The Boston Globe

As 2001 draws to a close, with all its tragedy and
tough economic times, the act of making New Year's
resolutions seems more significant than usual,
especially if it means helping to protect your family
and personal finances.

The loss of life in the wake of Sept. 11 brought home
the importance of life insurance, a will, and other
aspects of having your affairs in order. And the loss
of jobs throughout the year, during the first
recession in a decade, reminds us of the need to set
aside savings, get debt under control, and otherwise
have our personal finances in shape.

Ultimately, making New Year's resolutions is an act of
hope and of faith, borne out of the belief that we can
and will do better for ourselves, our families, and
our communities.

Here, then, are some resolutions to help you start
2002 on the right financial foot:

- Make a will. A recent survey by, a legal
Web site, found that 66 percent of people with
children don't have a will, and 59 percent of US
adults overall have failed to draft one.

Without a will, you can't determine who's going to be
guardian of your young children in case you die or
who's going to inherit the assets you've accumulated.
Even if you want to leave everything to your spouse,
you should have a will to avoid the lengthy probate
process. And you should have a will in case you both
were to die in an accident together.

- Assess your life insurance needs. If you're single
with no dependents, you may not need much life
insurance, or any at all. But if you're the major
breadwinner of the family, and you have young children
to send to college and a mortgage to pay, you need to
make sure you have enough to cover those obligations.

At a minimum, you want to have enough life insurance
to cover the house. Don't buy so-called mortgage life
insurance, however, because it restricts the payout to
covering the loan only. Just buy traditional life
insurance in an amount that's at least equal to the
mortgage. That will give your family the flexibility
to use the money for other needs, not just the home

You may also want to have enough to help fund your
children's college education and, if your spouse
doesn't work, his or her living expenses.

One useful Web site with insurance information and a
life insurance needs calculator is

- Establish an emergency savings fund. Try to save
enough to cover three to six months' worth of
expenses, especially if your job is at risk and you
don't have a second wage-earner in the household. With
the Massachusetts unemployment rate rising to 4.3
percent last month, up from 2.5 percent in November
2000, you can't always count on a paycheck coming in
every week.

You can't count on unemployment to make up your
income, either. Unemployment is only 50 percent of
your average weekly wage, limited to a maximum of $512
a week, plus a weekly allowance of $25 per dependent
child, under Massachusetts law.

Acting Governor Jane M. Swift did lift a one-week
waiting period for anyone filing a new unemployment
claim as of Sept. 30, but you're still limited to 30
weeks of benefits.

- Boost your retirement savings. With the variety of
tax-favored retirement savings vehicles now available
and the continuing improvements to them, it makes
sense to set aside as much as you can this way. Over
time, tax-deferred growth is a truly powerful
investment tool.

If your employer offers a 401(k) plan with a company
match, at a minimum you should put aside enough to get
the full match. Otherwise, you're throwing away free

Even if there's no company match, the tax deferral
means for every $100 you set aside in a 401(k), you're
really only seeing $74 less in your paycheck,
presuming you're in the 26 percent federal income tax
bracket in 2002.

And if you can afford it, you should try to do the
maximum salary deferral allowed, which in 2002 is
going up to $11,000, not only for 401(k)s, but also
for 403(b) and 457 plans.

- Limits for Individual Retirement Accounts, both
traditional and Roth, are also going up in 2002 to
$3,000, from today's $2,000.

For both IRAs and employer-sponsored retirement plans,
new catch- up provisions will allow people age 50 and
older to set aside even more money beginning in 2002:
$500 extra for IRAs, and $1,000 extra for 401(k),
403(b), and 457 plans.

One exception: The $1,000 catch-up rule doesn't apply
to 457 participants in the last three years before
retirement. Instead, they get a more generous
provision, the ability to "catch up" with double the
regular 457 contribution limit for the year.

And there's a new "saver's tax credit" to encourage
low- and moderate-income workers to contribute to a
retirement plan or IRA. The credit - available for
married taxpayers with adjusted gross incomes of up to
$50,000 and single taxpayers with adjusted gross
incomes of up to $25,000 - is worth a maximum of
$1,000. For more information, go to and
search for "Announcement 2001- 106."

- Save for children's college education. One third of
parents with children under age 18 say they have not
started a college savings program, according to a
survey released last month by AEGON Institutional
Markets Inc., a Louisville, Ky.-based division of
AEGON Insurance Group.

About two-thirds of the parents who said they haven't
started saving say that they can't afford to do so now
and that they expect to pay the costs while their
children are in college, according to the survey of
510 parents.

While AEGON promotes insurance-based fixed-income
investments as college savings vehicles, a more
popular choice is the so-called 529 plan that a
growing number of states and mutual fund firms offer.

In Massachusetts, the 529 plan is called the U.Fund
and is invested through Fidelity, but adults wanting
to save for children aren't limited to the plans in
their own states.

Under the new tax law signed by President Bush in the
summer, the 529 plans make even more sense. Not only
do contributions grow tax- deferred, but all qualified
withdrawals come out tax-free beginning in January
2002. For more information about the various state
plans and their benefits, check out www.saving or

- Learn more about saving and investing. The Alliance
for Investor Education has put together 10 Internet
resources to help you on the road to financial
freedom. These include: "Building Wealth: A Beginner's
Guide to Securing your Financial Future"; "Get the
Facts: 20 Questions about Mutual Funds"; and "Learning
to Invest." You can link to these articles through the
alliance's Web site,

Saving for the golden years

New, improved options for retirement savings beginning
next year mean you can sock away more on a tax-
favored basis than ever before, either through an
individual retirement account or through a 401(k) or
other employer-sponsored plan


Year Limit
2002- 2004 $3,000
2005-2007 $4,000
2008 and after $5,000*

401(k), 403(b), 457 plans

Year Limit
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 and after $15,000*
*Indexed for inflation