Fed officials: Don't worry if we lose money

NEW YORK (CNNMoney)

But that's okay, Fed officials say.

After years of record profits, the Fed is likely to be saddled with losses starting in 2017 or 2018, economists predict in a paper that was presented Friday at the U.S. Monetary Policy Forum, a New York conference organized by the University of Chicago Booth School of Business.

Here's the scenario they think will play out: As the economy improves, the Fed will eventually tighten monetary policy. The central bank will stop buying mortgage-backed securities and Treasuries by the end of this year, they believe, and start raising interest rates in 2015.

Eventually, the Fed will have to start selling off the massive collection of bonds it acquired in its stimulus efforts.

And when that time comes, even the Fed admits that it will probably incur losses.

Inside the Fed's finances

Unlike most government agencies, the Federal Reserve funds itself. Its expenses are not paid for in by U.S. federal budget.

Each year after paying its own bills, the central bank hands over all its remaining profit to the Treasury Department. Most of the money comes from interest earned on holdings like Treasury bonds and other debt.

Those payments have ballooned in recent years. The Fed is earning huge profits from the large bond portfolio it amassed (and continues to amass) during its stimulus efforts.

In the decade preceding the Great Recession, the Fed paid out an average of $25 billion a year to the Treasury. In the last three years, its remittances have averaged $81 billion.

Based on those numbers, you could call the Fed the most profitable bank in the world. It's generating more income than America's top five banks -- JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) -- combined.

Once the economy improves to its liking -- which could still be years away -- the Fed will have to start shrinking its portfolio, to ward off rapid inflation.

As the economy gets better, the Fed will raise interest rates. At the same time, bond prices will probably fall as the Fed sells off massive amounts of them.

That means the central bank is likely to lose money.

That's not necessarily a problem. A relatively new accounting rule would allow the Fed to pay for its operations and make interest payments basically on credit, deferring its losses and paying them off later in profitable years.

The situation could easily become a public relations nightmare, though -- especially in the current political environment.

"We're in a period where the attacks on the Federal Reserve system are the worst I've seen in 40 years," said Frederic Mishkin, a former Fed governor who is now a professor at Columbia University.

"In any year where the Fed is not giving remittances back to the Treasury, this is going to come up big time in Congress," he added.

St. Louis Fed President James Bullard also calls it a "recipe for political problems." During the same period that the Fed will incur losses, the government will be paying billions of dollars in interest to foreign governments.

The Fed seems to be trying to get ahead of the PR blow-up.

The central bank put out a research paper on the topic last month, and minutes released earlier this week show the issue was discussed at the Fed's January meeting.

Since then, several officials have spoken about it quite openly.

"There is a chance that we could go through a period of time in which our income falls, and we could even take losses," said Janet Yellen, vice-chair of the Federal Reserve Board, in a speech last week.

Her colleague Jerome Powell, a Fed governor, reiterated that point Friday.

Some Fed watchers expect Fed Chairman Ben Bernanke to discuss the topic when he speaks before Congress next week in his semi-annual testimony.

He's stuck in a "damned if you do, damned if you don't" position. If the economy improves, great -- but when it does, the Fed has big losses and a PR crisis to look forward to.

First Published: February 22, 2013: 2:27 PM ET

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Judge rules against Apple in Einhorn cash fight

NEW YORK (CNNMoney)

Einhorn's Greenlight Capital filed a lawsuit earlier this month seeking to "unbundle" a number of shareholder proposals that would have been voted on as a group, including one that would have made it difficult for the company to issue preferred stock. The vote on this, known as Proposal No. 2, was scheduled to be voted on at Apple's annual shareholder meeting on February 27.

Judge Richard Sullivan of the Southern District of New York ruled that bundling four different items in one proposal violates Securities and Exchange Commission regulations.

"Given the disparate, material nature of the items in Proposal No. 2, it is probable that Apple has improperly bundled four 'separate matters' for a single vote," the ruling states.

Apple (AAPL, Fortune 500)shares rose 1% on Friday. News of the ruling came just a few minutes before the market closed.

