Curs Secure Retirement

8/12/2019 Curs Secure Retirement

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Planning for a Secure RetirementWithout a solid plan in place, the reality of retirement may turn out quitedifferent from your dreams. You can, however, set up a plan tosignificantly improve your retirement situation. In this six-lesson courseyou'll learn the basics of building a blueprint that will help you achieve asecure retirement. You'll examine some common planning mistakes,determine your current financial profile, look at some investment basics,learn debt management strategies, and find out how to catch up if youstarted late.

Lessons

Your Retirement Dreams1.In Lesson 1, we'll start by examining some common planning mistakes, thenjump right into the nitty-gritty of figuring out your current financial profile --including assets, liabilities, and your overall net worth.

Your Investment Profile2.

Now that you're clear on your income, expenses, and net worth, we'll learnabout some necessary considerations before you take the plunge and startbuilding a financial plan that works for you.

Investing Basics, Plus Social Security and Inflation3.In this lesson, we'll be focusing on some of the basic tools available to create asolid foundation, including Social Security, stocks, bonds, and mutual funds.We'll also take a look at how inflation affects your plan.

Your Retirement Toolkit: 401(k)s, IRAs, and More4.This lesson takes a look at a few commonly used retirement planning options,such as 401(k)s and IRAs. We'll also look at how Employee Stock OwnershipPlans (ESOPs), pensions, and annuities fit into your overall plan.

Debt Management Basics5. When it comes to retirement, investing is only part of the puzzle. Managing yourdebt load is another important consideration. This lesson helps you get a handleon your debt, now and into the future.

Starting Late, Keeping It Safe6.In our final lesson, we'll examine strategies for late planners, as well as someimportant insurance basics and the pros and cons of working with financialplanners.

Your Retirement Dreams

n Lesson 1, we'll start by examining some common planning mistakes, then jump right into the nitty-gritty ofguring out your current financial profile -- including assets, liabilities, and your overall net worth.

Course Introduction

Most experts agree that you will generally need less income after you retire. Perhapsour house will be paid off, so you won't have mortgage payments. Or perhaps you will

move into a smaller dwelling after your children leave home, which may reduce yourverall housing cost. However, it's important to remember that the sooner you can startaving, the better. If you put off saving as $2,000 per year starting at age 25, it could costou as much as $520,000 by age 65!

However, you are the only one who knows your individual situation. Indeed, the wordretirement" conjures up different pictures for different people. Some think of it as aeisurely time to enjoy sun-drenched beaches and work on their golf games. Others think

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f it as a time to travel and enjoy the fruits of many years of hard work. Still others see anpportunity to start a new career.

But without a solid plan in place to provide for their expectations, the reality of retirementmay end up being disappointingly different for many. If you want to, however, you can set

p a plan to significantly improve their retirement situation. That's the point of this course:Over the next six lessons, you'll learn the basics of building a plan that will help you

chieve a secure retirement.

How the Course Is Structured

n Lesson 1, we'll start by examining some common planning mistakes, then we'll jumpght into the nitty-gritty of figuring out your current financial profile including assets,abilities, and your overall net worth. In the next few lessons, we'll look at somenvestment basics, including risk, your goals, basic investment vehicles, and a fewpecialized retirement savings vehicles. Finally, we'll get back to hands-on planning,ocusing on practical debt management strategies and a few no-nonsense tips forlanners who started late. The following list defines several key terms you will need tonderstand as your financial health and plan for your retirement:

Assets: A financial asset is something that is worth real money -- something that youcan convert to money should you need it now or in the future.Liabilities: Your liabilities are the things you owe.Net Worth: Your financial net worth is the difference between your financial assets andyour financial liabilities.

This course is not intended to replace the advice of your tax advisor. Additional ordifferent benefits or rules may apply in your state. In addition, this course is notintended to endorse any specific investment or type of investment. Variousinvestments come with various levels of risk. Research your investments carefullybefore purchasing.

With Keep theChange you cansave while youspend. Each timeyou buy somethingwith your Bank ofAmerica VISACheck Card, wellround yourpurchase to thenearest dollar

amount andtransfer thedifference fromyour checkingaccount to yoursavings account.What could beeasier?

When Will You Retire and What Will Be There When You Do

When do you want to retire? If you're like most people, probably in your mid-60s. Yet, ifou're like most people, you really haven't begun to do anything about it. In fact, morehan half of Americans between the ages of 18 and 34, and more than a quarter of thoseges 35 to 54, have not begun to save for retirement -- which is a problem.

Why? Because in order to maintain your standard of living -- never mind all that travelou'd like to do and golf you want to play -- you'll need between 70 and 80 percent ofurrent income. Americans spend an average of 18 years in retirement. And guess what?

People are living longer and longer; chances are, by the time you retire you'll have a lotmore years than this. This means you'll need a lot of money to live on.

f you'vesaved. . .

More than15% ofyourannualincome

Between 5 and 15% of yourannual income

Less than 5% of your annualincome

And you... Have ahighincome

Won'thave amortgagewhen youretire

Have significant savings

Will still have some mortgagepayments when you retire

Want to retire with a standard ofliving comparable to what youhave now

Will still have significantmortgage payments when youretire

Want to retire with a standardof living comparable to whatyou have now


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Plan toscaledown yourlifestyleduringretirement

Maintainingyourstandard of

iving willrequire...

65% ofyourcurrent

annualincome

75% of your current annualincome

85% of your current annualincome

Some simple guidelines for determining how much you'll need for a comfortableetirement.

But, some may counter, that's where Social Security comes in. Well, kinda, sorta . . . butot really. Social Security was designed to provide only basic necessities, such as food,helter, and clothing. It was not intended as a sole source of income. And it was createdt a time when life expectancies were much shorter. Moreover, Social Security is underolitical attack and serious financial strain right now. So while it may be around for the

oreseeable future, you shouldn't count on it to finance your dreams -- at best, it 's only a

afety net.

What does that mean? Basically, that you need to take some responsibility and startlanning now. So get ready for your first step: Understanding your current financialrofile.

Next Up

Getting a grip on your financial profile.

your checkingaccount to yoursavings account.What could beeasier?

What Comes In and What Goes Out

n order to plan for the future, you need a solid grasp of the present. Do you know howmuch money you have in savings, off the top of your head? How about the amount thatou owe to creditors? Many people don't. Many avoid "doing the math" because they areving beyond their means or because the topic of money makes them uncomfortable.

Don't let yourself get caught in the same trap that nearly one-third of Americans do,ausing them to delay their retirement. However, you can't begin a solid plan for financialecurity until you take a look at your present situation. So, grab a pencil and a few sheetsf paper or pull up your accounting software. (Note that this exercise is for you and willot be shared with the group, so be honest.)

