The cost of many prescription and over the counter drugs, specifically generics, has declined in recent years. I give full credit to Wal-Mart for this wonderful price reduction. When they introduced prescription drugs for $4 / month, everyone thought they were crazy. Now every major drug retailer has followed there lead and has a similar program in place. No federal government program was needed to bring down the costs, just a great retailer like Wal-Mart. (As a side note - it amazes me that Mayor Menino wants to keep Wal-Mart out of Boston. Apparently his union supporters take precedent over low cost, life saving medicine for the citizens of Boston.)

However, prescription drugs that maintain their patent protection are still very expensive. Methods to cut cost are not so apparent. Nevertheless, I recently heard of a method that in some cases can cut and individual’s drug cost in half. Furthermore, it is so simple; I am ashamed it never had crossed my mind. The process is as follows: simply ask your doctor to prescribe to you two times the required dose of the drug you need. Then, simply cut the pill in half. The single pill becomes two pills and you get twice the drugs for usually the same price. My understanding is that most drugs cost the same amount regardless of their dosage. If you need 30 milligrams of a drug once per day, ask for a 60 milligrams prescription. Obviously, you need to confirm with your doctor that this is an option and will not reduce the efficacy of the drug. For certain drugs, i.e. those in capsule form, extended release, etc. it is not an effective option. However if the doctor agrees that the drug can be split without reducing efficacy, it may be worth a try.

Flexible Spending Accounts (FSA) are a great way to reduce your taxes but you can lose money if you don’t spend it before the end of the year. FSAs allow you to set aside money on a pre-tax basis for deductible medical expenses that are not covered by your health insurance plan. However, any funds left in your FSA account are forfeited if not spent by the end of the coverage period which is typically Dec. 31. Some plans will allow you to get reimbursed for expenses incurred after Dec. 31 but it depends on your particular plan so be sure to check with your employer.

FSAs are employer-sponsored accounts that allow employees to make pre-tax contributions. The contributions can be used by the employee to pay for out-of-pocket medical expenses (i.e., deductible medical expenses that are not covered by the employee’s health insurance plan). Employee contributions in a FSA are “use-it-or-lose-it” meaning that the employee needs to spend the money in the account before the coverage period ends otherwise the unused funds will be forfeited. The coverage period depends on your employer’s specific plan however, many plans follow the calendar year.

If your coverage period ends on Dec 31 and you have not used all of the funds in your FSA here are some medical expenses that are typically covered.

* Deductibles and co-pays for medical and dental visits and treatments.
* Medical expenses for dental treatments including fees paid to dentists for X-rays, fillings, braces, extractions, dentures, etc. Generally, teeth whitening expenses are not deductible medical expenses.
* Fees for acupuncture or chiropractic treatments.
* Medical expenses for an inpatient's treatment at a therapeutic center for alcohol addiction. This includes meals and lodging provided by the center during treatment.
* Fees for ambulance services.
* Medical expenses for breast reconstruction surgery following a mastectomy for cancer.
* Medical expenses for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent.
* Contact lenses needed for medical reasons and the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. You can also include expenses for eyeglasses and laser eye surgery or radial keratotomy.
* Medical expenses for in-patient care at a hospital or similar institution if a principal reason for being there is to receive medical care. This includes amounts paid for meals and lodging.
* Insurance premiums you pay for policies that cover medical care.
* Medical expenses for psychiatric care and psychoanalysis.
For more information about deductible medical expenses, visit the IRS’ web site and review Publication 502. http://www.irs.gov/publications/p502/ar02.html#en_US_publink100014786

My job usually takes me to Western Europe once or twice a year. In the last ten years, I have probably crossed the Atlantic about 20 times. In my younger days, I used to enjoy this very much. However, the illusions of grandeur are no more.

Traveling abroad is very expensive. The dollar is weak and we unsuspecting travelers often end up in overpriced tourist traps. If your job or a vacation takes over the pond, here are a few things that can save some money or a little time:

I recently checked my I-Bonds and saw they were earning zero percent interest. I also found a note “P5” which said there was a 3 month penalty being assessed. Why would I be assessed a penalty? They have not been touched since I bought them?

Last month I wrote a post about the zero percent composite rate currently being earned in I-Bonds and how that rate is calculated (http://www.boston.com/business/personalfinance/managingyourmoney/archives/2009/06/understanding_i.html). In that posting, I also mentioned how I-Bonds are subject to a penalty if redeemed within 5 years of when they are purchased. Specifically, I-Bonds issued in May 1997 or later will be penalized for 3 months worth of interest if they are redeemed within 5 years of their issuance date. This penalty is noted on the I-Bonds using the “P5” notation. You will see this notation when you look up the current value of your bond using the U.S. Treasury’s Savings Bond Calculator (http://www.treasurydirect.gov/indiv/tools/tools_savingsbondcalc.htm).

If you look up the value of your bond and you see a P5 notation on it, it means that your bond would be subject to the penalty if you redeemed it at that point in time. In other words, it means that your bond has not exceeded the 5-year holding period yet. Furthermore, the value or yield on your bond (at that point in time) already reflects the penalty. Keep in mind that you only get penalized if you redeem the bond. If you continue to hold it, the P5 notation will be removed once you exceed the 5-year holding period and the value of your bond will reflect an amount without the penalty.

