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Beware of Colleges' 'Bait-and-Switch' Aid Offers

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Beware of Bait-and-Switch in College Financial Aid

By Liz Weston

LOS ANGELES -- Families receiving college financial aid offers this spring should beware: what they see this year may not be what they get next year.

Some colleges make their most generous offers to high school seniors as a lure to attend, a practice known as "front-loading." But those returning for their sophomore and subsequent years at university may get thousands of dollars less in grants and scholarships than they did as freshmen. Often, the free money is replaced by student loans.

About half of all colleges front-load their grants, according to financial aid expert Mark Kantrowitz, who analyzed data from the National Center for Education Statistic's Integrated Postsecondary Education Data System.

"Colleges practice front-loading because it is cheaper to have higher grants during the first year, when it affects enrollment, than during all four years," said Kantrowitz, publisher of Edvisors.com, an education resource site. "Effectively, it is a form of bait and switch." College administrators, however, balk at that label and at the idea that front-loading is common.

Why Aid May Decline

Most colleges try to offer consistent aid packages throughout a student's career, and there are numerous reasons why grant aid may drop when first-year aid packages are compared to those offered to returning students, said Justin Draeger, CEO of the National Association of Student Financial Aid Administrators. "Higher education is subsidized by so many different sources, and those are constantly changing," he said.

Grants may be reduced because of institutional factors, such as changing revenue or state funding, as well as individual factors, such as students taking fewer credits or failing to keep up a certain grade point average, Draeger said.

Some schools want to limit debt for freshmen, who are more likely than returning students to drop out. Also, limits on federal student loans are lowest for first-year undergraduates: $5,500, compared to $6,500 for second-year undergraduates and $7,500 for those in their third year or beyond.

"Schools will stuff more loans into the package as a rule because the federal direct loan [limit] goes up each year," said Lynn O'Shaughnessy, author of "The College Solution" and a college consultant. "Also, schools don't increase merit awards as their prices go up each year."

$2,842 Average Drop at Private Schools

The drop in grant aid is particularly steep at private schools. Returning students at private, nonprofit colleges in 2012-13 averaged $2,842 less in grant aid than first-year students, according to The Chronicle of Higher Education, which used IPED data. The average drop-off was less severe for returning students at public colleges: $815.

Overall, the average net price for returning students -- what families actually pay after grants and scholarships are deducted -- is $1,400 higher than for first-year students, according to Kantrowitz's analysis of National Postsecondary Student Aid Study numbers.

Colleges also do not advertise that they practice front-loading, which cannot be detected by using the net price calculators embedded into college websites. The calculators estimate only the first year's cost of college after expected grants and scholarships are deducted. Loans are not considered by the calculators since they increase rather than decrease the cost of education.

Northeastern's Promise

Only a handful of colleges offer four-year commitments to prospective students that their financial aid won't drop, Draeger said. Northeastern University is one. The Boston institution not only promises grant and scholarship aid won't drop, but that this free aid will increase at the same rate that tuition increases.

The university's grant aid appears to fall when freshmen are compared to undergraduates overall, but school officials say that is because the school follows a cooperative education model that starts in the sophomore year, alternating classroom studies with six months of full-time work in career-related jobs.

Although guarantees are not common, Draeger said colleges have an ethical obligation to be clear in their financial aid offers which grants are renewable and under what circumstances.

When financial aid offers do not provide this information, families need to ask questions, said Martha Savery, Massachusetts Education Financing Authority and a former financial aid director for Harvard Graduate School of Education. "Families need to ask, 'If all things remain the same, can I expect the same type of aid [in subsequent years],' "? Savery said. "Being a good, educated consumer is part of the process."

The author is a Reuters columnist. The opinions expressed are her own.

 

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Why Fiat Chrysler Has Wall Street Going Full Throttle

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Fiat ChryslerLast year's debut of the brand-building Dodge Challenger SRT Hellcat was just one of a slew of planned moves to remake FCA's brand portfolio.
Shares of Fiat Chrysler (FCAU) have risen more than 60 percent since its debut (at a price of $9) on the New York Stock Exchange last October. That growth has far outpaced the market -- not to mention that of all of Fiat Chrysler's rivals over the same period. Why have investors rushed to grab shares of this long-struggling automaker?

The Core of FCA's Plan: Big Expansions for Its Key Brands

There are a few factors driving the big rise in FCA's share price. Here's a big one: FCA is taking big steps to win sales growth around the world. In May of last year, CEO Sergio Marchionne and his senior team presented their five-year plan for the automaker. The key points included:
  • Taking Jeep global. FCA's plans to boost sales of its storied SUV brand in Europe, South America, and China got underway with the launch of the all-new Renegade, a small entry-level Jeep intended to draw new buyers to the brand. Jeep sold about 732,000 vehicles in 2013, most of those in the U.S. FCA expects that Jeep's expansion into global markets will more than double its sales to 1.9 million Jeeps in 2018.
  • Relaunching Alfa Romeo. FCA is spending $2 billion on a new generation of Alfa Romeos, with the hope of capturing a significant slice of the global premium-car market by 2018. Several new Alfa sedans and SUVs are planned, with the first set to arrive by the end of this year. In terms of price, size, and features, they'll be aimed at BMW's (BAMXF) 3 Series and 5 Series sedans (and the corresponding X3 and X5 SUVs). Sales aren't expected to be anywhere near the 1.8 million BMWs sold last year, but FCA thinks its can ramp up to about 400,000 Alfa Romeo sales a year by 2018.
  • Big changes for Dodge and Chrysler. FCA's Ram and Jeep brands will stay on their familiar courses in the U.S., but last year FCA began the process of shaking up its Dodge and Chrysler brands. Dodge has been refocused on "performance cars" (and SUVs) in a bid to draw younger buyers to FCA showrooms, starting with the insane 707-horsepower "Hellcat" versions of the Charger and Challenger introduced last year. Meanwhile, Chrysler will chase mainstream buyers with a line of cars and crossover SUVs, as well as a new version of the Town & Country minivan due next year. The plan is that Chrysler brand sales will roughly double by 2018, while Dodge's will hold steady.
FCA's five-year plan is ambitious -- some would even say audacious. But even if some of the initiatives fall short of Marchionne's aggressive sales goals, it's clear that FCA is on track for significant sales growth over the next few years. But there's more to the story.

A Financial Tune-Up Includes Spinoff of FCA's Most-Storied Brand

Here's a big development that has gotten Wall Street attention: FCA plans to spin off its Ferrari subsidiary later this year.

FCA plans to offer 10 percent of Ferrari in an initial public offering. The remainder will be distributed to existing FCA shareholders. That alone may have enticed some investors to buy FCA's stock: Ferrari is a brand with tremendous global appeal and profit potential. The shares given to FCA shareholders could turn out to be bargains.

FCA's plan to spin off Ferrari is in part a fund-raising move: Proceeds from the shares offered in the IPO will help FCA reduce and restructure its debt. That's just one of the steps that FCA is taking to reduce its debt load -- and that is a key factor attracting savvy investors.

Those steps have included issuing additional shares of FCA common stock and offering a series of bonds convertible to stock. Together with the proceeds FCA expects from Ferrari's IPO, it should be enough to reduce FCA's net debt by half -- to about 5 billion euros -- by next year.

An Ambitious Remaking Is Drawing Investors

If you add up FCA's aggressive global expansion plans with its prudent debt-reduction moves -- and throw in a dash of Ferrari romance -- you'll understand why investors are flocking to the Italian-American automaker.

But there's still some big risk: For FCA's growth strategies to pan out, the company has to deliver top-notch products that draw eager buyers, particularly with the Alfa Romeo effort.

Delivering top-notch products has sometimes been a challenge for the former Fiat and Chrysler. But for these plans to work out, the company's products have to be great.

Great new cars aren't all FCA needs -- but without them, the rest of the plan will be on shaky ground.

Motley Fool contributor John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Find out the easy way for investors to ride the new mega-trend in the automotive industry in our free report.​

 

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Boomers' Secrets of a Successful Retirement

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By Maryalene LaPonsie

It's been four years since the oldest members of the baby boomer generation turned 65, and according to AARP, approximately 8,000 boomers a day will hit this milestone in the next 14 years. In late 2014, Ameriprise Financial (AMP) surveyed 1,000 boomers ages 60 to 73 who retired within the past five years to determine how they've been managing since leaving the workforce. Here's what respondents in the Retirement Triggers Research Report revealed as their secrets to a happy retirement.

1. Emotions, Physical Health Are as Important as Your Finances

When it comes to feeling in control about retirement decisions, many boomers say being emotionally and physically ready is as important as having your finances in order.

"Three out of four in this first wave [of boomer retirees] felt in control of their retirement," says Marcy Keckler, vice president of financial advice strategy with Ameriprise Financial. "Having good physical health helped people feel in control." In fact, 53 percent of those surveyed cited physical health as a main contributor to feeling in control. Nearly as many, 52 percent, pegged emotional preparedness as a key factor.

2. It's Normal to Feel Stressed Before Retirement

According to the Ameriprise report, which was released this month, 63 percent of boomers said they felt stressed about their decision to retire, and 21 percent felt uncertain about their readiness. However, pre-retirement jitters don't necessarily translate to an unhappy retirement. Only 25 percent of boomers say they still feel stressed now that they've settled into their new routine. "Feeling a little stressed is normal," Keckler says. "The first wave learned it gets better."

3. Having a Pension Does Help -- But What About You?

One reason boomers may be feeling so confident in retirement is that so many of them have pensions. Emma Darling of Rockford, Michigan, belongs to the camp of pension-holding retirees who successfully rode out the recession. The registered nurse took early retirement in 2006. "I had met all my career goals, and my husband could retire then," she says. "We were eager to retire together."

Then, the stock market crashed, and Darling second-guessed her decision to retire early. However, like 70 percent Ameriprise respondents, both she and her husband had pensions which lessened their dependence on investments.

Cory Schmelzer, a certified financial planner and owner of San Diego Wealth Management, says that's one reason pensions are so valuable. Not only do they provide consistent cash flow, but they also eliminate market volatility for retirees. That, in turn, may reduce the likelihood of individuals making poor investment decisions during a down market. "People make really bad decisions when they are scared," he says. "Pensions help prevent those bad decisions."

But as Keckler points out, pensions are safety nets that future retirees may not have. "Pensions are becoming less common," she notes, "and 10 years from now, people are substantially less likely to have pension income."