What's Coming In

First, we're going to take a look at how much money flows through your household eachmonth. The first step is to evaluate your monthly income using this calculator. Hopefully,

ou can lay your hands on that number without too much trouble. Once you do, enter themount you receive annually in each of the fields provided, then hit the "calculate" button.

Write this number down and continue with the lesson.

The number generated by the calculator is your true monthly income.


Keep the Change

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Now, take a moment to think about this number. Is it more or less than what you thought?By how much? If the difference is surprising, note by how much you overestimated or

nderestimated your income.

How Much Is Going Out?

Understanding the money that flows out of your household is a bit more time-consuming.However, it is critical that you move forward with this exercise before you continue with

he lessons in this course. Be as honest and thorough as you can be.

First, create a list of your monthly expense categories and how much you currently spendn each. The categories may include:

Rent/MortgageUtilitiesTelephoneGasCommuting ExpensesGroceriesClothing

Credit Card PaymentsAutomobile LoansInsuranceEntertainment/Dining Out

Once you have listed all of your monthly expenses, list your annual expenses at theottom of the list. These may include vacations or other once- or twice-a-year expenses.

Now, gather together any evidence of your spending over the last two years -- canceledhecks, ATM receipts, bank statements, credit card bills, computerized records, etc. Byoing back two years instead of just a few months, you will get a much more accurateicture of your living expenses. You may have had an unusual expenditure or two over

he past year -- buying a new car or paying for a child's wedding. In addition, looking atust a few months may not show you all of your once-a-year expenses -- vacations,medical visits, etc. -- these need to be counted. So, while this will take some time, it ismost important that you get as close as possible to two years of total expenses.

s also important to note that if you find that documentation is missing -- bank statementsre gone or you can't find your credit card bills -- it will be important to pay closerttention to keeping your financial records in order in the future. As a general rule of

humb, keep all income and tax-related expense records for three years -- this is theength of time the IRS has to ask for records, so you are killing two birds with one stone!f you can't pull together this documentation, go through your planner and whatever

ecords you can find and try to put together as close a financial picture as possible.However, it is likely that some expenses will be missing, so this exercise should beevisited once you have more financial documents at your disposal.

Follow these steps to calculate your average monthly expenses:

Plug numbers into the list of spending categories you created. As you come1.across new expenses, create as many categories at you need. Don't forget cashexpenditures such as baby-sitting and gasoline, once-a-year expenditures such asvacations, and necessary but irregular expenses such as gifts and entertainment.Add together all of the categories and divide that number by 24 (the number of2.

months in two years). That is your average monthly expenditure for eachcategory.Total the averages of each category and that's your average monthly expenditure.3.

Again, take a look at the number that you guessed at the beginning of these exercises.How close were you to that total?

your checkingaccount to yoursavings account.What could beeasier?


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What If My Outgoing Total Was HigherThan Myncoming Total?

First, take a deep breath and congratulate yourself for having the courage to address thisact. Many people don't until they are too far in debt to do much about it. In the upcomingessons, we're going to show you how to set up a budget and put you intouch with someebt-reductions resources and options that may help you be able to save significantly

more money each month.

Next Up

Calculate your net worth.

Figuring Out Your Net Worth

Net worth is an important indicator of your financial well-being. The formula for figuringut your financial net worth is simple:

Assets - Liabilities = Net Worth

Your Assets

A financial asset is something that is worth real money -- something that you can converto money should you need it now or in the future. This might include:

Cash in the bank, stocks, bonds or mutual fundsMoney in retirement accountsAny businesses you ownReal estate you own other than your own home (Note: Include your primary residenceonly if you plan to sell it to contribute to your retirement)Future Social Security or pension benefits (If this figure is a monthly amount, multiply itby the number of months you intend to be retired, e.g., 240 for 20 years of retirement)Other items of value that you intend to -- and are sure you can -- sellto contributetoyour retirement

Make a list of all of your assets and add them. This is your asset total.

Your Liabilities

Your liabilities are the things you owe. They may include:

Auto loansCredit cards

Personal loansMortgages on properties other than your primary residence (unless you included thatresidence in your asset list), money you owe other people, etc.

Make a list of all of your liabilities and add them. This is your l iability total.

Why AreYou Here?

There's nothing likepeer support in alearningenvironment. If youever belonged to a

study group inschool, you'llremember thevalue of puttingheads together todiscuss the subjectand work throughsolutions. TheMessage Board isyour online study-group lounge,where you can

meet yourclassmates, shareyour reasons forsigning up for thisclass, and talkabout your goalsand dilemmas asyou work throughthis course. Younever know whohas the answersyou seek.


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Your Net Worth

Use the Net Worth Calculatorto find your net worth.

Your net worth tells you where you are. Ideally, your net worth should be at least half ofour annual income. Is it a bigger or smaller number than you expected? Again, don't usehis exercise to beat yourself up. We're taking the first steps to create positive changend that's a good thing.

Now that you have some key figures in place, congratulate yourself. You've begun to takeontrol of your retirement situation!

Moving Forward

As you plan your retirement, the financial self-portrait you've just established will come in

andy. For instance, if you are starting retirement planning late and have a low net worth,may be wise to invest fairly vigorously to establish a baseline. However, if you have a

ow tolerance for risk and a long timeline to work with, you might choose to invest moreonservatively. We'll discuss these issues and more next lesson. See you there! In the

meantime, don't forget to check out the quiz and assignment, and visit the MessageBoard to meet your instructor and classmates.

With Keep theChange you cansave while youspend. Each time

you buy somethingwith your Bank ofAmerica VISACheck Card, wellround yourpurchase to thenearest dollaramount andtransfer thedifference fromyour checkingaccount to yoursavings account.What could beeasier?

Assignment #1

Spend some time reviewing your income and expenses and complete the net worth exercisesiscussed in this lesson. Getting a clear picture of your current situation is critical to takingositive action. This is your first step toward developing a successful retirement strategy.

Solution

Spend some time reviewing your income and expenses and complete the net worth exercisesiscussed in this lesson. Getting a clear picture of your current situation is critical to takingositive action. This is your first step toward developing a successful retirement strategy.

Quiz: #1

Question 1:Most Americans do which of the following?

A) Save more than they need for retirement

B) Do not save enough for retirement

C) Get enough income from Social Security to comfortably retire

D) Have pensions that will take care of them

Question 2:Which of the following is not a form of income?

