Prosper Newsletter: June 2007 > Financial

You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.

Retirement Planning 101

Someone once said that retirement is when you have too much time to do nothing. The official definition of retire is, "To go away, retreat, or withdraw to a private, sheltered, or secluded place." Do you have a plan for your retirement including where you will live and how you will spend your time? Will you own an RV and travel the country or will you be forced to work part time to supplement your income? Everyone's retirement is a highly personal and individual matter, yet most people face the golden years with many questions left unanswered. What do you want your retirement to look like?

Planning for your retirement is extremely important yet most people don't put forth the necessary effort. Forty percent of baby boomers are not sure if they will have enough money to live comfortably after they retire and twenty-five percent will have to work indefinitely. The social security system was meant to be a temporary fix. It was not foreseen that the workers of today would fund today's retirees. By 2017 the government will be paying out more benefits than they will be collecting in payroll taxes. Where will the promised funds come from? Most people will be forced to extend their working years or will have to accept living in poverty.

Forty-three percent of American families already spend more than they make each year, and life expectancy today is at least twenty years past the age of retirement. How will these variables come into play when retirement looms? Healthcare costs are rising and a person's health is the wild card here. Is there the need for long or short-term disability insurances to pay for expensive care and medicines or will your good health win out until you take your last breath? In the past, pensions and social security helped to ensure a stable income for retirees. Today, pension plans are virtually extinct and many long-term faithful employees are finding themselves unemployed shortly before reaching the age of retirement so companies can avoid the obligation of paying years of benefits. The responsibility of providing for retirement is shifting away from employer and onto the employee. Our retirements now depend largely on not only our abilities to save and invest wisely, but also in our ability to plan.

Your first step in planning your retirement is determining what you will need to fund your chosen lifestyle. Past analysis indicates that retirees can live on seventy to eighty percent of current income by strict budgeting and even less if major debt is not an issue and the home doesn't carry a mortgage. But why would you work hard for a lifetime only to settle upon a more frugal and strict way of living during your retirement years? With the additional burdens of massive debt and the cost of healthcare previously covered by an employer, retirees are facing the challenge of matching a working income in order to be comfortable.

There are many factors that can help you determine how much you need to save each month to reach your desired retirement income including your current age and years away from potential retirement, life expectancy, current earnings, perpetual income sources, inflation, and current savings, retirement contributions, and growth. What do you expect your cash outflow to be during retirement? How much is enough? There are several steps of action to take to ensure you are ready when your day to retire arrives.

A successful retirement takes planning. Generally speaking, the earlier you begin, the better off you will be. And the younger you are, the more aggressive you can be with your investments. Proper money management is also a key skill to learn and implement before reaching retirement age in order to ensure that the available funds with remain available as long as they are needed.

Beware of "Vishing"!

You have probably heard of Phishing, an identity theft scam that uses fake emails that pose as financial institutions you trust, to steal your personal information. Many internet users have become familiar with this form of identity theft. To get around this, identity thieves have concocted a new scam, "vishing" or voice phishing.

Vishing works like this: you get an email purportedly from your bank or other financial service provider, but instead of being directed to a website, you are given a phony customer service number to call. When you call, you are led through a series of very official sounding voice prompts that ask for account numbers, passwords, and other sensitive information.

Although many credit cards now offer zero liability for fraud or unauthorized use, the effects of identity theft can be long lasting and troublesome. You may resolve the initial deception, but new fraudulent account activity and misuse may continue for years. You may spend a lot of time contesting bills, straightening out credit-reporting errors, resolving traffic tickets or outstanding warrants for more serious crimes committed in your name.

What to do if your identity is stolen:

1. Contact the security or fraud department at each of the compromised credit card companies or banks
2. Place a fraud alert on your credit files - this makes it more difficult for identity thieves to open credit accounts in your name. Contact one of the three major credit bureaus: Equifax (800-525-6285), Experian (888-397-3742), or TransUnion (800-680-7289). Whomever you call is required by law to notify the other two.
3. File a Police Report with your local police force or with the police in the community where the fraud took place. Make sure you obtain a copy of the police report for your records and so that you can make copies in case any creditors request proof of the crime.
4. Follow up. Make sure that you follow up with any calls or correspondence to your bank or creditors with another letter outlining the fraudulent activity. The financial institutions probably have a downloadable fraud dispute form or you can download the ID Theft Affidavit from the Federal Trade Commission at www.ftc.gov/bcp/conline/pubs/credit/affidavit.pdf. Mail your letter along with support documentation like copies of the police report to the address listed on your monthly statements for billing inquiries. Send your correspondence via certified mail, return receipt requested.

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