Einhorn has launched an activist campaign to get Apple to unlock some of its $137 billion in cash by issuing preferred stock, or iPrefs, as he calls them. He argues that allowing the cash to sit idle on Apple's balance sheet is bad for the company and its shareholders.

A spokesman for Greenlight said that the ruling "is a significant win for all Apple shareholders and for good corporate governance" and added that "we look forward to Apple's evaluation of our iPref idea and we encourage fellow shareholders to urge Apple to unlock the significant value residing on its balance sheet."

Related: Einhorn takes aim at Apple's cash hoard

But another big Apple shareholder was not pleased with the judge's ruling.

California's powerful pension fund, CalPERS, supported Apple's proposal, which it said would give shareholders more voting power over the issuance of Apple stock.

"We encourage Apple to reintroduce these measures as soon as is practical so that all investors can be heard," said Anne Simpson, a CalPERS senior portfolio manager and director of global governance. "We applaud the company's commitment to strengthening shareholder rights."

Apple has said it is reviewing Einhorn's proposal, but CEO Tim Cook has called the lawsuit a "silly sideshow."

Spokespeople for Apple could not immediately be reached for comment.

First Published: February 22, 2013: 5:01 PM ET

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Moody's downgrades United Kingdom from AAA

God save the AAA rating.

NEW YORK (CNNMoney)

The U.K. was knocked down one notch to Aa1, with its ratings outlook at stable. Moody's said the key drivers of the downgrade included the country's rising debt burden and tepid growth outlook over the next few years.

"[A]lthough the U.K.'s debt-servicing capacity remains very strong and very capable of withstanding further adverse economic and financial shocks, it does not at present possess the extraordinary resilience common to other AAA-rated issuers," Moody's said.

The U.K. had held AAA status since Moody's first began rating the country in 1978.

In December, the U.K.'s budget monitor projected that the country's economy would grow by just 1.3% this year. The government has been pushing a much-criticized austerity program, and finance minister George Osbourne said he remained committed to those efforts, even after the downgrade.

"This is a stark reminder of the debt problems that Britain faces and the clearest possible warning to anyone who thinks we can run away from dealing with those problems," he said. "Far from weakening our resolve to deal with our debts, this should redouble our resolve."

Related: U.K. risks new recession

The British government has said its belt-tightening will have to continue until 2018.

In announcing the downgrade, Moody's said it expects the U.K.'s debt to peak at 96% of GDP in 2016, up from around 90% today.

A year ago, Moody's switched the outlook on the U.K.'s AAA rating to negative, in a prelude to Friday's downgrade. At the same time, the firm cut the ratings of half a dozen European countries.

The other major rating agencies, Fitch and Standard & Poor's, still have the U.K. rated AAA, though with negative outlooks.

Elsewhere in Europe, France lost its AAA rating from Moody's in November, after a similar downgrade from S&P in January.

The United States maintains its AAA rating from Moody's and Fitch, though it was downgraded by S&P in August 2011 following the debt ceiling standoff in Washington.

Steven Englander, a foreign exchange strategist with Citigroup (C, Fortune 500), said in a research note following the downgrade that the move was unlikely to raise borrowing costs for the U.K., as bond yields in the United States, France and Japan had remained stable following similar downgrades. But it increases pressure on the country to pursue growth by weakening the pound, he added.

"[W]hile by itself the announcement merely accelerates what was expected to happen at some point, the need for weakness [in the British pound] will become more apparent to policymakers and investors," Englander said.

Among Europe's other major economies, Germany, Switzerland and the Netherlands maintain their AAA ratings from Moody's. France sits at Aa1, while Italy is down at Baa2 with Spain at Baa3.

First Published: February 22, 2013: 5:01 PM ET

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Transgender job seekers face uphill battle

NEW YORK (CNNMoney)

She has applied for almost 100 jobs and has gone on close to 20 interviews, but there have been no offers. No one says they aren't hiring her because she's transgender. But some employers tell her the job has been filled even though she continues to see postings for it online. Others have "laughed in my face."

"With as many non-trans people out of work as there are, it seems almost no one is going to hire a trans woman when there's another choice," said Juro, who lives at home with her mom as she job hunts.

