. There's a lot of fear in filing for divorce," he said. "I think that cuts across all genders, races, and all social economic ranges."
Marty Orgel is a freelance writer in the San Francisco Bay Area.
Read more...
Tuesday, December 23, 2008
Divorce Rates Drop as Couples Stay Together Due to Tight Finances
Monday, July 7, 2008
How to Successfully Navigate Your Business through an Economic Downturn
Terry H. Hill
While economic downturns are admittedly difficult, and are formidable obstacles to small businesses that are trying to survive and grow, an economic downturn can open up opportunities. A well-managed company can realize the opportunity to gain market share by taking customers away from their competitors. Resourceful entrepreneurs capture the available opportunities, from an economic downturn, by developing alternate methods of doing business that were never implemented during a prior growth period.
The challenge of successfully navigating your business through an economic downturn lies in the realignment of your business with current economic realities. Specifically, you, as the business owner, need to renew a focus on your core clients/customers, reduce your operating expenses, conserve cash, and manage more proactively, rather than reactively, is paramount.
Here are best practices that will help you to successfully navigate your business through an economic downturn:
Goals:
The primary goal of any business owner is to survive the current economic downturn and to develop a leaner, more cost-effective and more efficient operation. The secondary goal is to grow the business even during this current economic downturn.
Objectives:
• Conserve cash.
• Protect assets.
• Reduce costs.
• Improve efficiencies.
• Grow customer base.
Required Action:
• Do not panic… History shows that economic downturns do not last forever. Remain calm and act in a rational manner as you refocus your attention on resizing your company to the current economic conditions.
• Focus on what YOU can control… Don’t let the media's rhetoric concerning recessions and economic slowdown deter you from achieving business success. It´s a trap! Why? Because the condition of the economy is beyond your control. Surviving economic downturns requires a focus on what you can control, i.e. your relevant business activities.
• Communicate, communicate, and communicate! Beware of the pitfall of trying to do too much on your own. It is a difficult task indeed to survive and to grow your business solely with your own efforts. Solicit ideas and seek the help of other people (your employees, suppliers, lenders, customers, and advisors). Communicate honestly and consistently. Effective two-way communication is the key.
• Negotiate, negotiate, and negotiate! The value of a strong negotiation skill set cannot be overstated. Negotiating better deals and contracts is an absolute must for realigning and resizing your company to the current economic conditions. The key to success is not only knowing how to develop a win-win approach in negotiations with all parties, but also keeping in mind the fact that you want a favorable outcome for yourself too.
Recommended Best Practice Activities:
The Nuts and Bolts… The following list of recommended best practice activities is critical for your business' survival and for its growth during an economic downturn. The actual financial health of your particular business, at the outset of the economic downturn, will dictate the priority and urgency of the implementation of the following best practice activities.
1. Diligently monitor your cash flow: Forecast your cash flow monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Include cash flow statements into your monthly financial reporting. Project cash requirements three-to- six months in advance. The key is to know how to monitor, protect, control, and put cash to work.
2. Carefully convert your inventories: Convert excess, obsolete, and slow-moving inventory items into cash. Consider returning excess and slow-moving items back to the suppliers. Close-out or inventory reduction sales work well to resize your inventory. Also, consider narrowing your product offerings. Well-timed order placement helps to reduce excess inventory levels and occasional material
shortages. The key is to reduce the amount of your inventory without losing sales.
3. Timely collection of your accounts receivable: This asset should be converted to cash as quickly as possible. Offer prompt payment discounts to encourage timely payments. Make changes in the terms of sale for slow paying customers (i.e. changing net 30 day terms to COD). Invoicing is an important part of your cash flow management. The first rule of invoicing is to do it as soon as possible after products are shipped and/or after services are delivered. Place an emphasis on reducing billing errors. Most customers delay payments because an invoice had errors, and therefore, will not pay until they receive a corrected copy. Email or fax your invoices to save on mailing time. Post the payments that you have received and make deposits more frequently. The key is to develop an efficient collection system that generates timely payments and one that gives you advance warning of problems.