4. Don't Jump Into Retirement Without a Plan

Pensions aren't the only reason some boomers are feeling confident about their post-work life. A significant number also did their research before making the leap to retirement. There are a number of resources available to boomers preparing for retirement, and survey respondents turned to the following sources for information and advice.
  • Employer plan resources: 52 percent.
  • Social Security website and resources: 47 percent.
  • Financial advisor: 38 percent.
  • Medicare resources: 24 percent.
According to Schmelzer, employer plan resources can vary from firm to firm with some companies even offering access to financial advisors through their 401(k) plan administrator. Others may be relatively hands-off when it comes to their workers transitioning to retirement. In that case, it's up to workers to either research retirement options on their own or decide if they want to seek out a personal financial advisor. Not surprisingly, Schmelzer argues, using a finance professional makes sense.

"It's not that people aren't smart enough to research their own retirement options, but do they have the time?" he says. "As an advisor, we've helped hundreds of clients do this before. We know about Social Security; we know about medical costs; and we can throw out alternative [retirement strategies]."

5. The Retired Life Is Also the Busy Life

"You always wonder if you'll be busy enough [when you retire]," Darling says, "but we're not sure how we had enough time to work before." It's a common theme for happily retired boomers. Rather than lazy days spent puttering around the house, these retirees are finding plenty to occupy their time.

"We both thought about what we'd like to do but never got a chance [to] before," Darling explains. For her, that means she now has time to pursue her passion for art. Darling also enjoys volunteering, which is something Keckler says 40 percent of new retirees do with their time.

Other retirees may travel, spend time with family or pursue new hobbies. Regardless of their interests, for a successful retirement, Darling advises younger boomers to devise a plan for how they want to spend their hours once they leave the workforce.

6. A Successful Retirement Requires Couples to Communicate

Married boomers may also want to keep the lines of communication open with their spouse both before and during their retirement. The Ameriprise report found 80 percent of respondents had discussed their retirement plans with their spouse, and 37 percent said their spouse or partner was the most influential factor in their decision to retire.

"When you retire, your whole life is about to change -- from your cash flow to what you're going to do with your time," Schmelzer says. "You don't want to be caught by surprise. The more you communicate, the better."

Financial experts agree it's a good idea to discuss retirement plans with your partner. However, if you both decide to retire around the same time, each partner should be careful not to give up his or her identity. "You don't have to be lockstep in retirement," Darling says. "A married couple doesn't have to be together every minute."

7. We're Really Happy to Be Retired

Despite the conventional wisdom that says Boomers are woefully unprepared for retirement, this first wave of retirees is by and large happy and feeling in control of their future. Keckler says 97 percent of those surveyed report they are satisfied with their new lifestyle. Or as Darling puts it: "We're supremely happy in retirement."

 

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Why Google Wants to Wire You With Fiber

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Horizontal|Color Image|Photography|Nobody|Indoors|Science and Technology|Technology|Communication|Symbol|Text|Number|Fiber Optic
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It's a sales come-on that's difficult to resist. Google (GOOG) (GOOGL), through its expanding fiber-optic network, will bring Internet at blazing speeds into your home or business. The company's Google Fiber unit promises service at speeds of up to 1 gigabit per second -- many times higher than the current broadband standards.

Customers can pay $70 plus taxes and fees for Internet only (which includes 1 terabyte of cloud storage) or add $50 or $60 to get TV service with over 150 channels. Those on a budget can opt for the slower "Basic Internet" deal, which requires only a onetime $300 "construction fee."

Google Fiber is a strong move into the Internet service provider space for Google; the catch is that very few customers can get it at the moment. But that's almost beside the point -- it's already starting to have a beneficial impact on the broader market for quick Internet.

Need for Speed

Fiber-optic cable, with its high data capacity and cost-effectiveness versus traditional copper wire, has always been a technology ripe with promise. But this potential has never been fulfilled, despite the billions of dollars spent on building out fiber networks by ambitious telecom companies in the 1990s and early 2000s.

For a variety of reasons, many of these companies went out of business or were absorbed by larger operators. The surviving entities became bigger and the market less crowded as a result. So the survivors had much less of a need to compete by plowing capital into such networks.

Which is why today, the U.S. is still wired together largely by old-fashioned copper. As a result, our speed standards are below those of many other countries. According to a recent study by the Organisation for Economic Co-operation and Development, we are No. 21 on the planet in terms of median speed.

For speeds exceeding this low threshold, the costs can be prohibitive. The top tier of Verizon's (VZ) extensive FiOS network, for example, runs $144.99 per month for only 75 Mbps speed -- well short of the 1 Gbps of Google Fiber (although the FiOS package includes voice telephony along with over 420 channels of TV).

A Network of Synergies

So there's a fine opportunity here for a party willing to start plugging that gap. Enter Google, which at the end of its last reported quarter had $18.3 billion on its books.

It also has a vested interest in cranking up the nation's average speed. After all, its business depends on Web searching and surfing; the higher this activity, the more clicks on the ads it sells.

But to make a bundle, you have to spend a bundle. There's a lot of real estate in this country, and although fiber is a comparatively cheap technology, it still needs to be freshly installed in areas where the infrastructure is lacking. That's the key reason that Google Fiber isn't available in every U.S. home or business, and won't be for some time (if at all). Goldman Sachs (GS) estimates that a full nationwide rollout would cost $140 billion.

At the moment, the service is live in only three metropolitan areas -- Austin, Texas; Kansas City (on both sides of the Kansas/Missouri border); and Provo, Utah. Google recently announced that it will start building out the service in another four (Atlanta; Nashville, Tennessee; and Charlotte and Raleigh-Durham, North Carolina).

Domination or Disruption?

Google hasn't yet shared any useful statistics for Fiber, such as customer uptake or how much it's spending on its build-outs.

In addition to being fairly tight-lipped about such things, the company hasn't revealed whether it means to become a giant in the Internet service provider market or simply rattle the existing order. If the latter, it seems that the strategy is starting to work.

Mere hours after Google's announcement that Fiber would be coming to Austin, AT&T (T) pronounced that it was planning to build a fiber-optic network that could deliver 1 Gbps of speed. Striving to catch up, Time Warner Cable (TWC) lifted its speed limit in the region from 50 Mbps to 300 Mbps.

Bye-Bye, Budget Busters

No matter how Google Fiber plays out -- as a limited offering for a lucky few, or a top choice for most of America -- it's already changing the market substantially. So in the near future, whether we connect with Google Fiber or sign up for Internet service with one of the company's rivals, we'll almost certainly get faster speeds at cheaper prices. The days of slow, pricey broadband look numbered.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs, Google (A and C shares), and Verizon Communications. The Motley Fool owns shares of Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

 

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5 Common Tax Myths That Can Cost You Big Bucks

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By Rob Berger

Tax myths are a lot like a bad date. They are annoying and seem to last forever. Yet people have beliefs about income taxes that have no basis in reality. Were it not for the potential financial costs, some of these might be amusing. But if you believe them and act upon them, they can cost you serious money. Tax myths persist for several reasons, including:
  • The tax code is extremely complicated, and therefore misunderstood.
  • Revisions have changed the code, but old ideas live on long afterward.
  • Stories make the rounds and endure even if they aren't entirely accurate.
When it comes to preparing your income taxes, it's important to research significant provisions required to file your return. If you're unsure, you should seek professional help in the preparation of your returns. Here are some of the more common tax myths that continue to circulate, despite information to the contrary.

1. The Home Office Deduction Is an Automatic Audit

This myth has been has been accepted for a quarter-century among those who are not intimately familiar with income tax preparation. In truth, as long as a home office deduction follows Internal Revenue Service rules, and is not excessive, this deduction is not an automatic red flag for audits. The IRS has three basic rules when it comes to the home office deduction:
  • Regular and exclusive use. This means that the home office is regularly used for business, and has no other use. As long as you have a room in your home that you are using exclusively for business on a regular basis, you meet this requirement.
  • Principal place of business. The home office can't simply be a space that you occasionally use to conduct business. It must be the primary office from which you run your business. This means that you can't deduct expenses for a principal office outside of your home, in addition to your home office.
  • Additional tests for employee use. As an employee, you may be able to take a home office deduction if you a) meet the two tests above, b) your business use of your home is for the convenience of your employer, and c) your employer does not pay rent for the space.
The expenses that you are deducting for the business use of your home must also be reasonable. That means that your deductions should not exceed the amount of square footage of your home office, divided by the total square footage of your home. For example, if your home is 2,500 square feet, and your office is 200 square feet, then you will be able to deduct 8 percent of your home expenses (200 divided by 2,500) for income tax purposes.

If you deduct 40 percent or 50 percent of your total expenses as home office expenses, that could lead to trouble. For more information, see IRS Publication 587, Business Use of Your Home.

2. Students Don't Have to File Income Tax Returns

There are those who believe that your status as a student exempts you from having to file income taxes. But there is no such status in the tax code. The determination for whether or not you need to file a return is determined by the amount of income that you earn for the year.

For 2014, you must file an income tax return if you earned at least $10,150, even if you were a full-time student for the entire year.

There are also situations where you will want to file a tax return even if you made less. One example is if you had tax withheld, and you have no tax liability. You'll want to file to claim your refund.

3. You Must File Jointly If You're Married

This myth probably exists because it seems to make so much sense. That thought may be reinforced by the fact that in the great majority of instances, the alternative results in higher tax bills. There is no requirement to file jointly, however, simply because you are married. And sometimes the alternative actually does work in your favor.

Even if you're married, you still have the option to file separately. In about 90 percent of the cases, married filing joint will work better. But you could be in the other 10 percent.

Married filing separate can result in a lower tax liability in the event one spouse has significantly higher deductions than the other. When you file jointly, you may lose deductibility of certain items. Medical expenses are an excellent example. Since they can only be deducted to the extent that they exceed 10 percent of your adjusted gross income, lowering the dollar amount of that percentage is one way to increase the deduction.

A couple earning $200,000 and having $20,000 in medical expenses will not be able to deduct any of it since it does not exceed 10 percent of their combined income. But if the spouse who incurred medical expenses made only $50,000, the 10 percent limit will be only $5,000. By filing separately, the couple would be able to deduct the medical expenses, representing a substantial reduction in taxable income. Fortunately, tax software packages can compare your choices.

4. You Need a Bank Account to Get a Direct Deposit of Your Refund

This is one of the biggest tax-related myths. While it's true that the vast majority of refunds do go to bank accounts, it's not an absolute requirement. For example, you can have your refund sent to most prepaid debit cards, which is one of the refund options the IRS provides.

One of the potential downsides of using prepaid debit cards is cost. There are, however, some prepaid cards that have lower costs. Be sure to do your research before you sign up for one.

5. Getting a Large Tax Refund Is Good Tax Planning

Getting a large tax refund feels good. But it doesn't necessarily indicate good tax planning. For example, if your refund is $5,000, you have to consider that you will have given the government an interest-free loan for that amount during the course of the year. If there was something better that you could've done with the money (and there always is), your refund could end up having cost you money.

