Lessons from Ask Kim's Mailbag
Instead of answering a question today, I'd like to take a moment to comment on some of the trends I've noticed in your questions over the year, which teach me a lot about the topics that are most important to you.
Your questions have been excellent. Back when I started writing this column ten years ago, only a few questions would trickle in through the mail every month. Most would be about tracking down the value of old stock certificates or collectibles. The Antiques Roadshow was big back then, and everyone was hoping to find a surprisingly valuable treasure among the musty furniture that had been sitting in their attics.
Now I get hundreds of questions every month, and they're a lot more complex. The Internet made it easy to get answers to your basic financial questions on your own -- What are the rules for qualifying for a Roth IRA? How do you find the historical returns for a mutual fund? So you've moved on to much tougher questions.
Most of the questions I receive now focus on juggling multiple financial priorities: If you can only afford to save a certain amount of money each year, where should you invest first -- in an IRA, 401(k) or somewhere else? Which strategy will maximize the tax benefits and help you stretch the money even further? If you have some extra money from a raise or bonus, should you use it to pay off debt, add to your mortgage, or invest for retirement? And how do you juggle saving for both retirement and your children's college?
These questions are a lot more difficult to answer -- but a lot more important, too. They help put all of the information into context so you can build your overall financial plan.
I've been so impressed by the number of people who already have been maxing out their retirement plans and are wondering what to do next. Even though national savings rates are low, Kiplinger's readers are acutely aware that it's up to them to make sure they have enough money in retirement and are searching for strategies to make the most of their savings.
And I hear from many more young people than in the past. I think the Internet has made personal finance information a lot more accessible to them. I receive a lot of questions from people in their twenties who have just started their first jobs and are wondering what they should be doing now to get off to a great head start.
Even people who don't have much money to save -- whether they're young and just starting out, or older and stretched thin by family obligations -- have been asking what they can do to lower their insurance costs, cut their tax bills and squeeze some extra money out of their paychecks so they can save at least a little bit. They're all learning how much is at stake if you don't start saving until later.
Meanwhile, I've been getting plenty of questions on the other end of the age spectrum. As the baby boomers start to retire, they've been shifting their focus from saving to spending. They're wondering which retirement accounts to tap first to stretch the tax benefits and how to minimize the risk of outliving their money. Many have seen their parents struggle with the costs of long-term care and are wondering what they can do to protect their own retirement savings from those astronomical expenses if they end up needing long-term care themselves.
Early retirees also are searching for ways to deal with rising health insurance costs until they turn 65. And even seniors who qualify for Medicare realize they need to make some key choices about how to fill in the coverage gaps. I was swamped with questions about the Medicare prescription drug program from retirees who were searching for strategies to make the most of the new benefit.
Even though many people are off to a great start, others are having a tough time saving because they're deep in debt. I frequently receive questions from young people who want to start saving for retirement but are struggling under tens of thousands -- or sometimes more than $100,000 -- in student-loan debt. Some have built up big credit-card debt, too, and want to know what to pay off first.
And even people who don't have big debt problems have a lot of questions about managing their loans -- such as whether they should add extra money to their mortgage or invest, or how to improve their credit score and lower their interest costs even further. In fact, credit score questions were the most common questions I received throughout the year. Some people had low scores and were looking for strategies to turn them around; others have good scores but wanted to make them even better.
It's great to see that people are learning about some key issues that have a tremendous impact on their finances. They've discovered how much of a difference a good credit score makes in all of their finances -- not just for getting good interest rates on loans, but also for getting good insurance rates and even getting an apartment and a job. And they have learned that paying a lot of money in interest can make it much more difficult to reach the rest of their financial goals.
Whether you're in good financial shape or just starting out, you've asked so many great questions throughout the year. I'm glad I've had an opportunity to explain some key strategies that can help you make the most of your financial situation. I've learned a lot from you, too. Some of your questions are so good that we hadn't thought about them ourselves, which gives us great ideas for future articles. And hearing the stories of your experiences helps remind us about what is most important -- not just the financial theory, but how to apply all of the information in real life. Based on your questions, you're off to a great start. I look forward to continuing to hear from you next year!
Got a question? Ask Kim at email@example.com.