Would a hardship withdrawal from your 401(k) be a good solution for you?

If you still have a job, there are only two ways to get money out of your employer's 401(k) plan: borrow it or take a hardship withdrawal. A loan has two big advantages--it's not taxable if you pay it back and the payments you make allow you to rebuild your account. The big disadvantage is that you have to come up with the money to pay it back.

A hardship withdrawal may meet your needs if you qualify and your plan offers them. The key elements to qualify are that you must have an immediate and heavy financial need and that the withdrawal is necessary to meet the need. For example, preventing foreclosure or paying big medical bills might qualify. Thomson Reuters offers some insight  into how these withdrawals work. A key point is that you will owe regular income tax plus the 10% penalty for withdrawals if you are younger than 59 1/2.

It's always best if you can save your retirement money for retirement--you're probably going to need it then. However, sometimes there are reasons you can't do that.

 

Is a "Staycation" in your future?

If so, you might want to take a few tips from Laura and Tom McKanna on how to do it right. I wrote about their vacation at home in this week's column. One of the things they found was that advance planning is really important. They got their chores done before the vacation even started. Feel free to add your own tips if you've had a successful home vacation.

What's a short sale?

Q: In following real estate news, I have come across the term "short sale." What does this mean? How does it work, etc.? is this another greed angle that will cause more grief for homeowners?

A: Quite the opposite. A short sale in real estate is a sale for less than the amount of the mortgage. The lender agrees to accept the sale proceeds as satisfaction of the debt. It's an alternative to going through foreclosure. The problem is usually convincing the mortgage lender to agree to a short sale.

Note: the interest forgiven is generally taxable income unless the property was the borrower's primary residence. 

Here's help acing job interviews

Monty Montgomery, who was one of Lou Pearlman's scam victims, has a soft spot in his heart for job seekers. He has put together a detailed 60-page workbook designed to help people prepare for and ace job interviews. He calls it "How to Pass Job Interviews: 7 Essential Skills You Can Use Step-byStep to Succeed at One of Life's Toughest Challenges." He will email it to you for free as an attachment if you send him an email (PassInterviews@yahoo.com). This would be a great workbook to use with a class or support group of job seekers who could encourage each other.

It's the first of several publications Monty plans to offer through a Web site on the "ABCDs of Life".

Best wishes to Monty on this new endeavor.

Americans are spending their retirement savings

This shouldn't come as much of a surprise: Rising food and energy costs are crimping Americans' savings for retirement. Overall, 55% of households said they've cut back on retirement savings because of higher prices, according to a survey the brokerage Edward Jones recently released. The percentage was highest among households with less than $50,000 income, women, young adults and African Americans.

Are you seeing any signs of hope for the economy

Friday was one depressing day for the economy--oil prices up, stock prices down and unemployment getting worse, in large part because people who've been out of the job market are trying to get in. Yet there are a few signs of hope if you look for them. That's what Times readers told me when I asked. Foreclosed houses selling, tourist living it up at Disney World. What's your take?

Even rich baby boomers have got retirement jitters

A new survey out today claims one out of four wealthy 60-year-olds are changing their retirement plans and nearly 30 percent have more financial stress than they did six months ago. Women (35%) are more stressed out than men (24%). A whopping 40% claim to be downsizing their lifestyle in some way. The survey from Bell Investment Advisors involved a random sample of 500 people with investable assets of $1-million or more.

Financial services companies do these surveys to call attention to their services. I don't know if the numbers are right, but people do seem to be more anxious. It's hard not to be when you see friends losing their jobs.

Looking for a link on the Web, I found last year's survey by the same group, when people were feeling more confident.

The Fed may be done, but can the economy get going?

Will this be the pause that refreshes? It looks like the Fed is ready to stop lowering rates, or at least take a breather after this week's quarter point drop. But as I wrote in The Times, it may be a few months before we know whether the government's recipe of lower rates and tax rebates was enough. Oil prices dropped a bit today on the news that the Fed may be done (lower rates hurt the dollar, which in turn leads to higher oil prices). Maybe that means we'll stop setting new records every day for gas prices. The average was $3.59 a gallon today in the Tampa Bay area--yikes!

I'm hoping that by fall we'll have some signs that things are picking up. I think we could use a little higher interest rates to help out retirees with their CDs and money market accounts.

Is gold a buy or a sell? How about the dollar?

