First of all, some basics. Calculation of the benefits you will receive are based on your body of work over a period of forty years. The five years that you earned the least amount are dropped, and the other 35 are averaged to determine your monthly payment. Those who did not work do not get benefits. This is based on a set system where an individual must have worked 40 quarters during their life, and a minimum amount must have been earned during these 40 quarters in order to be considered for Social Security benefits.

A spouse who did not work is eligible for 50% of their working spouses full retirement benefits, and 100% after they die. If a spouse divorced someone after being married at least 10 years, they are eligible for 50% of that spouses full retirement age benefit, if they wait until age 70. At 60 this number is 37.5%.

SS retirement benefits can be started as early as 62 years of age. This does not mean that you have to start receiving benefits when you are 62; you can wait until you are as old as 70. If you choose to start getting benefits at an earlier age, your monthly payments will be smaller. There is a graduated scale involved with the calculations for payments; a 62 year old will get approximately 30% less than one who waits until they are 70. This percentage drops as you near 70.

The SSA, or Social Security Administration, uses your birth date to define retirement age. If you are planning on retiring in 2011, for instance, your retirement age is most likely 66 or 67 years of age; full retirement age means you will get 100% of your benefits.

One consideration to make when deciding when you will retire is that although your monthly payments will be lower if you retire early, this does not mean that you will receive less money in the long run. The reduction takes into account the fact that if you retire at 62 you will end up getting a lot more payments before you pass away than if you retire at 70, and recalculates your monthly benefits based on this. So there is actually no penalty for retiring early.

There are other advantages to waiting until 70 to start Social Security benefits. These individuals can immediately get retirement credits, which can boost monthly payments by 5 to 8%. These credits are assigned based on age; if you are born after 1943 you get 8%. These benefits stop going up when you reach 70.

So, unlike what you may hear from friends and family, there is no disadvantage or penalty involved for retiring early. On average, everyone who retires between the ages of 62 and 67 should see the same amount of money over their lifetime; the difference is in the amount of the monthly benefit check.

There are other considerations. If it is in your plans to continue working after retiring early, you should know that you will need to continue to pay SS taxes on all earning, even if you are receiving benefits. If you are not at full retirement age, there is an earnings cap of $14,160; this goes up to almost $40,000 after reaching full retirement age.

Once again, this should not be seen as a penalty. If you work when receiving benefits, and happen to go over the cap, some of your earnings may be taken from you, but these will be credited to you after full retirement age, and could mean higher payouts later. This is one of the most complicated aspects of Social Security benefits, but is also one of the most beneficial to you in the long run.

Getting to the point where you are considering whether to retire early or wait until full retirement age can be an intimidating time in your life. With many people nowadays deciding to work after retirement, it has become more important than ever to know exactly what is involved when filling out your Social Security paperwork. Understanding all the benefits and implications behind the Social Security system can help ease some of the stress involved with the numerous decisions that need to be made at this important point in your life.

The Roth IRA became an investment option with the Tax Relief Act of 1997. It was named for its chief legislative sponsor, Senator William Roth of Delaware. I am amazed at how many people are not familiar with a Roth IRA and what it can do for people. It is a wonderful option particularly for younger investors.

What are the two types of IRAs?

In order to fully understand what a Roth IRA is, you must understand the different types of IRAs. There are two types of IRA accounts that you can use to save for retirement. For both types, you may not contribute more than $5000 ($6000 if you are age 50 or older) and it must be earned income. The first type of IRA is often called a traditional IRA. With this type of IRA, your earnings are tax deferred. Depending on your income, your contributions might be tax-deductable. You can continue contributing to a traditional IRA until you are 70 1/2 and then must start taking it out using a schedule the IRS provides. At that point, you must pay taxes on everything you withdraw. The second type of IRA is known as a Roth IRA. To contribute to a Roth IRA, your modified adjusted gross income and filing status must be taken into consideration. If you can contribute to a Roth IRA, the earnings are tax deferred and are tax-free when you take distributions. Contributions, though, are not tax-deductable. You may continue contributing to a Roth IRA after you are 70 1/2 as long as you have earned income. There is no age where you must take distributions.

When does it make sense to set up and contribute to a Roth IRA?

I think a Roth IRA should be considered a must for people who qualify. If you are working, you might be able to put money into a 401K at work and an additional $5000 into a Roth IRA. When you are younger, this money grows tax deferred like your 401K allowing it to grow over time. Then, when you take it out you do not need to pay taxes on it. At retirement, you might have some tax free accounts and some accounts that you have to pay taxes on. The flexibility will be appreciated when you retire. If you have enough money at retirement, the money in a Roth IRA can be given tax free to your heirs after you die. Also, if the earnings are needed to buy a house or for emergencies while you are alive, money can be taken out without penalty even if you are younger than age 59 1/2. On a regular IRA, you would have to pay a penalty to take out the earnings early.

Converting a traditional IRA to a Roth IRA

A traditional IRA can be converted to a Roth IRA. What this means is that you have to pay all of the income taxes on the money that is converted. After the taxes are paid, the earnings are tax-deferred and then tax-free when you take it out. At this point, you would not have to take out any distributions at a particular age. When the market is low and the value of your IRA is possibly less than what you put in, this might be a good time to convert to a Roth IRA. The hope would be that you pay taxes on a lower amount and that your investments will grow significantly in the future and can be taken out then without paying any additional taxes. There is no limit to how much you can convert from a traditional IRA to a Roth IRA. Thus, peole who earned too much to contribute to a Roth IRA earlier, can still convert their IRA to a Roth IRA. Because you have to pay the taxes when you convert, this is more desirable if you have a smaller traditional IRA. One advantage, after converting from a traditional IRA to a Roth IRA, you can change your mind and recharacterize it back to a traditional IRA. I did this myself after finally understanding the tax implications of converting a larger traditional IRA. The amount I would owe for converting the IRA now, was more than I could handle. I really think that the conversion makes more sense for those who are much younger than I was.