A) Credit card

B) Alimony

C) Job wages
http://www.buscourses.com/richmedia/Sec_Retirement/Winnebago01obj04.htm


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D) Interest from savings

Question 3:You may be in trouble if your debt danger ratio is __________.

A) less than 5

B) more than 10

C) more than 25

D) none of the above

Question 4:What is net worth?

A) Your value as a person

B) Your assets minus your liabilities

C) Your liabilities minus your assets

D) Your total liabilities

Your Investment Profile

Now that you're clear on your income, expenses, and net worth, we'll learn about some necessaryonsiderations before you take the plunge and start building a financial plan that works for you.

Risky Business

n Lesson 1, you evaluated your current financial picture. In this lesson, we'll reviewactors you should bear in mind as you start planning.

Understanding Risk

True richness begins when the money you earn begins to earn money itself," writesSuze Orman says in The Courage to Be Rich. And that means one thing: You won't getery rich by stashing all your money in your mattress. In fact, over time, even the safest,

most conservative investment will begin making exponentially great payoffs, increasingour wealth dramatically faster than a simple, linear savings strategy. Remember theiscussion in our last lesson about the impact of saving just $2,000?

So, if you want a well-padded retirement, you're probably going to need to take a deepreath and get ready to invest.

Understanding Investment Variables

One fact of investing is that nearly every form of growing your money comes with somesk: Generally, the higher the return -- or the potential return -- the greater that factor ofsk. That said, risk is only one of several investment factors you need to consider beforeou begin an aggressive investing plan for the long term.

Following is a list of variables that will, help you prioritize your investment plan.

Your age: If you're approaching retirement and you have a lot of savings, it may beunwise to make riskier investments. After all, if you lose money at this stage of thegame it's likely that you'll have a more difficult time earning back that cash than youwould have 15 or 20 years ago. By the same token, if you're very young and have lotsof time for investments to multiply, you may want to play it conservative. However, if


Keep the Change

With Keep theChange you cansave while youspend. Each timeyou buy something

with your Bank ofAmerica VISACheck Card, wellround yourpurchase to thenearest dollaramount andtransfer thedifference fromyour checkingaccount to yoursavings account.What could be

easier?


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you're starting your savings plan late in life, you may decide that riskier investmentswith the potential for higher rewards make sense. We'll discuss this more in the nextsection when we when go over asset allocation.Time frame: Whether you're investing for your retirement, for your child's education, tobuy a house, or for some other purpose, you need to determine a time frame for yourinvestments. By having this deadline to achieve your investment goals, you'll be betterable to decide which investment vehicles are likely to get you to your desired outcomemost effectively.Risk level: Again, in most investments, the rule of thumb is the higher the return, thegreater the risk. So, although they may sound great, get-rich-quick investments and"sure-thing" tips are some of the surest ways to lose your hard-earned cash. In general

you will likely lean toward having more risk at a younger age and less risk as you getolder.Your personality: Regardless of the other factors, if you're going to lose sleep at nightbecause your money is in a high-risk investment, the solution is simple: Don't put itthere! Your investments shouldn't cause you undue stress.

All of these factors interact with one another as you put together a retirement plan. We'llxamine how over the next several lessons. The following shows common short term

nvestment vehicles:

Money Market FundsSavings AccountsTreasury Bills

Federal Agency SecuritiesCertificates of DepositCommercial PaperBankers' AcceptancesRepurchase Agreements

The following shows common long term investment vehicles:

Certificates of DepositTreasury Notes and BondsCorporate BondsMunicipal BondsEquities (or Stocks)Mutual FundsMedium-Term NotesDefined Asset Funds

Next Up

n our next section, finding your investing style.

Creating a Saving Style That Suits Your Personality

To reach your goals, it's important to know your investing or saving style -- and be verylear about what you want.

Determine What You Want for Your Future

As with most things in life, you need to decide what you want from your future before youan make a plan to get there. So take a few moments and map out your dreametirement. How will you spend your time? How will you spend your money? Where doou want to live? To vacation? Will you be working part-time or will you be career-free?

Write a paragraph or two about what you want out of your retirement.


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Allocating Your Money

We'll talk more in the next section about diversifying your investments. But how much ofour money should you put into these different kinds of investments? In other words, how

will you allocate your investments? Asset allocation is based on many of the principleswe discussed earlier: your age, timeline, tolerance for risk, and the like. If you love thehought of risky investments that could yield big returns, you'll want to consider puttingmore of your money into those vehicles. However, if you like to know that your money iselatively safe, yet still returning on your investment, you may wish to choose more

moderate vehicles.

Allocation Formula

nvestment advisors suggest a simple calculation to assist you in allocating moneyetween various long- and short-term investments. Subtract your age from 100 percentor 120 percent if you want to be more aggressive). Invest that amount in stocks and theemaining amount in bonds or other lower-risk investments. If you're a conservativenvestor of 30, subtract 30 from 100. Seventy percent of your portfolio goes to stocks, and0 percent to low-risk investments.

According to many advisors, even conservative investors would do well to play the stockmarket. Figure 2-1 illustrates two different strategies a 30-year-old investor might use.

Figure 2-1: Two different strategies a 30-year-old investor might use.

Make It Automatic

f you're like most people, when the monthly bills come around, your money seems tomagically vanish. If you don't make it a habit to pay yourself first, it will be very difficult toeach your savings goals. To ensure that they put money away each week or month,

many people find it easier by having automatic withdrawals made from their savingsccounts or paychecks. In addition to the convenience of automatic withdrawal, you takedvantage of the principle of dollar cost averaging as well. Check with your employer,

with your Bank ofAmerica VISACheck Card, wellround yourpurchase to thenearest dollaramount andtransfer thedifference fromyour checking

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our bank, or your investment house to make arrangements if you think this would be aood option for you. Contrary to popular belief, you don't need a lot of money to use an

nvestment broker; sometimes no up-front money is needed at all if you have automaticeductions from your paycheck.

Next Up

Mitigating risk.

Mitigating Risk

Financial risk is a fact of life -- but following these tips will give you more peace of mind.

Do Your Homework

The best way to control the risk of your investments is to educate yourself. If you'reuying a stock, look into the company's track record, profits, and projections. If you're

ooking into a mutual fund, don't just consider last year's returns -- take a look at the 5-ear, 10-year, and since-inception returns.

Diversification

Another way to reduce the risk factor of your assets is to spread them across a variety ofnvestments. This helps you to weather market fluctuations and other economic factorsmore effectively. In other words, while some of your investments may be on a temporary

ownturn, your other investments may be holding steady or doing well.

n order to properly diversify, however, you need to put your money into various types ofnvestments. We'll explain more about the specific vehicles later. However, a properlyiverse portfolio doesn't mean that you just invest in various types of stocks. Rather, youhould put some money in stocks, perhaps some in bonds, etc. Mutual funds practice thistrategy to reduce risk on behalf of their investors.

