The holiday season is upon us. Believe it or not, Thanksgiving is here and Christmas, Hanukkah, and Kwanzaa are right around the corner. This is usually the time that some of the most sensible people throw caution to the wind and charge it! Amidst all the joyous festivities, many unfortunately rack up a ton of debt. In case you didn't know, on average it takes about nine years to pay off a $1000 balance at 18% interest. That's 2018! Is the sweater really that cute?

Recently, I have received a lot of requests for credit management workshops. I normally talk about what a credit report is. I always jokingly say that a credit report is a "grown up report card." I usually get a lot of nodding heads and nervous laughs. I think most people know that it's true. We are judged based on our current and past credit history. I then ask why we need credit. Some of the responses I hear include: to buy a home, a car or get a job; all of these answers are correct. With the shortage of "good jobs", something like a blemish on your credit report could be the difference between getting the job and remaining unemployed.

Next, I normally talk about why everyone should check their report. I get a variety of answers. There are a number of reasons to check your credit report. The best reason I can think of is to make sure the information on the credit report is correct. Besides verifying accounts and balances on file, it is just as important to verify your name, date of birth, social security number, current and past addresses and employers. If any of this information is incorrect, it's probably a good idea to dig deeper and file a dispute, if necessary. I always suggest to workshop participants to get a free copy of their credit report from all three credit bureaus because there is always the possibility that the information is not the same. To obtain a free copy of your credit report, visit www.annualcreditreport.com.

Towards the end of the workshop, I usually talk about the components that make up the credit score such as payment history, amount owed, length of credit history, new credit, and types of credit. If you are holiday shopping and opening credit cards at every store you patronize to get the discount on your purchases, beware that it might cost you a dip in your credit score and inevitable a higher cost for borrowing money.

If you want to keep your spending under control during the holidays, consider establishing a holiday budget. The budget can include gifts, food, decorations and supplies, holiday cards, and other miscellaneous items. Lists will be an important part of creating your budget. Create a list for holiday gifts that include what you plan to purchase, the estimated cost and where you plan to purchase it, if possible. This will help you stay focused during your shopping trip. Your food list should include everything on your menu, including ingredients. Check your refrigerator and cabinets before your shopping trip so that ingredients are not purchased unnecessarily.

Finally, reflect on the year we have had. It's been a pretty rough time this year. We have worried about plummeting stock portfolios, foreclosures, and our healthcare coverage. Now, it's time for us to be thankful for the things that we have. If your 401(k) took a dive, be thankful you even had one; many employees don't. If your home went into foreclosure this year, be thankful you had somewhere else to go; someone ended up homeless. Finally, if your HMO or PPO wasn't the greatest, at least you had coverage; millions of Americans are without any coverage at all. During this holiday season, be thankful for the people and the things that are important to you. In the final analysis, that's what really matters. Have a wonderful Thanksgiving. Happy Holidays!!!

I've come across a couple of different articles this week about risk tolerance and risk capacity, after writing my blog post last week. (Maybe it's the same phenomenon as when you learn a new word that you think you've never heard before. But then you hear it 5 more times in the next week.)

The November issue of Money Magazine has an informative article, How Much Risk Can You Stand? by George Mannes. And through the end of November, they have arranged for readers to have free access to FinaMetrica's risk tolerance questionnaire, which the article says is one of better risk tools available.

One of the interesting points in the article is this: "Risk tolerance isn't about how much risk you ought to take when you invest; it's about how much you can take before you crack." Meaning, your risk tolerance (and the asset allocation that it would indicate) should provide an upper limit for the amount of risk (i.e., the amount of stocks) you could assume in your portfolio, rather than a target allocation.

The article also contends that a good risk tolerance assessment tool should limit itself to assessing your "appetite for risk" and not your risk capacity. I think it's important to assess both. But they are probably right that the two should be evaluated separately.

In an ideal world, your tolerance for risk, your capacity for risk, and the actual amount of risk in your portfolio should be in agreement. I have a target allocation for my household's investments; it is based largely on an assessment of our financial ability to withstand losses (risk capacity). I was curious whether it would also match up with my risk tolerance. So I took advantage of the free access to the FinaMetrica tool and got my risk tolerance score. While FinaMetrica does not provide advice about what an appropriate asset allocation would be for any given score, the Money Magazine article suggests a "comfortable ceiling in stocks" for various scores. I was very happy to see that my actual allocation was right in synch with the suggested stock allocation for my score.