4. Re-focus your attention on your existing clients/customers: Make customer satisfaction your priority. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits. Consider signing long-term contracts with your core clients/customers which will add to your security. Offer a discount for upfront cash payments. The key is to do what it takes to keep your current customers loyal.
5. Re-negotiate with your suppliers, lenders, and landlord:
i) Suppliers: Always keep your negotiations on the level of need, saying that your company has reviewed its cost structure and has determined that it needs to lower supplier costs. . Tell the supplier that you value the relationship you have developed, but that you need to receive a cost reduction immediately. Ask your supplier for a lower material price, a longer payment cycle, and the elimination of finance charges. Also, see if you can buy material from them on a consignment basis. In return for their price concessions, be willing to agree to a long-term contract. Explore the idea of bartering as a form of payment.
ii) Lenders: Everything in business finance is negotiable and your relationship with a bank is no exception. The first step to successful renegotiations is to convince your lenders that you can ultimately pay off the renegotiated loan. You must point out to your lenders why it would be in their best interest to agree to a new arrangement. Showing them your business plan and your action plan that includes your cost-savings initiatives, along with "the how" and "the when" of the implementation of your plan is the best way to achieve this goal. Explain to them that you will need their cooperation to insure that you can survive, as well as, grow your business during the economic downturn. Negotiated items include: the rate of interest, the required security to cover the loan, and the beginning date for repayment. A beginning date for repayment could be immediate, within several months or as long as a year. The key is to realize that your lender will work with you, but that frequent and continual communications with them is critical.
iii) Landlord: Meet with your landlord. Explain your need to have them extend the term of your lease at a reduced cost. Make sure you have a clause in the lease agreement that entitles you to have the right to sublet any or all of the leased space.
6. Re-evaluate your staffing requirements: This is a very critical area. Salaries/wages are a major expense of doing business. Therefore, any reduction in the hours worked through work schedule changes, short-term layoffs or permanent layoffs has an immediate cost saving benefit. Most companies ramped up hiring new employees in the good times, only to find that they are currently overstaffed due to slow sales during the economic downturn. In terms of down-sizing your staff, be very careful not to reduce your staff to a level that forces you to skimp on customer service and quality. Consider the use of part-timers or the current trend of outsourcing certain functions to independent contractors.
7. Shop for better insurances rates: Get quotations from other insurance agents for comparable coverage to determine whether or not your present insurance carrier is competitive. Also, consider revising your coverage to reduce premium costs. The key is to have the right balance-to be adequately insured, but not under or over insured.
8. Re-evaluate your advertising: Contrary to the other cost-cutting initiatives, evaluate the possibility of increasing your advertising expenditures. This tactic realizes the advantage of the reduced "noise" and congestion (fewer advertisers) in the marketplace. The downturn period a great opportunity to increase brand awareness and create additional demand for your product/service offerings.
9. Seek the help of outside advisors: The use of an advisory board comprised of your CPA, attorney, and business consultant offers you objectivity and provides you with professional advice and guidance. Their collective experience in working with similar situations in past economic downturns is invaluable.
10. Review your other expenses: Target an across-the-board cost-cutting initiative of 10-15%. Attempt to eliminate unnecessary expenses. Tightening your belt in order to weather the downturn makes practical, financial sense.
Proactively managing your business through an economic downturn is an enormous challenge and is critical for your survival. However, through well-planned initiatives, an economic downturn can create tremendous opportunity for your company to gain greater market share. In order to take advantage of this growth opportunity, you must act quickly to implement the above best business practices to continue realigning and resizing your company to the current economic conditions.
Copyright 2007-2008 Terry H. Hill
Internet Marketing And A Future Financial Focus
In every business the predominant idea is to set goals that help you conduct business smarter, learn lessons faster and bring more business to your site.
