Personal Banking E-Newsletter - May 2011

A Strategy to Pursue Your Retirement Goals and Beat Inflation

Your retirement plan is designed to help you meet two important objectives — beating inflation and pursuing your retirement savings goals. The challenge is finding the right mix to strive for both.

Why Be Concerned With Inflation?

Technically defined, inflation is the rising cost of goods and services over time. Like termites invisibly gnawing at the foundation of a house, inflation slowly eats away at the value of a dollar over time.

Inflation can also impact the success of your retirement savings strategy. In order to accumulate enough money to provide income throughout your Golden Years, you will need to factor inflation into your strategy. That means your investments will have to earn returns that are higher than the inflation rate — but how?

Consider Your Asset Allocation Strategy

Asset allocation refers to how you divide your savings among the three main asset classes — stocks, bonds, and money market, instruments. An appropriate asset allocation can offer the potential to help you pursue enough growth in your savings to both outpace inflation and strive for your goals.*

Consider the case of two hypothetical savers, Ebenezer and June. They both set aside $5,000 per year for retirement. Ebenezer puts 100% of his contribution dollars into the most conservative investment option, a stable value investment. June is also a steady saver, but she invests some of her money in stock funds, with portions in bond and stable value investments. June recognizes that stocks offer the highest potential return, but they also carry a significant amount of risk. That's why she chooses some bond and stable value investments — to help offset any short-term losses in stocks.

Ebenezer's money earns about 5% per year, while June's money earns an average of about 8% per year. If you assume that inflation averages 3% per year, who do you think will end up with more money in their account after 10 years?

Obviously, it's June. She ends up with the inflation-adjusted equivalent of $66,034, compared with $55,844 for Ebenezer.**

How Do You Choose the Right Mix?

Choosing the right mix of stocks, bonds, and stable value investments in your retirement plan should be based on your personal situation. You will need to consider your savings goal, time horizon, and risk tolerance carefully. For more information on developing an appropriate mix, consider talking to a financial advisor.

*Asset allocation cannot eliminate risk of fluctuating prices and uncertain returns, nor can this strategy ensure profit or guarantee against loss.

**Inflation-adjusted equivalent is the future value of the account, in today's dollars. Note that while the historical inflation rate has averaged around 3%, dramatic fluctuations have not been uncommon.

© 2010 Standard & Poor's Financial Communications. All rights reserved.

Improve Your Gas Mileage

Four tips to help you fill-up less often

With average pump prices near $4 a gallon nationwide, the Web is full of ideas to use less. Some tips are certainly worth considering. But there's also a lot of myth and misinformation out there. For example, ever heard that you should only buy gas in the morning because fuel volume decreases as the outside temperature rises?

While most tips sprout from a kernel of truth, many produce so little effect they're not worth considering. (According to Consumer Reports, buying gas in the morning falls into that category.)

The best way to improve your fuel efficiency is simple: Use your gas and brake pedals judiciously. Here are the top fuel savers, in order of maximum benefit:

  • Drive proactively. Rapid acceleration and hard braking can lower your mileage by up to 37%, according to Look at the road ahead, and try to use your brake and gas pedals as little as possible. (Bonus: This may save you on insurance too, if you have a pay-as-you-drive policy.)
  • Slow down. Going the speed limit -- instead of 15 mph over it -- can increase fuel efficiency up to 14%, Edmunds says. The U.S. Department of Energy adds, "Mileage usually decreases rapidly at speeds above 60 mph" and suggests that higher speeds can reduce gas mileage by as much as 23%. Consumer Reports found that dropping from 75 mph to 55 mph in an SUV saved 33%. (Bonus: Fewer speeding tickets means more gas money.)
  • Don't idle. When you're sitting still, you get 0 mph. Turning off an engine rather than idling could increase overall fuel efficiency by up to 19%. To get their results, Edmunds drove a 10-mile route, stopping 10 times for two minutes each, then compared turning off the car with letting it idle. Consumer Reports suggests turning off your car if you're going to be stopped for more than 30 seconds. As for taxing your starter? They say it won't hurt it.
  • Cruise control. Edmunds found this saves up to 14% on flat terrain, but warns not to use it in hilly terrain because your car will gulp gas trying to maintain a set speed on a slope.