But the thing I will take away is this: this number should probably be my maximum stock allocation, rather than my target. My husband and I stood firm with our investments over the past two years, other than doing some rebalancing which actually means we moved money from bonds funds into stock funds. So our risk tolerance was able to handle the craziness of the stock market during that time. But I need to keep a close eye on our allocation. If the stock market continues to make significant gains, we could quickly be over our upper limit for stocks and take on more risk than we want. If we scale back a bit on the stocks, we'll be less likely to exceed our level of risk tolerance before I get around to rebalancing again.

Risk tolerance is a word that gets thrown around quite a bit when you read about investing. I think it's helpful to differentiate risk tolerance (your emotional reaction to risk) from your risk capacity (your financial ability to handle investment risk).

You're talking about risk tolerance when you ask questions like, "What would I do if the value of my investments dropped 30%?" You're trying to predict how you would respond. But you're assessing your risk capacity when look for facts about your financial situation, such as,

• How many years will it be before I need to use this money?
• How much do I save each year? Or, do I spend more than I earn?
• How much do I have in my emergency fund? (Please note that your emergency fund should be saved, not invested. By that, I mean its value can't drop, or not by much.)
• In retirement, how much of my expenses will be covered by Social Security or by a pension? And how much will I rely on my investments for my living expenses?

Determining how much risk you can handle and choosing an appropriate asset allocation may be as much art as it is a science. I'd be curious to hear what your personal experiences are, and what you think about the risk tolerance tools that are out there.

To learn about different types of investments and the various kinds of risk they have, visit University of Illinois Extension's interactive website, Plan Well, Retire Well, Your How-to-Guide at www.RetireWell.uiuc.edu. You can also read my latest news article about risk tolerance which is also posted on that webpage.

My husband and I just had our 28 year anniversary; you can calculate that we're getting older! But do I feel like retirement is around the corner? No, it still seems like an abstract thought that is likely to happen someday but I can't really imagine it happening to me. So when will it feel like the right time to save for retirement?

Today we spent time planning some new landscaping for our backyard. It made me think about another time we did a major landscaping project. As graduate students we decided to cover our backyard with rock -- this is something people do in the Arizona desert. We invited several friends to help move many cubic yards of rock and paid them with a dinner. That was cheap labor! Did we feel like it was the right time to save for retirement when we were in college? No.

The next few years included the birth of our three sons. Time flew by with little sleep but many happy moments. As young parents, did that feel like the right time to save for retirement? No.

When you're in your twenty and thirties it seems like you have forever until you'll be old enough to think about retirement. It's easy to think that someday it'll feel like the right time to save for retirement. Now as I get older with two kids in college and one more to start soon, does it feel like the right time to save for retirement? Do you need to ask with three kids soon to be in college at the same time? No.

Clearly I'm not the only one who hasn't felt like it was the right time to save for retirement. According to the latest EBRI Retirement Confidence Survey 54% of workers report less than $25,000 in total savings and investments (excluding their home and defined benefit plans). Many people will live 20 to 30 years, or more, after retirement. Twenty-five thousand dollars will not provide a financially secure retirement.

The moral of this story is that you can't wait until the time feels right to save for retirement. You need to save for retirement all of your life. By the time I feel like it's the "right time," I'll be out of time to save.

The only way I know to be successful at saving for retirement is to start doing it when you're young -- too young to even be able to imagine what you will be like when you retire. Start small but save every month. If you have the option through your employer, put your savings on automatic through payroll deductions. Otherwise, choose a retirement savings option and fund it regularly. I have used these saving tips myself, and they have worked for me.

A little bit saved each week will add up significantly. Can you save $20 a week? In a year, you'd have over $1,000. Would you like a million dollars when you retire? Visit the Plan Well, Retire Well website to calculate how much you need to save monthly to be a millionaire. Once you've logged into the website, click on Save for Retirement to go to the calculator. The Plan Well, Retire Well website also has information about retirement saving plan options for you.

Saving money regularly, before you feel like it's the right time to save, will lead you towards a financially secure retirement. Now is the time to start saving.