Dollar Cost Averaging

Another important risk-management concept is called dollar cost averaging. This meanshat if you intend to invest a specific amount per year, you may very well receive a betterverall rate of return if you invest bit by bit rather than investing it all at once. If you investour money in a lump sum, you risk investing when the cost of the investment is high.

However, if you invest in smaller sums over a period of time, you're likely to takedvantage of market fluctuations that will make your overall cost of acquisition lower.

Figure 2-2 gives you an idea of how dollar cost averaging can benefit you. The first graph

lustrates a lump sum investment of $1,200. After the investment is made at $35, themarket wavers and falls. Almost a year later, the value of the stock has dropped to about

20, slashing the value of the original investment by more than a third, and resulting inignificant losses. The second graph illustrates the effect of dollar cost averaging. Theame $1,200 is invested in twelve installments of $100. The price at which the

nvestments are made ranges from about $47 to $10. The average price the investor paids approximately $28, significantly lower than the $35 paid by the lump-sum investor. Theecond investor still suffers losses, but the are miti ated b dollar cost avera in .

HappyReturns

A slight differencein returns cansignificantly changeyour investment.For instance, if youput 10,000 dollarsin an investmentwith a 4 percentrate of return, it willgrow to 26,658dollars in 25 yearsand 48,010 dollarsin 40 years. At 10percent that sameinvestment willearn 108,347dollars in 25 yearsand 452,592dollars in 40 years.


Keep the Change


with your Bank ofAmerica VISACheck Card, wellround yourpurchase to thenearest dollaramount andtransfer the


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Figure 2-2: Dollar cost averaging can help you manage your risk.

Don't Fix It If It Isn't Broken

Finally, it's important to remember that the best way to reduce risk is to save for the longaul. Don't be tempted to dump a solid investment because it's suffering a temporaryownturn. In many cases, the investment will rebound and you will earn your moneyack. Buying "hot stocks" and selling them for a quick profit is risky business. Althoughome folks make money this way, far more end up losing their shirts. While it's not alwaysxciting, investing with long-term strategy is the most effective way to go. Remember,

oo, buying and selling isn't free -- if you haphazardly buy and sell you may end up payingignificant fees to an investment broker, which can deteriorate your rate of return. Againhe key is to think and act long-term; be prudent in monitoring your investments, but don'thange strategies at every turn of the market.

Moving Forward

n our next lessons, we'll be discussing different investment vehicles. It's important tonow your own situation before you can make decisions about the investments that makehe most sense for you. Now that we've covered the risks involved and how to determinewhat's right for you, let's find out about the actual investing!

n the mean time, be sure to visit the Message Board to ask questions and share ideaswith your fellow students. You'll also want to complete the assignment and quiz for this

esson to get the most out of this class.

difference fromyour checkingaccount to yoursavings account.What could beeasier?

Assignment #1

Write down some of your personal goals and the timeline that you have to reach them, andetermine what level of risk you are able to withstand to achieve those goals.

Solution

Write down some of your personal goals and the timeline that you have to reach them, andetermine what level of risk you are able to withstand to achieve those goals.


12/32

Quiz: #1

Question 1:Which of the following should be considered when calculating your tolerance for risk? (Check all that apply.)

A) Your age

B) Your timeframe

C) Previous performance of the investment

Question 2:What does diversification, for the purpose of reducing risk, mean?

A) Dividing your money among many stocks

B) Dividing your money among different investments

C) Putting your money in different bank accounts

Question 3:What is dollar cost averaging?

A) Purchasing investments at different prices over time with the goal of achieving a lower overall cost perhare

B) Purchasing investments at different prices over time with the goal of achieving a higher overall cost per

hare

C) Figuring out how many dollars each investment is worth

D) Another phrase for diversification

Question 4:What is the most effective, risk-managed approach to investing?

A) A long-term strategy

B) A short-term strategy

C) A stocks-only strategy

D) Day trading

nvesting Basics, Plus Social Security and Inflation

n this lesson, we'll be focusing on some of the basic tools available to create a solid foundation, including SocialSecurity, stocks, bonds, and mutual funds. We'll also take a look at how inflation affects your plan.

Your Investment Options: Stocks and Bonds

ast lesson we looked at some basic investment concepts. In Lessons 3, we'll explainmore investment basics, take a deeper look at Social Security, and examine the effects

f inflation.

Understanding Stocks

When you buy a stock, you are actually buying a piece of a company. A company inwhich you can purchase stock is generally considered "public," and has gone through an

nitial Public Offering, during which it sells shares of itself. A few years ago, stocks couldnly be purchased through a broker at a hefty commission of $50 or more per "trade" orransaction. Now, Internet brokerage firms allow investors to buy and sell stock forelatively low fees. However, be sure to deduct the cost of the trades when calculatingour overall return.

You can make money on stocks in two ways:


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First, through the dividends -- distribution of the company's profits -- a stock may pay.However, if the company does not make a profit, shareholders do not receive dividends.Dividends are paid on each share owned, so the more shares you own, the greater the

ividends you will receive.

The second way is when the stock itself appreciates in value. So, if you bought aundred shares of stock at $5 each and two years later the stock was trading (selling) for10 each, you would have "made" $500. However, if the stock's value declined after that

o $5 each again, your profits would be zero, unless you had been paid dividends. Be

ure to do your homework before you invest, reading the company's prospectus andrushing up on its competitors.

When deciding what stock or stocks to buy, there are literally thousands to choose from.So how do you go know the difference between them? To start with, there are a number

f ways you can categorize stocks, but the most common are by size, style, and sector.

Size: When we talk about size, this refers to what is called a company's marketapitalization. This means the number of shares the company has sold times the cost ofach share. You'll often hear stocks referred to as "large cap" or "small cap" which simply

means their size relative to other stocks. There are no official rules that distinguish whats large cap or small cap, but there are some general guidelines. Large cap companiesend to more stable and less risky because they are established. Typically you canxpect higher dividends with these stocks, but lower prospects of the stock appreciatingery quickly. Small cap on the other hand usually grows at a much faster pace, though

may pay little or no dividends.

Style: Stocks are most commonly divided into two different styles, value and growth.Growth stocks are those that are expanding at an above average rate. In contrast, valuetocks are viewed as having a lower price with the higher potential for "upside." Maybe aompany made a big mistake that sent its stock price very low, but they fixed the problemnd are now ready to rebound this is your typical value stock.

