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How financial stress can hurt your career

November 21, 2014

By Dan Rafter | Money Rates Columnist

Dave Edwards knows that financial worries can make employees less productive at work. He's seen it happen.

Edwards, president of New York City's Heron Financial Group, once hired an employee who had racked up massive amounts of debt. Edwards, not surprisingly, gave the employee plenty of guidance on gradually erasing that debt. The problem? The employee became obsessed with his debt. He spent hours each workday viewing his bank account and transferring balances from one credit card to the next.

As a result, the employee was no longer producing quality work. Edwards says he had no choice but to fire him.

"I gave him three warnings," Edwards says. "But it got to the point where he was no longer functioning at work. I needed him to get his personal life under control so that he could do the job I was paying him to do. He couldn't do it, so I had to take action."

Edwards isn't alone. Employers commonly struggle with workers who are too distracted by financial worries to be productive at work. A total of 70 percent of human resource executives in a new study by the Society for Human Resource Management said that they have seen financial worries have a large or at least some negative impact on employees at their companies.

The good news? Employers and employees can each take steps to make sure that financial worries don't torpedo workers' job performance.

Financial stress at work

Shawn Gilfedder, president and chief executive officer of East Windsor, N.J.-based McGraw-Hill Federal Credit Union -- the financial institution that sponsored the Society for Human Resource Management study -- says that employers shouldn't be surprised when their workers let financial fears drag down their on-the-job performance. It's not easy for workers to concentrate on invoices and spreadsheets when they're worried about paying their rent.

"Financial worries don't go away just because someone's at work," Gilfedder says.

How serious is this issue? According to the Financial Wellness in the Workplace study, 41 percent of human resource executives said that at least some employees at their firms were struggling with work tasks because they were worried about an overall lack of funds to cover their personal expenses. Nearly 25 percent of respondents said that employees at their companies were experiencing more financial challenges now than they were 12 months ago.

In a result that doesn't bode well for retirement planning, 60 percent of human resource executives said that employees at their companies were more likely to request a loan from their retirement savings today than they were in previous years.

Approaches for employers

What can employers do to ease some of this financial stress? Gilfedder says that employers can attack the problem by offering financial education programs to their employees.

Many employers already offer health seminars designed to help employees quit smoking or lose weight. They should consider boosting the financial knowledge of their employees as a health matter too, Gilfedder says.

"Many employees are struggling just to cover their daily expenses," Gilfedder says. "They are dealing with increases in the cost of living. They might be working in areas where the cost to have children in daycare is equivalent to a mortgage payment. These issues place real stress on people, and it can negatively impact their health."

Financial wellness programs should include workshops on budgeting, reducing expenses, managing credit card debt and maintaining healthy debt-to-income ratios, Gilfedder says. They should also be targeted to specific groups of employees.

Millennials are probably more interested in budgeting, saving and paying off student-loan debts. Baby boomers and members of Generation X might worry more about determining how much money they need for retirement. Employers, then, should offer workshops or seminars geared to employees of all ages. Merely holding retirement-planning seminars isn't effective when many workers are just out of college, Gilfedder says.

Tony D'Amico with the Fidato Group, a wealth management company in Strongsville, Ohio, says that employees have to avoid financial education that steers their workers toward a particular financial product or provider. He adds that employers need to offer their financial wellness programs at a time that is convenient for employees. Attendance at these events will be higher if they are held in the middle of the work day. They'll be lower if employers hold them after hours, D'Amico says.

Approaches for employees

The onus of relieving financial stress doesn't lie only with employers. As D'Amico says, employees should bear some of this burden too."It's not enough for employees to just attend these seminars," D'Amico says. "It can't just be an intellectual exercise. Employees need to take action too.

Fortunately, even small changes can help employees manage their financial stress. Something as small as updating an outdated beneficiary form can have a positive impact, D'Amico says.

"Sometimes it's all about taking baby steps," he says. "Those little steps can provide a bit of relief. Employees feel like they are finally getting their ducks in a row. That leads to them taking another step. It builds positive momentum."

While the human resource study does contain some alarming statistics, Gilfedder says that businesses are increasingly taking steps to boost their employees' financial security.