Who couldn't use a little more cash each month! Refinancing your home mortgage might be the solution.

Given today's economy, interest rates on home loans are relatively low. It may make sense for you to refinance your existing home loan. Or, it might not! Like most financial decisions, you need to think about the costs and benefits.

Why do people take the time to refinance home loans? You might be asking yourself, "The loan I have now is working fine ... why should I change it?"

Refinancing a home loan can help people who have different goals. Refinancing can allow people to:

• get a lower loan interest rate,
• change from an adjustable rate mortgage (ARM) to a fixed rate mortgage,
• change from an ARM loan to a different ARM but one with better terms, or
• change the number of years on a loan.

To decide if refinancing a loan makes financial sense for you, you need to start by asking yourself these questions:

• What are the initial refinancing loan costs? (It's important to ask about all costs. Costs can vary depending on the lender.)
• How long do you expect to own this home?
• When will savings from a lower interest rate loan pay for the refinancing costs?

For example, let's assume refinancing a home loan costs $3,000. In this example, the homeowner will have a mortgage payment of $50 less per month after refinancing. Then we know ($3,000 divided by $50) that it will take 60 months (or 5 years) for the savings to pay for the refinancing costs.

You can use a mortgage calculator, like the one at Bankrate.com, to help you calculate whether or not refinancing your home makes sense to you.

For more information about refinancing a home loan, visit the U of I Extension website, Opening Doors to Housing Success.

And, if you do decide that it makes sense to refinance your home mortgage loan, what should you do with that extra cash? Why, invest it for your retirement! What else would I recommend?! For ideas about how to effectively save for retirement, visit the Plan Well, Retire Well website.

Comments? Click on my name below and send me your thoughts!

This week I attended the Smart Women Smart Money Conference hosted by the Illinois State Treasurer's Office. There were numerous workshops going on including one by our own Karen Chan. To my surprise, my next door neighbor, Shundrawn Thomas, President of Northern Trust Securities, did a presentation on the State of the Economy. I decided to sit in on his session. He provided historical data, information on the current status and future outlook of our economy. I would classify his presentation as a lesson in macroeconomics, the study of the overall economy. Today, I want to speak with you about microeconomics, your personal economy.

By now, you have probably been overwhelmed with quarterly statements from your retirement and investment plans, your Social Security statement, your annual employee benefits enrollment booklet, and maybe even your Notice of Proposed Assessed Valuation from your county assessor's office. This is a great time to re-evaluate your personal economy. Are you financials in order? Is your economy in a recession? Let's look at your mail one piece at a time to see how things are going.

Quarterly statements

First of all, if you don't have any, that might be a problem. See Social Security section below. Otherwise, look at your statements. Generally, you will have performance data for the current quarter and year to date information. If you are not happy with your investment performance, consider rebalancing your portfolio. For more information on rebalancing, check out our website at Plan Well Retire Well. Are you saving enough? Do you have more month than money? Explore the Extension website to find out ways to get more for your money.

Social Security statements

Your Social Security statement was sent out recently. The two components that your need to review for accuracy are the estimated benefits and earnings record sections of the statement. The estimated benefits section provides vital information on your estimated benefits at retirement, disability, and death. You should verify your birthdate on file, estimated taxable earnings for 2008, and the last four digits of your social security. The earnings record is a running record of your earnings each year since you started working. It is important to verify this information for accuracy; benefits are determined based on this information. Note: if you had more than one job or had self-employment income in addition to regular income, your earnings for the year would be the total of both jobs. Will the estimated benefits be enough?

If you are depending on Social Security to get by in your golden years, think again. In case you didn't read ALL of your Social Security statement, one of the women in our workshop reminded us that on the front page of the statement, Social Security states that "in 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted." This statement explicitly says that someone's personal economy will likely turn into a depression if additional retirement resources are unavailable. Therefore, if you are not currently participating in your company's retirement plan, now is the time to join. If you are self-employed establish your own retirement plan, there are several to choose from. If you don't have an IRA, consider opening one. The more income options you have at retirement, the better off you'll be. To view your statement or apply for benefits, visit the Social Security website.

