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02/11/15 Sharing Economy , Travel # ,

Travel Like a Local and Get $10 to Start

Travel Like a Local and Get $10 to Start


If you’re going to travel like a local, you’ve got to save for it. It can be an expensive pleasure, and even when it isn’t too expensive because you’ve found deals, it still costs money to travel like a local.

It’s too easy getting sucked into visiting the landmark highlights of a new city. The Eiffel Tower is a must-see, but a tour by a local of the best places to photograph in Paris at night is a sidetrip that’s a little more difficult to find.

Travel like a local

After you’ve gone through the travel guide and gotten tips from your friends who have been to your travel destination before, how do you find the best activities to do there? And at a reasonable cost? Enter, a website I discovered while researching an earlier post I was writing for CashSmarter.

Vayable offers unique tours from locals with inside information that you might not get anywhere else.

For example, for $14 you can meet a local in Amsterdam over a beer and hear their tips for places to visit. Or for $75 you can skip the line at the Louvre in Paris and get a one-hour tour of the highlights, then stay on your own to explore it more. Continue reading

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02/10/15 Retirement # ,

Never Use a Retirement Account Like an Emergency Fund

Never Use a Retirement Account Like an Emergency Fund

Retirement accounts such as 401(k)s, IRAs and SEP-IRAs are meant to be used for what they’re named for: Retirement.

They’re not emergency funds to buy a home, repair a car, pay for college or pay off a medical bill. Yet those are some of the reasons people give for hardship withdrawals or for withdrawals when they’re not retired but past age 59.5 — the age when withdrawals are penalty free.

As defined benefit plans move to 401(k) retirement accounts, and those move into IRAs (Individual Retirement Accounts), more “leakages” from these retirement savings accounts are becoming more common, according to a February report by the Center for Retirement Research at Boston College.

Based on data from Vanguard, the study found a total leakage rate of 1.2 percent of assets from retirement accounts from four areas: Cashouts, hardship withdrawals, withdrawals after age 59.5, and loan defaults.

Tax penalties and delayed retirement

The immediate need of a hospital bill or home repair, among other short-term expenses, are some of the reasons why people pull money from their retirement accounts years before they should and long before they plan on retiring. Withdrawing the money early can not only lead to tax penalties, but to delaying retirement and having to work longer.

Even for people who don’t touch their retirement accounts until they’re retired, the account aren’t near the amounts they should be, the study found. In 2013, the typical working household with a 401(k) approaching retirement had only $111,000 in retirement assets.

Leakages reduce that wealth by about 25 percent at retirement, researchers found.

Types of retirement account leakages

Hardship withdrawals are allowed for an “immediate and heavy financial need” the report found. These include medical care, college, and avoiding foreclosure on a house.

Hardship withdrawals are generally subject to income tax, a 10-percent penalty tax, and 20 percent withholding for income taxes.

Withdrawals after age 59.5 don’t have a penalty. Most people will have to work past their mid-60s to ensure a secure retirement, and allowing early access to these funds undercuts the idea of preserving savings until retirement, researchers found. About 30 percent of such withdrawals represent leakages, they said.

Cashouts happen when an employee leaves a job and takes a lumpsum distribution from their retirement account. Other options are leaving it in the old employer’s plan, rolling it into an IRA, or transferring it to the new employer’s retirement plan.

Distributions through cashouts are subject to a 10 percent penalty tax if under age 59.5, and the 20 percent withholding requirement.

Loans are limited to 50 percent of the retirement account balance, up to $50,000. They generally must be paid back within one to five years.

Retirement account loans appear to encourage people who value liquidity to participate in their employer’s 401(k) plan and contribute more than they normally would.

But the loans come with risks. If it isn’t repaid due to default or job loss, the remaining balance is treated as a lump-sum distribution and subject to income taxes and the 10 percent penalty tax.

Impact on assets

Taking money out of a retirement account long before you plan to retire reduces your retirement funds by 25 percent, the Boston College researchers found.

For someone who started contributing 6 percent of their pay to a 401(k) at age 30, with a 50 percent employer match and an initial salary of $40,000, and a 4.5 percent annual return, the leakages would result in a retirement account of $203,000 at age 60 versus $272,000 with no leakages.

Policy options

Allowing retirement account participants access to their accounts for hardships encourages them to contribute to such plans, the study found.

Families with financial troubles should still be allowed access to their retirement accounts, but the withdrawals should be limited to serious, unpredictable hardships such as disability, high health care costs and job loss, the study recommends. Predictable needs such as housing and education would be excluded.

The 10 percent penalty tax could be eliminated, and the age for withdrawals could be raised to 62, an age closer to when people are retiring.

Lump-sum distributions at job termination could be eliminated, while the existing options for workers with retirement accounts would remain.

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01/22/15 Minimalism , Sharing Economy #

Favorite Parts of Sharing Economy Worth Trying

Favorite Parts of Sharing Economy Worth Trying

The term “sharing economy” has always kind of flummoxed me, in that many of the services within it aren’t really sharing in the traditional sense of the word. To me, sharing is something you do for free. It’s not charging someone to use your car, bike or rake, but is something normally done with friends.

What the Internet did with sharing was to actually turn it into an economy where strangers could exchange a service for a fee, without having to deal with a large company between them to do the transaction.

But there is still a company between consumers and the services they want online, though maybe not as big as brick-and-mortar companies. If you want to sleep in my extra bedroom for a night, or have me watch your dog for a few days, we can do that with a middleman taking a cut. Continue reading

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01/20/15 Minimalism , Personal Finance # ,

Being a Pack Rat is Expensive

Being a Pack Rat is Expensive

If you’ve got a few closets, chances are they’re overfilled with things you rarely, if ever, use. You may not consider yourself a pack rat, but those full closets and garage, bulging cupboards and piles of things in every room are costing you money.

Here are a few ways that being a pack rat is more expensive than you might think:

Paying for storage

Even if your home is relatively cleared of excess belongings, if you’re paying a storage company to keep it, you’re paying for stuff that you probably won’t use again so you can keep your house clean.

A non-climate controlled self storage unit costs $1.12 per square foot, according to the Self Storage Association.  A 10-foot by 10-foot unit in the U.S. costs $115 per month for non-climate controlled, and $146 per month if climate controlled. Continue reading

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13/01/15 Debt , Personal Finance #

Put Your Debt Resolution in Writing

Put Your Debt Resolution in Writing

debt resolution

I’m not a big fan of contests, but The Debt Myth has a simple giveaway around the topic of a debt resolution that resonates so well with me as a personal finance writer that I wanted to share it here.

As part of her “Debt is Not Forever” movement, Jackie Beck is giving away $25 in a random drawing to people who write down their debt resolution. I wrote my debt resolution on a post-it note.

The chance to win only $25 isn’t what appeals to me (though that’s a nice lunch out with my wife), but the idea behind putting such a resolution in writing. I’ve shared my note on Twitter, which is one way to enter. You can also share it on Pinterest or Instagram with the hashtag #DebtIsNotForever. Her website also has a widget to enter a photo in the contest. Beck will share them later in a collage.

Living up to your words can take a lot of effort. Writing them down can make them a lot easier to remember and follow through on.

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Hi, I'm Aaron Crowe. Welcome to CashSmarter. I'm a personal finance freelance writer who enjoys spending my money wisely and using minimalism to make my money last longer while increasing income.