"This is an emerging trend," Gilfedder says. "Businesses are increasingly recognizing that their employees will be more effective if they're not weighed down with financial worries. You can't force employees to make better financial decisions. But you can give them the tools they need. I think businesses recognize that providing this education is a tool that they can use to create a more productive workplace. And that's a powerful incentive for them."

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How information overload can hurt your retirement

November 11, 2014

| Money Rates Columnist

There is no shortage of retirement advice and products today. In fact, according to the Deloitte Center for Financial Services, companies spent $1.14 billion advertising retirement products in 2011.

Beyond all that advertising, you only have to type in the words "retirement advice" into your favorite search engine to find page after page of information on retirement services and strategies.

But according to some finance professionals, all that incoming information isn't necessarily a good thing.

"Both the volume and speed (of information) seems to be increasing," says Russ Thornton, a financial adviser specializing in services for women and a vice president at Wealthcare Capital Management in Atlanta. "I think a lot of people stick their head in the sand as a result."

Thornton isn't alone in questioning whether all this information is really helping consumers as they plan for retirement. Several studies indicate that access to retirement information doesn't necessarily translate into smarter decision-making or greater understanding of financial products.

Information doesn't equal understanding

For example, Deloitte found that despite the more than $1 billion spent on product advertising, the following percentage of survey respondents said they knew nothing about or did not understand how these common retirement investment products work.

Target date mutual funds: 60 percent
Fixed income securities (bonds): 44 percent
Annuities: 38 percent
Mutual funds other than target date funds: 37 percent
Dividend stocks: 34 percent

But the complexity of certain products isn't the only challenge facing consumers here. In some cases, having more investment options may lead workers to simply bow out of the investment process because of the work required to sort through their choices.

In 2009, a study conducted jointly by retirement services firm T. Rowe Price and researchers at Columbia University found too many choices led to lower participation in certain plans. That finding was backed up by a 2011 study from Columbia Business School.

In that second study, researchers discovered allocations to equity funds dropped 3.28 percentage points for every additional 10 funds offered to investors. In addition, for every 10 funds added to a plan, there was a 2.87 percent increase in the chance an individual would opt out of equity funds completely.

Equity funds are often among the most lucrative investments in a retirement portfolio. By declining to put money in these funds, or by putting in less money, workers could find themselves with less cash to use at retirement time.

When announcing its findings, Columbia Business School summed up the report this way.

This research joins a growing body of research in psychology and economics that demonstrates why consumers can be better off with a strictly smaller choice set.

Cutting the noise around retirement

If you're feeling paralyzed by your choices or confused by financial jargon, Thornton says the best thing may be to block out all the "noise."

"What I tell people, regardless of their age or wealth, is to focus on things they can control," he says when asked how to combat information overload.

For example, stock market prices and interest rate trends tend to impact retirement choices, but they can't be controlled by investors. Instead of fixating on that type of investment news and information, Thornton says workers should pay more attention to the following.

How much they spend/save (cash flow)
The timing of their retirement age
Their level of investment risk (asset allocation)

Once an individual understands, for example, their tolerance for investment risk, they can make smart choices without obsessing over the daily movements of the stock market.

"The most important thing you can do first is to step back and decide what it is you want to accomplish," says Thornton.

Keeping emotions out of retirement planning

For Craig Bartlett, vice president and division consulting manager for U.S. Bancorp., how some people respond to information may be a bigger issue than the information itself.

"What derails people is not the information, but their reaction to it," he says.

Bartlett advises people to take the emotion out of the retirement planning process by using online tools or by relying on a trusted financial adviser to help navigate available options. He points to the U.S. Bank RealSteps Retirement process as an example of the type of free service available to anyone looking for help sorting through an avalanche of retirement advice and information.

With free resources available, from online calculators to in-person consultations, Bartlett says no one should let information overload get in the way of planning for the future.

"The first and most important step is to begin," he says.

Thornton concurs, adding that early starters enjoy the best opportunities in preparing for retirement. "Retirement planning at age 35 looks different than at age 55," he says.

