CONSUMER REPORTS MONEY ADVISER NEWS

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CONSUMER REPORTS MONEY ADVISER NEWS — MAY 2008

HOW TO GET THE BEST CURRENCY EXCHANGE RATE AT HOME OR ABROAD

Travelers probably won’t be finding many bargains abroad this summer because of the weak U.S. dollar. However, they can avoid making their trips even costlier by not paying more than necessary to convert greenbacks to euros or yen.

CRMA editors evaluated the pros and cons of converting cash at home before the trip, exchanging it overseas, using credit cards abroad, buying a prepaid debit card, and using traveler’s checks. Among their tips: Look for ATMs that are part of the Cirrus (MasterCard) network or PLUS (Visa) networks; know PINs as numbers, since the keypads on some foreign ATMs don’t have alphabet characters; be aware that the exchange rate given by a hotel or store for a credit card could change before the charge is posted to the account; and keep in mind that prepaid debit cards often carry a long list of fees for everything from withdrawals to reloading funds.

PENSIONS ARE SECURE BUT PROBABLY SMALLER
Tips to protect pensions against five possible hazards

Some three-quarters of Consumer Reports readers who had a defined-benefit pension said in a recent survey that they expect it to provide a significant portion of their income during retirement. Yet the percentage of American workers covered by defined-benefit pension plans has been steadily shrinking in recent years; as emphasis has shifted steadily to defined-contribution plans like 401(k)s.

The editors of CRMA outlined possible pension hazards including pension freezes, where an employer stops the clock that ticks off credit for each year of service a worker racks up at a company; cash-balance conversions when a company converts a pension to a cash-balance plan to reduce annual cost and long-term liability, resulting in a smaller benefit; and when an employer tinkers with the benefit formula including changing the “compensation” part of the equation from the final (typically the highest-paying year) to an average of the last three to five years or to a career average.

CRMA’s experts suggest several tips for consumers so they won’t be caught off guard by changes to their pension. These include using tax-deferred or Roth-type savings vehicles to save more money now, lobbying against cut-backs with fellow employees, and planning a longer work life.

HOW TO FINANCE A NEW BUSINESS

For some recently laid-off workers or people offered an early-retirement package who don’t want to go back to the 9-5 treadmill, starting their own business seems like an appealing alternative. CRMA’s experts outline how entrepreneurs can tap a variety of sources and their pros and cons.

Some 68 percent of start-up financing comes from personal savings, 401 (k) plans and home equity from the business owners themselves. For many people, using personal assets is ideal because they won’t have to pay interest or fees to get it. But using it might put other goals at risk, like financing a child’s college education or securing a comfortable retirement. And there are downsides from using retirement savings for capital as well: Consumers will have to pay tax on any money they withdraw. An alternative is to tap into a 401 (k) plan while still employed and start a business then. Workers can borrow against it if the plan allows, typically up to $50,000. But they will have to pay it back quickly—typically within 30 days—if they leave the job.

For those would-be business owners without sufficient assets to draw upon, other alternatives include borrowing from family and friends, perhaps at a lower interest rate than might be obtained elsewhere: Using credit cards for start-up funds, small-business loans from banks, and the newest option —peer-to-peer lending from Web sites.

CR Money Adviser – May ‘08
© Consumers Union 2008. The material above is intended for legitimate news entities only; it may not be used for commercial or promotional purposes. Consumer Reports Money Adviser® is published by Consumers Union, an expert, independent nonprofit organization whose mission is to work for a fair, just, and safe marketplace for all consumers and to empower consumers to protect themselves. To achieve this mission, we test, inform, and protect. To maintain our independence and impartiality, CU accepts no outside advertising, no free test samples, and has no agenda other than the interests of consumers. CU supports itself through the sale of our information products and services, individual contributions, and a few noncommercial grants.