U.S. Poverty Rate Unchanged in 2011, While Household Income Takes a Dip

by Lisa Scherzer

The poverty rate in the U.S. saw a slight dip last year from 2010, according to a report released by the Census Bureau Wednesday. There were 46.2 million people in poverty in 2011, down from 46.3 million in 2010. After three consecutive years of increases, neither the poverty rate (15%) nor the number of people in poverty were statistically different from the 2010 estimates, the report said.

Household income fared worse, however. For the second year in a row real median household income declined; between 2010 and 2011 it dropped 1.5% to $50,054.

Here are some other highlights from the report:

• The West experienced the sharpest decline in real median household income - down 4.1% - between 2010 and 2011 compared with the other regions.

• In 2011, the percentage of people without health insurance decreased to 15.7% from 16.3% in 2010. (In 2010 48.6 million people were uninsured, down from 50 million in 2010.)

• The percentage and number of people covered by employment-based health insurance in 2011 was essentially the same as 2010, at 55.1% and 170.1 million.

• The uninsured rate was statistically unchanged for those age 26 to 34 and 45 to 64. But it declined for people age 19 to 25 (likely because under the Affordable Care Act of 2010 19- to 25-year-olds are eligible for coverage under a parent's health plan), and those age 35 to 44 and 65 and older.

• In 2011, the median earnings of women who worked full time, year-round ($37,118) was 77% of that for men working full time, year-round ($48,202) - not statistically different from the 2010 ratio.

• Real median earnings of both men and women who worked full time, year-round declined by 2.5% between 2010 and 2011.

Source: Census.gov

Ten Strategies to Maximize Your 401(k) Balance

by Emily Brandon

At a time when most people don't have a traditional pension, growing and then protecting your 401(k) balance is essential to a secure retirement. Pay close attention to 401(k) rules to make sure fees, taxes, and other mistakes don't unnecessarily reduce your 401(k) balance. Here are 10 ways to make the most of your 401(k) plan:

Don't accept the default savings rate. New employees are increasingly likely to be automatically signed up for a retirement account at work, most often by having 3 percent of their pay deposited in their company's 401(k) plan. But saving 3 percent of your salary, while certainly better than no savings, may not be adequate to maintain your current lifestyle in retirement. "For a lot of people, that is not going to be enough," says Michele Clark, a certified financial planner for Clark Hourly Financial Planning in Chesterfield, Mo. "When you get a raise, save 1 percent more every year until you can get up to hopefully 20 percent of your pay."

Get a match. The most common 401(k) match is 50 cents for each dollar saved up to 6 percent of pay. If your employer offers a 401(k) match, make sure you save enough to take advantage of it. Capturing a 401(k) match is one of the fastest and most painless ways to boost your 401(k) balance.

Stay until you are vested. You won't get to keep the 401(k) match from your employer until you are fully vested in the 401(k) plan, which can sometimes take as long as five or six years of service at the company. Some employers allow people who leave before they are fully vested to keep a portion of the match based on their years of service, while other companies require workers to forfeit the entire match. It can sometimes be worth thousands of dollars to continue to work for a company until you are fully vested in the 401(k) plan. "If you are in a miserable employment situation or have a life-changing opportunity to go somewhere else, maybe you have to sacrifice the unvested portion," says Joel Kelley, a certified financial planner for Woodstone Financial in Asheville, N.C. "If you are considering a lateral move career-wise, you should definitely take that into account."

Will Your Income Needs Trend Down as You Age?

by Christine Benz

The 4% rule for safe portfolio withdrawals during retirement is a widely cited rule of thumb, probably because it's easy to use and remember. But it also has its share of detractors, who have reasonably pointed out that it is an overly simplified take on an exceptionally complex problem.

Under the 4% rule, retirees withdraw a fixed dollar amount of their portfolios per year, adjusting that amount upward each year with inflation. The trouble is, that static spending rate ignores the fact that the portfolio's value is fluctuating underneath the surface. By turning a blind eye to market conditions and portfolio performance and sticking with a fixed dollar amount withdrawal, the retiree may be taking out an outsized share of the portfolio in bad years and too little in good ones.

The other big problem with static spending rates is that they don't jibe with real life. Emergency expenses and planned splurges cause all of us - whether retired or still working - to spend more in some years and less in others.

Ten Businesses That Will Boom in 2020

by Rick Newman

It's hard to predict the future, especially if you're still struggling to figure out what's happening in today's economy. But predicting the future is exactly what you need to do if you're enrolling in college, starting a fresh career, or investing in new skills.

The pace of change in the business world is faster than ever these days, thanks largely to globalization and digital technology. One way to zero in on fields that will be hot in the future is to stay away from those that are not. The government's Bureau of Labor Statistics (BLS) publishes an annual list of declining industries that follow a few common trends. They tend to involve work that can be done more cheaply overseas, such as low-skill assembly-line work, or technology that's rapidly replacing human workers, as in call centers. Fields vulnerable to cost-cutting and downsizing--such as government--are vulnerable too.

Employers themselves sometimes provide useful hints about the kinds of skills they want. In the latest annual survey for the National Association of Colleges and Employers, companies planning to hire were most interested in grads who had majored in engineering, business, accounting, computer science, or economics. Unfortunately, many students prefer majors such as social sciences, history, education, and psychology, which aren't in high demand.

To develop a more thorough list of fields likely to offer plenty of jobs and good pay, I analyzed data from a variety of sources, including BLS and the industry-research firm IBISWorld, which projects future employment levels in dozens of fields. A couple rules of thumb: First, it still pays to have a college degree, even if you're worried about the expense. Consulting firm McKinsey & Company predicts that by 2020, there will be a shortage of 1.5 million college grads, which means employers will continue to place a high premium on better-educated workers.

Another important point: The most successful people tend to be lifelong learners who develop new skills long after they graduate from college or complete a training program. In fact, building multiple skill sets--such as analytical expertise combined with a liberal-arts background, or scientific knowledge with a law degree - can be a terrific way to differentiate yourself in a cluttered job market. Plus, the most lasting skills are often those that can be transferred from one field to another, as the economy ebbs and flows.

But you have to anchor your career somewhere, so here are 10 fields that are likely to flourish in 2020:

1. Data crunching. The era of big data is just getting started, with many firms eager to tap vast new databases to gather more info on their customers, their competitors, and even themselves. The challenge isn't just crunching numbers; it's making sense of them, and gaining useful insights that can be translated into a business edge. Marketing and market research are two growing fields where the use of data is exploding.

2. Counseling and therapy. There's now widespread recognition that mental health is as important as physical health, which is likely to increase demand for professionals in this field. The BLS expects the need for marriage and family therapists, as one example, to grow 41 percent by 2020.

3. Scientific research. New technology will continue to generate breakthroughs in medicine, manufacturing, transportation, and many other fields, which means there will be strong demand for workers schooled in biology, chemistry, math, and engineering. Some areas that show particular promise: biotechnology and biomedicine, nanotechnology, robotics, and 3D printing, which allows the manufacture of physical products from a digital data file.

4. Computer engineering. A lot of software development is done overseas these days, but the need for high-level computer experts able to tie systems together is still strong. In finance and investing, for instance, high-speed computing is increasingly a prime competitive advantage. And most big companies will need networks that are faster, more seamless, and more secure.

5. Veterinarians. Pets are more popular than ever, and some of them get medical care that's practically fit for a human. The BLS expects the need for vets to rise 36 percent by 2020.

6. Environmental and conservation science. Making better use of the planet's resources will be essential as population growth strains existing infrastructure. Green energy, despite some political controversy, still seems likely to boom. Developers need more efficient ways to heat and cool buildings. And dealing with global warming may require new technology not even on the drawing board yet.

7. Some healthcare fields. It's well-known that the aging of the baby boomers will require more caregivers in many specialties. Some healthcare jobs tend to be low-paying, with a lot of workers flocking to what are supposed to be "recession-proof" fields. And the need to lower overall healthcare costs could pinch some doctors, hospital workers, and diagnosticians. But demand should be strong for nurses, optometrists, audiologists, dentists, physical therapists, and some doctor specialists.