The problem is many entrepreneurs tend to stay focused on their bottom line and to product fulfillment issues. By doing so they may indeed find themselves in the same place 12 months from now. They may also find their business has declined in total sales revenue.
How is that possible?
This is an interesting question especially when, from all appearances, the business owner IS paying attention to their business and that the sales are brisk. It can also seem baffling when it appears that the business owner is busier than they have ever been.
The problem may be that some of the details of business should be delegated to other employees, especially if the business is of significant size.
The sad truth is some business owners are spending too much time in the mailroom and not enough time in long-term strategic planning. Online business grows as new ideas are developed and implemented.
It is not unlike an architect spending all his or her time developing the entryway of a new luxury hotel while failing to draw up plans for the rest of the building. It looks nice from the outside, but the inside is in disarray.
What this means, in the broadest terms, is that you need to pay attention to all aspects of your online business. If you don’t feel adequate to manage certain aspects of the business then find someone who can. When you neglect certain aspects of your business you will almost always run the risk of a loss of long-term business. You will also be subjected to feast or famine cycles where you may have more work than you can handle for a period of time and not enough work for an equal or greater length of time.
It’s a given that you find your business to be an important part of your life. You have invested a lot in the success of your business and that investment is too great to simply allow glaring marketing omissions to go unchallenged.
Sometimes business owners adopt an out of sight - out of mind mentality. They avoid those things that are not on their immediate radar. They push back all those things that are not fires to attend only the tyranny of the urgent.
Internet marketing is one of the very first things to be cast from view for many businesses. The reason this is true is because the role of marketing seems to have little intrinsic value for those online shops that are currently doing a brisk business. It appears to be a sign that they did everything right and can move on to the role of bean counter.
Learn the art of balancing your business interests and include marketing as a prime component for achieving future goals.
Sunday, July 6, 2008
Interesting Facts About Cell Phones
by: Roberto Sedycias
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Besides the standard voice function of a telephone, latest cell phones (telefone celular) have features such as SMS for text messages, MMS for multimedia messages, radio, games, internet connectivity for email, browsing, blogging, music (MP3) playback, memo recording, built-in cameras and camcorders, ringtones, personal organizers, Push-to-Talk (PTT), Bluetooth and infrared connectivity, call registers, streaming video, downloading video, video call, and also serve as wireless modems for PCs that can be connected to the Internet.
The power in a cell phone (telefone celular) is obtained from rechargeable batteries, which can be recharged from the mains, a USB port or a cigarette lighter port in an automobile. Nickel Metal Hydride were the most common types of batteries, which due to the "memory effect" (the user can recharge only when the entire battery is drained off) were replaced by Lithium-Ion batteries, which did not suffer from any memory effect.
Cell phones (telefone celular) came into existence because of the invention of hexagonal cells in 1947, for the base stations by Bell Labs engineers at AT&T. This was further developed during the 1960s by Bell Labs. During a call, the channel frequency could not be changed automatically from one cell (base station coverage area) to another cell (base station coverage area) as the person traveled from the area of one cell to the area of another cell. Amos Joel of Bell Labs invented a breakthrough invention and called it as the `call handoff` by which the channel frequency could be changed automatically from one cell to another cell, during the same call, as the mobile user traveled from one cell to another cell. Due to their heavy construction, these phones were used mainly in automobiles.
The first practical cell phone in a non-vehicle setting, and which could be handheld, was invented by Martin Cooper, the General Manager (Communications Division) of Motorola, who made the world`s first handheld cell phone (telefone celular) call on April 3, 1973.
The technology by which the cell phone (telefone celular) works depends on the mobile phone operator; however, all of them use electromagnetic radio waves, which are in touch with a cell site (base station). The base station is composed of several antennas which are mounted on a pole, tower, or building. Cell sites are spread at a distance of 5 to 8 miles (approx. 8 to 13 km) from each other. The low power transceiver from the cell phone transmits the voice and data to the nearest cell site. During movement, the cell phone will "handoff" the information to other cell site. Mobile phone operators use many technologies to maintain the smooth stream of digitized data from the cell phone to the cell site and vice versa.