In the end, remember that much of the retirement information available is generalized rather than customized. Instead of obsessing over the perfect retirement savings formula or stressing over stock trends, a better approach may be to evaluate your personal financial resources and goals, look for ways to get advice tailored to your situation and then tune out all the background chatter.

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    A realist's guide to downsizing retirement plans

    October 24, 2014

    By Dan Rafter | Money Rates Columnist

    Your retirement dreams are big. But what if your retirement savings aren't?

    Big retirement plans often require significant savings, and if you're like many Americans, you haven't saved enough to fund these post-work dreams. What to do? It's time get realistic and develop a plan to downsize those retirement fantasies.

    Thankfully, financial professionals say that this downsizing doesn't have to be that painful -- provided you approach it sensibly.

    Reimagining retirement

    "Retirement is actually a great time to start simplifying your life," says Clare Levison, a Blacksburg, Virginia-based certified public accountant, author and member of the American Institute of Certified Public Accountants' National CPA Financial Literacy Commission. "If you find that you haven't reached the money goals that you wanted to hit, perhaps some of your wants are a little bit bigger than they need to be anyway."

    Too many people as they approach retirement want to ramp up their lifestyles, Levison says. They desire more expensive luxury cars and costly international vacations. But for many, a more sound financial approach would be to go the opposite route: It might be time to sell that large house and move to a smaller, less expensive residence. It might also make sense to downsize the number of cars they need to insure.

    "Instead of thinking bigger, think smaller in terms of downsizing your life and expenditures," Levison says.

    Too little, too late

    If you don't think that you have enough to fund your retirement dreams, you're far from alone. A Gallup poll from April found that 59 percent of respondents worried that they haven't saved enough for retirement.

    Saving more money is always preferable to having to downsize your retirement plans, says Joe Franklin, a certified public accountant and owner of Hixson, Tennessee-based Franklin Wealth Management. But many don't think enough about boosting their savings until they are just two or three years away from retirement.

    At that point, increasing savings to meet lofty retirement goals becomes an almost impossible task.

    "If their dreams are more than their savings are, we will tell them," Franklin says. "You either have to change what you want to do in retirement, work longer or be more aggressive with your investments going forward. Many of our clients have chosen to work longer and delay their retirements. A lot of time that is one route for getting closer to your retirement goals."

    Robert Wyrick Jr., managing partner with MFA Capital Advisors in Houston, says that too many couples wait until they are 55 without having saved much of anything for retirement to first begin meeting with financial planners.

    "These folks are often trying to make up for a lifetime of not planning, and they have less than 10 years to make it happen," Wyrick says. "Typically, part of the conversation centers around a bit of regret, and it almost always involves a discussion of making lifestyle changes in retirement."

    The best approach is for those nearing retirement to work with financial professionals to make a list of their expected expenses and revenue streams during retirement. It's important to be honest here. Once a retirement budget is in place, retiring couples can determine just how many of their retirement dreams are realistic.

    "All retirees should have a formal lifetime income plan," says David Schucavage, president of Carolina Estate Planners in Wilmington, North Carolina. "This plan shows where their money will come from over the next 30 or so years."

    Some income streams are predictable, such as Social Security payments, pensions and some annuities. Others are less certain, such as stocks and bonds. But they all count, and they should all be considered when couples are making their realistic retirement plans.

    Making peace with less

    For those who haven't saved enough, there is hope. Melody Judge, founder and managing director of Life Income Management in Southfield, Michigan, says that some retirees can reach more of their dreams by taking on a part-time job -- one that they enjoy -- to supplement their Social Security income. Others can invest in annuities that also provide an additional income stream.

    Then there are the smaller steps that retirees can take.

    "I have a client who loves the theater, so to save on the cost of theater tickets, she volunteers each month as an usher and gets to see the performances for free," Judge says.

    There will be some who will never be able to afford their most extravagant retirement plans. For these retirees, it's time to think about their post-work years differently, says Levison.

    "Making the adjustments can at first be disappointing to people," Levison says. "But retirement really can be a time when you downsize and stop putting the focus on your possessions. Once people get over that initial hump, they start to see the value of that. They have extra time to devote to volunteering. They might pick up a part-time job that they really enjoy. The things that they weren't able to accomplish financially will hopefully pale in comparison."