Sector: Various financial companies have different definitions of sectors when describing stock, but the most common is from Standard & Poors, which breaks stocks into one of

en "buckets." Each of these buckets, or sectors, contains stocks that have similarttributes, such as communications companies, utilities providers, and technologyompanies, to name a few.

Understanding Bonds

Bonds are, in effect, a loan that you make to a corporation or government. You give themour money for a pre-determined amount of time for a pre-determined rate of return on aegular basis. Bonds have a maturity date by which the bond issuer must pay back thealue to the bondholder. You should look at the bond's rating, which denotes thereditworthiness of the issuer -- the lower the rating, the higher the return and the risk.

Keep in mind that the longer the term of the bond, the higher the risk, as rates of returnan fluctuate. The US government issues bonds that are referred to as "risk free," as theyre backed by the US government. All other bonds issued by private companies are said

o have some level of risk and as such must pay a higher rate of return than governmentonds.

Next Up

Mutual funds and tax-advantaged investing.

round yourpurchase to thenearest dollaramount andtransfer thedifference fromyour checkingaccount to yoursavings account.What could beeasier?


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Your Investment Options: Mutual Funds and Tax-Advantaged Investing

Mutual funds can be an attractive option for people who do not want to actively manageheir investments, and you should always consider the tax implications of anynvestments you make.

Understanding Mutual Funds

A mutual fund is composed of the money contributed by a group of investors andverseen by a manager. That money is then used to buy various stocks, bonds, or other

nvestments. Some funds are organized by level of risk, by industry, or even by religiouseliefs. Each fund has a prospectus, a document required by the Federal government

hat tells you about the fund's objectives, investments, risk, costs, performance history,nd staff. Always read the prospectus.

You'll also need to know whether the fund is a load or no-load fund. "Load" is theommission paid to those who sell you the mutual fund, usually brokers. This amount issually deducted from your investment and ranges from 4 to 8.5 percent. Some funds are

artial-load funds that refund the commission to you if you keep your money with themor five years. However, this type of fund still reduces your overall return. It's important toesearch any funds you want to invest in -- some higher load funds have higher returns,ut increasingly no-load or "lower" load funds are showing they can offer similar levels ofeturns.

There are some advisors who counsel that investors are more likely to withdraw theirmoney from no-load accounts, potentially making them more volatile. There is no

vidence to support this claim and, since no-load funds cost you less, they're likely theest way to go and often have lower management costs, yielding higher returns.

Tax-Advantaged Investing

The bad news about all of those returns is that they are considered income by the federalovernment and are therefore taxable. First, the gains get counted on your tax return asdditional income and may bump you up into a higher tax bracket. Secondly, you mightwe a separate capital gains tax to the state and federal governments on the money youarned. There are some investments, however, that offer tax advantages.

Tax-free investing: If you're in a high tax bracket, 31 percent or more, you may wish to

nvest in a tax-free mutual fund or a tax-free money market fund. Be sure to familiarizeourself with the restrictions on the investment in the eyes of both your state governmentnd the IRS. Other tax-advantaged investing options include tax-free bonds and bond

unds. Many of these are exempt from both state and federal taxes and are appropriateor those in high tax brackets. Be sure to familiarize yourself with your state's tax code.

Tax-deferred investing: Your earnings are not taxable until the time that you removehem from the investment. A good example of this is a traditional IRA or a 401(k) planrom your employer.

The most common investment made by Americans, other than a home, is investing in an

RA account or their company's standard 401(k) plan. More people are now investing inwhat are called Roth IRAs or Roth 401(k)s. We'll examine these in more detail in the nextesson, but it is important to point out that as opposed to investing in a tax-deferredmanner, with a Roth you pay taxes when you invest in the fund -- but then are generally

ble to take money out of the fund when you retire tax-free. The general rule of thumb ishat if you are young and have a longer period of time to realize gains in a stock, or fund,may be a good time to consider a Roth option. If you are older, you likely will be betterff with a standard tax-deferred solution.


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Other Options

Treasury bills, bonds, or notes are loans to the federal government that mature within aiven time frame. There are other investments available, such as stock options.

Next Up

More about Social Security.

Social Security: A Deeper Look

Social Security is a very misunderstood institution. It was started during the 1930s in

rder to provide people with their basic needs -- food, shelter, and clothing -- uponetirement. However, people live much longer today than they did in the 1930s, so theystem is under serious strain, paying out more benefits to individuals than werenticipated when the system was started. In addition to retirement benefits, Social

Security provides disability insurance for you and income for your spouse and children ifou are disabled.

There are a number of proposals being considered to extend the life of Social Security.However, regardless of the ultimate approach taken to preserve these benefits for future

enerations, it is likely that the younger you are now, the longer you will have to wait untilou receive your Social Security benefits. For instance, if you were born before 1938, youan collect full benefits at age 65. If you were born between 1938 and 1959, you can

eceive full benefits at age 66, plus or minus several months, based upon the year youwere born. If you were born after 1960, your full benefits kick in when you turn 67. AsAmericans live longer we can expect the benefits age to be increased, if Social Securityontinues to exist. As we mentioned in our previous lesson, it's best to view Social

Security as potential safety net, but not count on it for your retirement needs.

How It's Calculated

Social Security takes a few factors into consideration. First, the number of quartersthree-month periods you have worked) needs to total 40 if you reach age 62 after 1990,

asically 10 years of work during which you paid Social Security taxes. This requirements a little misleading, because if you earn $2,960 per year, you get credited for the fullour quarters, regardless of when you worked, so seasonal employees or part-timemployees usually retain eligibility.

To calculate your Social Security retirement potential, visit the Social SecurityAdministration Web site's benefit calculator.

Social Security also takes into account the age at which you begin receiving benefits.You may elect to start your benefits earlier than the required date for full benefits.However, that will usually result in a reduced benefit, so you may lose a considerable

mount of money over time. In addition, Social Security takes into consideration themount of money you earned at the time you retired. Your benefit is based on thatmount.

Next Up

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Planning around inflation.

The Impact of Inflation

nflation is a factor that retirement planners often fail to apply to future goals because itccurs slowly. We often wrongly recall past costs as constants and underestimate the

mpact of price increases on our future projections.

Looking Back

nflation, however, is very real, very insidious, and a very serious threat to theccomplishment of your objectives. The accepted measure of inflation in the UnitedStates is the CPI, or Consumer Price Index, compiled and published monthly by theDepartment of Labor. From 1900 to about 1960, the CPI averaged about 2.5 percent.Since 1960, it has averaged 4.3 percent, ranging from less than 1 percent in 1961 tomore than 13 percent in 1980.