Transgender is a term used for people who identify as a different gender from the one they were given at birth. Some undergo surgery or take hormones to change their bodies.

And as millions of Americans struggle with unemployment, this community is being hit especially hard.

Related: Transgender financial struggles: 'How we get by'

It's hard to pin down a precise jobless rate since there's so little transgender-specific data available. The most recent comprehensive study of more than 6,000 transgender individuals was released in 2011 by the National Center for Transgender Equality. This report found the transgender jobless rate to be 14% -- double the national rate -- and as high as 28% for black respondents. And a recent online Prudential survey of 49 transgender individuals had similar findings.

Keisha Allen, a black, 45-year-old transgender woman, has been working as a prostitute since her mother kicked her out of the house at age 16 for being transgender. She makes less than $12,000 a year and lives at a homeless shelter, where she is forced to stay in the men's section. She has applied for hundreds of entry-level jobs that don't require a college degree -- from dishwashers to cashiers -- without making it past the first interview.

"Once I get to the interview and my name doesn't match my ID and my body doesn't match what it says on my ID, I never hear back," said Allen. "My only way of survival is through sex."

Even those who find jobs often end up taking significant pay cuts, said Lisa Mottet, director of the National Gay and Lesbian Task Force's Transgender Civil Rights Project.

Jennifer Chavez, 55, has 40 years of experience in the auto industry but said she was terminated from her job as a mechanic just two months after telling her boss she planned to transition from male to female. Upon finding out about her transition, she said co-workers stopped talking to her and her boss even told her an applicant had turned down a job because of her. Soon, word about her transition spread.

Related: I'm unemployed and hopeless

"[P]rior to my transition, getting a job was nothing," said Chavez. "After my transition, a huge segment of Atlanta in the auto service world knew about me, so I was blackballed from all the auto dealerships."

More than 300 applications later, she landed a full-time, commission-based technician job at Pep Boys, where her potential annual earnings are around $35,000 -- half of what she previously made. As a result, she has barely been able to hold on to her home.

Many transgender individuals aren't able to afford a home at all. Homelessness among this group is estimated to be double the national rate, according to the NCTE study. Respondents were also nearly four times more likely to have annual household incomes of less than $10,000, and 16% said they resorted to sex work or drug dealing for income -- a percentage that nearly doubled for the unemployed and skyrocketed to 53% for black respondents.

Medical bills can also be a problem. Tim Chevalier, a 32-year-old transsexual man from California, has a high-paying job as a software engineer at Mozilla. But he's still struggling to make ends meet after racking up $50,000 in medical bills from his reconstructive surgery and related medical costs that insurance wouldn't cover.

Help for the unemployed

A growing number of programs are being launched to help the transgender community.

The LGBT Community Center in San Francisco assists transgender job seekers with decisions like which name to include on a resume -- the one from their previous sex or their new name -- whether to bring up their transition to a potential employer or to come out to past employers in case they are called as a reference.

It also started offering a computer coding class late last year -- a skill in high demand. The first class of 15 people is in its second semester, and the center will try to connect them with companies in the area like Twitter and Google upon graduation.

The Chicago House, a facility for people with HIV/AIDS in Chicago, is launching transgender-specific housing and a four-week employment program offering job search advice, career counseling and even help with makeup and clothing before job interviews.

Programs like this are especially important in the aftermath of the economic downturn, since transgender people were often the first to be laid off and last to be hired, said Mottet.

But a federal law protecting transgender workers remains crucial to getting to the root of the unemployment problem, advocacy groups say. And there's growing optimism it could happen, with state anti-discrimination laws that specifically protect transgender employees now covering 45% of the population -- up from 5% about 10 years ago.

Related: Heroes helping others find jobs

Even so, it's often hard to prove a discrimination case.

In one of the biggest recent victories, Vandy Beth Glenn sued the Georgia General Assembly for firing her immediately after she told her boss that she planned to transition from male to female. A federal appeals court based in Atlanta ruled that treating her differently due to her gender identity violated the Constitution's Equal Protection clause. Glenn was given back her job editing proposed state legislation, and the court even went on to rule that public and private employers can't fire transgender workers because of their gender identity, said Greg Nevins, an attorney at Lambda Legal who represented Glenn.