8. Management. The boss earns a lot for good reason: His job isn't as easy as it might seem. Effective management in the future will require basic business knowledge plus the ability to oversee operations in many locations and countries, and some technical know-how. Anybody who can improve a unit's performance while lowering costs should rise quickly. The BLS and IBISWorld also expect growing demand for some support fields such as human relations, benefits administration, and event planning.

9. Finance. The movement and management of money is technically complex, and integral to most companies. Plus, nontraditional investing firms such as hedge funds and private-equity firms are likely to grow as the traditional banking sector complies with new regulations and reins in risk-taking. That means there will be more need for finance experts. There may even be a shortage as students once interested in finance veer into other fields, turned off by the 2008 financial crisis and the vilification of banks.

10. Entrepreneurship. It's often overlooked, but the need for innovators running their own businesses could be more important than ever in 2020. Forecasters expect strong growth in traditional businesses such as used-car dealers, hair and nail salons, pet grooming, and office services, which means anybody able to come up with better, cheaper ways to serve customers will reap a windfall. Technology startups will no doubt keep changing the way consumers work and live. And nobody really knows what the next iPad, Twitter, or Pinterest will be--except, perhaps, some entrepreneur who's dreaming about it right now. He or she may have a bigger impact on life in 2020 than anything the forecasters see coming.

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Unexpected Tax Breaks

by Farnoosh Torabi

Taxes - They’re one of the few things that are certain in life. And as we aim to make the most of our annual returns, you may be pleasantly surprised to hear about some of these strange but true tax deductions that get the thumbs-up from Uncle Sam.

Pets

First, man’s best friend or furry feline could earn you a tax break under certain conditions. Examples include animals related to medical or security needs such as guard and special needs dogs.

“You cannot deduct a pet if it’s just a household pet,” says Wilma Hayes, a tax professional with H&R Block. "But you can deduct pets that are a part of your business. You have to register that pet with an agency declaring that it is a service animal. The animal can be used for a guard or can be used for medical purposes,” she says. In these cases you can write off expenses such as pet food, training, medication and vet bills. Just make sure you have an official doctor’s note.

Weight Loss Plans

Speaking of health, there are quite a few more medical expenses that, oddly enough, can be deducted. Out-of-pocket costs that exceed 7.5% of your adjusted gross income can help to lower your tax bill. For example, the membership fee to a weight loss program. Just don’t forget to get a doctor’s letter with specific details and instructions to back up the claim.

“The doctor’s note actually has to be a plan,” says Hayes. “You just can’t say ‘I want to join Weight Watchers and lose a few pounds.’ It has to specify that the weight is causing you problems and you very well could lose your life from it.”

Swim Lessons

If a doctor prescribes an alternative healing treatment or therapy for your illness, such as swim lessons, that’s also an eligible tax deduction. In fact, you can even deduct the cost of building a pool or spa at your home, as long as it’s deemed medically necessary.

Charity-Related Expenses

Finally, expenses related to helping out a charity carry some tax benefits of their own. For example, hiring a babysitter while volunteering, the ingredients you purchased to prepare meals for a local soup kitchen and even the mileage getting to and from. Just remember to keep a paper trail.

“What you need to do is make yourself audit-proof,” says Hayes. “The documentation is extremely important. The IRS could very well deny you the right to have a deduction if you don’t the documentation.”

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The Riskiest Places to Use Your Credit Card

by Constance Parten

Even if you use the utmost caution, you can still be a victim of credit card fraud. Credit card companies and banks are more and more often putting the onus of catching phony or incorrect credit card charges on the consumer.

The most important thing is to check your billing statment, of course. And there are organizations like Creditcards.com that offer tips on how to keep your cards safe as well. Here, we take a look at 10 of the riskiest places you might use your card, according to Creditcards.com , and what you can do to avoid the dangers.

Non-bank-owned ATMs

Encryption at these ATMs is often not as good as at bank ATMs, meaning some locations are just not as safe. These ATMs also are more likely to be hacked. And in some cases, people have put up devices that look like ATMs but don't give out cash. Instead, they are just card-skimming devices aimed at stealing your credit card or debit card information.

Flea Markets

Flea market merchants are often transient and can be difficult to locate if there is a problem with charges. It's especially true for vendors who don't have online credit card terminals and instead make carbon copies of your credit card.

That doesn't mean those vendors are necessarily fraudulent, but it makes the transaction less secure. The credit card company might have trouble doing a charge back. If you're going to the flea market, take cash. It's also easier to negotiate that way.

Small Shops/Cafes in Foreign Countries

These smaller merchants have a significantly higher percentage of credit card fraud as reported by large banks and credit card companies. Many of these transactions end up being written off by the banks because the merchants simply can't be located. There's just a higher chance of fraud when you get outside of the mainstream, so when in doubt, use cash.

Non-Secure Online Checkout

General common sense. Any safe, reputable e-commerce site is going to have a secure checkout page, like the one shown at left. If that doesn't appear, it should be a red flag. You can almost be sure it's not legitimate, and even if it is, you're opening yourself to that transaction being seen by others.



Wi-Fi Hotspots and Public Computers

If you're going to be making online transactions over an unsecured wireless connection like in cafes, parks and other hot spots, data can be compromised or seen while in transit, even if you're on a secure page while you're checking out. The same goes for public computers like in libraries. It's not advisable to ever transmit personal data when you're in a public connection environment, especially on non-secure wireless.

Social Security Errors That Can Cost You Thousands

by Steve Vernon

Social Security benefits are the bedrock of most Americans' retirement security. So it's well worth your time to learn how to get the most from these valuable benefits - and avoid making mistakes in how you collect them.

To help you in this endeavor, I checked with two of the nation's foremost experts on Social Security: Andy Landis, author of "Social Security: The Inside Story," and Jon Peterson, who wrote "Social Security for Dummies." Between Andy, Jon and I, we came up with four common errors that you should avoid and that will help you optimize your Social Security benefits.

Mistake #1: Starting retirement benefits too early

Half of all Americans claim Social Security at age 62, the earliest possible age with the lowest monthly benefit. But most workers can significantly boost their lifetime payout of Social Security income by delaying the start of their monthly benefits. By how long? At least until age 66, and to age 70 if you can wait that long. For many married couples, this strategy will also improve the financial security of widows who, when their husband dies, will step up to the Social Security income their husband was receiving before he died.

I realize that many people lose their jobs and claim Social Security benefits early to make ends meet. But personally, I'd take any job that would pay me an amount equal to my Social Security benefits in order to reap the advantage of delaying my benefits as long as possible. I'd work at Wal-Mart, Starbucks or any other part-time job that pays enough to replace my Social Security benefits, while giving me enough free time to look for a better-paying position. In the long run, it's a financially smart move.

What's the Best Age to Retire?

by Robert Powell

If you are going to do it - retire, that is - you might as well do it at the right age.  And doing it at the right age, according to the authors of a soon-to-be published paper, involves a bit of homework.

Retiring at the optimal age should not be left to chance, according to Kenn Tacchino, a professor of taxation and financial planning at Widener University, and Patricia Tacchino, co-authors of a soon-to-be-published paper in Benefits Quarterly .

Rather, choosing a retirement age needs to be a rational decision that accounts for a variety of confusing and competing consideration, the Tacchinos wrote. And to reach a rational decision, the authors say, would-be retirees would benefit from using a systematic checklist of issues to make the optimal choice.

Not surprisingly, the Tacchinos have created such a checklist. But it’s no ordinary checklist. It’s a checklist of some 25 factors that would-be retirees can use to reach what the authors say would be a logical and rational decision about the optimal retirement age.

This approach considers financial feasibility of retiring, a would-be retiree’s ability to continue working, the psychological factors surrounding the retirement decision, and the would-be retiree’s personal situation.

So what’s on the checklist? Well, the whole paper is 5,500-plus words and 25 pages long, but we’ll do our best to capture the essence of it (in a manner edited for average would-be retirees).

By the way, by applying weight or attaching value to each item in the checklist, you can hone the decision process to its logical conclusion (retire by choice, keep working by choice, retire by necessity, or keep working by necessity) and avoid irrational choices, the author wrote.