According to a list published by the Pension Rights Center, almost 200 companies have eliminated or reduced the employer match on 401(k) plans since December of 2008. Many of the companies on the list like Chrysler, Ford and GM are in dire financial condition but some of the others are big names and may surprise you -- NCR, UPS, Hewlett Packard, Morningstar, Paychex, Xerox, Forbes, NPR and AARP.

The loss of the employer match can have a noticeable impact on how much you are able to save for retirement. If you earn $80,000 a year and your employer matches 50 cents on the dollar for your contributions up to 6 percent of pay, a single year of missed matching will cost you $2,400. If the matching is suspended for several years, and you "miss" several decades of growth of the money, the impact is pretty dramatic. To mitigate the impact, you should consider increasing your own contributions and contributing to other savings vehicles like traditional and Roth IRAs.

Is this happening to you? Has it caused you to stop participating in your company's plan? Write in and tell us about how you are dealing with the change.

What is the difference between a money market mutual fund and a money market deposit account?
Good question! As investors continue to move money into more conservative holdings such as cash and cash equivalent investments, it is important to understand the difference between a money market mutual fund (sometimes known as a money market fund or a money fund) and a money market deposit account.

Money market funds and money market deposit accounts are similar in that they both usually invest in short-term, fixed income investments such as U.S. Treasuries. By definition, short-term, fixed income investments are those with maturities of less than one year. Both money market funds and money market deposit accounts usually offer higher rates of return than traditional savings accounts due to the fact that the short-term investments they use have the potential for higher returns. Both types of investments offer flexibility and liquidity as you can often write checks against these accounts and make ATM withdrawals from them.

Happy New Year to everyone. Like me, you are probably happy that 2008 is behind us and hopeful that 2009 will be better for the economy. Let's start the year off right with one resolution. If there is one thing we can all do to better our circumstances it would be to save more.

As a nation we save less than 3 percent of our income. According to the Employee Benefit Research Institute most people between the ages of 19 and 39 have less than $10,000 in savings. Almost 60 percent of workers over age 55 have saved less than $100,000. Nobody under age 60 can be really sure what Social Security benefits we'll receive when we reach retirement, so the onus is on ourselves to save what we need if we hope to retire.

My wife and I have a monthly mortgage payment of $3,200 per month and our combined income is $180,000. We each made the maximum contribution to our 401(k) accounts of $15,500. I calculated that for the past 3 years, if we had redirected our 401(k) contributions to pay down our mortgage we would have done much better. Do you think it is wise to pay off our mortgage as opposed to contribute to our 401(k) account?

Wealth management, like life, has many risk and reward opportunities. Over the Thanksgiving holiday, my wife, daughter and I piled into our car and drove to New Jersey to visit relatives. We were fortunate to hit little traffic and for much of the way I set the cruise control at 72 miles per hour. I wanted to get to New Jersey as quickly as possible, but did not want the risk of getting a speeding ticket. I felt that at 72 miles an hour, I was unlikely to get a ticket in a 65 mile per hour zone. This was the maximum speed I could drive without significant risk of being pulled over. Unlike Burt Reynolds in “Smokey and the Bandit”, my appetite for risk of receiving a ticket was pretty low and I did not want to encounter Sheriff Buford T. Justice (Jackie Gleason).

We just had a son and want to open some type of bank account. Any suggestions? He is too young for ING or HSBC account, can we do some other type of high interest, risk free account? Money market?

Congratulations on the birth of your new son! I think it is a great idea to start a savings plan for him. It was not clear if your intent for this savings account is to use it for future educational expenses or as a general way to save money for him. If you are looking to start a college savings plan, there are many options available to you. Some of the more common ones include 529 college savings plans, prepaid college tuition plans, Coverdell education savings accounts and custodial trust accounts. Many college savings plans will offer tax advantages that you will not receive from most general savings accounts, money market accounts or CDs (certificates of deposit).

Good news! The limits on several retirement plans are due to increase in 2009. Be sure you visit your payroll/benefits office to sign up for the maximum contribution permitted.

In 2009, you can contribute $16,500 to your 401(k). That is $1,000 higher than in 2008. If you are age 50 or higher, you will be able to contribute $22,000 - an increase of $1,500. These increased limits also apply to 403(b) plans and 457 plans.

Unfortunately, there are no increases in the amounts you are able to contribute to traditional and Roth IRAs. Those limits remain at $5,000 and $6,000 if you are age 50 or older.

While these increased limits are good news, there is also some bad "tax news" to throw into the mix. That bad news comes in the form of a higher Social Security wage base in 2009. In 2009, wages up to $106,800 will be subject to 6.2 percent in FICA taxes and 1.45 percent in Medicare taxes. In 2008, the limit was $102,000 so this increased limit causes an extra $298 tax bill for employees.

Web-based banks like ING Direct, HSBC Direct and Emigrant are extremely popular among savers looking for great rates. They often pay significantly more than your local bank and credit union.

The only "downside" associated with these banks is that you do not have instantaneous access to your money. Usually, it only takes a day or two to move money from the on-line account to your local checking account but as a recent Wall Street Journal article detailed, waits of up to four days are possible. That's a long time when you need the money "yesterday" to pay for a new car or some other expensive purchase.