Property Tax Assessments

Your county assessor normally assesses your property every three years. This year, due to massive foreclosures and the plunge in the real estate market, many assessor offices are providing special assessments to adjust property values to reflect our current market. However, once you receive your notice, if you disagree with the assessed valuation proposed on your property, you have a small window of opportunity to appeal. In many cases your appeal can be filed online at the county assessor's website. You will need the property index number (PIN) of your property and likely other similar properties in the area that fall into your same property class. The deadline to appeal normally appears on the statement.

Employee Benefits Package

Sometime this month, you have likely received your open enrollment forms. Besides retirement accounts, this is a great way to reduce taxable income and protect your family against unexpected loss. Usually, you will be asked to choose between an HMO and PPO plan of one or more providers for health insurance. The HMO is normally more economical, while the PPO ordinarily offers more flexibility. Which plan you choose, depends on your family's specific needs.

Basic life, supplemental life and accidental death and dismemberment insurance plans are offered as well. Most companies provide basic life coverage equal to your annual salary for free. However, you can purchase additional (supplemental) life insurance coverage for up to several times your annual pay at relatively low group insurance rates. Check your current insurance needs. If something happened to you, would your family be able to survive on what's left? If not, in addition to private insurance, consider coverage with your employer.

Finally, are you taking advantage of your employer's flexible spending accounts? Many employers offer pre-tax withdrawals from your paycheck to set aside to cover health and child care costs. Some may even offer reimbursement accounts for transportation, which includes parking, tolls, and bus and train fares. Participation in these programs provides a reduction in your taxable income, and thus a tax savings to you throughout the year.

So, before your enrollment period ends, see which benefits will be to YOUR benefit.

Final Thoughts about Your Economy

Like the broader economy, your household economy is made up of more than just a few things. You have budgets consisting of income and expenses, savings, and many other factors to consider. However, I wanted to highlight some of the things that get overlooked or placed on the back burner because you feel that other matters are "more important." In retrospect, had we paid more attention to the "less important" contributing factors, our economy would have likely been a lot better off today. So, open your mail. You'd be surprised at how little things like verifying information or making slight changes in coverage can make a big difference on your long term outlook. Our economy will eventually turn around. Make sure you are prepared when it does.

Until we talk again,

Legal scholars Richard Kaplan, Nicholas Powers, and Jordan Zucker detail the "increasingly troubled state of employer-provided health benefits for retirees" in a recent analysis. Their paper, published in the Yale Journal of Health Policy, Law, and Ethics (Vol. 9, No. 2, 2009), is titled "Retirees at Risk: The Precarious Promise of Post-Employment Health Benefits." (A version of this paper is also available on the Social Sciences Research Network website for download.) They document the economic and financial pressures on private business firms that help explain the erosion of retiree health benefits, and they highlight the adoption of new accounting rules that force firms to recognize the financial cost of retiree health benefits on their books as a major factor in the decline of employer-provided retiree health benefits. They also turn their attention to public sector units claiming "another wave of broken promises may lie just ahead" since the state and local government employers also need to represent these obligations in their accounting.

The overall message of this paper for retirees and for people planning for retirement (that includes nearly all of us!) is the significant erosion already in employer-provided retiree health benefits and the real chance of further declines in employer-provided health coverage for retirees. For the individual few good strategies exist to remedy the loss of coverage. Certainly, those of us in the planning years and period of our lives when we are saving and investing for our future financial security may need to bump up our saving rates to help cover the short-fall and be ready to have some flexibility in our retirement budgets to handle changes. A letter to your legislative representatives expressing concern about the week legal protections provided by ERISA may also be in order.

Currently the national law allows people to collect unemployment benefits for 79 weeks. 79 weeks is already an extension of the usual time limit for unemployment and, yet, legislation is being considered that would extend this benefit time. Why? Because many people have been unemployed for longer than 79 weeks, and the number of people unemployed continues to increase.

According to a recent article in the New York Times, "Some 5 million people, about one-third of those unemployed, have been without a job for six months, the highest number since data was first collected in 1948. There are nearly six unemployed for every available job."

The questions people are asking me lately are very different from the types of questions I received a couple of years ago. Now people call wondering where to go for bankruptcy counseling? Or, how they can pay for college when expected loans are suddenly not available?