"Once [employers] are aware of what is prohibited, I think it will get rid of a lot of the barriers to transgender individuals having the right to earn a living and be part of the workforce," said Nevins.

Are you transgender and struggling to make ends meet? Or do you have a success story you want to share? E-mail blake.ellis@turner.com.

First Published: February 22, 2013: 7:06 AM ET

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Behind Facebook's tax bill

NEW YORK (CNNMoney)

Tax experts say that could possibly be true -- and if so, it's perfectly legal -- but it's only part of the story. At issue is a sizable tax deduction from stock options that Facebook issued to its employees.

Stock options, like regular cash salaries, are tax-deductible for companies. Companies can use those deductions to offset their profits, and apply those losses to previous years, too. That's how a company could even be eligible for a refund in a year when it made money.

Citizens for Tax Justice, the advocacy group, says Facebook (FB) will receive a tax refund of nearly $430 million as a result of those options.

Facebook said in an e-mail that the company believes "in paying our fair share, and we do pay our fair share."

Related: Do the math - Facebook stock is not a buy

Independent tax experts say CTJ isn't wrong, exactly, but that the group doesn't tell the whole story. They say CTJ is mixing together tax law and corporate accounting policies, which sometimes follow different sets of rules.

"[CTJ] is talking about apples and oranges ... by mixing up two sets of rules, it's easy to give misleading information," said Stan Pollock, a San Francisco CPA who specializes in stock-options planning.

A company could, for example, properly follow accounting rules that show the income impact of issuing stock options, but the IRS requires different rules for computing the tax bill.

In fact, companies can be profitable on an accounting basis and be unprofitable for tax purposes -- and both are correct under the different rules.

As far as the check Facebook or any company gives to or receives from the IRS, Pollock said that's another swampy issue. "Tax returns are private," Pollock said. "Companies give numbers in their financial statements that aren't necessarily the true tax numbers as far as the IRS is concerned."

Another expert pointed out that even if Facebook gets an income tax refund, it doesn't mean the tax revenue is simply lost. Employees who cash in their stock options pay taxes on them, often at higher rates than a corporation would pay.

"Some people have a hard time recognizing both sides of it," said Dan Morris, a senior partner at San Jose CPA firm Morris and D'Angelo. "Where Facebook is taking a deduction, a person is counting that as income. U.S. taxpayers absolutely did not get the shaft here."

Yet stock option tax deductions remain controversial -- particularly for newly public companies like Facebook.

When a company issues a stock option, it gives an employee the right to buy shares in the future at today's "fair value" price. The company accounts for that value on its books at the time the option is issued, but it can't take the tax deductions until the employee exercises his or her option -- sometimes years later.

Plus, it's no easy feat to determine the fair value of stock for a company that isn't yet public.

"You might as well have a crystal ball and someone with a shawl over their head taking a guess," Morris said.

CTJ's report claims that "because companies typically low-ball the estimated values, they usually end up with bigger tax deductions."

The advocacy group isn't the only group making a stink about this tax provision. Sen. Carl Levin (D-Mich.) has proposed legislation that would require companies to take the deduction when the options are given.

First Published: February 22, 2013: 7:12 AM ET

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$19.9M Atlanta mansion offers lush Hollywood life

NEW YORK (CNNMoney)

This 40,000 square-foot, Mediterranean-style mansion was custom built in 2008 and sits on one of the area's most prestigious roads in Tuxedo Park , according to Mark Bhaggan of Atlanta Fine Homes, Sotheby's International Realty. The nine-bedroom home is directly across the street from the Governor's Mansion, but it also has its own claim to fame.

It was Bill Murray's home in "Zombieland" and featured in the 2012 movie, "The Three Stooges." It has also played a prominent role in reality series like MTV's "Teen Cribs" and "Million Dollar Rooms" on HGTV and it will also be featured in the upcoming "Devious Maids."

The interior of the home features hand laid mosaics and 24-karat gilded ceilings throughout. The owner brought artisans in from Europe to hand lay more than $1 million worth of stonework around the Olympic-sized pool, said Bhaggan.