The wireless telephone technologies are grouped under heads known as generations, starting from zero generation or 0G. The current generation going on is 4G; however, there are old cell phones (telefone celular) that still operate on 1G, 2G, and 3G technologies. The wireless telephone technologies used in each generation are as given below:
0G: PTT, MTS, IMTS, AMTS, OLT, MTD, Autotel/PALM, ARP
1G: NMT, AMPS/TACS/ETACS, Hicap, CDPD, Mobitex, DataTac
2G: GSM, iDEN, D-AMPS, IS-95/cdmaOne, PDC, CSD, PHS, GPRS, HSCSD, WiDEN, CDMA2000 1xRTT/IS-2000, EDGE (EGPRS)
3G: W-CDMA, UMTS (3GSM), FOMA, TD-CDMA/UMTS-TDD, 1xEV-DO/IS-856, TD-SCDMA, GAN (UMA), HSPA, HSDPA, HSUPA, HSPA+, HSOPA
4G : UMB, UMTS Revision 8 (LTE), WiMAX
Frequency bands: SMR, Cellular, PCS
The impact of cell phone (telefone celular) usage on human health has been of considerable worldwide concern. Research studies in Copenhagen, from the Danish Institute of Cancer Epidemiology, the National Cancer Institute, and the Institute of Cancer Research, do not establish any link between cancer and cell phone usage. However, an intergovernmental agency IARC (International Agency for Research on Cancer) forming part of the World Health Organization of the United Nations, undertook a study of 4,500 users and found a statistically significant link between cell phone usage and tumor frequency. Further research is going on.
Cell phone (telefone celular) usage and driving is a common worldwide phenomenon. Some jurisdictions have banned usage of hand-held phones during driving, but allowed the hands-free fashion of cell phone usage while driving. However, studies have found out that the distraction is caused by the conversation itself; hence, both hand-held and hands-free cell phones contribute towards road traffic accidents. Further studies on cell phone usage and driving are going on.
Nokia Corporation is currently the world`s largest manufacturer of cell phones (telefone celular). Other notable cell phone manufacturers, in alphabetical order, are 3G, Audiovox (now UT Starcom), Benefon, BenQ-Siemens, Fujitsu, High Tech Computer Corporation (HTC), Kyocera, LG Mobile, Motorola, NEC, Panasonic (Matsushita Electric), Pantech Curitel, Philips, Research In Motion, Sagem, Samsung, Sanyo, Sharp, Siemens, Sierra Wireless, SK Teletech, Sony Ericsson, T&A Alcatel, Toshiba, and Verizon.
Rising costs to dominate G8 talks
Rising costs to dominate G8 talks
Rising food and fuel prices are set to top the agenda for leaders of the world's major industrialised nations as they start a key summit in Japan.
The hosts had hoped climate change would be a top issue at the meeting of the Group of Eight (G8) nations but the global economy is sure to dominate.
At the opening lunch, African leaders will set out the effect price rises are having on the world's poorest people.
The summit is also expected to tackle the difficult issue of Zimbabwe.
Food focus
The G8 summit has opened at a resort on the northern island of Hokkaido.
Leaders from member nations - Britain, Canada, France, Germany, Italy, Japan, Russia and the United States - will be joined by counterparts from some 15 other countries, including eight African states.
Japan has spent a record sum of money and deployed about 20,000 police to seal off the remote lakeside town of Toyako for the three-day talks.
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The impact on the global economy of price rises and other shocks such as the credit crunch have eclipsed other concerns, correspondents says.
The BBC's political editor, Nick Robinson, who is travelling to the summit with the UK prime minister, says Gordon Brown will join other leaders in calling for the doubling of food production in Africa.
Our correspondent says the G8 may call for the creation of a panel of international experts to advise on how to predict and hopefully avoid another crisis like this.