Also, the Tacchinos recommend that you use this checklist at various stages of your life: in the middle of your career, 10-15 years away from retirement, and when retirement is imminent.

Nation's Water Costs Rushing Higher

by Kevin McCoy

While most Americans worry about gas and heating oil prices, water rates have surged in the past dozen years, according to a USA TODAY study of 100 municipalities. Prices at least doubled in more than a quarter of the locations and even tripled in a few.

Consumers could easily overlook the steady drip, drip, drip of water rate hikes, yet the cost of this necessity of life has outpaced the percentage increases of some of these other utilities, carving a larger slice of household budgets in the process.

"I don't know how they expect people to keep paying more for water with the cost of gas and day care and everything else going up," complains Jacquelyn Moncrief, 60, a Philadelphia homeowner who says the price hikes would force her to make food-or-water decisions. She gathered signatures on a petition opposing a proposed water rate increase in her city this year.

USA TODAY's study of residential water rates over the past 12 years for large and small water agencies nationwide found that monthly costs doubled for more in 29 localities. The unique look at costs for a diverse mix of water suppliers representing every state and Washington, D.C. found that a resource long taken for granted will continue to become more costly for millions of Americans. Indeed, rates haven't crested yet because huge costs to upgrade or repair pipes, reservoirs and treatment plants loom nationwide.

In three municipalities - Atlanta, San Francisco and Wilmington, Del. - water costs tripled or more. Monthly costs topped $50 for consumers in Atlanta, Seattle and San Diego who used 1,000 cubic feet of water, a typical residential consumption level in many areas. Officials in the three municipalities and elsewhere, however, say actual consumption is often lower. But conservation efforts counter-intuitively may raise water rates in some localities.

The trend toward higher bills is being driven by:

- The cost of paying off the debt on bonds municipalities issue to fund expensive repairs or upgrades on aging water systems.

- Increases in the cost of electricity, chemicals and fuel used to supply and treat water.

- Compliance with federal government clean-water mandates.

- Rising pension and health care costs for water agency workers.

- Increased security safeguards for water systems since the 9/11 terror attacks.

Higher rates still ahead

The costs continue to rise even though residential water usage dropped sharply nationwide in the past three decades amid conservation efforts.

U.S. water systems will need as much as $1 trillion in infrastructure improvements by 2035 to keep up with drinking water needs, according to a survey of industry experts released in June.

The bond debt needed to fund those projects' work will be passed on to consumers, including the many Americans struggling with the economic fallout of the great recession.

A virtually irreplaceable resource that Americans rely on for health and daily living "could potentially get more and more expensive," says John Chevrette, who heads the management consulting arm of Black & Veatch, the firm that conducted the industry survey.

He predicts rate increases of 5% to 15% every few years, saying the cost of water "could take a larger and more significant bite out of otherwise disposable income."

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Why Wages Are Not Rising

by Steve Hargreaves

When the government report on job creation came out last month, economists were quick to note a worrying point: average hourly wages for the month dropped by a penny.

Though one cent may not sound like much, the drop underscores a broader trend: Amid sluggish growth and stubbornly high unemployment, wages just aren't rising very quickly.

One reason is that persistent unemployment is keeping workers from getting salary increases.

"If your employer knows you don't have a lot of options, there's no incentive to give you a raise," said Heidi Shierholz, an economist at the left-leaning Economic Policy Institute. "It shifts bargaining power away from workers and toward employers."

Over the last year the average hourly wage for jobs in the private sector has gone from $23.12 an hour to $23.52 an hour, according to the Bureau of Labor Statistics. That represents a gain of 1.7%, slightly higher than inflation over roughly the same time period.

But stripping out managerial and professional jobs, wages rose just 1.2% -- below the rate of inflation. According to Shierholz, 82% of the private work force is in non-managerial jobs.

"People think high unemployment only affects people without jobs," said Shierholz. "But it also prevents people from getting raises."

Another reason for sluggish wage growth is that much of the recent job growth has been in low wage industries.

High unemployment also pushes people to take jobs they otherwise wouldn't. This is especially true as economic growth remains weak and unemployment benefits run out.

Many of the jobs created since the recession officially ended in 2009 have been in lower wage industries like retail or food service work.

Nearly 40% of the private sector jobs added since early 2010 have been in retail, leisure and hospitality, temporary staffing and home health care, according to a recent report from Wells Fargo, even though these industries account for only 29% of all jobs.

The average hourly wage in those four industries is just $15 an hour, the bank said.

In August, 28,000 new jobs were added in food services and drinking places. And those industries have grown by 298,000 jobs over the past 12 months.

Without wage growth, consumers are loath to spend more, and the economy is unlikely to find its footing any time soon.

"The lack of real income growth is a major factor in preventing the economy from achieving the escape velocity needed to break free form the 2% trajectory maintained over the last couple of years," Wells Fargo Senior Economist Mark Vitner wrote in the report.

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Who Killed the Recovery?

Retrain Your Brain for Financial Success

by Carla Fried

Dismal market returns haven't exactly created a tailwind for 401(k) and IRA portfolios over the last decade or so, but an equally pernicious - and more entrenched - problem is that our brains are messing with our retirement plans.

"We are wired for financial defeat," says Rapid City, South Dakota, certified financial planner Rick Kahler. "Whatever has the most emotional juice right now is what gets our attention. Invest $5,000 in your IRA for a retirement that is 10, 20, 30 years away? Or spend the $5,000 for a vacation to the Bahamas?" All too often, the Bahamas wins out.

William Meyer, founder of Social Security Solutions, notes that our thirst for immediate gratification can easily take a six-figure toll. More than two-thirds of folks opt to claim a lower Social Security benefit starting as early as age 62. For a married couple, than can mean leaving as much as $100,000 on the table. "If you wait to claim until age 70, you're locking in a benefit that is 76 percent larger," says Meyer.

Half of Americans Die with Almost No Money

by Andrea Coombes

Almost half of U.S. retirees die with savings of $10,000 or less, but that grim finding doesn't fully describe the variability and uncertainty that characterize retirement in America, according to a recent study.

While some retirees struggle profoundly, living at or below the poverty line, others enjoy wealth and health - in fact, the two are strongly linked - while still others have little in savings but enjoy a decent income, according to the report, based on a survey that tracked retirees from 1993 through 2008.

While 46% of retirees have just $10,000 in savings when they die, “That doesn’t mean their standard of living is very low—they might have a relatively generous pension plan, most of them will have Social Security,” said James Poterba, professor of economics at M.I.T., president of the National Bureau of Economic Research, and a co-author of the study.

But the findings “suggest something about the financial resiliency of these households,” Poterba added. “They may not have much capacity to absorb a shock, such as an out-of-pocket medical expenditure. They don’t have very much in the way of liquid assets they can access.”

When net worth is measured—including savings, home equity, the value of Social Security and pension benefits, and more—retirees’ financial picture around the time of death looks less bleak. Single people had average assets of about $142,000, those whose spouse had died previously had average assets of $253,000, and couples where the surveyed retiree had died but the other spouse was still living had average assets of $692,000, according to the study.

“You can’t generalize that the elderly are not doing very well financially or that the elderly are doing fine. There is a lot of variation within the group,” Poterba said. “There is a clear group of households that have relatively low income and also have low financial assets. At the other end is a group that has financial assets that are more than sufficient to accommodate any shocks.”

Policy makers and financial advisers, take note. “One-size-fits-all solutions are unlikely to really capture the flavor of what’s here,” Poterba said.

Incomes in flux

Another worrisome finding: The degree to which some retirees face a steep drop in income. While single people and married couples saw their retirement income remain fairly steady, on average, that was not the case for retirees whose spouse had died.

Their income dropped almost 75% between 1993 and the last year of being surveyed. The study doesn’t explain why that happens, though Poterba hazarded a guess that it might be related to a drop in pension benefits when the first spouse dies.

Get married

If you want the best retirement outcome possible, get rich. If that fails, consider getting married, staying married—and doing your best to die before your spouse does. That last is not entirely serious, but the general take-away is that being married pays off in retirement.