Related: First look at the world's largest yacht

The terrace level surrounding the one-acre courtyard also includes a steam room and a recording studio. On the main level, you'll find a home theater with seating for 16, and a cigar bar.

The home is currently listed for $19.9 million, down from its original $25 million price tag almost three years ago. Bhaggan said there has been considerable interest in the home, ranging from serious buyers to curious folks who simply want to see the most expensive home for sale in Atlanta.

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First Published: February 22, 2013: 7:21 AM ET

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France may prolong eurozone recession

LONDON (CNNMoney)

A survey of 5,000 companies in manufacturing and services showed eurozone output fell to a two-month low in February. The Purchasing Managers' Index flash estimate fell to 47.3, from 48.6 in January, as the decline in French output hit a near four-year low.

"A steepening rate of decline in February is a disappointment, and suggests that the eurozone is on course to contract for a fourth consecutive quarter," said Chris Williamson, chief economist at PMI compiler Markit.

The survey readings point to a contraction of 0.2% to 0.3% in eurozone gross domestic product for the first quarter of 2013, after a 0.6% drop in the final quarter of last year, Williamson said.

The French economy, second only in size to Germany in the 17-nation eurozone, stagnated through the course of 2012. Foreign Minister Laurent Fabius said in a radio interview this week that France was preparing to cut its growth forecast for 2013 to between 0.2% and 0.3%, down from 0.8%.

Related: Europe's recession deepens as exports suffer

Markit economist Jack Kennedy said France's performance in the first quarter of 2013 was shaping up to be the worst since the same period in 2009.

"The broad-based weakness across manufacturing and services leaves scant room for optimism, with a range of indicators from new orders, backlogs, employment and output prices all residing at depressed levels," he said.

Germany, by contrast, saw a further improvement in business activity in February for a third month running, although the pace of expansion slowed slightly.

Markit said the gap in performance between the eurozone's leading economies was at its widest since surveys began in 1998. France was beginning to look like it belonged to the group of economies on the eurozone periphery, rather than the core, it said.

Related: Europe's central banks stand firm

The European Central Bank has pointed to recent improvements in survey data as one sign that the eurozone economy should recover later this year but with inflation in Germany and France falling quickly and a strong euro making it harder for exporters, the bank may be forced to relax policy still further.

The euro fell nearly 1% Wednesday. to a six-week low against the dollar, in response to the fading prospects for recovery and signs that the Federal Reserve is considering pulling back monetary stimulus.

First Published: February 21, 2013: 6:55 AM ET

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7 spending cuts you'll really feel

Americans will feel the impact of federal budget cuts through fewer federal food inspectors, meals for seniors, preschool teachers and hurricane repairs.

WASHINGTON (CNNMoney)

Some of the hardest hit would be 2.1 million federal workers who could be spending up to 22 business days at home without pay on a furlough.

The impact of federal food inspectors, park rangers, airport traffic controllers and security personnel staying away from work would be felt by many more Americans.

An important caveat: Congress still has time to avert the spending cuts, and if they do take affect they aren't expected to take effect right away. Experts expect agencies to do all they can to delay the start of furloughs, in some cases by several months.

But if they happen, these seven cuts will be really felt by many Americans.

1. Shrinking unemployment benefits. Some 3.8 million Americans estimated to collect unemployment checks between March and September will feel the pain the most. That's because unemployment benefit checks are being pared by 9.4%. On average, it would mean a cut of $400 over that period.

2. Beef and chicken to cost more and even face a shortage. A $51 million dollar cut to food safety programs means food inspectors will be furloughed and lead to closures of meat and poultry plants for up to 15 days. Americans will have to pay more and deal with shortages of chicken, eggs, pork and beef, according to U.S. Department of Agriculture Secretary Tom Vilsack. "Food safety could be compromised," he said in a letter. There will have less food available -- by as much as 2 billion pounds of meat, 3 billion pounds of chicken, 200 million pounds of eggs.

3. Granny won't get her lunch. More than 4 million home-bound and disabled seniors may have to go without supper this year because of cuts to Meals on Wheels programs. Just in Erie County, New York, it could mean 36,000 fewer meals will be delivered, according to the Meals On Wheels Association of America.