For example, let's say that you had a credit card with a $5,000 balance, and an interest rate of 20 percent. Had you allocated the extra withholding to paying off the credit card, you would have saved yourself upwards of $1,000 in interest charges during the course of the year. It's a bit more complicated than that, but the example still stands. Any time you're giving the government use of your money, you are denying yourself the ability to use it for more productive purposes.

True good tax planning is when your refund comes in at a number very close to zero. To achieve that goal, the IRS offers a free withholding calculator.

 

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YouTube's Subscription Plan May Be Crazy Enough to Work

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new york   nov 23  a deal was...
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YouTube fans who hate the ever-growing number of ads popping up may soon be able to buy their way out of the marketing missives. Speaking at last week's Code/Media conference, YouTube content chief Robert Kyncl announced that a new premium subscription model may be on the way later this year.

Kyncl was taking about the site's long-anticipated Music Key program, which will offer up streaming music videos free of the ads. However, many of the leading outlets reporting the news initially misreported Kyncl's comments. They talked up the new offering as a way for premium viewers to obliterate ads across all of the site. This culminated with CNBC, IGN.com, Yahoo (YHOO) and others playing this up as YouTube's response to Netflix (NFLX).

Google's (GOOG) (GOOGL) YouTube was able to get most of the initial reports to clarify that it's just the music subscription model that is being fine-tuned ahead of a public launch in a few months. This will be more of a shot at Spotify or Pandora (P) than it will be a fight with Netflix for home theater disruption. Then again, it's probably just a matter of time before it does come face to face with Netflix for prime time supremacy.

The Bumpy Road to Premium Subscriptions

YouTube runs the world's largest video-sharing website. There are now more than a billion users, watching hundreds of millions of hours of content a day. There are plenty of video sites out there, but YouTube's watch time soared 50 percent in 2014.

However, unlike Netflix, which is primarily enjoyed on large TV screens through set-top boxes, tethered computers and video game consoles, YouTube remains a desktop and mobile diversion. Google pointed out in its most recent earnings call that mobile revenue through YouTube has doubled over the past year.

This naturally makes it easier to compare YouTube to music-streaming and other apps that are also mostly consumed on smartphones and tablets, making it a natural for Google to dive into a premium music service before giving the site itself the inevitable push to premium. Google recently rolled out a beta version of Music Key, and now we know that the public launch is just some fine-tuning away.

Pay to Play

The challenge for Google will be getting people to pay. It hasn't done a very good job of that in the past. Its first notable foray into premium offerings was when it added five critically acclaimed Sundance-screened films five years ago, serving them up as digital rentals for $3.99 apiece. It was a flop.

YouTube's next push came in 2013 when it approached some of its biggest stars to set aside exclusive content that would be made available to premium subscribers paying between $1 and $5 for each channel. That move also failed to gain sizable traction.

The challenge for YouTube isn't all that different than what Pandora faces these days. Both are sites appealing mostly to freeloaders who are willing to put up with ads for free content. This is why Music Key will face an uphill battle. If an online platform is available as either a free ad-based service or a premium ad-free offering, most folks will go for the free version. If Netflix offered a free service with ads, it would be huge. If HBO did the same thing with HBO Go, it would fly through the roof.

This finds YouTube in a challenging position. Stripping ads isn't enough to win over credit card billing information. It needs to stand out. Music Key may hope to get there given its video catalog, but the site's best shot at succeeding in premium is making the whole site available that way, accompanied by a Netflix-like push to get its app in front of every set-top box, video game console, and smart TV.

Sooner or later, YouTube is going to get premium right. It just may have to stumble a couple more times before that happens. However, even if that never materializes, there's no reason for Google investors to worry. When you're the world leader in online advertising, there's nothing wrong with thriving through an ad-based business.

Motley Fool contributor Rick Munarriz is active on YouTube. His Moonpies channel has amassed nearly 4.5 million views, closing in on 15,000 subscribers. He owns shares of Netflix. The Motley Fool recommends and owns shares of Google (A and C shares), Netflix and Pandora Media. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

 

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Economy Grew at Slower Pace Than Thought in 4Q

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Economy GDP
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By Lucia Mutikani

WASHINGTON -- U.S. economic growth braked more sharply than initially thought in the fourth quarter amid a moderate increase in business inventories and a wider trade deficit, but strong domestic demand brightened the outlook.

Gross domestic product expanded at a 2.2 percent annual pace, revised down from the 2.6 percent pace estimated last month, the Commerce Department said Friday. The economy grew at a 5 percent rate in the third quarter.

Growth is poised to pick up in the first quarter now that the threat of an inventory overhang has diminished. However, an exceptionally cold and snowy February, as well as reductions in oil and gas drilling, could limit the pace of expansion.

The composition of growth is looking much better, we are setting up for a solid quarter for the economy.

"The composition of growth is looking much better, we are setting up for a solid quarter for the economy. The first quarter is still work in progress," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Businesses accumulated $88.4 billion worth of inventory in the fourth quarter, far less than the $113.1 billion the government had estimated last month.

That resulted in the GDP growth contribution from inventories being cut to one-tenth of a percentage point from 0.8 percentage point previously.

Consumers Spending Gains

The moderate stock accumulation came as consumer spending grew at its quickest pace since early 2006.

With households bullish about the economy's prospects, thanks to a tightening labor market and lower gasoline prices, consumer spending is likely to remain at lofty levels this year.

A second report showed the University of Michigan's final February reading on the overall index on consumer sentiment was 95.4, higher than the initial reading of 93.6.

While that was a retreat from January's reading of 98.1, it was the second highest level since January 2007.

"A more confident consumer is likely to spend more on big ticket items and other discretionary items, and looking ahead, we expect consumer spending ... to outpace 2014," said Kristin Reynolds, an economist at IHS Global Insight in Lexington, Massachusetts.

First-quarter growth estimates currently range between a rate of 2.4 percent and 3 percent.

U.S. stocks were little changed, while prices for U.S. government debt rose. The dollar was flat against a basket of currencies.

Robust Consumer Spending

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down by one-tenth of a percentage point to a 4.2 percent pace in the fourth quarter, still the fastest since the first quarter of 2006.

In another positive for the economy, business investment wasn't as weak as previously reported, with spending on equipment revised to show it rising at a 0.9 percent rate instead of the previously reported 1.9 percent contraction.

Growth in spending on intellectual products was the strongest since early 2000. All signs point to an acceleration in business investment in the first quarter, with data Thursday showing a rebound in spending intentions in January after four straight months of declines.

But lower oil prices have caused a drop in drilling and exploration activity. The impact is yet to be felt in the data.

Another report Friday showed factory activity in the Midwest in February plunged to its lowest level since July 2009.

Activity was likely dampened by bad weather and a long-running labor dispute at West Coast ports, which has since been resolved.

The Commerce Department data showed a key measure of domestic demand was revised to a 3.2 percent pace for the fourth quarter from the previous 2.8 percent rate. It was the third straight quarter of growth above a 3 percent rate.

Strong domestic demand sucked in more imports than previously reported in the fourth quarter, resulting in a trade deficit, which subtracted 1.15 percentage points from GDP growth instead of the previously reported 1.02 percentage point drag.

Muted Inflation

Despite the strong consumption, inflation pressures were muted, with the personal consumption expenditures price index falling at a 0.4 percent rate -- the weakest reading since early 2009. The PCE index was previously reported to have declined at a 0.5 percent pace.

Excluding food and energy, prices rose at an unrevised 1.1 percent pace, the slowest since the second quarter of 2013.

The low inflation environment suggests little urgency for the Federal Reserve to start raising interest rates from near zero, where they have been since December 2008.

Residential construction spending in the fourth quarter was revised down, while government spending was not as weak as previously reported.

Strong job gains are expected to lift housing this year. A third report Friday from the National Association of Realtors showed contracts to purchase previously owned homes rose 1.7 percent in January to their highest level in 1½ years.

 

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Chrysler Adds 467,000 SUVs to Recall for Possible Stalling

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New Car Sales
AP2012 Durango sports-utility vehicles at a Dodge dealership in Colorado.
By TOM KRISHER

DETROIT -- Fiat Chrysler (FCAU) is recalling more than 467,000 Dodge and Jeep SUVs worldwide to fix a faulty fuel pump relay at the root of a potential stalling problem.

It's the same problem that caused the recall of 189,000 other SUVs in September of last year, bringing the total to more than 656,000. A safety advocate says the recall should be expanded even further, contending that problems affect up to 5 million Fiat Chrysler vehicles with similar parts.

The recall announced Friday by the company covers 2012 and 2013 Dodge Durangos and 2011 Jeep Grand Cherokees outside North America. The Jeeps have diesel engines.

Chrysler says fuel pump relays can deform and cause the pumps to malfunction. That can cause unexpected stalling or prevent the engines from starting. The company doesn't know of any crashes or injuries from the problem.

Dealers will install a new relay circuit. Chrysler said that it will let customers know when they can schedule service.

The September recall affected Grand Cherokees and Durangos from 2011 that were built from Jan. 25, 2010 through July 20, 2011.

Chrysler said its investigation into the first recall found that more Durangos and Grand Cherokees could have the same problem if the relays aren't replaced. The relays can become deformed due to several conditions including the environment and vehicle use patterns. Chrysler says that the problem may affect only a small percentage of the SUVs.

But the Center for Auto Safety, a nonprofit advocacy group founded by Ralph Nader, maintains that the recall is inadequate because millions of other Chrysler vehicles have the same fuel pump power control module as the Grand Cherokee and Durango.

The group filed a petition last year asking the U.S. National Highway Traffic Safety Administration to investigate power system failures in Chrysler vehicles that could cause them to stall while being driven. The center contends that an electrical power control module used by Chrysler in millions of vehicles since 2007 can go haywire, causing them to stall in traffic and cut off devices powered by electricity. The allegation covered Ram pickup trucks, Chrysler and Dodge minivans, the Jeep Grand Cherokee, Dodge Durango and Dodge Journey SUVs, the Jeep Wrangler, and other models.

The safety group said at the time that it received over 70 complaints and that the government has received hundreds.

Clarence Ditlow, the center's executive director, said Friday that Chrysler's expanded recall supports the center's petition. The safety agency has not yet decided if it will open a full investigation into the matter.

Chrysler says the power control modules don't fail, just the fuel pump relay. It says no other vehicle functions are affected by the relay.

 

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Data Point to Spring Rebound in Housing Market

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Pending Home Sales
Wilfredo Lee/AP
By CHRISTOPHER S. RUGABER

WASHINGTON -- The number of Americans signing contracts to buy homes rose at a healthy pace in January, a sign that home sales are poised to accelerate after a slow start to the year.

The The National Association of Realtors said Friday that its seasonally adjusted pending home sales index increased 1.7 percent to 104.2 last month. December's figure was also revised higher to show a decline of only 1.5 percent, considerably better than a previously estimated drop of 3.7 percent.

The index is now 8.4 percent above its level one year ago and is at the highest level since August 2013.