That may not sound like much, but the impact is devastating on a long-term basis. Mostoods and services that you could buy for$1.00 in 1960 cost $6.00 in 1999! If youuestion that fact, consider that stamps rose more than 600 percent in cost in 35 years,

rom five cents in 1965 to 37 cents now. The price of a typical midsize family car rose 650ercent over the same time period -- from about $4,000 to an average of $26,000.

Looking Forward

n the last few years the rate has returned to about 2.5 percent. However, we saw 2005ncrease to 3.4 percent, and we can only guess its future direction. Even at 2.5 percenter year, today's mid-priced car will cost 75 percent more in 40 more years, or about70,000. At 4.5 percent, it will cost $151,000!

Many investors -- including many financial professionals -- fail to apply the full impact ofnflation to retirement calculations. For example, let's say you're a 50-year-old who wantso retire in 15 years at age 65 with the ability to buy goods and services that cost $48,000er year now. Let's also say that inflation will average 3.5 percent annually, which is theombined average of pre-1960 rates and post-1960 rates. Let's assume also that youxpect to live until age 90, or 25 years in retirement.

A pricing model will tell us that $48,000 of goods and services will cost $80,417 when youetire in 15 years. That's a lot more money you must plan on spending, but the realroblem is that inflation never stops, so you must plan to spend more and more eachear to buy the same goods and services.

Next Up

esson 4 takes a look at some commonly used retirement vehicles: 401(k)s, IRAs, andmore.

The Rule of72

The Rule of 72 canhelp you estimatethe impact ofinflation. It sayssimply that if youdivide the rate ofinflation into thenumber 72, theresult will be thenumber of years ittakes to doubleprices. Forexample, if youdivide 72 by a 3percent expectedrate of inflation,prices are expectedto double every 24years. At 4 percent,prices are expectedto double every 18

years.


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Assignment #1

Pick a few stocks and mutual funds, and start charting their performance. When choosing funds tomonitor, be sure to pick several with different risk ratings. An easy place to look up stocks or funds

nd chart their performance is your daily paper's business section, or online at CNN Money. As youwatch, visit the Message Board to discuss your observations.

Solution

Pick a few stocks and mutual funds, and start charting their performance. When choosing funds tomonitor, be sure to pick several with different risk ratings. An easy place to look up stocks or funds

nd chart their performance is your daily paper's business section, or online at CNN Money. As youwatch, visit the Message Board to discuss your observations.

Quiz: #1

Question 1:Which of the following is used to calculate the amount of Social Security you will receive?

A) Your age, your income at time of retirement, and the number of quarters you have worked

B) Your income level, where you live, and the level of your job

C) Your income level and other investments that you have

D) None of the above

Question 2:When you own a piece of stock, you own ______________.

A) The right to dividends

B) A piece of a company

C) A piece of paper, no more

D) A piece of several companies

Question 3:

What is a "load" on a mutual fund?

A) The amount of debt the fund has

B) How much the fund will return on investment

C) A refund

D) A commission on your purchase of the fund

Question 4:What does is mean to have tax-free investments?

A) You never pay any tax on returns

B) Investments are made in government programs

C) Investments are usually exempt from federal taxes but may incur state taxesD) Investing is done before taxes

Your Retirement Toolkit: 401(k)s, IRAs, and More
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This lesson takes a look at a few commonly used retirement planning options, such as 401(k)s and IRAs. We'lllso look at how Employee Stock Ownership Plans (ESOPs), pensions, and annuities fit into your overall plan.

401(k) and 403(b) Plans; and ESOPs and Pensions

ast lesson, we focused on some of the basic tools available to retirement planners,ncluding Social Security, stocks, bonds, and mutual funds, and examined the importancef planning around inflation. In Lesson 4, we'll examine a few commonly used retirements

lanning options.

Company-Provided Plans

Many employers offer access to retirement plans for their employees. Some employersven contribute money on your behalf. This is an important benefit and you should look atuch contributions when considering a career change, as they can add up to significantmounts of money over the course of your employment. In this section we'll discussome common employer-sponsored plans: 401(k) and 403(b) plans, Roth 401(k) plans,

Employee Stock Ownership Plans (ESOPs), and pensions.

401(k) and 403(b) Plans

These plans allow you to contribute a portion of your pre-tax income up to a setercentage or dollar limitation, depending upon your employer's plan. Because you areontributing pre-tax dollars, the money you contribute is not included in calculating yourederal and state income taxes. In addition, your employer may make a contribution onour behalf outright or may match part of your contributions.

f you work for a not-for-profit corporation, your organization may offer a 403(b) plan,which may also be called a tax-sheltered annuity. This is very similar to a 401(k) plan,

nd you're able to contribute as much as 20 percent of your salary (up to a specificmount, specified annually) pre-tax. Be aware that there is usually a substantial penalty

or withdrawing these funds before retirement, although exceptions do apply. In addition,ou may be able to borrow against the value of your retirement account.

Roth 401(k) Plans

As we started to examine in our last lesson, another option becoming more and moreopular is called a Roth 401(k) plan. A Roth 401(k) plan is virtually identical to a standard01(k) plan, except it allows you to withdraw amounts tax-free after you reach the age ofetirement, and you are limited to $15,000 a year in contributions. As opposed to atandard 401(k) plan, in which you make contributions from your pre-tax income, Rothontributions are taxable when they occur. With this, the two most important items toonsider when deciding whether to invest in a Roth 401(k) are age and employerontributions. With a Roth plan, you are likely to see a greater benefit than with atandard 401(k) if you are younger and have the opportunity to recognize gains over a

ong period of time. Remember -- you paid taxes on your contributions, so you have tomake up for these payments. In addition, many employers do not having employee-matching programs with their Roth plans. It is important to weigh these two factors when

onsidering which plan is best for your retirement planning needs.

f you have the opportunity to participate in one of these plans, participate to the highestevel you can. If your employer has any level of matching contribution policy, the reasonrows exponentially. While it may seem like a large pay reduction to put 20 percent ofour income in a retirement account that cannot be touched, you may find that themount by which the deduction reduces your taxes actually makes the difference quite a

Vested?

When you'reconsideringswitching jobs, findout how long youneed to work forthe companybefore you areconsidered"vested" -- in otherwords, how longbefore you areentitled to keepemployercontributions orother benefits evenif you leave thecompany.Companies oftenuse a vestingperiod over three tofive years as anenticement to keepyou as anemployee.