The EU has already been spelling out plans to alleviate the food crisis.
European Commission President Jose Manuel Barroso told reporters on the sidelines of the summit the proposed 1bn euro ($1.6bn, $800m) fund to help poor farmers in developing countries would come from unused EU subsidies.
It could help improve farmers' access to seeds and fertilisers, and could provide "safety net measures for the most vulnerable", he said.
The G8 leaders may also face tough questions on aid commitments to Africa.
Three years ago they promised to double aid to the continent by 2010 - but campaigners say they are falling far short of that target.
As well as discussing development issues in Africa, the G8 leaders are widely expected to condemn Robert Mugabe's controversial re-election in Zimbabwe last month.
As he headed to the summit, UN chief Ban Ki-moon said he would discuss the crisis with African leaders there.
Zimbabwe's political parties should "work out an arrangement so that they can really bring back democratic rules, the rule of law and peace and stability in their country", he told the French news agency AFP.
Malaysia summit
A number of other bilateral meetings are taking place on the sidelines of the summit.
Mr Bush, attending his last G8 summit, and Russian President Dmitry Medvedev, attending his first, are expected to discuss the US plan for missile defence installations in the Czech Republic and Poland.
Why not talk about stopping the wars in the world, as most of the G8 countries manufacture and supply the weapons
Mr Brown will also have talks with Mr Medvedev.
Meanwhile, the charity Water Aid has told the G8 that the single most effective measure it could take to prevent the deaths of millions of children in poor countries would be to build toilets and provide clean water.
Hundreds of protesters again marched through Sapporo on Sunday, the city closest to the venue, on the eve of the talks to demand G8 leaders take action on global warming, poverty and rising food prices.
The demonstration, which followed a similar protest on Saturday, was heavily policed and ended peacefully.
Violent anti-globalisation marches have marred past G8 meetings.
As the G8 got under way in Japan, leaders of the world's largest Islamic nations assembled for what is being billed as the D8 summit in Malaysia's capital, Kuala Lumpur, with the issue of inflation high on the agenda there. Read more...McCain campaign calls Obama's words into question
(CNN) -- Sen. John McCain's campaign said Sunday that Barack Obama's remarks on Iraq "have left a significant question as to exactly what he intends."
Sen. John McCain's campaign says Barack Obama has not been consistent on Iraq.
"He has held almost every conceivable position in the course of his relatively brief career in the Senate," said Randy Scheunemann, McCain's foreign policy adviser.
Obama maintains his stance has not changed and said Saturday that "every single word" he says is closely measured.
McCain's campaign suggested Obama's views could be becoming more in line with McCain's Iraq policy.
"The position of [McCain's] campaign is that words do matter, and Sen. Obama's words have left a significant question as to exactly what he intends. If he is now joining Sen. McCain's position and saying that the need to maintain peace and stability in Iraq is a prerequisite before responsible withdrawal, which is Sen. McCain's position, we welcome his conversion to that position," Scheunemann said Sunday in a conference call with reporters.
The war over words started Thursday when Obama told reporters questioning his stance on Iraq that he will "continue to refine" his policies as warranted.
Obama denied any suggestion that he was shying away from his proposed 16-month phased withdrawal of all combat troops from Iraq, calling it "pure speculation" and adding that his "position has not changed."
National reporters and Republicans pounced on his comments. The Republican National Committee put out an e-mail statement saying that Obama was backing away from his position on withdrawal.
Speaking Sunday on CBS' "Face the Nation," Sen. John Kerry defended Obama and accused Republicans of avoiding "reality."
"The Republicans, and John McCain specifically, are trying desperately to get away from the reality of John McCain's position, which is that he has a plan for staying in Iraq and Barack Obama has a plan for getting out of Iraq... [Obama's position] is no change whatsoever in his fundamental determination to end the war," said Kerry, D-Massachusetts.
On the same program, Sen. Lindsey Graham of South Carolina suggested that Obama's stance would lead to failure.