For example, remember that 46% of retirees who have just $10,000 in savings when they die? That jumps to 57% for people who are single throughout the course of the survey.

Married couples are likelier to have home equity, too. Overall, in the last year before death, 57% of single-person households and 50% of surviving spouses had no housing wealth when they died. But retirees who died before their spouse did? Just 20% lacked home equity, the study said.

“The group who does the best in terms of average level of financial assets are those who are married when we first see them, remain married when the first person dies, and we’re looking at the first spouse to die. They tend to have higher income levels,” Poterba said. “Single individuals on average have lower levels of retirement income as well as lower financial assets.”

But perhaps the study’s most striking finding was a “strong and consistent” relationship between wealth and survival. If you’re rich, you’re much likelier to live longer.

“The relationship between wealth when first observed and subsequent mortality is striking,” the study said.

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Seven Steps to A Sound Retirement

by Robert Powell

There are seven keys to a lot of things in life.  There are seven steps to heaven and seven types of intelligence and seven habits of effective leaders.

Now we have seven steps to retirement planning courtesy of the Society of Actuaries, which just released a 64-page report with the not-so-consumer friendly title “Segmenting the Middle Market: Retirement Risks and Solutions Phase II Report.”

“Retirement financial planning requires a methodical approach that identifies and quantifies each important component that affects the asset accumulation, income management and product selection/investment decision processes,” according to the report, which was sponsored by the society’s committee on post-retirement needs and risk and written by Noel Abkemeier of Milliman.

Not surprisingly Abkemeier says this approach is especially important for middle income Americans who likely have less than $100,000 set aside for retirement. So what are those steps?

1. Quantify assets and net worth

The first order of business is taking a tally of all that you own — your financial and non-financial assets, including your home and a self-owned business, and all that you owe. Your home, given that it might be your largest asset, could play an especially important part in your retirement, according to Abkemeier.

And at minimum, you should evaluate the many ways you can create income from your home, such as selling and renting; selling and moving in with family; taking out a home-equity loan; renting out a room or rooms; taking a reverse mortgage; and paying off your mortgage.

Another point that sometimes gets lost in the fray is that assets have to be converted into income and income streams need to be converted into assets. “When we think of assets and income, we need to remember that assets can be converted to a monthly income and that retirement savings are important as a generator of monthly income or spending power,” according to SOA’s report. “Likewise, income streams like pensions have a value comparable to an asset.”

One reason retirement planning is so difficult, according to SOA, is that many people are not able to readily think about assets and income with equivalent values and how to make a translation between the two. Assets often seem like a lot of money, particularly when people forget that they will be using them to meet regular expenses.

Consider, for instance, the notion that $100,000 in retirement savings might translate into just $4,000 per year in retirement income.

2. Quantify risk coverage

Take stock of all the insurance that you might already have or need — health, disability, life, auto and homeowners. In addition, consider whether you might need long-term-care insurance, especially in light of the cost associated with long-term care and the very real possibility that you might need some assistance at some point in your life.

According to the report, those households with limited assets, say less than $200,000 in financial assets, may need to spend down their assets and rely on Medicaid, while those with more than $2 million in financial assets can cover long-term-care costs out of pocket. But those households with assets in between $200,000 and $2 million should include long-term care insurance in their plan, according to the SOA. And the best time to buy such insurance is in the late preretirement years.

The SOA also notes in its report the possible need for life insurance, the death benefit of which can be used for bequests or to provide income to a surviving spouse. Life insurance premiums can be expensive if you’re getting on in years. That’s why the SOA report suggests that you continue “existing preretirement coverages during the retirement period.”

Of note, there will soon be many policies that combine long-term—care insurance with life insurance and annuities.

3. Compare expenditure needs against anticipated income

The thing about retirement is that it’s filled with expenses, which according to the SOA report “can be thought of as the minimum needed to sustain a standard of living, plus extra for nonrecurring needs and amounts to help meet dreams.” What’s more, those expenses are likely to change over time.

So, to make your retirement plan work in reality you first have to make it work on paper. You need to compare whether you’ll have enough guaranteed income to cover your essential living expenses, including food, housing and health-insurance premiums, at the point of retirement and then compare what amount of income you’ll need to cover your discretionary expenses, such as travel and the like (if those are indeed what you might consider discretionary expenses).

Your guaranteed sources of income include Social Security, and possibly a pension and annuity. Your not-so-guaranteed sources of income include earnings from work, income from assets such as capital gains, dividends, interest, and rental property.

No doubt, as you go about the process of matching income to expenses, you might find yourself having to revise your discretionary expenses, especially if there aren’t enough guaranteed sources of income to meet essential expenses.

4. Compare amounts needed in retirement against total assets

So here’s where your math skills (or your Google search skills) might come into play. Besides calculating your income and expenses at the point of retirement, you need to figure out whether your funds will last throughout retirement. In other words, you need to calculate the net present value of your expenses throughout retirement.

Now truth be told finding the present value of your expenses is a bit tricky, especially since there are many factors that can affect how much is really needed, including the date of your retirement, inflation rates, gross and after-tax investment returns and your life expectancy.

But the bottom line is this: If, after crunching the numbers, the present value of your expenses is greater than the present value of your assets you’ve got some adjustments to make. And the good news is that there are plenty of adjustments that you can make.

You could, for instance, delay the date of your retirement or return to work or work part-time. Those actions might be enough to offset the difference. In addition, you might consider trimming your expenses or consider a more tax-efficient income drawdown plan.

5. Categorize assets

The SOA also recommends that assets be grouped to fund early, mid and late phases of retirement. Thus, assets for early retirement should be liquid, while mid-retirement assets should include intermediate-term investments such as laddered five-to-10-year Treasury bonds, TIPS, laddered fixed-interest deferred annuities, balanced investment portfolios, income-oriented equities, variable annuities, and the like. And late retirement assets include longevity insurance, TIPS, balanced portfolios, growth and income portfolios, laddered income annuities, deferred variable annuities and life insurance.

6. Relate investments to investing capabilities and portfolio size

This should come as no surprise; The SOA recommends that you invest only in things that are suitable, relative to your risk tolerance, investment knowledge and the capacity of the portfolio to accommodate volatility. “In short, a retiree should not invest beyond his investment skills, including those of his adviser,” the SOA report stated.

7. Keep the plan current

This too might be a bit obvious, but retirement-income plans must not be built and set on a shelf. The plan is a point-in-time analysis that must be reviewed on a regular basis.

Consider, for instance, just some of the things that could change in one year, according to the SOA. Health status or health-care costs could change; your life expectancy might change; your investment returns and inflation might be quite different than your assumptions; and your employment status and expected retirement date might change.

What’s more, you might suffer the loss of a spouse through death or divorce, or perhaps you might not be able to live independently any longer, or perhaps you might need to sell your house or unexpectedly care for dependents, or change your inheritance plans.

Said Abkemeier: “You want to keep your plan current. You need to tie everything together and go back to the start of the process each year. You want to enjoy retirement, but you don’t want to be at rest.”

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How to Get the Cheapest Price on Airfare

by Andrea Murad

Airfare tends to be the most cost-prohibitive part of planning a vacation or trip. And with delayed flights, over-crowded cabins, excess fees and no free food, it’s surprising that airlines are able to charge such high tickets prices.

During the course of a day, prices fluctuate depending on availability. “Airfare is the most volatile part of traveling compared to the price of hotels or cruises,” says Gabe Saglie, senior editor at Travelzoo.

Despite the abundance of metasearch engines, like Kayak, Google Flights, or Fly.com, and online travel agencies (OTAs), finding the lowest-priced airfare is still a tedious process. “There’s not one place or website where you can find the absolute lowest price,” says John DiScala, editor in chief of JohnnyJet.com. “It changes every minute and it takes time to find the cheapest price.”

To simplify your search, setting up daily or weekly price alerts will help you know when prices drop so you can get the best deal, suggests Jessica Casano-Antonellis, spokesperson for Kayak.

Doing research is only one way to get a cheap ticket.