The data point to a rebound in sales of existing homes in the coming months, particularly as the spring buying season gets underway. Measures of sales and construction fell last month, raising concerns that the housing market would continue to struggle after a weak 2014. But economists expect that strong job gains, low mortgage rates and solid consumer confidence will give a moderate boost to home sales this year.

"Through the volatility, the trend in home sales is probably up modestly at least," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said in a note to clients.

Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

The largest increase in signed contracts occurred in the South, where they rose 3.2 percent, followed by the West, where sales rose 2.2 percent. Contract signings inched up just 0.1 percent in the Northeast, where heavy snow may have weighed on housing. Pending homes sales slipped 0.7 percent in the Midwest.

The increase in signed contracts comes after some disappointing data at the start of the year. Sales of existing homes tumbled 4.9 percent in January to a nine-month low, while sales of new homes slipped 0.2 percent. And new construction of homes and apartments fell 2 percent in January.

But healthy hiring should encourage more Americans to start looking at homes. There are 3.2 million more Americans earning paychecks than there were 12 months ago. And younger Americans are finally seeing strong job gains, which could push up the number of first-time homebuyers, a critical ingredient in any housing recovery.

Mortgage rates remain near historic lows. The average 30-year fixed mortgage rate was 3.76 percent last week, according to the mortgage giant Freddie Mac. That has ticked up in recent weeks, but is well below the 4.33 percent average from a year ago.

 

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Week's Winners and Losers: Apple Delights, Penney Disappoints

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Inside A J.C. Penney Co. Store Ahead Of Earnings Figures
Ben Torres/Bloomberg via Getty Images
There were plenty of winners and losers this week, with higher price targets for the iEverything company and a struggling department store chain disappointing on the bottom line.

J.C. Penney (JCP) -- Loser

This was supposed to be a breakthrough holiday quarter for J.C. Penney. Analysts were holding out for a healthy profit of 11 cents a share after 13 straight quarters of adjusted losses. The department store chain broke even.

Breaking even is naturally better than red ink, but even in the middle of a turnaround, J.C. Penney finds a way to disappoint the market. Sales are improving, but the retailer still has a long way to go before it makes back the past few years of sliding sales.

Gap (GPS) -- Winner

One retailer that lived up to the hype this quarter was Gap. The iconic apparel chain countered J.C. Penney's profit miss by checking in with better-than-expected earnings. Gap also delighted investors by announcing a dividend hike and board authorization for $1 billion in share buybacks.

A big driver in Gap's success was an 11 percent surge in comparable-store sales at Old Navy. It wasn't all good news. The mall retailer's profit outlook for the new fiscal year was disappointing. However, the shortfall stems largely from currency fluctuations and temporary port delays. That's not so bad when one assesses the big picture.

American Express (AXP) -- Loser

The "Don't leave home without it" financial services giant is becoming easier to leave home without. Sources are telling Bloomberg that American Express is raising its financing rate on many of its cardholders.

American Express is reportedly telling a million of its customers that its annual rates on unpaid balances will climb by 2.5 percentage points to at least 12.99 percent. That's an odd move in this climate of low interest rates, and one that can backfire if customers grow rightfully incensed.

Apple (AAPL) -- Winner

The rich keep getting richer. Apple hit a new all-time high this week, building on its role as the world's most valuable tech company. This week if was Stifel Nicolaus analyst Aaron Rakers stoking the fire, raising his price target on the hot stock from $130 to $150.

Rakers feels that strength in China, the rookie success of Apple Pay, an expanding base of loyal users, and the potential of a lower overall corporate tax rate bode well for the tech bellwether.

Cable TV Providers -- Losers

It was another bad quarter for cable television providers. The last of the four major service providers posted quarterly results last week. All four of them wound up losing a lot of subscribers for all of 2014, though some started to stabilize during the quarter.

It's still ugly. Combine the four reports and cable TV lost 63,000 net video customers during the fourth quarter and 751,000 for the entire year. There are too many cheaper alternatives, especially since all four providers are charging more, on average, now than they were a year earlier.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends American Express and Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. Looking for a winner for your portfolio? Check out The Motley Fool's one great stock to buy for 2015 and beyond.

 

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Why the 30-Year Mortgage May Soon Become Extinct

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Home For Sale Real Estate Sign and House
Andy Dean/Getty Images
By Brian O'Connell

NEW YORK -- The rumor mill is chugging along over the possibility the federal government could shutter Fannie Mae and Freddie Mac, albeit on a slow, gradual basis.

Earnings at both government-run enterprises have been anemic, and economists and mortgage industry professionals are talking openly about a future without them.

That could change the consumer mortgage landscape dramatically, says bank analyst Dick Bove, an analyst who tracks the mortgage market.

"Is the United States ready to take a shock to housing prices because we're getting rid of 30-year fixed rate mortgages?" Bove asks. He told CNBC that banking executives have told him privately they can't make money on 30-year fixed-rate home loans anymore due to new rules on capital reserves and securitizing mortgages, and he says the U.S. Treasury Department is aiming to phase out Fannie Mae and Freddie Mac by 2018.

That would take two of the biggest buyers of 30-year mortgages out of the equation. Bove says banks are eager to step in to offer consumer residential mortgages with significantly shorter durations -- between five and 10 years -- but lending experts (many of whom agree with Bove) say that would drive up the costs of buying a home, driving the American Dream even further out of reach of lower- and middle-class consumers.

Jeff Taylor, managing director at Digital Risk, an independent mortgage processor that handles more than $8 billion a month in mortgages, agrees with Bove and says the end of the GSEs would lead to shorter mortgages and more expensive mortgages.

That said, Taylor finds it hard to believe banks would want to be holding a note for 30 years in this rate environment. "Thirty-year mortgages are harder to hedge against," he says. "In a different rate environment, maybe the scenario would be different, but for now there would be no incentive to keep offering 30-years as an option."

Others take a more serious tone for mortgage consumers.

The loss of the 30-year fixed mortgage would put homeownership financing out of reach for millions of American families.

"Bove is correct that the current federal strategy being discussed is the restructuring and possibly the wind-down of Fannie and Freddie," says Victor Lund, a partner with WAV Group Consulting in Arroyo Grande, Calif. "There is also strategic discussion about the mortgage rate interest tax deduction. Let's face it, homeowners are rarely homeowners in America today. The banks own the property by virtue of their financing arrangement."

Consequently, shorter home loans would cause an economic disaster, Lund adds. "The loss of the 30-year fixed mortgage would put homeownership financing out of reach for millions of American families," he says. "For the market to correct, home prices would need to drop dramatically to become affordable. And another significant drop in housing values would create another financial crisis."

Some see Bove as basically pouring gasoline on an already roaring fire, with no good reason.

"There has been talk of the death of the 30-year fixed rate house loan for years, and the comments from Dick Bove simply fueled those flames," says David Bakke, a writer and analyst at MoneyCrashers.com, a personal financial website.

"Personally, I don't see that particular mortgage product going anywhere any time soon. I think what you would see instead is banks improving their underwriting procedures and possibly starting to requiring a larger down payment in order to decrease their risk on those mortgages."

 

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Tim Cook: Apple Watch Will Replace Car Keys

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Apple Inc. Reveals Bigger-Screen iPhones Alongside Wearables
David Paul Morris/Bloomberg via Getty ImagesApple's iWatch, at an unveiling last September.
By Subrat Patnaik and Anya George Tharakan

Apple Watch will replace your car keys and its battery will last the whole day, Apple (AAPL) Chief Executive Officer Tim Cook told the Telegraph in an interview.

The watch is designed to replace car keys and the clumsy, large fobs that are now used in many vehicles, Cook told the newspaper.

Its battery will last the whole day, and won't take as long to charge as an iPhone, the report quoted Cook as saying.

Apple Watch will also work as a credit card through Apple Pay, Cook told the paper, but didn't mention how user verification will work with the watch.

The rollout of the watch might pose a challenge for Apple's stores, which may involve "tweaking the experience in the store," the Telegraph said, citing Cook's conversation with the staff at Apple's Covent Garden store in London.

Last March, Apple unveiled CarPlay, which lets drivers access contacts on their iPhones, make calls or listen to voicemails without taking their hands off the steering wheel.

Earlier this month, Reuters reported that the iPhone maker is looking at making a self-driving electric car, and is talking to experts at carmakers and automotive suppliers.

In the interview, Cook said that the Apple Watch will operate a special rewards system, track the user's activity and "be correct to 50 milliseconds."

Apple wasn't immediately available for comment.

The company has scheduled a special event March 9, where it is expected to showcase Apple Watch, which will be launched in April.

 

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Market Wrap: Stocks Down on Data; Post Strong Monthly Gain

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Financial Markets Wall Street
Richard Drew/AP
By Caroline Valetkevitch

NEW YORK -- The S&P 500 posted its best monthly gain since October 2011 on Friday, but U.S. stocks ended lower for the day as U.S. economic growth slowed more sharply than initially thought in the fourth quarter.

The S&P 500 gained 5.5 percent for the month, while the Nasdaq rose 7.1 percent, its best monthly performance since January 2012. The strong gains have pushed the Nasdaq within striking distance of the 5,000 mark and record highs set in March 2000.

We started off with the GDP report which was a bit underwhelming. That maybe set a tone for the market that it wasn't wildly ebullient.

A separate economic report showed a gauge of business activity in the U.S. Midwest dropped to its lowest reading since July 2009 in February.

"We started off with the GDP report which was a bit underwhelming. That maybe set a tone for the market that it wasn't wildly ebullient," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

Apple, down 1.5 percent at $128.46, weighed on both the S&P 500 and Nasdaq. Investors may have been taking profits ahead of Apple's (AAPL) expected unveiling of its smartwatch March 9, said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.

Among other decliners, J.C. Penney (JCP) dropped 6.8 percent to $8.50 after the retailer posted a surprise quarterly loss and forecast small margin improvements this year.

The Dow Jones industrial average (^DJI) fell 81.72 points, or 0.45 percent, to 18,132.7, the Standard & Poor's 500 index (^GSPC) lost 6.24 points, or 0.3 percent, to 2,104.5 and the Nasdaq composite (^IXIC) dropped 24.36 points, or 0.49 percent, to 4,963.53.

After a sluggish start to the year, stocks rebounded sharply in February. The Dow rose 5.6 percent in the month, its best monthly performance since January 2013.

Movers and Shakers

Shares of Monster Beverage (MNST) jumped 13.1 percent to $141.12, the biggest percentage gainer in the S&P 500 and Nasdaq. Thomson Reuters (TRI) data shows S&P 500 earnings increased 6.8 percent in the fourth quarter, above expectations at the start of this quarter.

Bank of America (BAC) shares lost 1.4 percent to $15.81. The company said two members of its board of directors and its chief accounting officer will be leaving the company in coming weeks. UBS (UBS) also cut its rating on the stock to "neutral" from "buy."