Gold: buy or sell? was the question of the week this past week and I found Times readers seriously divided. (Read some of their opinions here.) Friday gold was trading at $915 an ounce and silver at around $18, both off from their all-time highs. Gold and silver have been great investments for those prescient enough to buy at the right time, but mediocre to lousy for those whose timing was off. I wouldn't want to be the person who paid $800 an ounce for gold back in the 1980s. This site offers historical charts that provide some perspective. My view is that gold is better considered an economic safety net than an investment. I don't think you should have more than 10% of your investment assets in precious metals.

Gold, of course, is a hedge against inflation and a store of value when the dollar is declining. EverBank in Jacksonville has managed to capitalize on both trends, as I wrote in Sunday's column. The bank's specialty is currency-linked bank accounts that allow you to profit or lose money on big movements in the dollar. (Transaction costs mean small movements aren't profitable.) The bank also sells gold. If you're the trader type, you'd be better served by a currency-linked ETF, such as these created by CurrencyShares.

Economic gloom is getting us down

Are you feeling good about your finances and the future? If so, you're part of a shrinking crowd of optimists. It seems that at least once a week - and more often several times a week - I see another survey that points to growing gloom about finances. In today's paper, I wrote about the annual Retirement Confidence Survey, which this year featured the biggest ever drop in confidence about having enough money to finance a comfortable retirement.

Here's another report out today from the Pew Research Center on the "middle class blues," focused on the difficulty middle class families are having maintaining their standard of living. I recommend the report to you as it has lots of fascinating findings. Here's one: Some groups have improved their standard of living since 1970: seniors (ages 65 and older), blacks, native-born Hispanics and married adults. Losers include young adults (ages 18 to 29), the never-married, foreign-born Hispanics and people with a high school diploma or less.

Will you spend more or less on vacation this year?

High gas prices and inflation-pinched wallets are prompting some people to cut back on their vacation plans. However, others say they'll just spend more this year, some of them taking the same trips but expecting to spend more filling up the gas tank. When I asked the question of Times readers, here are some of the responses I got. I think I'll probably spend about the same. How about you?

I'll be on TV talking about the economy

Monday (March 31) with Kathy Fountain for the "Your Turn" broadcast on WTVT Channel 13. It comes on at 12:30 pm as the second half of the noon news and takes questions from viewers.

Inflation, interest rates and saving pennies

Retirees and other savers are feeling squeezed with inflation heating up and interest rates falling. As the Federal Reserve Board focuses on repairing the credit markets, it runs the risk of making inflation worse. My story today looks at this issue. In addition, my colleagues have written about why food prices are going through the roof and tips on spending less. How are YOU coping as prices rise and CD yields sink? Here's what some readers had to say about lower interest rates.

And speaking of pennies, this week's column is about penny stock fraud. Don't let it happen to you!

[Credit: Stock.xchng]

I'm ready for my family's $1,200. How about you?

We're still waiting for news on just how much cash the government plans to send us this summer, but in today's column I offer some advice on what to do with it. Some of my top suggestions: Paying down debt, using it in a way that allows you to avoid future debt (such as setting it aside for next Christmas or adding it to your emergency fund) and putting it toward one of your dreams (college education, a car, a house). In my house, we've got two major upcoming expenditures that will take priority--funding our IRA contributions and paying what we owe on our income taxes. But we'll be past those by the time the rebate arrives, so most likely it will be spent on this year's vacation.

Readers also comment about their plans for the windfall.

Is a recession the time to get out of stocks?

No, says Larry Swedroe, author of numerous books, including Wise Investing Made Simple. The time to get out of stocks is well before a recession. Stocks go down in anticipation of a recession, but once it actually starts they do better. He looked at the 11 recessions since 1945 and found the average return on the S&P 500 was 7.1%. The actual returns ranged from a loss of 17.9% to a gain of 27.6%.

Since the likelihood of timing the market is small, Swedroe recommends regular rebalancing to keep the same percentage of your portfolio in stocks. That way you sell when stocks are high and buy when they are low.

Here's the list of the recessions:February 1945-October 1945, November 1948-October 1949, July 1953-May 1954, August 1957-April 1958, April 1960-February 1961, December 1969-November 1970, November 1973-March 1975, January 1980-July 1980, July 1981-November 1982, July 1990-March 1991, March 2001-November 2001. Source: BusinessWeek, February 4, 2008.

How are Floridians doing financially?

Not so bad, according to the statistics compiled by Florida TaxWatch. They show how the state has grown and its residents have (mostly) prospered during the first decade of the new century. Take a look. Interesting statistic: Total personal income rose 46% from 2001 to 2007, while the per person number was up 25%.