Shop in the ‘magic window.’ “Generally speaking, buying airfare more than three months out doesn’t make a lot of sense,” says Saglie. “At three months is when people should start scoping out pricing.” Saglie suggests knowing all the airport options at your destination to help increase your chances of finding the best deal.

“Up until 28 days prior to your trip, ticket prices are pretty much the same,” says Sarah Keeling, director of public relations at Expedia. Prices are at their lowest between 18 to 28 days prior to your trip, she says, and is your magic window to book.

Domestic fares are lowest 21 days before departure, says Casano-Antonellis. These fares were about 8% lower than average fares available six months before departure, according to Kayak. The average fare increases 5% two weeks before departure, with fares increasing 30% from their lows the week before departure. International fares don’t fluctuate as much; 34 days before departure, fares are about 4% lower than the average at six months before departure.

Countdown to A Tax Hike

by Laura Saunders

The tax code is in flux—and taxpayers should prepare for a wild ride.
The best advice, experts say: make a few important moves now, and be ready to react quickly in the months ahead.

To recap: At year's end, rates on ordinary income, interest, capital gains, dividends, gifts and estates are set to jump—in some cases sharply. Other tax benefits will lapse as well, affecting all levels of taxpayers.

Few observers expect any major tax legislation before the Nov. 6 election. After that, there won't be much time. The House of Representatives has scheduled only 16 working days before its adjournment on Dec. 14. While the Senate has more days in session, "they don't have much incentive to act if the House isn't there," notes Clint Stretch, a lawyer and former executive at Deloitte Tax LLP in Washington.

Experts foresee two possible outcomes. One is that after the election both houses of Congress agree to extend the current rules for up to a year, buying time to make fundamental changes to the tax code while avoiding the economic consequences of huge tax increases.

The other possibility is that the election changes the political equation so much that one party blocks a tax-rate extension, allowing the current rules to expire and pushing tough decisions into 2013.

Lawmakers return in early January, but Mr. Stretch and others believe it could take them several months to reach an agreement and make changes retroactive to the beginning of the year.

In that scenario, most Americans would be affected. Employees could see their take-home pay fall as higher tax rates kick in, for example, while the heirs of people who die will face a much harsher estate-tax regime.

Lawrence Carlton, an accountant in Bedford, Mass., says he is getting more than a dozen calls a week asking what tax rates will be next year: "My clients don't believe me when I say, 'I'm sorry, I just can't tell you.'"

So how should you prepare for the uncertain months ahead? Tax experts surveyed by the Wall Street Journal offered several dos and don'ts:

Do consider the effect of higher taxes on investment returns next year. If the current rules expire on Dec. 31, the top tax rate on long-term capital gains will revert to 20% from its current 15%. President Barack Obama has called for a 20% top rate as well.

The stakes for dividends are even higher. Currently, qualified dividends are taxed at the same 15% top rate as long-term capital gains, but if the rules expire they will be taxed as ordinary income, at nominal rates up to 39.6%.

That would be a bitter pill for investors who, fed up with low yields on bonds, have poured money into dividend-paying stocks in recent years.

One thing is for certain: A new 3.8% flat surtax will arrive in January. Enacted in 2010 to help pay for the health-care overhaul, the tax applies to the investment income of most married taxpayers with adjusted gross income of $250,000 or more ($200,000 for singles).

There isn't any formal IRS guidance yet, but the tax applies to interest (except from municipal bonds), dividends, rents and royalties, among other things.

The good news is that the tax won't apply to individual retirement account payouts or Social Security income. But such income can swell a taxpayer's adjusted gross income above the $200,000 or $250,000 threshold, making it more likely that at least some investment income is subject to the tax.

For example, say a widow has $40,000 of interest, dividends and capital gains. If she earns $120,000 from taxable pension, Social Security and IRA payouts, she wouldn't be subject to the 3.8% tax because her total adjusted gross income is below $200,000.

But if she has $180,000 from the same sources, then she would owe a 3.8% tax on up to $20,000 of her $40,000 investment income because that much is over the limit.

Don't rush to take all of your capital gains. The prospect of a top long-term capital gains rate of 18.8% to 23.8% next year (15% to 20% plus the 3.8% surtax) is good reason to wrap up planned sales of large assets such as companies or property before year-end, experts say.

But the same experts caution against panicking and trying to sell every single stock gainer. Doing so would indeed allow you to lock in the current tax rate on capital gains. But that means giving up to 15% of your gains to Uncle Sam. That "leaves less money to grow going forward," says Robert Gordon, a tax strategist who is head of Twenty-First Securities in New York.

The best strategy: sell only those assets you already were planning to sell—but do it before the end of the year.

Do consider whether to accelerate Roth IRA conversions. Roth IRAs differ from regular IRAs in that they require taxpayers to contribute after-tax money rather than pretax income—but any capital gains and income thereafter are tax free for qualified withdrawals.

Tax experts like Roth IRA income because it isn't taxable and doesn't raise reported income in a way that triggers tax on Social Security payments or higher Medicare premiums. It also isn't subject to the new 3.8% tax on investment income.

The only problem is that full income taxes are due on conversions of regular IRAs to Roth accounts.
Then again, rates might be higher next year, and the 3.8% surtax could nevertheless sting some higher-earning taxpayers making conversions then.

Here is how: Say a married couple has adjusted gross income of $200,000, which includes $20,000 of interest, dividends and capital gains not subject to the 3.8% tax because their adjusted gross income is below $250,000. If they convert as little as $70,000 of IRA assets to Roth IRAs, then the entire $20,000 will be subject to the 3.8% tax because their AGI is now above $250,000.

If this situation applies to you, it might be smart to covert to a Roth IRA now, experts say.

Don't count on an extension of this year's Social Security tax cut. Experts say the current two-percentage-point cut in the 6.2% employee's portion of Social Security taxes, in place for two years but expiring on Dec. 31, has little support from either side of the congressional aisle.

"Conservatives are uncomfortable with using the cut as a stimulus, and liberals worry that it undermines the viability of Social Security," Mr. Stretch says.

If the cut isn't renewed, individuals who earn wages above about $110,000 will owe about $2,200 more in 2013.

Do expect an AMT "patch" for 2012. There are unknowns for the 2012 tax year as well. The most important concerns the alternative minimum tax—an add-on levy that was intended to ensure that wealthier households pay tax but now affects a broader swath of people.

The problem: The AMT, enacted in 1969 and updated since, wasn't indexed to inflation, so as each year passes more earners are subject to the tax.

In recent years, Congress has passed "patches" to minimize the damage to middle-class taxpayers.
If Congress failed to enact an AMT adjustment this time, 33 million U.S. taxpayers would owe this levy for 2012 instead of merely 4.4 million, according to the Internal Revenue Service.

Congress's neglect of this and other lapsed provisions is causing nightmares at the IRS. In April, Commissioner Doug Shulman warned that delaying a retroactive fix for 2012 could cause a "real disaster" in the spring tax-filing season, with "some people filing under one law and others under another."

In other words, this problem is so large that something probably will be done, experts say.

Don't take money from your IRA if you are 70½ or older and want to donate money from it. Another highly popular provision that expired at the beginning of 2012 allows taxpayers to donate up to $100,000 of IRA proceeds directly to a charity each year. The gift counts as all or part of the mandatory annual IRA payout for people age 70½ or older. While there isn't a deduction, neither does the payout count as income.

The reason to wait: For the donation to count as part of the mandatory payout, the gift must be the first dollars withdrawn from IRA. Many taxpayers were left in the lurch when this provision lapsed for most of 2010. Congress restored it retroactively in December of that year, but taxpayers who already had made withdrawals for personal use couldn't put the money back in and make the donation.

Do prepare for the possibility of less-generous gift- and estate-tax rates and exemptions after 2012. These taxes are lower than they have been in decades, with a top rate of 35% and an exemption of $5.12 million per individual, or twice that per married couple. Those terms are slated to worsen to a 55% top rate and a $1 million exemption per individual in 2013.

(Note: this exemption is separate from the $13,000 individual exemption that all taxpayers can use to make annual gifts to recipients, which remains unaffected.)