Volume was again low. About 6.5 billion shares changed hands on U.S. exchanges, below the 6.8 billion average for the month, according to BATS Global Markets.

Advancing issues outnumbered declining ones on the NYSE by 1,567 to 1,485, for a 1.06-to-1 ratio; on the Nasdaq, 1,694 issues fell and 1,048 advanced, for a 1.62-to-1 ratio favoring decliners.

The S&P 500 posted 26 new 52-week highs and 2 new lows; the Nasdaq composite recorded 93 new highs and 27 new lows.

What to watch Monday:
  • The Commerce Department releases personal income and spending for January at 8:30 a.m. Eastern time.
  • At 10 a.m., the Institute for Supply Management releases its manufacturing index for February, and the Commerce Department releases construction spending for January.
Earnings Season
These selected companies are schedule to release quarterly financial results:
  • Luxottica Group (LUX)
  • Mylan (MYL)
  • Nabors Industries (NBR)
  • Palo Alto Networks (PANW)
  • Sotheby's (BID)

 

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Wellness Programs Change to Nudge You Out of the Cubicle

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Business man eating at desk
Tom Grill
By Ellen Chang

Wellness programs at most companies have hit a wall, and even fewer employees are getting out of their cubicles to exercise and be active during the work day. That's why many work places are upping the ante to help their bottom-line and their employees' waistline.

Employees have long rebelled against current wellness programs despite the fact that the majority of companies have them. Companies are catching on slowly, and many are now nudging their employers to be healthier by setting up offices with more natural light, encouraging more face-to-face communication and subconsciously encouraging people to take the stairs instead by placing them in central areas. Other companies have added more healthy options at their cafeteria while others are adopting the usage of sit/stand desks to have more people stand throughout the workday.

The Cost of Benefits

Companies want more employees to be active and engaged and to take fewer sick days, since it is more effective to prevent than treat illness. Over one-third of U.S. adults are now obese, which results in estimated annual medical costs of more than $147 billion, according to the Centers for Disease Control and Prevention.

Many wellness programs were designed passively in the past -- giving employees discounts for memberships at local gyms instead of encouraging workers to engage in activity at the workplace. One Harvard research study revealed that medical costs are reduced by $3.27 for every dollar spent on wellness programs, and absentee day costs fall by about $2.73 for every dollar spent. Other studies have found conflicting evidence. A Rand study determined that wellness programs have a minimal impact on health-care costs and estimates that a new wellness program takes an average of five years to earn back even the initial investment.

Taking the Burden Off Workers' Shoulders

Employers need to stop putting all the responsibility on workers and instead design the workplace in a way that actually promotes movement and activity, said Jonathan Webb, vice president of business markets for KI, a Green Bay, Wisconsin, furniture manufacturer. "There needs to be a cultural shift toward more wellness, since the workplace is such an incubator for sedentary behavior," he said of the concept, also known as active design. "If they build walking paths and stairs, employees will use them."

Serving as role models is also an impetus for employees to exercise. KI encourages employees to exercise during the work day at their onsite facility. Even the CEO and senior staff use it regularly during the day. "If the workers see that, then the change in behavior can take place," Webb said. "The behavior needs to be adopted by management and has to be purposeful."

In the past five years, KI, which is owned by the employees and also "grades" them on their health, the company has only had one insurance premium increase. "Those are things that are measurable," he said. "We have saved thousands of dollars on premiums and helped to make our employees healthier and more successful."

"Sitting Is the New Smoking"

Sitting in a cubicle for eight or more hours a day is detrimental to the health of employees. Companies are attempting to break the mold and are now pushing employees to be less sedentary since "sitting is the new smoking," said Cathy Kenworthy, CEO of Interactive Health, a Schaumburg, Illinois, provider of wellness and health management solutions.

An independent study of the programs designed by Interactive Health for other companies during the past 20 years showed that employees do respond with 26 percent of smokers who quit smoking, 64 percent of participants with elevated glucose who reduced their glucose levels and 82 percent of participants with elevated blood pressure improve their blood pressure.

"As an employer, making it easy to make small changes and develop new habits can be enormously impactful," she said. "We have had a putting challenge on the office building putting green, asked people to take the stairs to get there, doing as many jumping jacks as the Chicago Bears scored points in their game the day before and even dance competitions."

Building a collaborative environment for employees with more open seating inspires additional "lively discussions," said Laura Yip, co-founder and chief people officer, who manages the company's talent management and benefits programs at Storm8, a Redwood City, California, mobile social game network and developer. The company has a wide range of ergonomic set-up options available for employees, including standing desks, ergonomic chairs and exercise balls.

Happiness and Productivity

"Healthier employees are happier employee and therefore more productive, so we think corporate wellness programs are a great idea," Yip said. "We also have a free gym that employees can access, as well as sports leagues they can participate in, including softball, table tennis and soccer." The company is also encouraging employees to eat healthier. Storm8 provides catered lunches and dinners; too boot, it provides an unlimited snack bar but offers healthy options. The company's second annual health and wellness fair featured a juice bar, massage chairs, yoga classes and representatives from health organizations.

Hungry Howie's Pizza, a national pizza franchise with corporate offices in Detroit, offers complimentary personal training classes, monthly 45-minute in office chair massages and adjusted work schedules to prod employees into more active lifestyles. Half of the 86 employees are participating in the program, and several have quit smoking.

Upping the Ante to Avoid Heavy Consequences

A recent survey by Employers, a Reno, Nevada, workers' compensation insurance carrier, found that more than 75 percent of small businesses don't provide non-traditional seating options such as stand-up desks, treadmill desks or balance balls to employees. Half of them don't provide monitor stands to employees who work primarily on computers.

"By 2030, 42 percent of Americans could be obese, according to a study published in the American Journal of Preventive Medicine," said David Quezada, vice president of loss control for Employers. "This is causing us to think more about how we redesign the workspace."

American workers rarely take breaks from their job now. The study also found that barely more than half of small business employees who primarily work on computers are encouraged to take routine breaks to rest their eyes, but not doing so can lead to eye strain or other injuries, he said.

Employers encouraged its own employees to be more active by introducing walking meetings and utilizing the stairs versus the elevators, said Quezada.

 

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I Left a Do-Gooder Job I Loved for More Money

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Kathlyn Hart
By Kathlyn Hart, as told to Marianne Hayes

In the Money Mic series, LearnVest hands over the podium to people with controversial views about money. These are their views, not ours, but we welcome your responses. Today, one woman shares how leaving a job she loved ultimately helped her fulfill a lifelong dream -- and overhaul her finances.

When I enrolled as an undergrad at the University of California, Los Angeles, in 2006, I had a clear vision of exactly what I wanted to do with my life. I wanted to help people.

You see, before moving to Los Angeles, I'd grown up in Richmond, California, a poor suburb of San Francisco with one of the highest crime rates in the nation. Even though we lived in the "nicer" part of town, it wasn't unusual to encounter homelessness or hear gunshots from time to time. My heart went out to those people -- and I wanted to make a difference for them.

So over the next few years, I joined campus community service organizations, led youth camps for children from low-income families, and volunteered for various mentoring projects that reached underserved kids.

When I started applying for jobs after graduation, I sought out nonprofits that would let me continue this work. But because my passion was so strong, it never even occurred to me to assess job prospects based on salary. And I certainly didn't realize how difficult it would be to pay off the debt I'd accrued during and right after college. And there was a lot of it.

A Dream Job ... in Theory

When I graduated in 2010, my student loan balance was $25,000, which translated to a $250 monthly payment. I also purchased a $10,000 car that year, digging me further into the hole.

Still, when a volunteer organization I'd worked with in college offered me a position, I immediately -- and happily -- accepted it. The job, which involved mentoring youth with incarcerated parents, was nothing short of amazing. Not only did I connect with the kids but also other passionate mentors. Many of them came from similar backgrounds as the kids, and watching them devote their lives to being great role models was inspiring. It made me feel like I was doing something truly worthwhile.

Another cool part about the job was that it scratched my itch for doing design and tech work. My dad was a programmer, and I'd taken some classes in the past. So I jumped at the opportunity to sharpen my skills by working on their website. But for all the wonderful attributes of this job, there was one serious drawback: It paid $27,000 a year.

Nonprofit and Non-Sustainable: Waking Up From My Career Reverie

This paltry sum barely covered my financial responsibilities living in Los Angeles, like my rent, cell phone, car payment and student loans. And forget about savings. After about a year, it dawned on me just how much I was sacrificing. Not only was it dangerous to coast along with zero savings, but I was also ignoring a huge dream.

As a child, I'd always been curious about the world, wanting to travel to every corner of it. I remember spinning a globe with my older sister when we were kids, the excitement mounting as we waited to see where it would land. In college, I was an international development major, zeroing in on the Middle East and developing parts of Asia, which only fueled my wanderlust. So I was faced with a tough question: Would I ever be able to travel on a $27,000 salary?

I sat down and did some calculations based on my income and debt -- and determined it would take me about eight years to save up enough cash to see the world. This was definitely a wake-up call.

Not ready to give up my dream job just yet, I took up waitressing to pad my income. I juggled both gigs for a while -- with mixed results. On the one hand, I was able to squirrel away $1,000 in my emergency fund. But I didn't make any extra headway on my debt. Plus, working both jobs left me utterly exhausted. After six months, I had to reevaluate whether this lifestyle was sustainable -- and if it was really enough to help me reach my goals.

I came to the conclusion that I needed a better-paying job if I wanted to travel -- or ever rid myself of the nagging debt that was weighing me down, which, at the time, was still about $26,000. The decision to leave the nonprofit was bittersweet. But I was confident it was the right financial move.

My (Financially) Fulfilling New Gig

After I left the nonprofit, I accepted a job as an intern at an architectural design firm. I was making more than before -- about $15 an hour -- and had hopes of increasing my pay by ultimately transitioning to a full-time staff position. Since the company was close to my mom's house, I saved money by moving in with her, freeing up about $300 in my monthly budget.

While it may seem like architecture was a sharp turn from my previous career path, I was excited. The internship was in the company's international department, which exposed me to the process of setting up new offices in different countries. Best of all, I was eager to forge a new path that would lead to financial flexibility.

The move certainly didn't disappoint. After just three months of interning, I learned about an opportunity in the company's software department. Given my background in web design and tech, it seemed like a great fit. Was it my dream job? Definitely not. But the work seemed interesting enough, and the pay -- $55,000 -- was too good to pass up.

After accepting the job, I sat down and mapped out a financial plan. After all, that's the reason I took it -- to make enough money to fund a savings account big enough to pause my career and travel for several months. I know what you're thinking: Why not just scratch my itch with a weeklong vacation? But the truth is that I'd been fantasizing about living abroad for so long, I didn't think I'd be happy with a quickie trip. I wanted to take my time and see it all.