If you're facing financial challenges, now is a good time to seek help so that you can make informed decisions. University of Illinois Extension has several websites that can help you.

Getting Through Tough Financial Times provides clear information and strategies to manage your finances with reduced income.

Choosing a Financial Professional discusses how to evaluate financial professionals and to choose one that is a good match for your needs.

Every day brings interesting new twists and turns in the healthcare debate. From Rep. Joe Wilson's outburst to more talk of death panels, the debate continues on and public opinion has become more polarized than ever. In my last blog, I told you if you sent me an email, I may include your comments in my next blog. Boy, do you have opinions. I received a cross-section of responses from health professionals, concerned citizens, and outraged taxpayers. Here are some of the comments you posted to my Facebook page.

Tanyanika Conaway commented on how she has noticed that people without insurance receive "okay" service, but not the best because they don't have insurance. Karen Grove Hereford, another health professional, feels that if healthcare is free for everyone, services will be substandard. She sees the bigger picture of hospitals not being able to charge their normal rates, which would lead to salary cuts to employees. She stated "I pay a lot for my insurance and I feel I should get good service. I give excellent service to patients whether they have insurance or not."

Daryl Van Johnson feels a competitive public option would balance things. "There is no incentive for insurance companies to do anything for us. They deny claims that are expensive for them, they drop people who get too sick and all this while pushing the cost of premiums through the roof. A public option would cause the cost to be lower, which would force insurance companies to lower their prices to keep people from moving to the public option."

Tasha Thomas, an RN Supervisor said "I hear what everyone is saying and you all have good points. The health care system is big and there is not an easy fix to it...Research Canada universal insurance...you are put on a waiting list for surgery (if it is not emergent). The taxes in other countries for universal insurance are expensive. Remember that employers pay their share into benefits and they pick the packages for their employees...and they set limits to the benefits offered to their employees, not the insurance company. I always tell people to educate themselves regarding the health care system because what you don't know can hurt you."

To place this debate in perspective for you, please allow me to share my personal medical stories over the past month. In August, my mother-in-law passed away. She died of complications related to lung cancer. She had been in and out of the hospital for quite some time. She had Medicare and Medicaid. I'm sure her bills were in excess of $1 million. We have not seen a bill yet; my guess, it's all been paid. My son got food poisoning that same week. He went to the emergency room and was admitted for overnight observation. He was released by 12 noon. He didn't spend a full 24 hours in the hospital. His bill was almost $10,000 and we are expected to pay a little over $1,000 out of pocket.

In addition to all of this, my husband has been having the same tests done for about four years now. Our insurance normally paid the entire cost minus a $20 co pay. Last week, we received a bill for almost $300 for his routine tests. The tests were not considered "necessary" and we were responsible for the entire cost (which would have actually been $750 without insurance). Our health insurance was switched to a different carrier this year by my husband's company. We supposedly have "good insurance." The thing is we pay a higher premium and are responsible for more out of pocket costs than in the past. When I think back to what we paid three to five years ago, health insurance costs have skyrocketed. Left or right, I think we can all agree if something isn't done, we will all be in trouble.

As far as the death panel discussion goes, I believe as many of you do, these panels have existed all along. This won't be anything new. My father-in-law has been in the hospital for a couple of months. Talks of placing him in hospice care have escalated recently; his insurance is running out. When insurance companies and hospitals decide that it is medically unlikely that your condition will improve, financial considerations take priority.

I would like to close this blog with the comments Dr. Tonya Coats stated in her email to me. "I am very conflicted about this debate. It is mainly a matter of semantics. We call it a "healthcare" debate when it is actually a "health care coverage" debate. This is where people who are worried about the government's interference in our lives get it twisted. I believe everyone should have access to basic healthcare screening and emergent needs. It doesn't matter if the economy is good or bad because for some it is always bad. My big problem as a healthcare provider has been the lack of personal responsibility. Take cervical cancer, for instance, screening for it will prevent death. So everyone should be screened. But, it is a sexually transmitted disease. Are we willing to stop having inappropriate or unprotected intercourse? (Personal responsibility) Further, some of the most common and expensive disease processess (hypertension, diabetes, heart disease, and even some cancers) are strongly impacted by life choices. No one wants to put down the fork and get up and exercise to lose weight (Personal Responsibility). None of this is being discussed and all we seem to want to do is throw money at the problem - "The American Way." Finally, nobody wants to take the financial responsibility. Paying for health insurance has to come from taxes, get ready to pay. When this bill passes a lot of people are going to be very disappointed when they don't become magically healthier."