4. Your preschooler could be stuck at home. Some 70,000 children from lower income families will not be able to enroll for pre-schools and daycare centers run by Head Start programs this fall, thanks to at least $400 million in cuts.

5. National parks will close campgrounds or open late. The National Park Service will lose $110 million from its annual budget. The Great Smoky Mountains National Park in North Carolina and Tennessee plans to close five campgrounds and picnic areas affecting over 54,000 visitors. Two of the main thoroughfares into the Grand Canyon will remain closed until later this year, including the popular West Rim Drive, known for its breathtaking beauty. The delays will affect about 250,000 visitors.

6. Longer lines at the airport. Domestic travelers can add an extra hour to airport security lines, while international travelers may have to wait four hours to clear customs. That's because federal agencies that handle airport security and customs are warning that worker furloughs will increase the time it takes to check passengers.

7. Roofs blown off by Hurricane Sandy won't get repaired. About $3 billion has been cut from a supplemental bill for Hurricane Sandy victims. The cut includes "crucial funding" for repair and recovery of some 10,000 homes and small businesses, said HUD Secretary Shaun Donavan last week.

First Published: February 21, 2013: 6:18 AM ET

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Are you financially secure? 8 questions to ask

Keep your financial future above water. Save 15% of you income annually.

(Money Magazine)

You know you need a plan to handle the unknowable twists of fate -- and the impact they'll have on your bank balance.

Yet even if you think you've accounted for every possible contingency, says Karin Stifler, a financial planner in Hudson, Ohio, it's likely that you're relying on some outdated advice or overly general rules of thumb.

Have you charted the right path to financial security?

Test your knowledge with these questions. Chances are, you'll learn something that will help take your future from solid to impregnable.

1. I have at least six months of expenses in an emergency fund. How many of my fellow Americans can say the same?
.........................................................................................................................................................................................................

A. 15%
B. 45%
C. 85%
.........................................................................................................................................................................................................

ANSWER: B.

According to Bankrate.com, more than half of Americans haven't earmarked a six-month pot of money to tide them over if they lose their job or face another unexpected financial blow. That may sound risky, says Eleanor Blayney, a Washington, D.C., certified financial planner, but many people can use a different benchmark.

If you're in a high-demand profession (think programmer, pharmacist, or engineer), you're fine with a three-month cushion.

Related: Emergency funds: Risk versus returns

Same goes for retirees collecting a pension and Social Security. But if you work in an unstable industry -- or if you're 50 or older, which adds three months to the average time it takes to find a new job -- you need up to a year's expenses.

2. If I save 10% of my income every year and retire at 65, the likelihood my money will last until I hit 95 is:

...............................................................................................................................................................................................................
A. 40%
B. 75%
C. 95%, unless I develop a taste for Rolex watches and Fabergé eggs
................................................................................................................................................................................................................

ANSWER: A.

Saving at least 10% of your income (not including your company match) puts you ahead of the typical 401(k) participant, who contributes 8%, according to Fidelity Investments.

For your nest egg to reach the finish line, though, better than average isn't enough. Bump savings to 15% of income -- again, not counting any match -- and the likelihood that your funds will last until you turn 95 increases to 83%, says Stifler. Can you sock away 20%? If so, your chances hit 94%.

Related: Top stock picks from top pros

To get a better idea of whether your savings are on track, plug your assets and expected income (such as Social Security payouts) into the T. Rowe Price Retirement Income Calculator at troweprice.com.

3. Chances are, I'll keep working -- and pulling a paycheck - until I'm:

..................................................................................................................................................................................................................

A. 62
B. 65
C. 72
D. Six feet under
....................................................................................................................................................................................................................

ANSWER: A.

While 37% of workers think they'll call it quits after age 65, the fact is the median age of retirement is holding at 62, according to the Employee Benefit Research Institute.

What accounts for the gap between expectation and reality? Health problems are the biggest factor, says EBRI, but more than 30% of people say they had to retire because they were laid off or no longer had the skills to keep a job.

To increase job security, build a "career fund" into your plan, says Rapid City, S.D., financial planner Rick Kahler. Put away a couple hundred bucks a year to fund professional memberships, classes, certifications -- anything that will keep you on top of your job.