What about other common advice, like rolling up windows and keeping tires properly inflated? Neither made a significant difference for Edmunds. Consumer Reports said running the air conditioning could cost as much as 1 mpg -- not enough to justify stewing in your car on hot summer days. That junk in the trunk can hurt your fuel efficiency, though estimates you only save up to 2% per 100 pounds.

Here's one more way to hedge against the rising costs of gas you probably won't see anywhere else: buy the stock of an oil company. If oil prices climb, oil companies make more money. Since those profits should ultimately be reflected as higher stock prices, the money you're losing at the pump you might make up in the market.

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Reduce Summer Utility Bills

Cutting costs one room at a time

Before the summer heat and summertime utility bill starts to make you sweat, you might want to consider making a few changes to cut your energy consumption. You can shave dollars off your monthly bills without sacrificing comfort as long as you plan ahead and get creative. Here's a room-by-room guide to saving money this summer—and benefiting the Earth at the same time.

In the basement
Geoff Godwin, division vice president of Emerson, the country's largest provider of heating and cooling systems, says cleaning air conditioning filters every month and getting your system checked by a professional once a year will ensure that it's functioning as efficiently and inexpensively as possible. "A lot of people don't do that—they ignore the AC system until something goes wrong," he says, then they end up buying an entirely new unit instead of making minor fixes.

If you need a new air conditioner, an energy efficient one might be eligible for a tax credit (check at When you're shopping around, look for a unit with a seasonal energy efficiency ratio of 16 to 21, the highest level of efficiency. Another option is a geothermal heating and cooling system, which utilizes pipes running from the more stable, ambient temperatures found five feet underground year-round into your home, where they pump heat in or out, depending on the season.

Throughout the house
"Make sure your house is leak-free," says Alliance to Save Energy spokeswoman Ronnie Kweller, "or else nice, cold, expensive air is going out the cracks." You might want to consider assigning this task to a professional. Through the Energy Star online directory, you can find a local auditor who will use diagnostic equipment to test your home for areas where air conditioning might escape. Your auditor will probably do what's known as a blower door test, which lowers the air pressure in your home and reveals leaks. He or she may also take a photo of your house with a thermographic camera, with the red areas of the photo indicating where better insulation and sealing are needed.

If you don't want to shell out money for an energy auditor, you can perform a casual energy audit yourself. Efficiency experts recommend feeling around baseboards, windows, doors, light switches, and electrical sockets for air leaks. Air can escape or enter anywhere that two different building materials meet. Kweller also recommends walking around your house with incense to see if the smoke blows in when you pass windows. Kweller says old, wooden windows are especially prone to this kind of leakage.

If you find problem areas, seal it with foam or caulking, which you can find at the hardware store. Insulation that meets certain efficiency criteria is also eligible for the federal tax credits. Kweller says properly sealing your house can save up to 20 percent on your utility bill.

Using a programmable thermostat so that the temperature automatically rises when no one is home during the day can yield annual savings of about 30 percent, says Godwin, with much of the savings in the summer, since air conditioning runs with electricity. While some 25 million households own programmable thermostats, only half of those people take advantage of them, says Godwin.

Replacing older light bulbs with compact fluorescents not only reduces your electricity bill, it can help save energy on air conditioning since fluorescents generate less heat, says Kweller. She estimates that each bulb can save about $50 over the course of its lifetime.

In the living room
There's nothing wrong with hosting movie nights this summer, but make sure you shut your entertainment center down when the evening's over. Simply turning off a television set doesn't put a stop to so-called "vampire power"—the power that devices consume even when they're not in use. That's why you should either unplug your electronics or use a Smart Strip, which cuts power when it's not needed.

If you're in the market for a new television, check energy efficiency ratings. The Energy Department bestows its Energy Star rating to sets that use about one-third less energy than regular televisions. In general, LCD televisions use less energy than plasma screens, but both use more than older sets.