Few experts expect next year's tax rules to stick for long, but the terms could become less generous than they are now. President Obama favors a $3.5 million exemption and a 45% top rate. Some also would like to shrink to $1 million the portion of the total exemption a taxpayer can use to make gifts while alive. This would leave wealthy families with less ability to transfer appreciating assets long before death.

Under current law, a wealthy individual with $6 million in assets may give away up to $5.12 million while she is alive or leave assets of $5.12 million at death free of tax—or some combination of the two. Assets above that total are subject to tax. If the limit on gifts drops to $1 million, this taxpayer could give away only that amount while alive.

Taxpayers contemplating large gifts this year face other limits, however. It always is hard to give up control of assets, and doing so often requires three to six months of work, notes David Lifson, an accountant with Crowe Horwath in New York: "It's almost too late to start planning this year."

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Life After Bankruptcy

by Vickie Elmer

Every month tens of thousands of people file for federal bankruptcy protection, mostly to wipe out debts and start anew.

Many of these filers mistakenly think that it will be many years before they can obtain a mortgage or refinance an existing home loan, if they ever can — perhaps because notice of a bankruptcy filing typically stays on a credit report for 7 to 10 years. In reality, they could become eligible in as little as one year, as long as they work diligently to improve their financial picture.

Mortgages guaranteed by the Federal Housing Administration are permitted one year after a consumer exits a Chapter 13 bankruptcy reorganization, which requires a repayment plan that is often a fraction of what is owed, and two years after the more common Chapter 7 liquidation, which discharges most or all debts. Conventional mortgage guidelines from Fannie Mae and Freddie Mac, meanwhile, call for a wait of two to four years.

“There’s a lot of other things that go into your ability to get approved” for a mortgage after a bankruptcy, said John Walsh, the president of Total Mortgage, a direct lender based in Milford, Conn.

The most important point, he and other industry experts say, is that consumers re-establish their credit and show that they can manage it responsibly. They can do this by paying rent and utility bills on time, or perhaps by obtaining a secured credit card, according to Mr. Walsh.

If a bankruptcy filing was the result of a one-time occurrence, like the death of a spouse, divorce or illness, the waiting period to apply for a mortgage may be reduced. Lenders will often want borrowers to write a hardship letter explaining their situation, backed by documentation like hospital bills or a court-approved divorce settlement. If the person has paid back 85 to 95 percent of his debts during the bankruptcy process, he will need to mention that in the letter as well, said Bruce Feinstein, a bankruptcy lawyer in Richmond Hill, 

Queens.

But examples of shortening the waiting period through hardship letters are “few and far between, and tough to get,” Mr. Walsh said.

Mr. Feinstein says he has seen a few clients qualify for a mortgage only two years after filing for Chapter 7, though generally borrowers can obtain a loan quicker after a Chapter 13 reorganization, because of the partial repayment of debts, he said.

As Mr. Walsh noted, “Chapter 13 is a little more responsible” way to go from the lenders’ perspective, so lender guidelines are a bit more lenient.

Almost 70 percent of personal bankruptcies are filed under Chapter 7, according to the American Bankruptcy Institute, a research organization. The institute data noted that last year there were 1.362 million personal bankruptcy filings nationwide, down from 1.53 million in 2010, and closer to the norm over the last 15 years. At the end of the first quarter of this year there were 311,975 filings, which is 5 percent less than the first quarter of 2011.

Rebuilding credit after a personal bankruptcy will take some work. Mr. Feinstein suggests that individuals maintain or take out one or two credit cards and routinely use them. “If the payment’s due on the first, make sure it’s paid by the 25th” of the previous month, he said.

A personal bankruptcy filing will have a larger impact on a credit score than any other credit issue, according to a July report by VantageScore, which provides credit scores to lenders. Filing for bankruptcy protection will reduce a credit score by 200 to 350 or more points, it said, compared with a decline of 80 to 170 points for a foreclosure. VantageScore’s scores range from 501 to 990.

For the larger rival FICO, bankruptcy could cut a credit score by 130 to 240 points.

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The Million-Dollar Difference of A College Degree

by Christina Couch

College grads typically earn more than workers with high school diplomas, but just how much varies from job to job. Earning a bachelor's degree is statistically a huge payoff in many professions, but for some, such as electricians, janitors and postal service mail carriers, there's no difference between the lifetime earnings of college and high school grads, according to research from Georgetown University's Center on Education and the Workforce. In fact, workers with bachelor's degrees in jobs such as carpentry actually have a lower median wage than those without.

Read on to discover the jobs where the difference between a bachelor's degree and a high school diploma is at least seven figures over a lifetime. Culled from Georgetown's The College Payoff study, these jobs don't absolutely require a four-year degree to break in, but they do provide substantial financial incentive for those who hit the books.

The "median pay difference" listed is the lifetime pay difference between earning a degree versus a high school diploma.

Top brass in public and private positions

Position: Chief executive officers and legislators
Median lifetime pay difference: $1.9 million

Mark Zuckerberg, Steve Jobs and Michael Dell built their empires without degrees, but that's not how most CEOs make it, says Stephen Rose, research professor at Georgetown University's Center on Education and the Workforce and a co-author of The College Payoff study.

"If you look at CEOs of the 500 largest corporations, what you find is that 93 percent have a bachelor's degree and 50 percent have a graduate degree," he says. "By and large, most people aren't just supertalented like Bill Gates."

Rose adds that even for grads who don't major in business or entrepreneurship, a four-year degree still hones leadership, critical thinking, problem-solving skills and the ability to see a long-term task through from beginning to end.

Successfully break in, and you'll be handsomely rewarded. While Fortune 500 CEOs earn well into the millions, the median pay for chief executive officers is $165,080 per year, reports the Bureau of Labor Statistics, or BLS. In the government sector, the annual salary for most representatives and senators is currently $174,000 per year.

Getting Wall Street cred

Position: Securities, commodities, financial services sales agents
Median lifetime pay difference: $1.5 million

In the financial services field, those with some college education make $1.9 million over their lifetimes, but college grads make $3.4 million on average.

With a median salary of $70,190 per year, according to the BLS, workers in this field typically have cushy jobs that come with generous benefits packages. A four-year degree in economics, statistics or mathematics can provide securities, commodities and financial services workers with technical know-how.

But having a college degree serves a valuable networking function, too, says Jonathan Thom, a vice president of professional staffing at Express Employment Professionals in Oklahoma City. Express is one of the largest staffing firms in North America.

Because they interact with high-net-worth investors and institutional clients with bachelor's or graduate degrees, workers in this field need to have a college degree "to show credibility," Thom says.

As important as the number-crunching know-how, Thom adds, is the exposure to industry insiders through internships, alumni networks and mentoring programs that undergrads gain.

Showing your ROI

Position: Financial manager
Median lifetime pay difference: $1.3 million

A four-year degree in business, finance or accounting can get your foot in the door, but Brandi Britton, a district president with the worldwide staffing firm Robert Half International' says grads will also need work and management experience outside the classroom through internships, summer jobs and extracurricular activities.

"Employers will look for small things in the leadership area that a lot people don't always think are important like, for example, did you lead a group at school? Did you lead your sorority or fraternity, or if you worked at, let's say, Starbucks, were you in a capacity where you led other employees?" she says. "Things like that demonstrate that you have that entrepreneurial behavior but also that desire to take on more responsibility."

Britton adds that companies that employ financial management professionals focus strongly on employee return on investment -- specifically, whether managers are saving the company money, improving service or making internal processes more streamlined. To stand above the wave of other grads, Britton encourages those breaking into the field to highlight where they've made organizational improvements, even if it's on a small level.

Getting degree in the right field

Position: Miscellaneous managers
Median lifetime pay difference: $1.3 million

Managers of all types usually get paid more than those they manage, but a degree in a business field isn't the only way to move up the corporate ladder.

"(Students) should think broadly about what fields they might be interested in, what type of career that they might like to see and get those core skills in those areas," says G. Jason Jolley, an adjunct assistant professor of finance at the University of North Carolina at Chapel Hill. For example, students interested in managing engineers can break in with an engineering degree in addition to business experience.

Students aiming for a management role in a highly prestigious organization should also carefully decide where they attend school, adds Jolley.