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    5 reasons you'll blow your holiday budget again

    October 10, 2014

    | Money Rates Columnist

    Last year, Capital One reported that 74 percent of U.S. adults were making a budget for their holiday spending -- yet 49 percent weren't sure they'd stick to it.

    Is blowing your budget the story of your life as a holiday spender? Do you have great intentions each year that you won't overspend for the holidays, only to find yourself again with a spending hangover on January 1?

    Here are five reasons you may struggle to stick to your holiday budget -- and how you can make this year different.

    Reason No. 1: You don't actually have a budget

    The reality is that you may not have a true budget in the first place.

    "Most people have a target spending number, but not a budget," says Isaiah Goodman, a financial representative with Northwestern Mutual in Edina, Minnesota.

    Matthew Boersen, a certified financial planner with Straight Path Wealth Management in Grand Rapids, Michigan, agrees: "(Shoppers) may have a general idea of how much they want to spend, but they do not actively budget the intended destinations of the money, nor do they track to make sure they stay on pace."

    In other words, if you want to have a budget, you can't simply plan on spending $500 for the season. Instead, you need to break it down into $30 for Aunt Kathy's gift, $50 for food for the family party, $100 for the tree and decorations and so on.

    Not only does breaking down your budget into specific numbers help keep you on track, it also makes it easier to quickly identify money leaks.

    Reason No. 2: You think money equals love (or at least the appearance of love)

    It may feel great to spread holiday joy through gift giving, but that good feeling is yet another reason so many blow their budgets each year.

    You may want your loved ones to know they are important enough for you to have spent a whole boatload of money on, but Boersen says it isn't purely love that causes us to overspend.

    "Pride plays a big part in gift giving," he explains, "or needing to keep up appearances."

    The best way to combat this tendency to overspend may be to simply be aware of it.

    "Don't feel obligated to purchase a certain type of gift at a dollar level. If they spent X on you last year, it doesn't mean that you have to spend X on them this year," says Boersen. "Be thoughtful and thrifty versus writing a bigger check."

    Reason No. 3: You forget to include people or events in your planning

    Even if you are committed to writing down and sticking to a specific dollar amount for each person's gift or expected holiday event, it is almost inevitable you will forget someone or something. What's more, there may be impromptu parties and Secret Santa exchanges you didn't plan for.

    "Unexpected expenses always seem to pop up during the holidays," Boersen says. "Extra gifts that need to be bought, an extra hostess gift for an additional party or a decision to host a party at the last second. All have the potential to make a budget almost worthless."

    What can you do? The easiest strategy is to simply build in a buffer to pad your budget. Padding your budget with an extra 10 percent may be enough to get you through all those unexpected pop-up expenses or budget overruns.

    Reason No. 4: You get sidetracked by deals and displays

    At any given time of the year, retailers are all about using clever tactics to get consumers to spend more. They study where to place displays, how to price items and what colors get shoppers' attention.

    During the holiday season, shoppers also have to contend with a myriad of sales that scream "one time only" and a festive atmosphere intended to help loosen purse strings. Even Christmas music has been shown in some studies to encourage spending.

    As if that weren't bad enough, well-meaning friends can contribute to the tendency to overspend.

    "You may have budgeted for a $50 gift, but been given a really good idea costing $90 that you know the person will love," Boersen says. But overreaching in this way is nearly sure to blow your budget.

    Reason No. 5: You decide to treat yourself

    Finally, you may blow your holiday budget year after year because you can't resist picking up a little something for yourself while shopping for others on your list.

    "Don't buy for yourself at the same time," urges Goodman. "There are a lot of deals out there, and if we find something we like every time we buy something for someone else, we will spend more than we thought."

    If you think you want to pick up some household items or other goodies for yourself, be sure to write a specific amount into your budget for that.

    If you are tired of entering each new year feeling guilty about your holiday spending, then right now is the time to start planning for the months ahead. Before you get caught up in the spirit of the season, sit down and map out exactly what you need to buy and how much you plan to spend for each item. Then, add a little extra as a contingency fund.