4. My debt payments shouldn't eat up more than this percentage of my income:

........................................................................................................................................................................................................................

A. Trick question. Any debt is too much.
B. 21%
C. 30%
D. 36%
.........................................................................................................................................................................................................................

ANSWER: C.

Banks will typically turn you down for a loan when those payments exceed 36% of your income. Financial planners, though, are generally more conservative, suggesting a debt-to-income ratio of about 30%.

Most of what you owe should be "good" debt that provides a return on investment.

What qualifies? A low-rate mortgage, for example, which allows you to purchase an asset that may appreciate, or a loan that enables you to go back to school and boost earnings.

Minimizing debt will get you better terms on mortgages, loans, and credit cards, says Stifler. If you're above the 30% mark, start to cut spending now. Use the extra funds to ramp up payments on your highest-interest debt.

5. I contribute just enough to my 401(k) to get a full match. I recently got a raise. What's the best thing to do with this new money?

...............................................................................................................................................................................................................................

A. Put it in my 401(k).
B. Open a Roth IRA.
C. Buy lottery tickets.
................................................................................................................................................................................................................................

ANSWER: A or B.

If it's still early in your career, check out a Roth. These accounts require you to pay taxes on contributions but allow tax-free withdrawals, making them a good fit for anyone who's paying a lower tax rate now than they will in retirement.

Related: Virtues of the 401(k)

Already in a high bracket? Stick with the 401(k). The same goes for everyone with a tendency to slack off on managing their account. After all, contributing to your 401(k) is practically automatic, while you must remember to fund your Roth.

6. If my life insurance would replace eight to 10 times my salary, I'm all set.

..................................................................................................................................................................................................................................

A. True
B. False
....................................................................................................................................................................................................................................

ANSWER: B.

Okay, it may be true for some, but you still need to tailor that number to your circumstances, says Kahler.

Do you have dependents -- particularly young children -- or are you the only wage earner in your household? You may need more (up to 20 times your salary in extreme cases).

If you're retired or part of a kid-free, two-earner family, you can make do with far less. To get a personalized estimate, see the calculator at lifehappens.org.

7. If my spouse and I are typical, how much should we plan to spend out of pocket on health care in retirement?

....................................................................................................................................................................................................................................

A. $0. That's what Medicare is for.
B. $177,000
C. $240,000
D. $433,000
.......................................................................................................................................................................................................................................

ANSWER: C.

According to Fidelity Investments, today's average 65-year-old couple will need $240,000 to pay out-of-pocket health care costs in retirement, not including long-term care.

Yet in a Wells Fargo survey of people with $250,000 or more in investable assets, 75% guessed that they would need only $60,000.

If you're already maxing out your 401(k) or IRA, Stifler suggests creating a designated account for health care costs. Separating health savings from other retirement funds will help you keep track of whether you're hitting your goal.

8. I need a will, of course, but I should also look into setting up a trust if I...

........................................................................................................................................................................................................................................

A. Am filthy rich.
B. Want to keep my money out of the tax man's hands.
C. Plan to remarry and want to make sure my new spouse doesn't shortchange my children.
D. Have a spendthrift son who's in debt, and I don't want his creditors to get a bite of my assets.
..............................................................................................................................................................................................................................................

ANSWER: All of the above.

You don't need to be loaded to benefit from a trust, says Ann-Margaret Carrozza, a New York City estate-planning and elder-law attorney.

Related: What's the best use of tax-deferred plans?

Irrevocable trusts, which may be changed only by the trustee and beneficiaries, can reduce estate taxes and help protect assets from creditors and lawsuits. They also allow you to specify how your assets will be distributed, should you, say, prefer to dish out the kids' inheritance slowly rather than in a lump.

Interested? Setting up a trust will cost you at least $1,200.

First Published: February 21, 2013: 7:09 AM ET

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Zombie foreclosures: Borrowers hit with debts that won't die

Even though Christopher Warner's mortgage debt was extinguished upon his foreclosure, debt collectors are still seeking $120,000.