After running the numbers -- making sure to factor in debt repayment and retirement savings -- I figured that if I could save $16,000, I could afford to take some time off. I'd earmark $4,000 to pay my bills for about eight months, put $6,000 in emergency savings, and then spend the leftover $6,000 on my travels. While I realize financial professionals probably wouldn't recommend prioritizing travel as my No. 1 goal, I did have the good sense to pay for it all in cash.

Work to Live Abroad

I went to work every day with that goal in mind. While I did enjoy some parts of the job -- like my software-designing tasks -- I never really felt connected to the place. I was frustrated by corporate life, including the unnecessary daily meetings and interoffice politics that came with it.

I'm the type of person who wants to put 110 percent into my work, but it seemed like my coworkers were fine just skating by, which was a big contrast from my nonprofit colleagues. In truth, it wasn't an awful job, but it wasn't personally fulfilling -- a fact that helped me view the position as a temporary one.

So to help accelerate progress on my goal, I started making small lifestyle changes, like packing lunch, meeting friends for coffee instead of restaurant meals and ordering cheaper items when I did go out. But the hefty salary was really what made the biggest difference.

After a year and a half at the architecture firm, I finally hit my savings target -- and it felt amazing! Giddy with excitement, I put in my notice and exited on a positive note. Then I hit the local bookstore and scoured the travel section, making a spreadsheet of all the destinations I wanted to see. Since Indonesia had always been on my must-visit list, my boyfriend and I searched for the cheapest flight -- and off we went.

A Trip of a Lifetime Leads to a New Outlook on Life

In July 2013 we began our six-month adventure, visiting Bali, Thailand, India, Nepal and Hong Kong. It was incredible -- and I checked off many bucket-list items. I got certified as a yoga instructor in India, earned my scuba certification in Thailand and stayed at an ashram in Indonesia. I learned so much through these experiences, and I don't regret a minute of this once-in-a-lifetime getaway -- or my time at the well-paying software gig that made it financially feasible.

By the time February 2014 rolled around, I was ready to come back to the States and resume "real life." And one of my first to-dos was to take a close look at my finances to see where I stood. To my pleasant surprise, I'd spent less in Asia than anticipated and still had $1,500 in my travel stash, which I used to cover everyday living expenses when I first returned. I was still living modestly with my mom, so I was able to make this stretch while I debated my next move.

The rest of my financial picture was looking good, too. I still had my $6,000 emergency fund. My student loan balance was down to $12,000. And I was at the tail end of my car loan. After weighing my career options, I decided to start doing some freelance web design and marketing work to generate regular, reliable income. While it was a slow start -- I was earning just $1,000 a month at first -- it was enough to cover my bills.

Invigorated and Networking

Fortunately, as I networked and landed more clients, my earnings shot through the roof. In January 2015 I had my best month yet, raking in $8,000 -- and I don't plan to slow down.

Plus, the income uptick has helped me double-down on my debt repayment: My car is now paid off, and I expect to cancel out my student loans by the end of this year.

Some people may not understand my journey, but everyone's priorities are different -- and I'm happy I fulfilled mine by scouting out jobs with higher salaries and kicking my savings habits into overdrive.

The best part is that I'm not even close to being done pursuing my passions. I'm actually making it one of my jobs to help others do the same by launching a website devoted to encouraging women to achieve whatever is important to them in life, whether that's starting a business, running a marathon, or traveling the world. The site features quotes and interviews designed to inspire and motivate others to do exactly what I did: Embrace their inner dreamer and hustler.

 

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26 Unsettling Truths About Social Security

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By Lucy Mueller

The Social Security program is turning 80 this year, and though most Americans won't commemorate this milestone, 57 million will benefit from it for more than $1,200 a month.

The future of the Social Security program has been much debated, especially this month, as a new Congress looks to approve or deny a budget that would decide the immediate future of disability payments. We can expect full saturation of headlines, a fair amount of politicking and, ultimately, a sneak peek into what this program will look like in the coming decades.

It could be drastically different. Social Security was created in the wake of one financial crisis; nearly a century later, as the country limps to recovery from another, policymakers are making decisions about the program's future that have real-dollar effects on just about everyone.

That makes it a scary time for the millions of Americans approaching retirement -- and the millions who are just starting to fund the Social Security system. We've put together a list of everything you need to know -- the good, the bad, the awful, the silver lining -- so you can start building a realistic retirement plan.

1. At Its Current Pace, Social Security Will Run Out by 2033

Since it was established in 1935, Social Security has been a "pay as you go" system -- essentially, a higher-stakes version of the take-a-penny-leave-a-penny tray. So the checks that retirees and other Social Security beneficiaries get are primarily funded by taxes taken from the paychecks of about 96 percent of workers (and matched by their employers), according to The Washington Post.

For the most part up until 2010, Social Security took in more from taxes than it paid out in benefits, investing the surplus in Treasury securities to earn some interest. That practice put about $2.8 trillion in Social Security trust funds.

Unfortunately, those funds are no longer just an emergency buffer. For the last five years, there's been a cash flow deficit -- it's currently about $75 billion a year, a number that's expected to rise precipitously by the end of this decade. At this rate, the 2014 Social Security Trustees report estimates that the trust funds will become insolvent, i.e. run out, by 2033.

2. Social Security's Disability Program Will Run Out Much Sooner

The Social Security program is financed by two trust funds -- one for retirement benefits, the other for disability benefits. The latter is slated to run out by 2016, at which point disability benefits will have to be cut by 19 percent, according to The Wall Street Journal.

President Obama's most recent budget proposed a 0.9 percent reallocation of funds from the retirement fund to the disability fund to prevent this from happening -- a "robbing Paul to pay Peter" method that Social Security has done 11 times since 1994. Even if this budget passes a Republican-controlled Congress, however, it would only be a temporary fix -- a fix that would shorten the retirement trust fund's runway by another, valuable year.

3. People Rely On Social Security Than Ever

Baby boomers, many of whom are leaving the workforce now or soon, are chronically unprepared for retirement. Not even half of all boomer households between 55 and 64 have any retirement savings, according to The New York Times, and the recent financial crisis wreaked havoc on the accounts of those who did plan ahead.

Even before the recession, our retirement savings habits were lacking. Defined-benefit pensions are becoming more obsolete, with only 22 percent of Fortune 500 companies currently offering them (compared to 60 percent in 1998). Today's retirees are leaning hard on their Social Security payments, which in December 2014 averaged $1,282.27 a month, according to the Social Security Administration. The New York Times reports that, for the majority of retirees, earning $32,600 annually, that monthly check makes up two-thirds of their income.

4. The Ratio of Taxes to Payout Is Shrinking

A 2012 study from the Urban Institute found that a dual-income couple in 1960 making an average salary would pay about $26,000 into the Social Security system in their lifetimes, and ultimately take out $269,000 in benefits -- meaning their benefits were roughly eight times what they were taxed. In 2010, that couple would have paid $523,000 in lifetime taxes but would only benefit from $877,000 in lifetime benefits -- only a third more than they put in.

5. All the Boomers Are Retiring at Once

One of the reasons for Social Security's continuing deficits is the influx of retirees, which is putting a strain on an already strained system. Every month, 250,000 more baby boomers turn 65, with many dropping out of the workforce. In 2010, 10 percent of boomers were retired; in 2014, that number had jumped to 17 percent.

6. People Are Living Longer

Social Security depends on the ratio of taxpaying workers to benefit-receiving retirees -- that ratio has to be front-loaded for there to be any kind of surplus. In 2011, there were 2.9 workers for every one retiree; the SSA estimates that will shrink to just 2-to-1 by 2035.

Part of this is thanks to the fact that people are living longer. Whereas just 12 percent of the population was 65 or older in the middle of the last decade, by 2080 retirement-eligible Americans will make up 23 percent of the population.

7. People Are Having Fewer Children

At the same time, decreased fertility rates mean fewer Americans are entering the workforce to replace retiring boomers. According to the SSA's chief actuary, Steve Goss, this is the primary threat to Social Security. According to CBS News, the birth rate has gone down since the 1960s by more than 30 percent -- one child for every three, say -- which means the number of Americans paying into the Social Security system is plummeting just as its number of beneficiaries is booming.

8. Benefits Are Growing Faster Than the Economy

A low birthrate and increasing number of retirees also means that the cost of Social Security is quickly becoming a larger percentage of the nation's gross domestic product. Just recovering, the U.S. economy isn't expanding fast enough to keep up with the increasing financial needs of the Social Security system.

9. First Beneficiaries Put Less In, Got More Out

Because the system wasn't pre-funded, the first recipients of Social Security put in a lot less and got a lot more out; that gap is still being subsidized by today's workers.

10. Income Inequality Is Eroding Social Security

A report released in February from the Center for American Progress, a slightly left-of-center public policy and research organization, found that the increasing income gap is putting less money into the Social Security system.

Here's why: The payroll tax that funds Social Security applies to income of $118,500 or less -- this cap changes year to year. But in the last several decades, income has disproportionately increased for the rich and remained more stagnant for lower brackets. In 1983, 10 percent of the nation's income escaped a Social Security tax, compared with 17 percent today.

With higher wages exempt from the tax, the system is losing out on money at a time when it needs it most. What's more, a lot of the money that top income brackets make doesn't even show up on a paycheck; earnings from investments and stocks, for example, fall under the capital gains tax.

Ultimately, according to the report, "upward redistribution of income in the United States has meant that income has shifted away from the workers whose full earnings are taxed and toward high-income workers whose additional dollars are exempt."

11. Social Security Benefits Could Get Cut

So what are the consequences of the Social Security trust funds rapidly becoming insolvent? Well, the Social Security program won't cease to exist -- taxes will still get taken out and benefits will still get paid, although they could get cut.

Recipients of disability payments could see a 20 percent cut as soon as 2016, according to The New York Times. Combined benefits, from both the disability and retirement trust funds, would be cut by about 25 percent if the funds run out as expected by 2033. That means retirees would be receiving checks that are about 75 percent of what they're used to.

12. Social Security Taxes Could Be Raised

To cover the gap between taxes and benefits -- and to prevent a possible benefit cut -- the SSA might have to increase the tax that's taken out of workers' paychecks. The current tax rate is 6.2 percent -- it hasn't budged since 1990, in fact. The New York Times argues that an increase of just 1 percent over 20 years could decrease the funding gap by half.

13. The Retirement Age Could Be Moved

The full retirement age to receive Social Security was bumped from 65 to 67 in in 1983 -- a slow bump, really, it was phased in over 20 years. Since then, some politicians and committees (like the Simpson-Bowles Commission in 2010) have argued that the threshold should be moved again to 69 to keep up with increased life expectancies.