The Wall Street Journal article explains that funds transferred between two different banks aren't really sent "on-line" as many would expect. Instead there are several steps and these steps are often intentionally slowed down to give banks more time to spot potentially fraudulent activity.

In one example, a client of an online bank needed money quickly to buy a new car. She requested a transfer on Monday morning but the request wasn't processed until Tuesday and on Wednesday the transfer was still listed as "pending." Long story short, the money wasn't available to be used until Thursday.

Most of the online banks clearly state that the transfer process can take as long as four days so really, the burden is on the customer to plan ahead and be aware that it can take as long as four days to have money in your hand ready to spend. Another alternative outlined in the article is to use paper checks. This would entail opening a small checking account at the same bank as the online checking account. In this case, you could very quickly transfer money from the savings account to the checking account and then you could write a paper check which would probably clear as fast or faster than waiting for the previously described bank to bank transfer to happen.

I recently bought a fixer upper condo with a 30-year mortgage. I'd like to renovate the kitchen but would have to tap deep into my rainy day fund to do so. With the economic uncertainty of late, I'm hesitant. How much would you recommend someone keep in their rainy day fund?

I think you should trust your gut instinct on this one and not tap the emergency fund to pay for the kitchen renovation. I'm sure it is tempting because it is a ready supply of money but with all that is going on in the markets right now, you absolutely need an emergency fund.

How much do you need? It varies with an individual's personal circumstances. If you are single, you might want a bigger emergency fund than a married couple who really only needs one income to get by. You should also consider your past employment history. If you are a tenured professor, you can probably have a smaller emergency fund than someone who has a history of working six months to a year at a string of past employers. Also consider your compensation structure. People whose compensation is straight salary might have a smaller emergency fund than someone whose compensation varies widely because they are paid on commission.

So the short answer on what size emergency fund is appropriate is "it depends". The typical size is three to six months of "must pay" expenses. "Must pay" expenses are things like the mortgage, your rent, the car payment, utilities, etc. If you are saving $250 a month for a vacation at the end of the year, I wouldn't include that because that is a discretionary expense. Likewise, if your normal entertainment budget is $700 per month because you eat out a lot and go to a lot of movies, you might reduce that amount drastically if you were unemployed so you wouldn't have to include it in your emergency fund calculations.

The key point is that the emergency fund is not 3 to 6 months of income or take home pay, it is 3 to 6 months of non-discretionary expenses.

I don't know much about finance. My spouse and I only make $80,000. We have no debt but we also have only a small 401(k) and a small savings account. I am concerned that we are not well prepared for retirement but I'm not sure what we should be doing. Is it worth it for us to hire an adviser?

Great question. From your brief description, it seems like you probably don't need anyone to manage your money for you but you could definitely benefit from some professional advice. There are a good number of financial planners that work with people on an hourly or per-project basis. Good places to find these planners include:

The National Association of Personal Financial Advisors' website,
The Financial Planning Association's website, and
The Garrett Planning Network website.

When you call someone that you might like to hire, ask them if they do hourly or project-based work. Expect these individuals to charge approximately $100 to $200 per hour. Since you are paying by the hour, you should be as organized as possible. Have all of your statements and documents assembled before the meeting and prepare a list of questions or topics that you would like to cover. Sending your list of questions in advance of the meeting is also a good idea.

If you just want to get an idea of how well prepared you are for retirement, you can check out some of the many retirement calculators that are available on-line. You can also visit the investor centers of many of the national brokerage companies like Fidelity and Schwab.

According to a recent study by Fidelity Investments, more than a third of the nation's parents have decreased the amount they are saving or have stopped saving entirely for their children's college education. Given the current level of financial anxiety out there and the recent increase in unemployment, this statistic really isn't surprising, but with the market down, now would be an excellent time to be investing new money.

The study also found that 60 percent of parents have at least started saving for college but only 30 percent are investing in a dedicated investment vehicle like a 529 plan. This is interesting because the survey results indicated that most parents can afford to pay just 21 percent of expected college expenses, but parents who save in 529 plans can afford to pay for 40 percent of the expected college expenses.

An even more startling statistic was that 35 percent of the parents surveyed expect that they will have to delay their retirement in order to meet college expenses. These individuals are taking a risk that they will be healthy enough to continue working and that they will have jobs to work at.

If parents are saving less, the remainder has to come from somewhere and the study indicates that 55 percent of parents will be expecting their children to work part time while in college, 44 percent plan to have their children live at home while commuting to college, 37 percent will be encouraging their children to attend a less expensive public school and 23 percent will ask their children to graduate in fewer semesters.

Also, more and more parents will be relying on student loans. In 2007, 52 percent of parents planned to rely on loans to help meet college expenses. In 2008, that figure had risen dramatically to 62 percent.

The American Association of Retired Persons (AARP) conducted a survey last month of over 1,600 baby boomers (defined to be those age 45 and older) and found that 34 percent of the participants are considering a delay in their retirement age and a full 20 percent have stopped contributing to their 401(k) plans over the past year.

That's unfortunate because with the market hitting new lows on what seems to be an everyday basis, now is very definitely the time to keep buying and, if at all possible, increase your contributions. I know that that is easy to say but sometimes hard to do as it does take some faith and a belief in the capital markets.