"If your goal is to work on Wall Street eventually in some sort of management role, going to a highly regarded college, particularly one with a highly regarded business school, you're more likely to be exposed to the recruiters from those firms," he says.

Building on intangible skills

Position: Models, demonstrators and product promoters
Median lifetime pay difference: $1.3 million

"A product promoter could be somebody (such as a representative) at a high-end retail shop that says, 'Would you like to try this fragrance?' to somebody who's really arranging product placement on TV and in movies," says Stephen Rose of Georgetown. "The one that's doing the perfuming is in a very low-paying job, and the one that's negotiating contracts with TV stations and movie companies is in the high-end job. ... What we see is that more educated people (in this field) have been able to get the top spots in that job."

Even in an industry such as modeling that seems largely contingent on physical attractiveness, workers still need the skills to build their brand, communicate articulately and create an effective career strategy to get to the top, says Rose. Those intangible skills, he adds, "can be the difference between success and failure."

Experience in and out of classroom

Position: Marketing and sales managers
Median lifetime pay difference: $1.3 million

The BLS reports that candidates who have course work in management, accounting, business law, statistics, finance and marketing will have an advantage in the job market over those who don't. Willis Turner, president and CEO of Sales and Marketing Executives International, a professional association for sales and marketing managers, says the field is competitive. Candidates also need to come armed with additional experience gained outside the classroom.

"Valuable experience can be gained through co-op and internship programs," Turner says. "The candidate's portfolio should include evidence that will help the potential employer see a balance between education, work and community service."

Once you've broken in, the payoffs are significant. Sales managers earn a median pay of $98,530 per year, while marketing managers rake in a median salary of $108,260 per year, according to the BLS.

Showing you have what it takes

Position: Salespeople in wholesale and manufacturing
Median lifetime pay difference: $1.3 million

A four-year degree pays off even for sales reps below the managerial level. Though the median pay for these workers is roughly half of what their managerial counterparts earn, according to the Bureau of Labor Statistics, lifetime earnings for workers with a high school diploma are also low enough that the difference in lifetime earnings stays the same.

The value in having a four-year degree in this field lies less in acquiring technical skills necessary for a specific job and more in demonstrating soft skills that can push sales reps to generate commissions, explains James H. Wyckoff, director of the Center on Education Policy and Workforce Competitiveness at the University of Virginia in Charlottesville, Va.

"Individuals with a (bachelor's degree) have shown they have the personal traits like persistence and motivation to actually do what is necessary to get a B.A. that those with only a high school degree have not (shown)," he says. "It is not the knowledge that a B.A. confers that is important, but the signal it provides about personal traits that are often hard to measure or determine in an interview."

For analytical problem solvers

Position: First-line supervisors and managers, nonretail work
Median lifetime pay difference: $1.2 million

Budgeting, management, human resource and accounting skills all combine for workers who manage a sales team in industries ranging from telecommunications to wholesale trade services. First-line supervisors act as a liaison between production workers and upper-level executives.

Their responsibilities include creating policies that meet the goals of the organization and the workers, improving company productivity on a ground level, and nipping production and human resource problems in the bud before they escalate.

While median pay is $70,520 per year according to the BLS, only those who have the analytical and problem-solving skills that frequently accompany a four-year degree will be able to snag such a salary.

Surpassing the supervisory role

Position: General and operations managers
Median lifetime pay difference: $1.1 million

Considered one of the highest executive positions, general and operations managers work with the executive team to create company-wide initiatives and oversee daily operations in public and private sector organizations, reports the BLS. They also bring in a sweet median pay of $95,150 per year, with the top 25 percent earning $144,050 or more.

Thom of Express Employment Professionals says it's technically possible to break into this field with only a high school diploma, but most workers without a college degree top out at the supervisor level. To set yourself up for a general operations manager job, Thom recommends an undergraduate course of study that mixes general business classes with accounting, finance, management and statistics courses. Students who gain each of these skills leave campus with "a better fiscal understanding of the business, which is always important."

Building from scratch

Position: Construction management
Median lifetime pay difference: $1.1 million

People who can plan and coordinate a construction project from beginning to end are rewarded with a median salary of $83,860, reports the BLS.
Richard Lambeck' department chair of the Construction Management Department at New York University's Schack Institute of Real Estate, says degrees in this field focus on helping students hone their ability to create budgets, manage teams of subcontractors and ensure that work done is installed properly.

"It's all about mitigating risk in the construction industry," he says, which "is looking for people who understand the process, how they can reduce their risk, how they can make sure the project is going to be on time and within the budget that's originally established between the contractor and the developer."

The real benefit to getting a degree, he adds, is that students get an interdisciplinary skills set. The skills set mixes technical know-how in the construction field with business development, labor relations, contract evaluation and project management course work.

"We're giving people the skills to manage the construction process," he says.

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A New Rule of Thumb for Tapping Savings

by Susan Garland

When it comes to tapping your retirement savings, a basic rule of thumb calls for withdrawing from taxable accounts first and allowing tax-deferred traditional IRAs and tax-free Roth IRAs to grow as long as you can. But a mounting body of research shows that you may be better off switching the order a bit.

In a recent study, researchers found that for some retirees, tapping part of a traditional IRA in the early years of retirement could pay unexpected dividends by reducing the size of required minimum distributions when they turn 70 1/2. Shrinking those taxable payouts could keep you in a lower tax bracket and actually boost your wealth over the long term.

For this strategy to be effective, the authors say, part or all of your early IRA withdrawals must be sheltered from tax by tax deductions and exemptions. Consider a married couple in which each spouse is 65 or older and knows that at least $21,800 of otherwise taxable income in 2012 will be tax-free thanks to their standard deduction and personal exemptions. If the couple's taxable income before any IRA distribution would fall below that level, the couple could use "withdrawals from the tax-deferred IRAs to create tax-free income," co-researcher Alan Sumutka, associate professor of accounting at Rider University, in Lawrenceville, N.J., said in an interview.

Sumutka and his colleagues sought to determine which of 15 possible withdrawal strategies would produce equal payouts but leave a retired couple with the largest account balance after 30 years. They considered a 65-year-old married couple who retired in 2013 with $2 million, split 70% in traditional IRAs, 20% in taxable accounts and 10% in Roth IRAs. The annual rate of return was 6%. The couple's expenses the first year were $80,000 offset by $30,000 in Social Security. The study assumed that Bush-era tax cuts would be extended.

The most tax efficiency occurred when, in the years before required distributions began, the couple tapped their traditional IRAs up to the amount of their deductions and exemptions. They took the balance for the year's expenses from their taxable accounts, paying up to 15% on any long-term capital gains. Once they began taking RMDs, they continued to withdraw from their taxable accounts until they were depleted and then began tapping their tax-free Roth IRAs. They saved the rest of their traditional IRAs to last. After 30 years, the hypothetical couple still had $1.61 million.

The conventional taxable-accounts-first strategy ended in sixth place. The thinking behind this strategy is that your tax-advantaged retirement assets should be left to compound as long as possible. But that strategy left the couple with just $1.17 million.

Keeping Income on an Even Keel

A key to tax efficiency over a 30-year retirement horizon is to keep adjusted gross income and taxable income steady, the authors say. They were able to stabilize income in part by shrinking the IRA -- and, thus, the size of taxable RMDs. "If you leave too much money in the account, eventually you may be forced into a higher bracket," says co-researcher Lewis Coopersmith, associate professor of management sciences at Rider.

The researchers found that following the conventional strategy led to more volatility in income over the years and resulted in the couple spending 23 years in the 25% tax bracket, with just seven years in the 0% or 15% brackets. With the optimal strategy, the couple spent 14 years in the 25% bracket and 16 years in the 15% bracket.

Tapping the Roth before withdrawing from the balance in the traditional IRA also helped even out taxable income. "If I took the tax-deferred money before the tax-free money, I would have to pay taxes, so I would be reducing the total ending balance," says Coopersmith.

There are times when the common rule would work, the authors say. Those would be cases in which initial portfolios are large -- $8 million or more -- or contain 45% to 55% in taxable assets.