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it less. Consult the plan administrator to calculate how different contributions will changeour take-home pay. He or she should be able to provide you with examples of howarious contributions will affect your individual situation.

ESOPs and Pensions

Your employer may offer other types of plans, such as Employee Stock Ownership PlansESOPs) or pensions. With these types of retirement programs, qualifications, risk, and

ltimate benefit may vary greatly. Therefore, you need to discuss the specifics of the planwith your company's plan administrator. Find out how your money will be guaranteed and

ow much risk is involved.

Pensions are employer-sponsored retirement plans that pay you based on the number ofears that you worked for a company. An employer puts a percentage of your salary,enerally out of the employer's funds, into a fund. This money is not taxed until you take itut of the fund. Federal law dictates that you are entitled to receive benefits after fiveears of service. So as long as you stay at your job for five years before you quit, you'rekely to receive some payment at retirement -- even if you left before your pensioneached its full potential.

Next Up

RAs and annuities.

ndividual Options: IRAs and Annuities

f your employer does not offer a retirement plan, you still have options.

ndividual Retirement Accounts (IRAs)

RAs are available to anyone with employment income. They come in two forms:Traditional or Roth.

Traditional IRAs allow you to contribute up to $3,000 ($3,500 if you are 50 or older) perear as long as you earn at least that much income from employment or alimony.Traditional IRA contributions are fully deductible if you are:

Single and your adjusted gross income is between $40,000 and $50,000, orMarried, earning an adjusted gross income between $60,000 and $70,000

The deductibility thresholds are for tax year 2002. They increase annually for singlesuntil 2005 and for married filing jointly until 2007. Consult IRS Publication 590Individual Retirement Arrangements for the current year deductibility guidelines.

f you earn more, you can take the IRA deduction as long as you are not an activearticipant in your employer's plan. If you are not sure, you should check with yourmployer to find out if you are considered an active participant, as the definition isomplicated. In a traditional IRA, your money grows tax-deferred and you pay taxes onour contributions and their earnings as you withdraw the funds. If you choose to make a

withdrawal before age 591/2, you will not only pay tax on that amount, but you will alsoe penalized 10 percent for early withdrawal, unless an exception applies.


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Roth IRA contributions, on the other hand, are not tax-deductible. They have a $3,000 to3,500 contribution limit reduced by any contributions you may have made to a traditional

RA. However, your money's earnings grow tax-free and you do not pay taxes on theistributions of principal and earnings when you take them at the time of retirement (at

east age 591/2), at which time you must have had the account for at least five years. Inrder to qualify for a Roth IRA, you must have an AGI of less than $110,000 as a singler $160,000 as a married couple filing jointly.

Annuities

Annuities can be described as a combination of life insurance policy and retirementccount. Such accounts are secured by an insurance company, and your beneficiariesre guaranteed to receive the benefits of your contribution should you die before youecome eligible to receive the account's benefits. Annuities are similar to IRAs in thatour money grows tax-deferred until withdrawal, for which you are eligible at age 591/2.

Unlike IRAs, however, your contributions are not tax deductible, so you need to take thatoss of money (the tax you pay) into consideration when you consider an annuity.

Next Up

Retirement strategies for the self-employed.

Alternatives for the Self-Employed

f you work for yourself, you have even more options available to you. However, you need

o take it upon yourself to ensure your own retirement security. In addition, if you havemployees, you must provide them with a retirement plan similar to your own. Ignore thisrovision and you risk big bucks in penalties. You should consider the cost of providinguch a plan as part of a total compensation package. These types of retirement options

may also help you attract a better caliber of employee.

SEP-IRAs

The easiest option for the self-employed is to set up a simplified employee pensionndividual retirement account (SEP-IRA). Requiring little paperwork, a SEP-IRA is muchke a traditional IRA, except that employers may make contributions. As a self-employedndividual, you may contribute up to 13.04 percent of your net business income, up to aet maximum. Again, as with a traditional IRA, you pay taxes on the money when it is

withdrawn and eligibility for that begins at age 591/2.

Simple IRAs

A SIMPLE IRA is very similar to a SEP-IRA, but it allows for employers contributions andlective deferrals (similar to a 401(k) plan). The plan is very basic in the elective deferrals

re limited annually, and employer contributions are limited to a maximum of 3 percent ofn individual's compensation. It also allows the employer to match these deferrals, dollar

or dollar, up to 3 percent of the individual's compensation. As an employee, a self-mployed individual can make deferrals under the plan and receive employer-matchingontributions. While the contribution limits are less than those of the SEP-IRA, this planllows for employee participation via deferrals and might be viable option for a self-mployed person just starting a plan.

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Defined Contribution Plan

Defined Contribution Plans come in a variety of options but allow you, as a self-employedndividual, to put 20 percent of your income away, up to set maximum, tax-deferred.When setting up a Defined Contribution Plan, you have several options:

Profit-sharing plan, which allows for limited flexibility in annual contributionsMoney-purchase pension plan, which requires a fixed contribution each year

Paired plan, which is a combination of a profit-sharing and money-purchase plan

Defined Contribution Plans require more intensive paperwork than SEP-IRAs, but offer aariety of options (such as loans and protection from creditors) that may suit yourusiness and your employees more effectively.

Defined Benefit Plans

A Defined Benefit Plan has unlimited contributions, but limits distributions based on IRS-mposed limitations. You are required to retain the services of an actuary. For this, as wells for other recordkeeping reasons, defined benefit plans are more complicated andostly than SEP-IRAs or defined contribution plans. However, they may be a good optionor someone nearing retirement and in need of an aggressive savings strategy.

They may be a good option for someone nearing retirement and in need of an aggressiveavings strategy.

Moving Forward

n this lesson, we reviewed quite a bit of information on investment vehicles available toou for retirement. However, if you're stuck with an unhealthy level of debt, you may findhe prospect of investing in these vehicles overwhelming. In our next section, we'll beiscussing how to make the best investment of all -- eliminating personal debt!

Be sure to complete the assignment and quiz for this lesson, and drop by the MessageBoard to check in with your instructor and fellow students to get the most out of thisourse.

Assignment #1

Continue monitoring the stocks and mutual funds you decided to watch. How are they performing?Would you stake your future on them? How would you handle any that have declined in value? Also,isit MSN Money and use the calculatorto compare the results of investing in a Roth plan versus atandard retirement plan. As you assess, visit the message board to discuss your findings.