How do you open a Roth IRA?

If you determine that you can invest in a Roth IRA, you can open an account at most financial institutions such as banks and mutual funds. Many companies charge a fee if you have less than a certain amount in your account and some companies charge you every time you add to your account. You determine how much to initially deposit of your earned income and then fill out the application form. You can deposit the entire amount that your are allowed all at once, or you can add something to your account every month or so during the year. You do not have to put in the entire $5000 in a year. That is a maximum, not a minimum.

What investments are good for a Roth IRA?

You can put your investment money into just about anything including stocks and mutual funds. Mutual funds make the most sense for people, but it is up to you. Some consider that you should include in your Roth IRA international stocks, dividend stocks, real estate trusts, precious metals, and commodities. I have put some of my Roth in individual growth stocks since if you get lucky and put money into a stock such as Microsoft and leave it there for years and years, you could do quite well. That hasn’t happened to me yet, but you never know. I have put some of my Roth IRA into various mutual funds that I like as well. I would not put an annuity into a Roth IRA, but you can try whatever works for you or have a financial planner invest your Roth IRA for you. One thing to remember. With the Roth IRA you can buy and sell mutual funds and stocks and not pay any taxes on the gains. On the other side, you can sell mutual funds and stocks and not be able to deduct any losses on your taxes as well.

If you can, get started investing in a Roth IRA and, if you have young people you know, convince them to start a Roth IRA as well.

Do you gamble or make speculative investments without your partner’s consent?

Once you get married, your finances become conjugal. In this sense, proceeding with high-stake ventures without the consent of your significant other is a betrayal – both emotionally and financially. For a relationship to grow and move forward, both parties need to learn how to be transparent.

Do you have bank accounts or credit cards your partner doesn’t know about?

If you have deliberately chosen to keep some of the financial aspects of your life in secret, this might be indicative of a lack of trust and communication between couples. You should be able to discuss these things early in the relationship to better guide your financial lives.

Do you cover up market losses, rather than bringing them to your partner’s attention?

This doesn’t mean that you’ll have to report even the slightest dip in your portfolio. A loss is inevitable. This means that when the loss becomes significant, you should be able to communicate the problem to your partner well. Remember that a major loss is his/her loss too.

Do you hide purchases from your partner or fib about how much you actually paid for them?

If you know that your partner will be disappointed to hear the price of an item, yet you bought it anyways, then you’re committing financial infidelity. This becomes more upsetting when your partner thought you share mutual financial goals, but you seem to be not doing your share to realize them.

Do you put off or avoid discussing financial topics with your partner?

This isn’t really financial infidelity. But assuming that money becomes the main reason for fights and discussions, putting off or avoiding the topic will just lead to more misunderstandings in the future. It’s not fun discussing financial goals and problems. But it’s one sure way to make the relationship work.

http://www.investopedia.com/articles/pf/09/financial-infidelity.asp

If your student loan confuses you, now is the time to figure it out.

It’s time to not only familiarize yourself with the details, but also to understand every bit of information regarding your loan. This might help you pay it off as soon as possible.

Start saving for the short term.

If you have plans on living independently, you must have the means to support yourself – to pay for an apartment, to buy food, to have money while looking for employment.

Start saving for the long term.

Invest in your future. It pays to have something reserved for the rainy days. And if you’re lucky enough to keep a large amount of your saving, at least you’ll have head start on your retirement fund.

Decide whether you really need a car.

If you have plans on moving to a place like Los Angeles, you’ll definitely need a car to move around. But remember that car payments and gas can really be expensive for fresh grads. Instead, you can consider cities and other places with good public transportation systems.

Ask about benefits.

Once you land a job, ask about health insurance, dental insurance, vision insurance, employer-matched retirement plans and other subsidies. These things are as important as your paycheck.

Figure out a budget.

There’s nothing wrong with dreaming – just know how to temper your expectations. It might help to take the time to research and compute the cost of living in different areas where you want to live and the expenses needed to keep a particular lifestyle.

Life after college is tough. It’s full of uncertainties. The last thing that you want to do is to cry and run home to mommy for the financial failures that you should’ve preempted.

http://financialedge.investopedia.com/financial-edge/0311/7-Personal-Finance-Tips-For-College-Grads.aspx

Economist Angus Deaton and psychologist, also Nobel Prize winner for Economics, Daniel Kahneman analyzed 450,000 responses by Americans polled by Gallup and Healthways in 2008 and 2009. The participants were asked about their income; how they felt the previous day; and whether they feel that they’re living the best possible life.

The study explains that low income is not the cause of sadness itself, but it made life’s adversities harder to bear. For example, among divorced people, 51% who made less than $1,000 a month say that they feel sad or stressed the previous day, while only 24% of those earning more than $3,000 a month reported similar feelings.

The study doesn’t say why $75,000 a year is the magic number to be happy. Probably, at that level, people have enough expendable money to make them feel good.

But looking at the larger picture, the study also concludes that high incomes don’t bring you happiness; they only bring you a life you think is better. The more money people make, the more people feel that their life is going well. This makes sense, especially that past studies on money and happiness assert that it’s relative wealth or status (or how much more money you have than your neighbors) that affects our happiness.

So, in the end, it’s not really about having $75,000 to be happy. It should be about feeling happy even without having much money.

Source: Time