It also requires some confidence in your personal financial situation. The AARP study further revealed that 27 percent of those surveyed were having difficulty making their rent or mortgage payments and that 13 percent had taken a premature withdrawal from their IRA or 401(k). If your situation is that dire, it probably does make sense to turn off the 401(k) contributions for a while to get yourself back on more solid financial footing. The taxes and penalties associated with a premature withdrawal make it a last ditch option. However, if you are simply worried about the market because it keeps dropping and you have an adequate emergency fund and a well diversified portfolio, the thing to do is keep contributing. Two or three years from now, you will look back on all this market turmoil and wish you had bought more.

For more information about the AARP study, check out this article in the Wall Street Journal.

I have $2,000-$3,000 to either put in a retirement account or use to pay down debt but I am not sure which would be best for me at this time.

Considering the current state of the financial markets and how close I am to retirement, should I invest the $2,000-$3,000 in an IRA or use it to pay down my debt?

My inclination is to use the extra money to pay down debt or possibly to supplement your emergency fund if your emergency fund is on the low side. None of your debt is at a high rate (which would ordinarily make me want to see the money invested) but you will be retiring soon and it would be nice if you could enter retirement with as little debt as possible.

Right now you have $16,000 in credit card debt. That is quite high. I see that the rates are low, but I have to wonder if these rates carry an "expiration" date. If these rates are fixed, I would leave use your extra money to pay down some of the more expensive debt, like the home equity line. (That being said, you should still be trying to pay down your credit card as aggressively as you can.) You are not living within your means if you carrying that level of credit card debt.

These days, with the market so rocky and the job market looking worse and worse, there is definitely something to be said for having a ready supply of cash. In this blog, I have always been an advocate of having an emergency fund. Generally, I recommend a fund equal to 3 to 6 months of your necessary monthly expenses.

Now, more than ever, this emergency fund is critical. If you are worried about your job and your financial security, build this fund up to 6 months of expenses as quickly as you can. Money in the bank can do a lot to ease a worried mind.

A recent Wall Street Journal article suggests that as the big banks get bigger, the best deals for savers might be found at the smaller banks. For example, the average yield for a six month CD is just 2.09 percent but if you are willing to shop around and consider out-of-state and internet banks, you can quite easily find rates that approach and possibly exceed 4 percent.

What many people are doing is keeping a small checking account at the large institutions so they can have easy access to a branch office and large ATM network but they also have accounts in far-flung locations to capture more favorable CD and money market rates.

Credit unions are also becoming more and more popular and they often offer the best rates on CDs and consumer loans. Like regular bank accounts, deposits at credit unions are insured for up to $100,000. Many people don't even consider credit unions because they think the membership criteria is very narrow and they incorrectly believe they won't qualify. Years and years ago, it might have been somewhat difficult to join credit unions, but these days, the membership base for most credit unions is very broad. You might be surprised to find that you are probably eligible to join at least one or two credit unions based simply on where you live or where you work.

I'm 23 years old and fortunate enough to be gainfully employed with very modest debt. My parents shouldered a lot of my tuition payments, but now I realize they should have been saving for their own retirement.

What do I need to know? Should I set it up in their names? What's the best place to put the money, knowing that they'll probably be drawing on it in 5-10 years? Could this count as a gift and therefore be a tax deduction for me?

First, I think it is great that you realize (and so obviously appreciate) the sacrifices that your parents made to get you through college. It is unfortunate that it now appears that their own retirement is in jeopardy. However, the good news is that there are several ways you can help them out.

Assuming your Dad had at least $6,000 in earned income this year, he is able to open a traditional or Roth IRA in the amount of $6,000. You could gift him this money and he could use it to open the IRA in his name. (Unfortunately, you won't be able to take a tax deduction for this gift.) Your Mom could also open a traditional or Roth IRA if she has earned income in 2008 of at least $6,000 (I am assuming she is at least 50 years old). If your Mom does not work, she could open a Spousal IRA assuming your Dad earned at least $12,000 this year. There are many factors to consider when deciding between a Roth and a Traditional IRA and it would take many paragraphs to explain all of them. Which option is better for your parents depends on their personal circumstances, but I'd urge you to look closely at a Roth assuming your parents met the income limits ($159,000 to $169,000 for joint filers).

There are a few rules about gifting that you should be aware of. In 2008, anyone can make a gift to anyone else without the need to file a gift tax return if that gift is $12,000 or less. So, you could give your Dad $12,000 and your Mom another $12,000. This gifting "limit" is based on the calendar year so you can gift again in January, 2009. Plus, in 2009, the amount you can gift increases to $13,000. So you can give each of your parents $12,000 this year for a total of $24,000 and $13,000 each in January for a grand total of $50,000.

Another way you could help your parents would be to volunteer to pay any medical expenses they may be incurring. If you pay the amounts owed directly to the hospital or medical provider, the amount paid does not count against your annual gift tax exclusion. Eligible medical expenses would include any medical expense that would be deductible for income tax purposes. It is critical, though, that the payment be made by you and directly to the provider.

As far as how you should invest the money, I really can't say without knowing more about your parent's personal situation and their tolerance for risk. You, however, might want to do some research on target date funds. Fidelity, Vanguard and T Rowe Price all offer target date funds and picking them is pretty easy because you would simply choose the fund that has a "target date" closest to the year your parents expect to retire and/or need to access the money. A fund with a target date of 2010, for example, could be appropriate for people expecting to retire between 2008 and 2012. It is important to note that these funds can lose money, so if you want to to be absolutely sure that you would never lose a penny, these funds are not for you.