    Above all, when you've made a purchase and crossed someone off your list, stop shopping for them. Sure, that scarf or box of chocolates or mug with the witty saying might complement the gift you've already purchased, but is it worth jeopardizing your savings account balance? Remember, it's the thought -- not the price tag -- that truly counts.

    Assessing the risks of remote deposits

    September 29, 2014

    By Dan Rafter | Money Rates Columnist

    The numbers are clear: Consumers are becoming ever more willing to snap photos of their checks with their smartphones and send those images to their banks. And why not? Remote deposit capture -- the name for this technology -- can save consumers a trip to their bank or ATM.

    But with new technology can come new security risks -- or at least perceived risks. Is it possible, for example, for hackers to intercept the transmissions customers send to their banks?

    Fortunately, several industry studies and remote deposit capture experts agree that consumers shouldn't worry much about that type of fraud when using these applications.

    "The banks have gotten very good at the risk-management aspect of data transmissions," says John Leekley, founder and chief executive officer of RemoteDepositCapture.com, an Alpharetta, Georgia-based clearinghouse of mobile banking information. "I have never heard of a hack where information is stolen during the transmission process. What you do hear about is someone hacking into a database or capturing information before it is transmitted."

    In other words, while consumers shouldn't cease being vigilant about online security in general, depositing checks through a mobile app shouldn't top their list of worries.

    Mobile deposits and security

    Leekley says that consumers don't have to worry about exposing themselves to electronic forms of fraud when making mobile deposits because the data sent to financial institutions in this way is encrypted and protected.

    This is why few banks have reported losses associated with mobile deposits. According to a 2014 survey by RemoteDepositCapture.com, 80 percent of financial institutions using remote deposit capture reported no losses resulting from the technology.

    The biggest threat associated with mobile deposits is an old-fashioned one, Leekley says: You need to take care of that paper check.

    Consumers might use their smartphones to make a deposit and then forget to destroy the actual paper check. Their spouses might then see the check and try to deposit it too. Fortunately, banks usually catch these double deposits. If they don't catch them immediately though, consumers might think -- even for a short period of time -- that they have more money in their accounts than they actually have.

    Dishonest payees might even be tempted to use remote deposit capture technology to make double deposits on purpose. Banks, however, are good at sniffing out these crimes, Leekley says.

    Leekley says that consumers should follow his example: When he deposits a check through his smartphone, he immediately writes a note on the back of the check indicating this. He then destroys the check after the number of days his bank recommends.

    Leekley says that this process will become second-nature to consumers as more banks offer remote deposit capture.

    A remote deposit world

    Given the convenience of mobile check-depositing apps, it's little surprise that the number of consumers signing up for mobile deposits is on the rise.

    A May study from RemoteDepositCapture.com and San Diego-based Mitek Systems, a provider of mobile banking technology, found that 63 percent of 250 surveyed financial institutions already offered mobile remote deposit capture. An additional 33 percent planned to offer the service within 12 months.

    Scott Carter, chief marketing officer of Mitek, says that mobile deposit is well past the tipping point of early adoption. He pointed out that more than 30 million consumers have already used remote deposit capture to deposit a check.

    "Think about the younger consumers. They grew up with digital technology," Carter says. "They don't remember a time when there wasn't a camera on their smartphones, much less a time when the smartphone didn't exist."

    Andrew Tilbury, chief marketing officer with Henderson, Nevada-based Bluepoint Solutions, another provider of mobile banking tech, compares the acceptance of mobile deposit to the steady growth of ATMs.

    "The same way you can't imagine a financial institution in 2014 not having an ATM, you won't be able to imagine a bank or credit union in 2018 not having mobile banking with remote deposit," Tilbury says.

    Leekley says that consumers will continue to outgrow any fears they have about fraud and mobile banking.

    "Any time you have a big change, the knee-jerk reaction is fear," Leekley says. "As time goes by and more banks offer mobile deposit, you'll see that fear go away."

    Carter adds that this won't just happen with younger consumers, either. Older consumers will also embrace mobile check deposit as the technology ages, he says.

    "It will happen much like it has with the adoption of other tech," Carter says. "The younger people are usually the tip of the spear. Then the older generations follow. Part of this is general awareness of the technology. Then there's the building up of the comfort that this is a safe technology."

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