"We're winning because John McCain understood Iraq better than anybody else. The surge has worked. The political, economic and military progress in Iraq is undeniable... The only way we can lose this war now is to go down the road that Obama suggests," he said.
Obama on Saturday said he was "puzzled by the frenzy" surrounding his words and maintained he's been "very consistent on Iraq."
Speaking to reporters Saturday as he flew from Butte, Montana, to St. Louis, Missouri, Obama said, "I was a little puzzled by the frenzy that I set off by what I thought was a pretty innocuous statement, which is that I am absolutely committed to ending the war."
Asked if he felt reporters made a mistake, Obama said, "I'm not trying to dump on your guys, but I'm surprised at how finely calibrated every single word was measured. I wasn't saying anything that I hadn't said before, that I didn't say a year ago, or when I was a U.S. senator. If you look at our position, it's been very consistent. The notion that we have to get out carefully has been a consistent position," he said.
Obama held a second news conference on Thursday to clarify his remarks.
Obama placed some of the blame for the confusion on the McCain campaign, saying "I think what's happened is that the McCain campaign primed the pump with the press to suggest that somehow we were changing our policy when we hadn't and that just hasn't been the case. I've given no indication of a change in policy ... I think John McCain's going to have a much harder time explaining how he is willing to perpetuate a presence in Iraq for 10, 20, 50 years."
Meanwhile, both candidates will turn their focus to key battleground states as they court voters across the country this week. 
Coming off a three-day swing through Colombia and Mexico, McCain is expected to tout his plan to create new jobs. He kicks off his week in Denver, Colorado, on Monday.
Both McCain and Obama will speak Tuesday at the League of United Latin American Citizens in Washington.
McCain has a town hall meeting scheduled in Portsmouth, Ohio, later this week, and Obama has events scheduled in Georgia and North Carolina -- two Republican-leaning states.
Obama is also expected to team up with former rival Hillary Clinton for three fundraisers in New York, according to an Obama spokeswomen.
Two of the fundraisers are aimed at raising money for Obama's Democratic presidential campaign, and one is to try to retire the debt from Clinton's failed effort to win the nomination.
On Thursday morning, they will appear together at a women's fundraising breakfast for Obama. All of the events are private. Read more...In Tough Economic Times, Beware These Critical Nest-Egg Mistakes
BOSTON--Recession or not, these are fast becoming hard times, and hard times can lead to bad decisions.
Recently, the Financial Industry Regulatory Authority warned investors to think twice before taking steps that might compromise their nest eggs, such as taking out a reverse mortgage, getting a 401(k) debit card, or cashing in life insurance policies to weather tough financial times.
"Each of these should be considered strategies of last resort," Mary Schapiro, chief executive of the Financial Industry Regulatory Authority said last week in a speech.
"They may raise cash quickly, but each also carries long-term consequences that can undermine financial security in retirement and pose the potential for losing a significant, and sometimes irreplaceable, asset," Schapiro said. FINRA is a nongovernmental organization that oversees U.S. security firms.
According to FINRA, Americans are faced with the perfect financial storm. Rising costs of fuel and food, declines and volatility in the housing and financial markets, and an ever-tightening credit crunch have gathered to form a storm that could lead some Americans to make poor financial decisions. "But tough financial times don't necessarily justify resorting to risky ways to make ends meet," Schapiro said.
Investors could be risking their most valuable assets when they use reverse mortgages, life settlements and 401(k) debit cards to tap much-needed cash.
Retirement accounts
Don't cut back on or stop contributing your 401(k) and, even more importantly, don't cash in all or part of your 401(k). To be sure, plan providers do allow hardship withdrawals in certain situations -- if you face eviction from or foreclosure on your primary residence, for instance, or some other financial calamity.
But if you are under age 59-1/2 and there is no hardship, you'll have to pay ordinary income tax on the withdrawal plus a 10% penalty tax. What's more, many employers will withhold 20% of the amount being withdrawn, so it's possible that a $20,000 withdrawal works out to less than $14,000 when all is said and done.
