Happier, healthier views of retirement

Despite all the gloomy predictions about Americans and retirement, two recent studies offer some reasons for optimism:

One study, published last month, enjoyed a burst of media attention for finding that as people get older they tend to become happier. But unmentioned in any of the newspaper accounts I saw was this related finding: Retirees tend to be happier than those who are working full-time. The study, by a University of Chicago sociologist, was originally published in the American Sociological Review.

Another study, released last fall, looked at the effect of retirement on people’s health, a subject of considerable folklore. The authors, from the University of Michigan and the Urban Institute, found no evidence that retirement was harmful and said it appeared, in fact, to have a positive health effect on men.

The two studies also align with our own survey of retired ConsumerReports.org subscribers, which found them to be a satisfied bunch, by and large.

So there you have it: Retirees are happier and, in the case of guys at least, healthier. What next: Smarter? Luckier? Better dancers? We await further research.

What do you think? Please let us know, below. Or join the discussions at our online retirement forum. —Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.

 

Don’t get taken in by charity scams

Devastating natural disasters like the recent cyclone in Myanmar and the earthquake in China move many to reach into their pockets to help. They also bring out the opportunists who seek to cash in on that benevolence through scam charities. So before you donate money, make sure you’re giving to a legitimate organization, warns the Federal Trade Commission and Better Business Bureau.

Bogus groups solicit donations using e-mail, telemarketing, and other methods. In the past, scam organizations have sprung up just hours after a disaster.

The FTC offers a charity checklist that's worth reviewing before you give. The BBB has issued a warning about potential fund-raising scams in connection with the crisis in Myanmar

Here are some things to keep in mind:

• Be careful about giving online, especially in response to unsolicited e-mail, which may contain links to phony Web sites that resemble those of well-known charities.
• Don’t provide credit card information until you’ve reviewed all the information from the charity, including details about how the donation will be used.
• If you’re being solicited by a telemarketer, contact the charity directly to make sure the solicitation is authorized. Ask how much of your donation will go to the organization, as opposed to the fund-raising firm.
• Find out if the charity is providing direct, on-the-ground relief or simply raising money for other charities. Get information at InterAction, the nation’s largest coalition of international relief organizations.
• Find out whether the donation is tax deductible and, if so, ask for a receipt stating the amount and its deductibility. (Just because an organization is tax-exempt doesn’t mean a donation automatically is deductible.) To be safe, donate to a U.S.-based charitable organization that’s tax-exempt under section 501(c)(3) of the Internal Revenue Code. See IRS Publication 78 for a current list of organizations eligible to receive contributions deductible as charitable gifts.
• Avoid donating cash.

Beyond these recommendations, you can ensure that the bulk of your donation goes to good works by giving the money directly to the charity, rather than through professional fund-raisers.

Also, check out well-known national organizations by visiting the Web sites of the Better Business Bureau or one of the other leading charity watchdogs. The Consumer Reports Money Adviser newsletter offers additional advice. —Anthony Giorgianni

Lower rates easing burden for some ARM borrowers

While Congress and the White House continue working on how to help homeowners with adjustable rate mortgage resets that have sent monthly payments through the roof, some relief is already on the way, thanks to lower interest rates.

ARM rates tend to follow movements in the short-term federal funds rate, which the Federal Reserve has lowered by 3.25 percentage points since last September. The index used for most hybrid and one-year ARMS, the one-year Treasury Constant Maturity, has dropped 2.3 percentage points in that time.

How much does that help? ARMs typically tack a margin of 2.75 percentage points onto the TCM index rate. Thus, a 3/1 ARM that had an initial rate of 5 percent when it originated in May 2005 would have reset to 7 percent this month if interest rates had stayed where they were before the Fed started cutting rates last year (assuming that annual adjustments are capped at 2 points, which is typical of many ARMs). Instead, the Fed cuts have brought the TCM index down to 1.93 percent, which results in a slight drop in rate—to 4.625—when the ARM resets. The drop cuts the monthly payment on a $300,000 mortgage to $1,547 from  $1,610.

The rate cuts are “absolutely” helping ARM borrowers, says Keith Gumbinger, vice president of HSH Associates, a mortgage-rate publisher in Pompton Lakes, N.J. “Even where they haven’t completely obliterated rate increases, they’ve ameliorated them.”