NEW YORK (CNNMoney)

In these so-called zombie foreclosures, borrowers move out of their homes after their bank schedules a foreclosure auction only to find out months or years later that the auction never took place or the bank never transferred the deed to the house. That means the borrower still technically owns the home, leaving them on the hook for property taxes, fees and for homeowners' association dues.

Since the housing bubble first burst seven years ago, almost two million properties have started the foreclosure process but never completed it, according to RealtyTrac. In half of those cases, the homeowner is fighting to stay in the home. But there are close to one million properties that are in some sort of foreclosure limbo. While no one knows the exact number, it's estimated that tens of thousands of those properties could be zombie foreclosures.

Many of these homes are in low-income communities where foreclosures are so difficult to sell that lenders sometimes delay taking possession of the property to save on taxes and other costs that then stay under the borrower's name.

Those debts can then go unpaid for years because the borrower is unaware they owe them, further slamming their credit score and making life after foreclosure even harder.

Related: 10 great foreclosure deals

"The most frustrating part is that I can't move on," said Rose Nathan, a 37-year-old office manager.

Nathan lost her South Bend, Ind., home in January 2009, after working out a deal with CitiMortgage to voluntarily walk away in a "deed in lieu of foreclosure."

"On Christmas Eve, the bank called and told me a sheriff's sale was coming and I had to move out right away," she said. "So that's what I did -- seven days after New Year's."

She sold her belongings and moved to Hawaii. Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. The bank had never taken possession of the house.

Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about. Nathan said she knew of no liens at the time of the transaction. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal.

Related: Million-dollar foreclosures

Meanwhile, the unpaid debt has crushed Nathan's credit score. The deed-in-lieu alone lowered her score by 80 to 120 points, but the unpaid debt meant her credit kept taking a hit. Eventually her credit card companies cut her off, even though she said she was making her payments.

Her auto loan now carries a 25% rate. Her car insurance premiums have skyrocketed. She can only afford a one-bedroom apartment where she lives with her three kids. And forget about buying another home. "Nobody will give me a mortgage," she said.

Citi declined to comment on the case. Nathan said she has since paid off the lien with the hope that Citi will take the deed on the home.

Mustapha Sesay, a 45 year-old father of two, thought he had lost his Brandywine, Md., home in 2008. But two years later, a debt collector called telling him he owed $70,000.

The holder of his second mortgage had never forgiven his debt -- even though the lender holding his primary mortgage had foreclosed on the home.

Typically the second mortgage holder is out of luck if there isn't enough cash from the foreclosure sale to pay off both the first and second lien, said Cheryl Cassell, director of the housing counselor network for the National Community Reinvestment Coalition. But, depending on state law, second mortgage holders can sue homeowners to pay off the notes -- even after they lose the home in a foreclosure or the lender can sell the debt to a collection agencies.

Related: 100 hardest hit foreclosure neighborhoods

In Sesay's case, the debt collector calls every week or two. He has had little luck stopping it. "I talk to credit counselors, lawyers," he said.

Sesay would have been well on the way to credit score recovery. But now, he said, "I could move to Alaska in winter and no one would lend me ice."

Bill Purdy, a real estate attorney in Soquel, Calif., said borrowers can't always trust lenders to file foreclosure paperwork properly. In November 2011, when his client Christopher Warner's Felton, Calif., home was auctioned off, his mortgage debt was fully extinguished -- standard practice based on California law.

Warner's lender, however, recorded $120,000 on its books as debt -- the difference between what he owed and what the house sold for -- and gave it to a collection agency. The debt has lowered Warner's credit score by an additional 100 points, he estimated.

"It nearly put me into bankruptcy," he said. He has hired Purdy to get the debt collectors off his back.

In a $25 billion settlement with the state attorneys general last spring, the nation's five largest mortgage lenders agreed to inform borrowers of any decision to forgo or delay a foreclosure. But victim's attorneys said the banks have not been careful about following that policy.

Borrowers can get credit counseling from community advocacy groups, like those affiliated with NeighborWorks America and NCRC. They can call the Mortgage Help Hotline to connect with a counselor near them. The organizations don't charge for their services and they are experienced in working with borrowers in trouble.

First Published: February 20, 2013: 6:28 AM ET

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