FINRA also warns that such withdrawals come with another cost - opportunity cost. If you're 40 years old with $40,000 in your 401(k) and it's growing at 6% percent year, excluding additional contributions that money would be worth $107,710 in 17 years. But if that same person withdraws $20,000, that remaining $20,000 would be worth just $53,855 in 17 years. In other words, a withdrawal of $20,000 now costs about $54,000 in future growth.
Worse yet, FINRA warns, creditors have access to any money taken out of a 401(k), be it a loan or hardship withdrawal, in ways they wouldn't if you left the money in a retirement account. Under the Bankruptcy Abuse Protection and Consumer Protection Act of 2005, creditors cannot touch your 401(k) balance or similar retirement savings account -- even if, as a last resort, you file for bankruptcy protection, FINRA said. Of note, balances in IRAs (Roth and traditional) are protected up to a limit of $1 million from creditors.
There are other benefits to maintaining contributions to your 401(k). Contributions reduce taxable income and lower your tax bill. Plus, 401(k) contributions often come with free money: Employers typically match a percentage of your contribution.
That said, if you really need the money from your 401(k), FINRA suggests taking out a loan rather than a withdrawal. You might be able to borrow money at a lower interest rate than a bank would offer. Plus, you won't have to pay taxes on the loan as you would with a withdrawal. Also, if your employer offers one, avoid using a 401(k) debit card, FINRA said.
Life settlements
Don't cash in your life insurance policy using something called a life settlement, FINRA warns. With a life settlement, a third party will buy your life insurance policy from you, typically for more than the cash value but less than the death benefit. According to FINRA, life settlements can be a valuable source of liquidity if you would otherwise surrender your life insurance policy or allow it to lapse, or if your life insurance needs have changed. But life settlements are not for everyone, FINRA said.
For instance, life settlements can have high transaction costs and unintended consequences. You might be unable to buy a new insurance policy, plus you could lose state or federal benefits, such as Medicaid. Also, you will have to pay taxes on the life settlement.
If you really need the money from your life insurance and you still need the coverage, FINRA suggests you borrow against your policy, or check whether you are eligible for accelerated death benefits. If you have a long-term, catastrophic, or terminal illness you might be able get a reduced benefit prior to dying.
Reverse mortgages
If you are over age 62 and have equity in your house, a reverse mortgage might sound intriguing. With a reverse mortgage, you get to convert the equity in your house to cash, plus you get to age in place, in your home. What's more, you don't have to make any interest or principal payments during the life of the loan.
But as with all things that sound too good to be true, especially something that sounds too good to be true for what could be your single largest asset and a future source of retirement income, there's a catch with reverse mortgages. For one thing, the loan costs can be steep. Also, interest is added to the principal, making reverse mortgages "rising debt" loans.
"The bottom line is that reverse mortgages are an expensive option that may prematurely deplete your home equity," FINRA said. "A reverse mortgage is a very serious decision."
Consider, for instance, some of the disadvantages FINRA outlined:
The income or lump sum you receive could impact you or your spouse's eligibility for various state and federal benefits, including Medicaid. Depending on the laws of your state, a reverse mortgage may not enjoy the same home-equity protection that would otherwise apply against creditors, or if you have a health emergency and your spouse must liquidate assets to pay for nursing home care. A reverse mortgage is not the right choice if you want to leave your house to your heirs.
A reverse mortgage may be right for you. But you need to evaluate a number of factors, including your health, your spouse's health, other sources of income, the reason you're tapping your home equity, when to do it, and how wisely you use your loan proceeds - before deciding whether a reverse mortgage is right or not.
What are some alternatives to a reverse mortgage? According to FINRA, you could sell your house and then downsize or rent, or take out a home equity loan, or get help from your children or local government assistance program. Any of those tactics could unlock the equity in your home without the cost of a reverse mortgage.
Copyright © 2008 MarketWatch, Inc.