The flip side, though, is that while Americans are living longer in general, the life expectancy for workers in physically demanding jobs has stayed the same -- same goes for racial minorities. Moving the retirement age, then, would have unequal benefits.

14. Trust Funds Are Invested in Low-Yield Securities

Whereas compounding interest will work wonders for your 401(k) or higher-risk investments, the Social Security trust funds were invested in Treasury securities -- much safer than the market, though also lower-yield.

15. Investing a Portion in Corporate Securities Could Be Risky

There would be a lot of prohibitive factors involved with putting those trusts in higher-earning vehicles, though. For one, many are queasy about putting government money in private corporations, where it could be depleted by fees and knocked around by the volatility of the market. What's more, because the Social Security Administration was able to loan out its surplus to fund other government programs (receiving the securities in exchange), the government was able to keep the national debt lower.

16. It's Not a Politically Convenient Time for a Fix

Granted, any time a president and the sitting Congress come from different sides of the aisle, it's difficult to make any sort of political maneuvers. But as 2015 begins, the new Congress is just settling in -- and, just this month, beginning to tussle with the president over a budget that includes a change to the disability trust fund. These (and future) fights will only become more heated as 2016, an election year, approaches.

17. The Social Security Administration Is Understaffed

The number of boomers retiring isn't the only factor affecting Social Security benefits. Facing budget cuts and with more of its employees nearing retirement age, the Social Security Administration is, as its acting commissioner Carolyn Colvin told Obama in a March report, stretched far too thin.

"Our service and stewardship efforts [have] deteriorated," Colvin wrote. "In fiscal year 2013, the public had to wait longer for a decision on their disability claim, to talk to a representative on our national 800 number, and to schedule an appointment in our field offices." Three out of every five SSA employees will be eligible for retirement by 2022. The administration has already lost 11,000 employees -- 12 percent -- in the last three years.

18. It's Losing Field Offices All Over

The SSA is additionally facing widespread office closures. According to The Wall Street Journal, 44 field offices have been consolidated, 503 mobile service stations have been shuttered, and plans to open eight hearing offices and one call center have been delayed.

19. Wait Times Are Increasing at the SSA's 800 Number

One result of understaffing is waiting a lot longer if you want to talk to a real, live human being on the phone. According to a report released by the SSA, anyone using Social Security's 800 number will be getting a busy signal about 14 percent of the time (up from 11 percent in 2011). Call wait times are also up, with the average at about 17 minutes; that's double the wait time in 2012.

20. The SSA Spent $288 Million in a Failed Attempt to Update

In 2008, the SSA decided to overhaul 54 outdated computer systems that process disability claims. This was a project the administration envisioned would take about two to three years, ultimately letting SSA employees nationwide file, process and track claims. Six years and $288 million later, the system still isn't up and running.

21. Most People Don't Know How Social Security Works

In 2010, the Financial Literacy Center asked Americans to grade themselves on how well they know the rules and requirements of claiming Social Security benefits. Only one-tenth of respondents gave themselves an "A," while more than double that -- 23 percent -- thought they deserved a failing grade. The survey also asked seven questions to judge how knowledgeable the respondents actually were, and the results were depressing: Only 4 percent earned an "A," while more than half received a "D" or "F."

These results jibe with a more recent eight-question quiz on crucial Social Security rules conducted by Financial Engines: 5 percent got full marks, while 45 percent got at least three out of the eight questions wrong.

22. People Aren't Working in Early Retirement -- and They Should Be

So what are people so misinformed about? For one, there's the complicated "earnings test" -- a cap on Social Security benefits that's enforced when someone under the retirement age is working and collecting benefits at the same time. It's a confusing rule that reduces benefits ($1 deducted from every $2 earned above an annual limit), and it keeps many Americans from trying to earn extra income in early retirement.

The annual limit for 2014 is $15,480; so, if you worked and received an income last year, half of the money you earn above that threshold will be deducted from your Social Security benefits. What most people don't know, however, is that the SSA will increase your future benefits after you hit retirement age to make up for what you lost.

This "should not be a disincentive to work," Andrew Biggs, a former deputy commissioner at the SSA, told The Wall Street Journal. "Over your lifetime, your total benefits will come out the same."

23. People Lose Lots by Collecting Too Early

Another important decision all future retirees will have to make is when to collect Social Security. Americans who delay collecting their first benefits -- if they can -- gain a huge edge in retirement. For example, if you start collecting benefits at 70, versus 62, your monthly payment will be 76 percent higher. Most financial advisors recommend trying to capitalize on this increase -- a couple that optimizes their benefits could see lifetime gains in excess of $250,000, according to Forbes.

Unfortunately, according to Financial Engines' survey, only 40 percent of respondents know about the percentage increase in monthly benefits owing to a delay of at least two years. That's a large chunk of retirees who could be missing out on tens of thousands of dollars in benefits -- all thanks to timing.

24. People Get Lower Benefits by Not Working for 35 Years

Another easy way to slash the amount of Social Security you get is to not work at least 35 years. That's because the SSA calculates your benefits based on the 35 years in which you earned the most income. If you've only worked, say, 31, those last four years are calculated as zeros, which will cause your retirement benefit to dip. Unfortunately, many people don't realize that continuing to work -- even part-time -- is a simple way to raise your Social Security benefits.

25. The SSA Won't Tell You About All Your Benefits

Don't expect the Social Security Administration to go out of its way to inform you of benefits you could be taking but aren't -- spousal, disability, survivor, etc. It's up to individual retirees to use software, advisers, the internet, etc., to make sure they're not leaving any money on the table. The administration also won't usually retroactively apply benefits you've missed (maybe within the last six months, but that's it). Do your due diligence to make sure you're not losing out on thousands of dollars that could be padding a comfortable retirement.

26. More Beneficiaries Will Owe Taxes on Benefits

There's a threshold at which Social Security benefits are taxed, and this cap has never been moved to account for inflation. (It's typically $32,000 for couples and $25,000 for individual beneficiaries). Because of this, it's becoming more likely that you'll owe taxes on your Social Security benefits by the time you receive them.

The New York Times reports that just 10 percent of beneficiaries had to pay taxes on their Social Security in 1984 when the tax threshold was instituted; by 2030, it's estimated that more than one in every two Social Security recipients will be taxed on some or all of their benefits.

 

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The Danger in Lying About Contributions on Your Taxes

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By Kathryn Tuggle

Although it may be tempting to fudge on that blank form you're given when you make a charitable donation, your $3 sweater just isn't worth $50 -- and the Internal Revenue Service knows it. If you're claiming charitable deductions on your taxes this year, here's a look at how to do it by the book.

Pricing and Valuation Guides Are Readily Available

Just because you paid $1,000 for a suit doesn't mean it's worth that when you donate it, says Ken Kamen, president at Mercadien Asset Management.

If you've never been to a thrift shop or don't know what a fair market value for an item may be, Salvation Army and Goodwill have charts showing average retail prices. At Salvation Army, pants and blouses range in value from $2 to $8, and at Goodwill, books are priced from $1 to $3. Even if you're donating to a different charity, these price charts offer a good general guide, Kamen says.

It comes down to fair market value - what someone would willingly pay for the item, says Kay Bell, contributing tax editor for BankRate.com. "You may think something is worth $50, but stop by a thrift store and just see what similar items are being sold for. You'll be stunned how inexpensive nice things are. Unless you have a Chanel outfit that was worn to a presidential inauguration, it's not going to appreciate in value."

If you have a rare or historically significant piece of clothing, it should be separately appraised. "If you want to donate the fedora that Humphrey Bogart wore in "Casablanca," it's going to be worth more than the Salvation Army's recommended price for a hat," Kamen says. "Back story always means a lot on vintage collectibles, and if you have something like that you should definitely get it appraised."

As a general rule, people try to do right by charities, Bell says. Most of the time when people over-claim their charitable deductions, it's simply due to a lack of information. "They aren't so much trying to cheat, they just don't realize the going rate. But you can bet the IRS does," she says.

It's Not a Game You Want to Play

"It's the beauty and the curse of the voluntary tax system," Bell says. "The burden of proof is always on you." If you decide to play "audit roulette" and overstate your charitable deductions on your tax forms, you'll have to prove to an auditor exactly what you donated and how much it was worth, regardless of what the receipt from the charity says, Kamen says.

"Yes, they may give you a blank form, and yes, you can technically fill out anything you want, but depending on the audit you get, you're going to need proof of what you donated." This "proof" could be a photo of the items, or you could take things a step further and have the photo notarized on the day of your donation, then affix the receipt from the salvation army, Kamen suggests. Yet even with this documentation, there's no guarantee an auditor will agree with your valuations.

"Sometimes people get picked for audits that are the equivalent of a proctologist's exam," Kamen says. "For the most part, though, when the regulator comes in they are looking for a culture of compliance. They're going to say, 'Are these the steps that a reasonable man would have taken to comply?'"

The IRS is very attuned to things that look suspicious, Bell says. For example, if you claim to have donated large amounts of clothing and household goods but you didn't move or sell a home, there will be questions. "It may be totally legit. Maybe you decided to give away all your worldly possessions, but the IRS has the right to say, 'We don't think that's accurate, we are going to disallow that.'"

Additional Documentation May Be Required

No matter what you're donating or how much it's worth, you need a receipt. If you're donating items worth more than $250, you need a detailed receipt that describes each item. If you're donating something worth more than $500, you'll need to fill out an 8283 form, and if you're claiming high-end items such as jewelry or art, an independent appraisal is required.

"Really they start wanting more documentation with your filing as soon as you get over that $250 mark," Bell says. Also, while there's nothing to stop you from claiming multiple donations valued at $249, it's going to look really suspect, Bell says.

"It all comes down to this: How willing are you to go up against an IRS examiner? If you give something to charity every year, and you're fudging a tiny bit, chances are the IRS isn't going to mess with you. But if you just decide you need some deductions one year and you claim $2,000 your first time, it's going to look suspicious."

Keep in mind that the amount you donate relative to your income is also important when it comes to raising red flags, Kamen says. "If you made $50,000 last year, it's not going to seem reasonable that you gave away $10,000 worth of small items. But if you're filing a $500,000 return, then $10,000 seems more reasonable," he says.

 

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Timeshares: Fabulous Opportunity or Financial Trap?

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Timeshares: Just Say No

By Maryalene LaPonsie

Why spend $150,000 on a vacation home when you could get one for $20,000? That's part of the premise of timeshares. By combining forces with other buyers, you can get a second home for a fraction of the price you'd pay as a solo buyer. Not to mention, you might get a better property with more amenities than anything you could afford otherwise.

All About Timeshares

A timeshare is a property that you share with others. Often you're a deeded owner, and your portion of the property can be passed along in an estate or sold as with any other piece of real property. Traditionally, timeshare holders have been allotted a specific week or weeks in which they can use the property.