It's up to us. We have to take responsibility for our lives; no one can regulate our choices. But, as Christina Glover so profoundly stated "I understand about personal responsibility, but sometimes bad things happen to good people." If we have a choice, we should choose wisely. Until we talk again…

Earlier this year, my husband's employer notified him that it was freezing his pension plan. By law, he will retain all the benefits he had earned up to that point, but his pension benefit is "frozen" at that level and will not increase. Additional years of service or pay increases will have no impact. At the same time, they suspended company matching contributions to his 401(k). None of this is good news. But what actions should we take to mitigate the impact?

Revise Retirement Income Projections

We should revise our expectations for retirement income by re-calculating any projections we've done. I've always been conservative with projections where our pension income was concerned. I've either used just the benefit that we've already earned, or only assumed another year or two or service credit. So the numbers I ran in the past may still be valid.

But many people base their projections on the benefit they'll earn if they continue to work for their current employer until retirement age. Those projections show a lot more pension income than you're likely to actually receive. For those rose-colored projections to come true, several things have to happen:

• Your employer has to stay in business. Even if it's bought out by another company, your benefits could change.
• You have to remain employed there until you choose to retire. With the frequency of layoffs over the past 10 years, I'm not sure what the odds are for that. In today's economy, middle and upper level employees are just as at risk of layoff as lower-wage earners.
• Your employer has to continue the pension plan.
  • They are under no obligation to continue the pension plan, and funding pensions is a big financial commitment for companies. If the organization is having financial problems, freezing a pension could be a logical choice. This is especially true if other employers who hire people with similar skills aren't offering a pension, or when unemployement is high - as it is now. One of the main reasons companies offer good benfits is to retain employees. Today, retention is not the main problem companies face. It's turning a profit.

Check Your Insured Benefit Amount

One thing you probably don't have to worry about -even if your employer files bankruptcy - is getting the pension benefits you've earned so far. Non-government employers pay into the Pension Benefit Guarantee Corporation to insure those benefits. In the event the employer goes bankrupt and they have not set aside sufficient funds to cover their pension obligations, the PBGC will cover the payments. There are limits; if you're a highly paid employee, your pension might exceed the insured amounts. But the PBGC says, "Most people receive the full benefit they had earned before the plan terminated."

Here's a quick run-down of the maximum insured benefits for selected ages for plans that end in 2009:

*Both spouses the same age.

For more details about PBGC insured limits, see their news release.

There is no insurance for your 401(k), 403(b), 457, or other defined contribution plan; it's up to you to manage those investments wisely.

Increase YOUR Contributions

To make up for losing future employer contributions toward your retirement, you probably need to increase the amount of your personal savings and contributions each year toward retirement. Some options for doing that are to start or increase contributions to:

• Your employer "defined contribution plan" such as a 401(k) or 403(b),
• Your own IRA.
• A spousal IRA for a nonworking spouse
• A SEP, SIMPLE, or Keogh plan if you have any income from self-emloyment
• Non-tax advantaged savings accounts. If you use a "buy and hold" strategy in these regular accounts, you effectively get tax deferral on the growth in the investment until you sell it. Index mutual funds are good candidates for this.

If you no longer have any employer retirement plan, not even one to which you can contribute from your paycheck, you might have an option that was denied you in the past: deductible contributions to an IRA. "Active participants" in employer plans whose income is over certain limits cannot make deductible contributions to traditional IRAs. If you have not had any contributions to employer plan at any time during the year, you are no longer an active participant and you can deduct your IRA contribution regardless of your income. For 2009, those limits for adjusted gross income are:

• Single filers $55,000 -$65,000.
• Married filing jointly $89,000-109,000.
• Married filing separately $0 to $10,000.

See IRA Basics for more information about traditional and Roth IRAs.

I'll save the issue of whether you should consider an annuity to fill the gap left by a frozen pension for a future post. So stay tuned.

To send questions or comments about this post, click on my name below.