The Federal Deposit Insurance Corporation (FDIC) is hoping to receive permission from Congress to insure greater amounts of deposits. Currently, individual deposits up to $100,000 and retirement accounts up to $250,000 are fully covered by the FDIC.

Even before this proposal was drafted, savers were been able to obtain additional coverage by titling their accounts in certain ways. However, savers were often confused by the different types of accounts and bank employees weren't always very clear in explaining the rules.

Under the new proposal, up to $250,000 in deposits could be insured and the cost of the increased coverage would be incurred by the member banks in the form of higher premiums. This would be good news for investors who have previously distributed their money across many banks in order to obtain full insurance protection. Mutual fund companies, however, are generally not in favor of this proposal because they think it might give banks an unfair operating advantage. To read more about this proposal, check out this recent NY Times article. Also, to learn more about how FDIC deposit insurance works and to estimate the amount of coverage available for your deposits, visit the FDIC website.

"I don't even have one K, let alone 401 Ks" said 23 year old Zack Teibloom in a recent New York Times article.

I had to laugh when I read that quote but what wasn't so funny was the rest of the article that said that only 49 percent of eligible workers in their 20s participate in the 401(k) plans offered by their employers. Less than half! That is pretty discouraging, especially when you consider that most employer's plans provide some form of matching. That means that many workers in their 20s are turning down totally free money.

This is an incredible shame because, as a financial adviser, I know that the people who are well on their way to a secure and fulfilling retirement are almost always the people who started saving even a small percentage of their income as soon as they started their first professional position. It is amazing what saving even 5 or 10 percent of your income can amount to if you start when you are 22. We are talking about four to five DECADES of compounding growth. People who don't start early and wait until they are in their late 30s and early 40s can usually never catch up. The amount they need to save is just too great.

And now is an incredible time to start saving for retirement. When we see a market downturn like we are seeing today, everything you buy is at a reduced price.

My advice to young investors:

Absolutely sign up for your employers 401(k) plan as soon as you are able.

Contribute as much as your budget will allow, ideally enough to capture the full employer match.

You will be saving for 40 years, so a high allocation to equity mutual funds is appropriate.

Whatever you do, don't cash out your balances when you change jobs. Forty percent of workers in their 20s do and that is a huge mistake even when it doesn't seem like a lot of money is involved.

What are the rules for converting a traditional IRA to a Roth IRA? Are there any strategies to avoid paying or reducing the immediate tax bite?

In order to convert a traditional IRA to a Roth IRA in 2008 or 2009, your modified adjusted gross income (MAGI) must not exceed $100,000.

These rules change in 2010 when the $100,000 limit is lifted and you will be able to do a conversion regardless of your income. Of course, any amount that you convert will be subject to income taxes. However, there is another "bonus" arriving in 2010 -- if you do a conversion in that year, it is assumed that you are not paying the taxes until you file your 2011 and 2012 returns. That means that actual payment will not occur until 2012 and 2013.

The surprising thing is that the government actually wants you to do it that way. If you want to pay the taxes due in the year of conversion, you need to specifically elect that treatment on your tax return. While it might seem that the government is being especially nice, many suspect an ulterior motive -- higher tax rates are expected to be in effect in those years. So, it just might make sense to do the conversion in 2010 and pay the taxes right away. If you think you might do a conversion in 2010, it might be a good idea to start saving money to cover the tax bill.

I am 60 years old and only have a small amount in my 401k - approximately $90,000 (in a Fidelity Freedom 2015 account). I know I will never be able to retire on what I have but I don't want to lose the little bit I do have. I want to know, given how the market is going down, should I continue to contribute 15 percent of my salary to my 401k or contribute less and put some after tax money in a savings account?

I would urge you to consider continuing your 401(k) contributions. I know that it can be scary when the newspapers are splashed with headlines about one crisis after another, but you need to stick to your long term plan. If you continue to contribute to your 401(k), the shares you are buying on the days that the market is down 450 or 500 points are incredible bargains. Literally, everything you buy is on sale.

The only real way to "win" the investment game is develop a well diversified portfolio and make a promise to yourself that you will stick with the plan in good times and bad. You have to suffer through the bad in order to capture the good. You can't just have the benefit of equity market returns without also accepting the volatility that comes along with it.

The Fidelity Freedom 2015 is probably a good choice for you if you will be retiring in your mid to late 60s. It gradually becomes more and more conservative so you don't have to think or worry about changing your investment mix.

I am very concerned about my in-laws' financial situation. They are in their mid- and late-60s, still working, and to my knowledge, have no retirement money saved. The only thing that I see as an asset is their house, which is probably worth over $1 million, though I'm certain they have a number of loans against it.

What financial issues should we anticipate as they get older? In cases like this, will the responsibility of paying for their medical treatment (should it be necessary) or debts fall on us?

This is certainly a very tough situation. It seems to me that your in-laws will almost certainly have to continue working well into their 70s and possibly longer. You (and they) have to hope that their health is good enough to permit that.