Lower interest rates only go so far, however, if the terms of the loans are stacked against the homeowner, as is the case with many subprime ARMs, according to data in a recent study (PDF download) by the Federal Reserve Bank of New York. For example, the 2/28 ARM, a subprime loan offered by New Century Financial, the second-biggest subprime originator in 2006, charged a “teaser” rate of 8.64 percent on average the first two years before resetting. Like many subprime mortgages, this one was tied to the 6-month London Interbank Offered Rate (LIBOR) index, with a whopping 6.22 points added as a margin.

So if last September’s 5.4 percent LIBOR rate remained in effect this month, this ARM would have reset to 10.13 percent. (A 1.49 point initial rate adjustment cap limits the hike somewhat.) Unfortunately, these loans reset every six months, so the rate would jump again to 11.62 percent in November (again assuming a 5.4 percent LIBOR). That would have added $6,610 to the mortgage’s annual cost.

With the recent rate drops, however, this ARM would reset to 8.9 percent (assuming the applicable LIBOR for a May reset remains where it stands now and for the rest of this year). That still increases the annual cost of the mortgage, but only by $770. “Subprime borrowers are not getting a lot of relief, but they’re no longer getting hammered,” Gumbinger says.

As if the New Century 2/28 was not anti-consumer enough, it also came with an interest rate floor equal to the teaser rate and a lifetime rate cap of 15.62 percentage points. Fortunately, 2/28 mortgages are now virtually defunct.—Jeff Blyskal

Stimulus payment expectations--and realities

The last batch of direct-deposit stimulus payments is scheduled to go out this week to electronic early birds: qualifying taxpayers who 1) arranged for direct-deposit of their refunds and 2) filed early enough to have their tax returns processed by April 15. After this week, other folks can start to expect their payments, either by direct deposit or by paper check. In general, you'll get your stimulus payment the same way you got your refund. (For guidance on when yours might arrive, check the IRS's payment schedule).

As I've mentioned before, there are a number of reasons why you might not get your stimulus payment by direct-deposit even if you got your refund that way. That can be frustrating, but not the end of the world. You should get the payment by paper check, most likely by July 11.

But even early birds who already have received their stimulus payments aren't necessarily singing a happy tune. A number of readers tell me they expected much more. The IRS says it will be sending hard-copy notices to taxpayers to explain the calculations it used to determine their payments. So sit tight.

While you're waiting for that notice, however, you can read the IRS's general explanations, below, for lower-than-expected stimulus payments. Foremost, keep in mind that the stimulus payments of $600 per single/head-of-household filer and $1,200 per married couple are maximum amounts, not flat sums. They can be less, depending on your income.

You might not get the maximum stimulus payment because:

* You are single and your net income tax liability is less than $600. If you file Form 1040 net income tax liability is the amount shown on Line 57, plus the amount on Line 52.
* You are married and your net income tax liability is less than $1,200.
* You are single and your adjusted gross income (AGI) is more than $75,000. On Form 1040, AGI is the amount on Line 37.
* You are married filing a joint return and your AGI is more than $150,000.
* You owe back taxes.
* You have non-tax federal debts such as unpaid student loans or child-support obligations.

I'd add that dependent chidlren age 17 and over don't qualify for the $300-per-child stimulus payment. Adult dependents don't qualify either.

Look for more at the IRS Web site, www.irs.gov. If you're still not satisfied upon seeing your IRS notice, you can try calling 1-866-234-2942 and wait for a human being to help you. But I'd wait a few weeks to do so, as those lines are currently very busy.

--Tobie Stanger

New state-by-state resource for caregivers

For anyone who’s helping look after an older relative, the Family Caregiver Alliance’s state-by-state Family Care Navigator, which we mentioned in a blog post last month, is now up and running. Just click on this map for information on services available in your or your relative’s state.

Series I Savings Bonds pay nothing

Well, not quite nothing. But for the first time since these inflation-adjusted savings bonds were introduced in 1998, Series I bonds bought from now through October won't pay any fixed-rate interest. You'll still keep up with the inflation, but only just.

