Stocks, Retirement, Debit Cards, Mortgages
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Investors should be skeptical of "pro forma" information reported in press releases that companies put out to announce their earnings and operation results, the US Securities and Exchange Commission warns in a newly issued investor alert. More and more, companies are calculating their earnings in idiosyncratic fashion, rather than sticking with accepted accounting principles. Often they base earnings figures on assumed or anticipated facts to highlight a company's future prospects. However, reports may be selectively edited to showcase positive results, making them difficult to compare with earnings in the past or reports from other companies.
To get a more accurate picture of a company's financial health, check its reported net income either in annual reports or in financial statements filed with the SEC before you invest. You can find these numbers in the annual reports on Form 10-K on the SEC's Web site, www.sec.gov/edgar.shtml .
Baby boomers underestimate how much money they'll need for a comfortable retirement, and aren't saving enough to meet even their own modest predictions, says a study sponsored by Allstate Financial, a business unit of Allstate Corp. Nearly 80 percent of people between the ages of 37 and 55 say they're prepared to meet their financial needs in retirement, and think they'll need an average of $30,000 a year for basic living expenses. But they've saved only $120,000just 12 percent of what they say they'll need for a 20-year retirement. To have $30,000 a year, they'd need to put away about $1 million, assuming an 8 percent return on savings and a 4 percent annual inflation rate.
Nearly three out of five baby boomers also expect to be in debt during retirement: 27 percent say they'll still pay a mortgage after they retire, 37 percent expect to make car payments, and 25 percent say they'll have credit card debt to clear away. Nearly 30 percent say they'll also be financially responsible for children or grandchildren over 18 years old, and 15 percent expect to provide for elderly parents. These obligations will further strain the small nest egg most people have put away.
More shoppers are using debit cards instead of cash, says a new survey by the American Bankers Association. Shoppers used debit cards in 26 percent of retail purchases in 2001, up from 21 percent in 1999. In contrast, buyers relied on cash for 33 percent of purchases in 2001, compared with 39 percent in 1999. Credit card use remained almost the same, at 21 percent.
Debit cards, however, carry some drawbacks. If the card is stolen, the thief has access to your bank account. By the time you realize it, your checks could start bouncing. Debit cards issued by Visa or MasterCard offer you zero liability in case of loss or theft; be aware that other cards may leave you open to greater liability.
Debit cards also lack the consumer protection of credit cards. You may not be able to stop payment in a disputed sale, because funds are deducted from your account almost immediately. In addition, the Fair Credit Billing Act allows you to withhold payment if you buy a defective product with a credit card, but not with a debit card.
If you're buying a big house, you won't have to shell out higher interest on a jumbo loan unless you need to borrow more than $300,700. Fannie Mae and Freddie Mac, the government-chartered sources of mortgage financing, have increased the limits on how large a loan they'll approve, reflecting the higher price of houses nationwide. For second mortgages from Fannie Mae, the new limit is $150,350. (Rates are higher in Alaska and Hawaii.)
Homebuyers who need more than $300,700 must take out jumbo loans, which usually carry higher interest rates than conventional mortgages. Average rates for a 30-year fixed jumbo loan were 7.10 percent as of Jan. 2, compared with 6.70 percent for a conventional 30-year fixed mortgage, according to Bankrate.com, an online consumer finance service.
Yvonne Wollenberg. Financial Beat. Medical Economics 2002;2:15.