I would suggest approaching your parents with your concerns. It is possible that they have some retirement savings that you are not aware of. Tell them that you are concerned about their future financial security and ask them if they think they might need some professional assistance. There are many financial planners who do financial "check-ups" and maybe you could arrange one for your in-laws. Cost for these kinds of meetings would be approximately $500. You won't get a full plan with this type of consulation but the planner can make the "tough calls" about what kind of retirement your in-laws will face if they can't change their habits.

If your in-laws started aggressively saving right away, they could still build a retirement nest egg. They should also probably delay taking Social Security until age 70 so they can receive the largest possible benefit. It might also be necessary for them to sell their home, pay off their loans and move to a less expensive property when they retire. They may even have to relocate to a less expensive area of the country.

You would generally not be legally responsible for any of your parents expenses or debts but you might feel an emotional obligation to help them out if their situation becomes particulary dire. If you think this will be the case, you should adjust your financial plans accordingly.

This is one of the big reasons that financial planners always tell clients to save for their own retirement first. It doesn't do anyone any good if parents direct all of their excess savings to their children's college tuition at the expense of their own retirement.

From an investment standpoint is it better to put $3,000 in a flex account to cover my medical/child care or put the $3,000 in a tax deferred 401 plan? If I put it in the flex, I will save $900 in income taxes, but I don't know how to figure if that is really the way to go. Thank you.

I actually don't think this is an either/or question. You would only consider allocating $3,000 to a medical and/or dependent care flexible spending account (FSA) if you knew that you would have medical or childcare expenses that total at least $3,000. If it is a "given" that you have those costs, you will be paying $3,000 in expenses one way or the other. If you can use before tax dollars to cover the expenses by paying for them using an FSA, that is a pretty good deal because you will be getting a "discount".

Your question suggests that you might have $3,000 "extra" to invest. Contributing that amount to your traditional 401(k) would be great and doing so would reduce your taxable income by $3,000 -- just like contributing $3,000 to your FSAs. In addition, the $3,000 contributed to your 401(k) will grow tax deferred for many, many years

FSAs are a great employee benefit and nearly everyone who is eligible should consider participating. In a nutshell, FSAs are tax advantaged programs offered by employers that allow employees to pay eligible medical and childcare expenses using pre-tax dollars.

When you use an FSA to pay for these types of expenses, it is like getting a free discount on expenses you would be paying anyway. The discount is equal to the tax you would have otherwise paid on the money you contributed to the FSAs.

In this example, the person's taxable income is reduced by $3,000 and the "discount" they capture is equal to the tax they would have paid on that $3,000. The exact savings will vary from person to person depending on their marginal tax rate.

You can use a medical flexible spending account to get reimbursed for eligible medical expenses and you can use a dependent care flexible spending account to get reimbursed for qualified childcare expenses for children under the age of 13.

There are no statutory limits on contributions to medical flexible spending accounts, but employers often impose their own limits of $3,000 or $5,000. The limits for dependent care flexible spending accounts are $5,000.

These accounts really are worth the added headache of the associated paperwork. For example, have you ever considered laser eye surgery? This procedure can cost as much as $5,000 and it is not generally covered by insurance. If you can plan ahead and allocate $5,000 to your medical FSA, you can "save" $1,650 on this procedure if you are in the 33% marginal tax bracket. That's probably worth the cost of submitting the required reimbursement forms.

My husband wants me to resign and relocate so we can be together, but I'm not sure how I can retain the same security my employer provides. How can I began to assess this difficult decision?

There are certainly a lot of factors to consider in this situation. Here are my thoughts from the "financial front":

Does your employer provide the health insurance for the family?

If yes, you need to confirm that your husband can get coverage for you and any other family members at a reasonable cost or plan to arrange for COBRA coverage (which will likely cost more than what you are currently paying.)

Does your employer provide you with life insurance benefits?

You don't want to find yourself without life insurance because you have left your job. If you rely on employer-provided coverage, get a private policy instead. But apply now so you won't be without coverage for any period of time.

Does your employer provide you with disability insurance?

If you leave your job, you would lose this very important coverage and the odds of suffering a disability are much higher than most people think. Most people would never think about going without life insurance but disability insurance is actually more important because you are much more likely to be disabled than to die. In fact the average person has a one in five chance of being disabled for a period of time before age 65.

Does your employer offer a retirement plan with a company match or, even better, a pension?

If your employer offers a great retirement plan which would be difficult to find elsewhere, you might want to think hard about leaving this benefit behind.

Have you prepared a realistic budget?

This is essential. If you don't have a firm grasp on your expenses, how do you know that you can afford to live on just one income even for a couple of weeks? It could take several months for you to find a suitable job in your new location. Do you have a sufficient "supplemental income" fund available to tide you over?

Do you have an adequate emergency fund and income reserve?

Assuming that you don't have a job waiting for you somewhere else, do you have an emergency fund equal to three to six months of your typical expenses? If your finances are shaky now, leaving a job voluntarily is probably not a smart move.

How does your credit look?

If your credit isn't in the best of shape, it might be wise to postpone a move and work on improving your credit. A poor credit history can impact your ability to get a new job.

Obviously, money and finances shouldn't be the only factors considered, but they certainly are important. Good luck.