The earnings rate of Series I Savings bonds is a combination of the fixed rate, as set by the U.S. Treasury, plus a rate that tracks the rate of inflation, as measured by the Consumer Price Index. As of May 1, the fixed-rate portion was set at zero percent; the inflation component was set at an annual rate of 4.84 percent. So, based on the current reading, I bonds will pay a 4.84 percent annual percentage yield through the end of October. Every six months thereafter, the payout readjusts to conform with newer CPI readings, but the fixed rate will remain at zero.

On the one hand, not paying anything above and beyond the "official" rate of inflation seems a bit miserly.  However, the interest you earn is exempt from local and state taxes, as long as you don't touch the principal, and finding a commercial instrument yielding as much is a tall order these days.  —Chris Horymski

Where's my stimulus payment (tax rebate)?

The IRS recently posted a new interactive worksheet on its Web site, "Where's My Stimulus Payment?" It's intended to help taxpayers determine the status of their stimulus payment: how much it is, when it should arrive, and how it will be delivered. You only need three pieces of information to use it: the Social Security number of the first person listed on the tax return, filing status (single, married filing jointly, etc.), and the number of exemptions claimed on the return.

You are welcome to try it, but don't be surprised if you end up frustrated. The IRS interactive indeed told how much my husband and I, who filed separately, would receive of the basic stimulus payment by this Friday. But didn't explain why we wouldn't get credit for our 14-year-old daughter, whom my husband claimed as a dependent.

Several colleagues and commenters on this blog tried the system and got the equivalent of no answer at all. One got the response, "We are sorry but we cannot tell you the status of your Stimulus payment." Another got, "We are sorry. Specific information about your Stimulus payment is not available."

In fact, it appears that "Where's My Stimulus Payment" is only useful when the payment is nearly in your hands. As it told one colleague, "Specific information about your Stimulus Payment will not be available until about one week before your payment is scheduled to be issued. " An IRS spokesman told me basically the same thing.

A lot of good that does.

In the mean time, check the IRS's rebate payment schedule, which may be able to tell you the week in which you can expect your rebate.

And if you received your rebate and disagree with the amount or don't understand why you got what you got, call the Refund Hotline at 1-866-234-2942 and wait for a human being. An IRS representative wasn't able to help me because I didn't have certain information at hand, but perhaps you'll be luckier.

--Tobie Stanger

Proposed rules take aim at abusive credit card and bank practices

Federal banking regulators this week proposed new rules to end some of the most criticized practices consumers face when they use their credit cards or overdraw their bank accounts.

The proposal, adopted by the Federal Reserve Board, Office of Thrift Supervision, and National Credit Union Administration is headed for a 75-day public comment, after which it could be modified. You can read a 2-page summary or the 269-page full proposal online. (Start on page 153 to see the actual rule.)

Among the changes, the new rules would:

• Force card issuers to give consumers a reasonable time, such as 21 days (including mail time), to make a payment before imposing late charges and other penalties.
• Limit the practice of applying payments to the lowest-rate portion of a multi-rate balance, such as the 0 percent portion balance instead of a 21 percent cash advance portion.
• Prohibit issuers from raising rates on existing balances, unless there is a variable rate, a promotional rate that is lost or expires, or a cardholder's payment is delinquent for at least 30 days.
• Eliminate the two-cycle method of calculating interest rates, which can penalize cardholders who occasionally carry a balance.
• Stop issuers from charging credit card account fees or security deposits if those fees or deposits would use up the majority of the available credit limit. Fees that exceed 25 percent of the credit limit would have to be spread over a year instead of being charged as a lump sum at the account opening.
• Prevent issuers from charging over-limit fees when a retailer's hold is the only reason the consumer exceeded the limit. Gas stations, hotels, restaurants, car rental companies, among other retailers, often place a hold on a portion of the credit line in anticipation of how much consumers may charge after, for example, completing use of a rental car or a hotel stay. Those holds can take days to disappear, causing consumers to unwittingly exceed their credit limits.
• Prohibit banks from charging a fee after paying an overdraft unless they have first given customers a chance to opt-out of overdraft payments. The rule would apply to any transaction that causes the overdraft, including use of checks, debits card, ATM withdrawals, and recurring payments.

The proposal drew praise from consumer advocacy organizations, including Consumers Union, which has long been calling for credit card reform. However, the organization issued a statement that said the rules need to go further.--Anthony Giorgianni