Couples with large taxable pensions would not likely benefit from tapping the IRA first.

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Twenty One Ways Rich People Think Differently

by Mandi Woodruff

World's richest woman Gina Rinehart is enduring a media firestorm over an article in which she takes the "jealous" middle class to task for "drinking, or smoking and socializing" rather than working to earn their own fortune.

What if she has a point?

Steve Siebold, author of "How Rich People Think," spent nearly three decades interviewing millionaires around the world to find out what separates them from everyone else.

It had little to do with money itself, he told Business Insider. It was about their mentality.

"[The middle class] tells people to be happy with what they have," he said. "And on the whole, most people are steeped in fear when it comes to money."

1. Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil.

"The average person has been brainwashed to believe rich people are lucky or dishonest," Siebold writes.

That's why there's a certain shame that comes along with "getting rich" in lower-income communities.

"The world class knows that while having money doesn't guarantee happiness, it does make your life easier and more enjoyable."

2. Average people think selfishness is a vice. Rich people think selfishness is a virtue.

"The rich go out there and try to make themselves happy. They don't try to pretend to save the world," Siebold told Business Insider.

The problem is that middle class people see that as a negative––and it's keeping them poor, he writes.

"If you're not taking care of you, you're not in a position to help anyone else. You can't give what you don't have."

3. Average people have a lottery mentality. Rich people have an action mentality.

"While the masses are waiting to pick the right numbers and praying for prosperity, the great ones are solving problems," Siebold writes.

"The hero [middle class people] are waiting for may be God, government, their boss or their spouse. It's the average person's level of thinking that breeds this approach to life and living while the clock keeps ticking away."

4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge.

"Many world-class performers have little formal education, and have amassed their wealth through the acquisition and subsequent sale of specific knowledge," he writes.

"Meanwhile, the masses are convinced that master's degrees and doctorates are the way to wealth, mostly because they are trapped in the linear line of thought that holds them back from higher levels of consciousness...The wealthy aren't interested in the means, only the end."

5. Average people long for the good old days. Rich people dream of the future.

"Self-made millionaires get rich because they're willing to bet on themselves and project their dreams, goals and ideas into an unknown future," Siebold writes.

"People who believe their best days are behind them rarely get rich, and often struggle with unhappiness and depression."

6. Average people see money through the eyes of emotion. Rich people think about money logically.

"An ordinarily smart, well-educated and otherwise successful person can be instantly transformed into a fear-based, scarcity driven thinker whose greatest financial aspiration is to retire comfortably," he writes.

"The world class sees money for what it is and what it's not, through the eyes of logic. The great ones know money is a critical tool that presents options and opportunities."

7. Average people earn money doing things they don't love. Rich people follow their passion.

"To the average person, it looks like the rich are working all the time," Siebold says. "But one of the smartest strategies of the world class is doing what they love and finding a way to get paid for it."

On the other hand, middle class take jobs they don't enjoy "because they need the money and they've been trained in school and conditioned by society to live in a linear thinking world that equates earning money with physical or mental effort."

8. Average people set low expectations so they're never disappointed. Rich people are up for the challenge.

"Psychologists and other mental health experts often advise people to set low expectations for their life to ensure they are not disappointed," Siebold writes.

"No one would ever strike it rich and live their dreams without huge expectations."

9. Average people believe you have to DO something to get rich. Rich people believe you have to BE something to get rich.

"That's why people like Donald Trump go from millionaire to nine billion dollars in debt and come back richer than ever," he writes.

"While the masses are fixated on the doing and the immediate results of their actions, the great ones are learning and growing from every experience, whether it's a success or a failure, knowing their true reward is becoming a human success machine that eventually produces outstanding results."

10. Average people believe you need money to make money. Rich people use other people's money.

Linear thought might tell people to make money in order to earn more, but Siebold says the rich aren't afraid to fund their future from other people's pockets.

"Rich people know not being solvent enough to personally afford something is not relevant. The real question is, 'Is this worth buying, investing in, or pursuing?'" he writes.

 11. Average people believe the markets are driven by logic and strategy. Rich people know they're driven by emotion and greed.

Investing successfully in the stock market isn't just about a fancy math formula.

"The rich know that the primary emotions that drive financial markets are fear and greed, and they factor this into all trades and trends they observe," Siebold writes.

"This knowledge of human nature and its overlapping impact on trading give them strategic advantage in building greater wealth through leverage."

12. Average people live beyond their means. Rich people live below theirs.

"Here's how to live below your means and tap into the secret wealthy people have used for centuries: Get rich so you can afford to," he writes.

"The rich live below their means, not because they're so savvy, but because they make so much money that they can afford to live like royalty while still having a king's ransom socked away for the future."

13. Average people teach their children how to survive. Rich people teach their kids to get rich.

Rich parents teach their kids from an early age about the world of "haves" and "have-nots," Siebold says. Even he admits many people have argued that he's supporting the idea of elitism.

He disagrees.

"[People] say parents are teaching their kids to look down on the masses because they're poor. This isn't true," he writes. "What they're teaching their kids is to see the world through the eyes of objective reality––the way society really is."

If children understand wealth early on, they'll be more likely to strive for it later in life.

14. Average people let money stress them out. Rich people find peace of mind in wealth.

The reason wealthy people earn more wealth is that they're not afraid to admit that money can solve most problems, Siebold says.

"[The middle class] sees money as a never-ending necessary evil that must be endured as part of life. The world class sees money as the great liberator, and with enough of it, they are able to purchase financial peace of mind."

15. Average people would rather be entertained than educated. Rich people would rather be educated than entertained.

While the rich don't put much stock in furthering wealth through formal education, they appreciate the power of learning long after college is over, Siebold says.

"Walk into a wealthy person's home and one of the first things you'll see is an extensive library of books they've used to educate themselves on how to become more successful," he writes.

"The middle class reads novels, tabloids and entertainment magazines."

16. Average people think rich people are snobs. Rich people just want to surround themselves with like-minded people.

The negative money mentality poisoning the middle class is what keeps the rich hanging out with the rich, he says.

"[Rich people] can't afford the messages of doom and gloom," he writes. "This is often misinterpreted by the masses as snobbery.

Labeling the world class as snobs is another way the middle class finds to feel better bout themselves and their chosen path of mediocrity."

17. Average people focus on saving. Rich people focus on earning.

Siebold theorizes that the wealthy focus on what they'll gain by taking risks, rather than how to save what they have.

"The masses are so focused on clipping coupons and living frugally they miss major opportunities," he writes.

"Even in the midst of a cash flow crisis, the rich reject the nickle and dime thinking of the masses. They are the masters of focusing their mental energy where it belongs: on the big money."

18. Average people play it safe with money. Rich people know when to take risks.

"Leverage is the watchword of the rich," Siebold writes.

"Every investor loses money on occasion, but the world class knows no matter what happens, they will aways be able to earn more." 

19. Average people love to be comfortable. Rich people find comfort in uncertainty.

For the most part, it takes guts to take the risks necessary to make it as a millionaire––a challenge most middle class thinkers aren't comfortable living with.

"Physical, psychological, and emotional comfort is the primary goal of the middle class mindset," Siebold writes.

World class thinkers learn early on that becoming a millionaire isn't easy and the need for comfort can be devastating. They learn to be comfortable while operating in a state of ongoing uncertainty."

20. Average people never make the connection between money and health. Rich people know money can save your life.

While the middle class squabbles over the virtues of Obamacare and their company's health plan, the super wealthy are enrolled in a super elite "boutique medical care" association, Siebold says.

"They pay a substantial yearly membership fee that guarantees them 24-hour access to a private physician who only serves a small group of members," he writes.

"Some wealthy neighborhoods have implemented this strategy and even require the physician to live in the neighborhood."

21. Average people believe they must choose between a great family and being rich. Rich people know you can have it all.

The idea the wealth must come at the expense of family time is nothing but a "cop-out", Siebold says.

"The masses have been brainwashed to believe it's an either/or equation," he writes. "The rich know you can have anything you want if you approach the challenge with a mindset rooted in love and abundance."

From Steve Siebold, author of "How Rich People Think"