Approximately one year ago, Vanguard instituted a controversial beneficiary designation policy. Under the new policy, which took effect in September 2007, customers must have identical beneficiary designations for all IRAs of the same type. There is no issue if you have only one IRA at Vanguard. However, if you had multiple IRAs and each IRA had a different beneficiary designated, it is time to re-check your beneficiaries.

Here is an example: let's say you had four contributory IRAs at Vanguard because you wanted to leave one IRA to each of your four children. Previously, you could have designated each child as the sole beneficiary on each of the IRAs. (Among other reasons, you might have wanted to arrange things this way if there was a significant age difference between the four children.) Under the new policy, the only beneficiary recognized by Vanguard would be the individual listed on the last beneficiary designation form that Vanguard processed. In this example, the fourth child might have been the last beneficiary added and that child would receive the proceeds from all four IRAs.

Vanguard says that it sent letters to the 170,000 account holders who would be impacted by this change but some Vanguard investors complain that the communication was not clear enough. Also, if Vanguard did not hear back from account holders, it changed the beneficiary designations for them -- a pretty bold step.

To learn more about this peculiar arrangement, read this article in Forbes. In the meantime, remember that the beneficiary designations must only be the same for each "type" of IRA. The three recognized IRA types are rollover IRAs, contributory IRAs, and Roth IRAs. So you can specify one beneficiary for a contributory IRA and another for your Roth, but you can no longer specify three different beneficiaries for each of your three Roth IRAs. The workaround to this problem is to name all three individuals as beneficiaries on a single Roth IRA or consider moving your accounts away from Vanguard. If you are not certain who your beneficiaries are, it never hurts to double check. This is true no matter where you keep your accounts.

I am a federal government retiree and 68 years old. I currently have $122,500 in my Thrift Savings Plan. I did not yet roll it into an IRA. What is a good company to roll the TSP into -- Vanguard? T Rowe Price? Fidelity? Which company might have the lowest fees?

All three of the companies you mentioned would be solid choices. However, I would probably put in a plug for keeping your money where it is. The government's Thrift Savings Plan (TSP) is as close to perfect a plan as you will likely find.

There are only five fund choices available but those five include a government securities fund, a fixed income fund, a common stock fund, a small cap fund and an International stock fund. All five are index funds and all of them have a rock-bottom expense ratio of .015 percent or 1.5 basis points. That means the fees are only 15 cents for every $1,000 invested! You would be hard pressed to find lower expenses in many other places.

The plan also now offers 5 lifecycle plans, so if you are retired and want to put your retirement savings on "autopilot", you could choose one of the 5 target retirement funds. If you have an average risk tolerance, you would choose the lifecycle fund that most closely matches your year of retirement. If you wanted to be more aggressive, you could choose a lifecycle fund with a date later than your retirement date. This is a wonderful plan and you probably shouldn't be in a rush to leave it.

A lot of the people writing in to this blog want to know how much they need to be saving for retirement. There are a lot of calculators out there that will help you answer that question and I wanted to call your attention to one that I really like. It is called a "Ballpark E$timate" and you can complete it on line or in paper format.

There are a couple of things that I like about this calculator. First, it is very simple to use. Second, it gives you helpful pointers about how to use the calculator. For example, one question asks how much annual income you want in retirement as a percentage of what you currently earn. The instructions suggest you use:

70 to 80 percent if you want to cover all the basics and you will have employer-paid retiree health insurance,

80 to 90 percent if you will be paying Medicare Part B and D premiums and expect to do some traveling while retired, and

100 to 120 percent if you will need to cover all Medicare and health care costs, want a very comfortable retirement lifestyle and need to cover the possibility of long term care.

You can also fine-tune the calculator to account for an average life expectancy or a longer life expectancy. By answering less than 20 questions, you can get a pretty accurate projection of how much you need to be saving. The "answer" is quoted as an annual dollar amount to be saved and as a percentage of your current income. The calculator will also tell you how much of your current income you can replace in retirement if you do not save any additional money.

This calculator has a special version for federal government employees covered by the Civil Service Retirement System (CSRS) and there is also a Spanish version available as well.

My wife and I are in our mid to late 20s and we are trying to determine what the next financial step for us should be. We do well financially, have saved 5% in 401(k)s since college, own a home in a good community, have an adequate emergency fund and carry very little debt besides our school loans. We feel like we are ahead of the curve but don't know what to do next.

What should we do with any savings we can squeeze out? We have only a small amount of equity in our home, should we make extra payments on the house? Should we open a Roth IRA? Sooner rather than later, we hope to start a family. What can we do now to provide for ourselves and a family in the future?

Sounds like you have a fantastic head start. You mention that you hope to start a family sooner rather than later - does that mean that one of you might be staying home with children? If yes, you might need a much larger emergency fund and perhaps a "supplemental income" fund -- a pool of money to replace some of what you will lose if one of you stops working for a few years or decides to work less hours. Even if you have prepared a budget and you think you can live on just one income, it is always a good idea to have some "just in case" money.

If you both plan to return to work after having a baby, my answer is still the same because the cost for infant daycare in our area is unbelievable. If you really think you will be having a baby in the next year or two, I'd direct your excess savings to your emergency account so that you have some flexibility.