Solution

Continue monitoring the stocks and mutual funds you decided to watch. How are they performing?Would you stake your future on them? How would you handle any that have declined in value? Also,isit MSN Money and use the calculatorto compare the results of investing in a Roth plan versus atandard retirement plan. As you assess, visit the message board to discuss your findings.
http://moneycentral.msn.com/content/Retirementandwills/InvestYourSavings/P139175.asphttp://moneycentral.msn.com/content/Retirementandwills/InvestYourSavings/P139175.asp


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Quiz: #1

Question 1:Which of the following are investment options for a self-employed person? (Check all that apply.)

A) A SEP-IRA

B) A Money Purchase Plan

C) A Profit Sharing Plan

Question 2:Which if the follow are features of a Defined Benefit Plan? (Check all that apply.)

A) Allows unlimited contributions

B) Requires the services of an actuary

C) Limits distributions based on IRS-imposed limitations

Question 3:True or False: A Sep-IRA is identical to a SIMPLE IRA.

A) True

B) False

Debt Management Basics

When it comes to retirement, investing is only part of the puzzle. Managing your debt load is another importantonsideration. This lesson helps you get a handle on your debt, now and into the future.

Getting Out from Under

n Lesson 4, we looked at some investment vehicles designed for retirementavings. However, investing is only part of the puzzle. Managing your debt load

s another. Lesson 5 helps you get a handle on your debt.

Once again, this lesson will involve hands-on calculations, so that you can seeirectly how your debt affects your ability to sock away for a rainy day. Let'segin!

Debt 101

Debt comes in two flavors: good and bad. Good debt is debt that's in line withour overall goals: school loans, mortgages, and car loans, for example. Thesean and often do qualify as good debts, since they are debts that help you moveoward your goals and enrich your life. Bad debt tends to come from frivolouspending. Predictably, bad debt often pools in your credit card balances. Aredit card balance that spirals out of control is your worst savings nightmare.t's something you need to control. (We'll talk more about managing bad debtmomentarily.)

However, whether you have good debt or bad debt the ultimate goal should beo --or at least minimal -- debt. Conventional wisdom says that everyone shouldave some debt, especially a mortgage, because of the tax advantages.

However, even when you achieve a tax deduction because of a mortgage, youmay still be spending more money than you are saving.

To create a no- (or low-) debt plan, you first need to take a hard look at the debtou resentl have. We'll hel ou fi ure out our debt ratio later on in the

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esson. Next, you need to create a budget to address your household expensesnd find out how much money you can devote toward paying off your debt.

Budgeting

The word "budgeting," like the word "dieting," can make most of us groan. Afterll, what could be less fun than watching every penny that goes out of ourockets? However, many people who go through the budgeting process are

mazed to find out how much they're spending -- and how much they're wasting- on simple weekly or monthly expenditures. Learning where your money goess critical to getting your finances back on track.

Review your assignment from Lesson 1 when you created a list of your monthlyxpense categories detailing how much you spend on each. These likely

ncluded:

Rent/MortgageUtilitiesTelephoneGas

Commuting expensesGroceriesClothingCredit card paymentsAutomobile loansInsuranceEntertainment/dining out

You should have listed all of your monthly expenses, and then your other annualxpenses at the bottom of the list, such as vacations or other once- or twice-a-ear expenses.

Slash Your Expenses

Now you need to be merciless. Go through each category and realisticallyecide what can be cut -- and how. If you are a young person renting anpartment, moving to a less expensive apartment may be an option. If you own home, it may be possible for you to sell it and move to a less expensive home,ut it may not be feasible or even the best option. Some common ways to cutxpenses:

Switch telephone companies. Compare rates by calling telephone companies

and learning about the options. When those pesky phone servicetelemarketers call you may be able to negotiate excellent rates -- and even arebate -- by chatting with them instead of hanging up. Think about whetheryou need a home phone and a cell phone. With your cell phone, make yourlong distance calls in off-peak hours.Cancel unnecessary subscriptions. Do you really need (or even like) thatextra magazine on the coffee table?Cut back on dining out or eat at less expensive establishments.Clip coupons, buy (wisely) in bulk and watch for sales, freezing perishablesbought at a low cost.Buy clothing on sale or at outlet stores.Buy a less expensive (but good-quality) used car for cash instead of buying a

new car on credit.Transfer credit card balances to cards with lower interest. Then cancel thehigh-interest cards!Regularly review the fees you are paying for automobile and homeownersinsurance. Many companies will give you a discount if you purchase boththrough the same company.

Think of other ways to cut your expenses and go to it. Once you have


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etermined the amount of money you can save in other areas, it is important toommit that amount to paying off your debt. Begin with those debts that are

ncurring the highest interest rate -- credit cards, gas cards, department storeards, and the like.

ust say "No" when cashiers try to push store credit cards by offering you andditional discount on your purchase. While it may seem tempting, remember

hat store cards generally have a higher rate of interest than other cards andften don't have a grace period on new purchases. Over the long term, theseards will cost you far more than the 10 or 15 percent you will save that day.

Next Up

Notes on credit ratings.

Understanding Your Credit Rating

Much as we all want to get out from under debt, sometimes we need a loan.Given that reality of life, it's a good idea to check your credit report once a year

r before applying for any type of additional credit or loan. Often, there aremistakes on these reports that can damage your ability to obtain credit. It is yourght to request to have such mistakes corrected.

Borrowing money against your assets is generally easier than borrowing moneyn other ways. Why? Because the loan is secured by collateral, something ofalue to the lender should you fail to pay your loan. So, be prepared: If you don'tay the loan back, the asset you worked so hard to build may go to the lender.

However, you may still need a good credit rating to secure the loan.

The Big Three

Your credit rating is generally reported by one of three large agencies: Experian,TransUnion, or Equifax. The rating they assign is commonly called a "FICOcore," named after the Fair Issac company that developed the scoring system,nd can range between 300 and 850. Most lenders now base their decisions on

he score given by one of these reporting companies. However, different typesf lenders look at these scores differently. For example, a mortgage company

may give you an "excellent" rating if your score is over 680 and offer you theirowest rate, but a credit card company may require a much higher score to putou in the same preferential category. The general rule of thumb is that if youeep your rating over 720 you will almost always receive the best creditossible. These companies are in contact with major credit card companies, as

well as other financing and collection organizations. They track how much debtou've incurred as well as your payment patterns. These scores are a functionf how much debt you have, how timely you make your payments, and what

ype of credit you have. Late payments and other negative information can stayn your report for as many as seven years. Bankruptcy remains on your crediteport for 10 years.

Before you apply for a car loan, mortgage, or credit card, it's a good idea to get copy of your report and review it for accuracy. You'll need to get your score

rom three different agencies, each of w

Curs Secure Retirement

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