Remember to turn the power off or unplug your digital photo frames when you're not gazing at those illuminated photos. Over the course of the year, leaving one on costs about $9—not a lot, but when thousands of people are doing the same thing, it adds up.

In the kitchen
Baking a cake or casserole in the summer will force your air conditioner to go into overdrive. Plus, eating hot food will only make you want to turn the thermostat down. But you don't have to survive on cold pasta salads and gazpacho this summer. Instead of using your oven, consider an outdoor grill or toaster oven for small amounts of food.

In the bathroom
If you don't want to spend money on a low-flow toilet, you can still make yours more efficient by dropping a soda bottle filled with sand or water into the back. It will use less water each time it flushes. Ivan Chan of adds that small steps such as turning the water off while brushing your teeth or shaving can save a substantial amount of water (and money on your water bill) each year. He also recommends installing a water conserving showerhead.

In the bedroom
Stay cool while you sleep with an overhead fan instead of pumping air conditioning throughout the entire house. Shutting the doors and vents of unused rooms can also lighten the load of your air conditioning unit.

A way to reduce cooling costs in the longer run is to plant trees or shrubs so that your house is more shaded, especially on the sunnier side, says Kweller. (For a quicker fix, draw the blinds or shades when you're not home.)

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Your Summer Vacation

Simple tips that can save you a bundle

It’s about that time of year when we start daydreaming at work about basking in the sun on the beach while drinking a pina colada. Then, we wake up and realize that we need to start saving some money to make that summer vacation happen! Vacations can be a financial drain, and you should splurge when it comes to your vacation, as long as you can save up for it and pay cash. After all, you do deserve some rest and relaxation from the grueling grind of work. So, here are five tips to help save money when planning a vacation.

Travel on off-peak times.
The best off-peak times to travel during the warm months are before June 20th and late August through September for sub-tropical areas. The official start of summer is June 20th, so that is when airlines, hotels, and cruise lines start to jack up their prices for the peak season. If you can travel in May or early June, you might be able to find better rates for airfare and hotel stays. Try to avoid Memorial Day and Independence Day. These are hot times to travel, and you’ll pay much more to travel near these dates. You can find great deals on cruises during the peak Atlantic hurricane season. Why would you want to take the risk of a hurricane wiping out your vacation plans? The risk may be worth the cash you’ll save. Consider buying travel insurance if you travel in the Caribbean during these times that will cover you if you get rained out by a hurricane.

Look for vacation rentals, rather than hotel rooms.
If you have a decent sized family or you’ll be travelling with friends and/or extended family, it would be smart to check into vacation rentals. You can check for these on Craigslist, and Vacation Rentals By Owner. If you split the house or condo with another family, you can usually find a place to stay for $400 to $700 per family per week! That’s a great value when you consider the cost it would be to rent two or three hotel rooms for an entire week. But, there are more benefits than just the weekly rate. You’ll get a full kitchen, so this means you can go to the local supermarket and buy a bunch of food for breakfast, lunch, and a few dinners. You’ll save a ton of money rather than eating out every day. Plus, parents will get their own rooms, which is nice for privacy on your vacation!

Visit areas that don’t thrive on tourism.
If you go somewhere that depends on tourism as their main source of income, you’re going to pay a higher premium to stay there. It is tough to find an exotic location that doesn’t thrive on tourism, but places like Costa Rica, Eastern Europe, and coastal areas in Brazil are more affordable than you think.

When at all possible, try to avoid eating out!
This is tough, and part of being on vacation is not worrying about cooking or cleaning. But, try to find a place to stay that will at least include breakfast in the price. Then, for lunch try to eat light, and pack sandwiches, fruit, and granola bars to snack on. It is better spend more money on dining out for dinner than spend so much money on breakfast and lunch.

Go all-inclusive if it’s offered.
Getting an all-inclusive resort could save you more money than if you went on a 7 day cruise or a trip to Europe. The simple fact that you can eat and drink as much as you want and whenever you want will save you tons of money. Generally, if you do all of it al-a-carte, you could spend more on the trip. It may not always be a better deal, but again, if you price it during an off-peak time, you may find that it’s the way to go.

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