Alternatively, if you are fortunate to have a relative nearby who will watch your baby for you, I'd direct your excess savings to your 401(k) or a Roth IRA. You have been saving 5 percent of your pay since college, but to really be in good shape for retirement, that figure should be closer to 10 or even 15 percent if you can manage it. I'd add the extra money to your 401(k) if you have not yet captured your full employer match. If you have captured the full match, I would suggest contributing to the Roth.

I like saving in Roths because the Roth is an incredible retirement savings tool. You don't get a tax deduction for contributing to a Roth, but all money withdrawn from a Roth in retirement is tax free (my two favorite words) and there are no required minimum distributions ever. Also, if you absolutely needed the money for a reason other than retirement, Roth IRAs have a unique feature: you are always allowed to withdraw your regular contributions at any time without a penalty and free from taxes.

Given your ages, you and your wife would each be able to contribute up to $5,000 to a Roth IRA this year.

For more parenting news and views, check out BoMoms.

Is it a smart move to move my 401(k) from my former employer into an IRA? I retired 6 months ago.

This is probably one of the top 10 questions asked of financial planners. Unfortunately, the answer is the dreaded "it depends." There are a lot of fine points to consider and that is probably why a third of all workers leave their money in their old 401(k) plan when they move on.

Probably the number one reason for leaving the money in the 401(k) is the top-notch creditor protection. Federal laws protect 401(k)s from being attached by creditors, but IRAs do not enjoy a similar level of protection. The protection afforded to IRAs has greatly improved since 2005 but the protection afforded to ERISA (401(k)) plans is still superior.

Also, there is a neat provision in 401(k) plans that allows terminated or retired workers to begin withdrawals at age 55 instead of age 591/2 with IRAs.

One notable advantage of moving to an IRA is the much larger pool of potential investment choices. 401(k) plans are famous for offering only a small number of investment choices and sometimes the choices they offer have extremely high fees. These fees can have a tremendous impact on the amount of money you will have at retirement.

If your money is invested in an IRA, you can assemble a low cost portfolio specifically tailored to your needs. Also, people tend to work for many different employers in the course of the working lives and consolidating into a single IRA can make everything much easier to manage. Who really wants to keep track of 6 or 7 old 401(k)s each with a relatively low balance? The odds are decent that you will forget about one or two along the way.

Finally, if the beneficiary of your account is someone other than your spouse and that person wants to spread any distributions over their lifetime, the IRA might be better. That is because 401(k) plans are not required to allow a non-spouse beneficiary to take distributions over their lifetime. They CAN allow this, but they are not REQUIRED to allow this. If this consideration is important to you, check with your plan to see what distribution options are permitted and be sure to check in with your advisor or accountant because there have been several "flip-flops" on this issue over the past two years. First, the option was thought to be mandatory, then it appeared to be discretionary, and the interpretations have gone back and forth since then.

If you decide to move the money into an IRA, open the IRA first and then tell your old employer that you want to do a direct rollover or a trustee to trustee transfer. When you do this, your employer transfers the 401(k) directly to your IRA.

My goal is to purchase a home by the age of 50. That gives me four years. Assuming that my salary will grow slightly over the coming years, what do you think about borrowing from my 401(k) to make the down payment? I am single but I have been unable to save much every month. I make $40,000 per year and would like to buy a $200,000 home.

With a salary of $40,000, the monthly payment that you make to cover principal, interest, taxes and insurance (PITI) on your condo should not exceed $1,000. If I assume $200 in property taxes and $50 for homeowners (both pretty conservative estimates), that leaves $750 available for the principal and interest payment. If I further assume a 6 percent mortgage rate and a 30 year fixed term, you can afford a mortgage of approximately $125,000.

That means that you would need to make a down payment close to $75,000. That is a pretty large down payment. If you don't have any savings available elsewhere, and you are looking to borrow that amount from your 401(k), I would advise against doing so for several reasons.

First, there are limits on how much you can borrow from your 401(k). Generally, total outstanding loans cannot exceed the lesser of $50,000 or half of your current account balance. If half your account balance is the lower of the two amounts, a loan of up to $10,000 is possible even if $10,000 is more than half your account balance.

Second, I just hate the idea of having to borrow from a 401(k). Some points to consider:

1. Some plans do not allow you to contribute to a 401(k) while you have a loan outstanding so you would lose any employer provided match, and

2. If you were to leave your employer (voluntarily or involuntarily) the loan would be due immediately. If you failed to repay it within 30 to 60 days, it would count as a premature distribution and be subject to taxes and a penalty.

3. There is also the question of how you would pay the loan back. In my opinion, borrowing from a 401(k) should be an absolute last resort option and if you feel the need to borrow from a 401(k) to afford a house, you probably really can't afford the house.

If you have done a really, really great job of saving in your 401(k), another option might be to decrease or eliminate your contributions to your 401(k) for a very small number of years and accumulate some money that way. If you pursued this option, you would have to be diligent about resuming your contributions as soon as you bought the house. With this option, there is always the danger that you might end up using the money for other needs, and then you would have a smaller retirement account balance and no house, so it has drawbacks as well.

This is a very tough decision because buying a home is certainly an admirable goal. I would just advise you not to extend yourself too far and not to endanger your future retirement. You will certainly find people who will tell you that you can afford a much larger mortgage than $125,000, but don't believe them. Prepare your own budget and determine what seems reasonable for you and your personal circumstances.