Nowadays, many timeshares tend to be more flexible when it comes to your accommodations. You're still a deeded owner, but rather than giving you a specific unit to use at a specific time, you may be allowed to change your vacation week from year to year. Others call themselves "vacation clubs" and dole out points that can be redeemed at other units or resorts owned by the same developer.

On its consumer website Vacation Better, the American Resort Development Association touts a timeshare as being a way to prepay future vacations at today's prices. The association notes the average timeshare costs about $20,000, and, depending on where you vacation, that could end up being a bargain compared with a lifetime of hotel costs.

Here's the rub: The purchase price is only a portion of the cost of the timeshare. Annual fees help pay formaintenance costs, property taxes and other expenses related to the property management. And yes, those costs can increase over time.

Why You Should Always Buy a Timeshare from a Current Owner

Those maintenance fees are why you should always purchase a timeshare from a current owner rather than buying directly from a developer. You see, some people are desperate to get out from under those annual fees. Their kids may be grown; their job may be downsized; they may have developed a health condition that limits travel. And yet those annual fees won't stop coming. And selling a timeshare isn't easy.

As a result, some owners may be willing to sell their timeshares for pennies on the dollar, especially if you'll help cover the closing costs. Yes, that's right. There are closing costs. This is a property sale, after all. In addition to paying for a title transfer, you may also find some resorts charge their own transfer fees, which can tack thousands more onto your price. All those extra fees are part of the reason you don't want to simply bid on the first penny auction you see for a timeshare. Even if the auction price is practically nothing, you could still find yourself on the receiving end of a big bill.

5 Places to Find Cheap Timeshares

If you're convinced a timeshare is right for you, you can check out these websites to pick one up at a fraction of the original price. After spending far too much time browsing the listings on these websites, my verdict is that eBay auctions, although inconsistent, tend to be the easiest to understand and the most complete in terms of laying out what you get and what you'll be paying. However, not all auctions are created equal, and certainly some of what is posted on the site appears vague or even shady.

The runner-up is the Timeshare Users Group, known as TUG, which has easy-to-scan listings that make it simple to find timeshares with the right number of rooms at the right price. Don't forget to check out the bargain basement for $1 timeshares. At its Bargain Deals forum, people are literally giving away their timeshares. Really.

12 Questions to Ask Before Buying One

Regardless of whether you're taking a freebie timeshare off someone's hands or paying thousands for one, you'll want to know answers to all these questions before completing the transaction.
  • What are the annual maintenance fees?
  • When are annual fees next due?
  • Historically, how often have maintenance fees at this timeshare increased?
  • Am I locked into a specific week?
  • If the timeshare is "floating" and allows reservations for various weeks during the year, am I locked into a certain season?
  • Do I have to use a specific unit on the property or can I pick my room/building?
  • What amenities are included during my stay at the timeshare?
  • Are there extra fees I'll need to pay for certain services?
  • If a points system is used, how many points are needed to reserve a week?
  • Can I use my points at multiple resorts?
  • Who pays the closing costs if I buy the timeshare?
  • If I later decide to sell or give away my timeshare, does the resort charge a transfer fee?
Above all, don't make a rash decision when jumping into a timeshare and don't go into debt for one either. Make it a property you're sure to love forever, because that's how long you'll have it, unless you can find someone else willing to take it off your hands, which, as you'll see in the next section, isn't always easy.

5 Tips for Selling Your Timeshare

At one point, the working title for this article was "Timeshares: Just Say No." If you're one of the people struggling under $1,000-plus annual maintenance fees, you know exactly why. The resale market for timeshares is horrendous, with TUG estimating the average resale price being about 30 to 50 percent of the original cost. For those giving away their properties, the depreciation rate is obviously even more.

If you're thinking of parting ways with your timeshare, here are a couple of tips and suggestions.
  • Watch out for scams. List your timeshare for sale practically anywhere and get ready for the scam emails and calls to come rolling in. Typically, these come from "law firms" or brokers who claim to be able to get you out of your timeshare in exchange for a hefty fee. Never pay anyone a hefty upfront fee; it's almost never legit. A second tactic is a version of the old Nigerian scam. You'll have someone interested in buying the timeshare, but they're going to send you a big check. You need to cash it and then forward a portion of the money to someone else. Don't do it. Scam, scam, scam.
  • Ask if your resort has a deed back program. Although not the norm, some resorts would rather have the timeshare deed back than see you sell it on the resale market. You might need to track down someone higher up the food chain than the customer service rep to tell you whether you can deed back your timeshare. In addition, the resort might require you to pay the next year's maintenance fees before they'll accept it. When doing a deed back, work directly with the resort. Don't trust third parties who promise to do it for you in exchange for a fee.
  • Consider a timeshare exchange. Maybe you still like the idea of a timeshare, but your current property is no longer a good fit for your family or lifestyle. You can use sites like RedWeek to exchange weeks with other timeshare owners. You could also see if your resort offers any programs that let you change your timeshare property. Again, be prepared for fees.
  • Rent rather than sell. For most timeshares, there's no reason why you can't rent out your unit during your allotted week. Since most timeshare resorts are at desirable locations, this could be a win-win. You could get enough for your unit to cover some or all of the annual fees, and the renter could get bargain priced vacation accommodations. But you might want to do a little due diligence on your renter first because you could be on the hook for any damage they cause during the stay.
  • Price to sell. As a final bit of advice, keep your selling price reasonable. You're not going to get $10,000 for the timeshare you bought five years ago for $12,000, especially not when others are practically giving theirs away. Do a search for similar units and destinations and then price yours below the other listings. If you're really desperate, consider covering the closing costs or transfer fees, too.
That's all I have to say about timeshares. What about you? Love 'em or hate 'em, we'd like to hear your comments below or on the Money Talks News Facebook page.

 

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Warren Buffett Says Berkshire Has 'Right Person' as Heir

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Warren Buffett Speaks At Conference Focused On Detroit's Revitalization
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By Luciana Lopez and Jonathan Stempel

NEW YORK -- Warren Buffett, the billionaire chief executive of Berkshire Hathaway (BRK-A)(BRK-B), told investors on Saturday that the company had found his successor, and the company's vice chairman, Charlie Munger, identified two Berkshire executives as candidates.

In Berkshire's annual report to shareholders, Greg Abel, the head of Berkshire's energy companies, and Ajit Jain, a top insurance executive, were said by Munger to be "proven performers who would probably be under-described as 'world-class.'"

"'World-leading' would be the description I would choose," Munger said in a letter to Berkshire shareholders. "In some important ways, each is a better business executive than Buffett."

Buffett's son, Howard, would become non-executive chairman after the departure of his father, who is also Berkshire's chairman.

In his previous letters to shareholders, the 84-year-old Buffett has said Berkshire board had been fully aware of his chosen successor but that he was keeping his options open.

Investors have long speculated about who would, or could, succeed Buffett, particularly after he was diagnosed with, and then beat, prostate cancer in 2012.

Munger, whom Buffett describes as "my partner," is 91.

"Both the board and I believe we now have the right person to succeed me as CEO -- a successor ready to assume the job the day after I die or step down," Buffett said.

"In certain important respects, this person will do a better job than I am doing," Buffett added.

Berkshire on Saturday also reported a 17 percent drop in fourth-quarter net income, but a 2 percent increase in full-year profit. Operating profit rose in both periods.

Neither Buffett's nor Munger's letter on Saturday referred by name to Matthew Rose, executive chairman of the BNSF railroad unit, who has also been mentioned by investors as a possible successor.

Buffett said BNSF is, by far, Berkshire's most important non-insurance unit but "was not good in 2014, a year in which the railroad disappointed many of its customers," despite capital outlays far exceeding those of Union Pacific (UNP), its main rival.

Buffett's ABCs for New CEO

Buffett strongly suggested in his letter that his potential successor already works within Berkshire and laid out the challenges facing his successor as Berkshire grows ever larger.

He said Berkshire's earnings and capital resources will eventually reach a level where management will not be able to intelligently reinvest all of the company's earnings.

"At that time our directors will need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both," Buffett said.

Buffett said his successor will also need to avoid the "debilitating forces" that decades ago befell companies such as General Motors (GM), IBM (IBM), Sears Roebuck and U.S. Steel (X).

"My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency," he said. "When these corporate cancers metastasize, even the strongest of companies can falter."

Buffett has run Berkshire since 1965, transforming it from a failing textile company into a conglomerate with a $363 billion market value and more than 80 operating businesses in such areas as insurance, railroads, energy, food and apparel.

The Omaha, Nebraska-based company also has more than $117 billion of equity investments.

Abel, Jain Top Contenders

Age will also be a factor, and Buffett said Berkshire may be best off if his successor stays on for at least a decade.

"Our directors also believe that an incoming CEO should be relatively young, so that he or she can have a long run in the job," Buffett wrote. "It's hard to teach a new dog old tricks. And they are not likely to retire at 65 either -- or have you noticed?"

Buffett also said Berkshire's directors believe future CEOs should be internal candidates they know well.

Abel, 52, leads Berkshire Hathaway Energy, and Jain, 63, has been Buffett's top insurance deputy for three decades.

In Saturday's letter, Buffett said: "Ajit's underwriting skills are unmatched. His mind, moreover, is an idea factory that is always looking for more lines of business he can add to his current assortment."

In last year's letter, Buffett called Abel an "extraordinary manager."

Bill Smead, who oversees $1.3 billion at Smead Capital Management in Seattle and invests $55 million in Berkshire, called Jain a "brilliant" insurance executive but said Abel could be a better fit as CEO.

"I think you want someone who is good at overseeing numerous stand-alone companies," he said. "That would be advantage Abel."

Because Berkshire Hathaway Energy is a "mini-conglomerate" itself, "you practice in the miniature and then ultimately that puts you in the position to be the one," Smead said.

 

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Hyundai Recalls 263,000 Cars for Power-Steering Problem

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Hyundai Recall
AP
NEW YORK -- Hyundai is recalling about 263,000 cars in the U.S. and Canada because a sensor problem could cause drivers to lose power-assisted steering.

The company hasn't reported any injuries or accidents. A representative for Hyundai Motor America wasn't immediately available for comment.

The National Highway Traffic Safety Administration says a sensor in the affected cars could detect a discrepancy in the steering input and signals and disable power-assisted steering as a result. Cars would revert to manual steering and require greater effort to steer at low speeds, raising the risk of a crash.

Hyundai Motor America says it plans to notify owners and that dealers will fix the control unit of the electronic power steering at no cost.

The affected cars include model years 2008 to 2010 of Elantras made between June 1, 2008 and April 30, 2010 and Elantra Touring vehicles made between Nov. 1, 2008 and April 30.

The recall includes nearly 205,000 cars in the U.S. and about another 58,000 in Canada.

Owners can contact Hyundai's customer service at 855-671-3059.

 

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