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Jill on Money: QE3, index funds

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Stocks surged to multi-year highs last week, after the Fed announced new, aggressive measures to boost economic growth and help reduce unemployment. To understand what the central bank is really going to do, listen to this 90 second radio interview:

For a deeper dive on the Fed meeting and the new policy, check out "QE3 Cheat Sheet".

We kicked off the show with a call from Barbara in Buffalo, who faces a great problem: she has too much money in her emergency reserves! Should she gift it to her grandchildren or start another investment account?

A call from Rhonda in TX provided a great opportunity to underscore my "BIG 3", the three important steps that everyone should take to build a strong and secure financial foundation:

1. Pay down consumer debt

2. Establish an emergency reserve fund of 6 to 12 months of living expenses

3. Maximize contributions to retirement plans.

Speaking of retirement planning, Fidelity recently released what it calls its "rules of thumb" to help people determine how much they should save for retirement. The mutual find and retirement giant says employees should aim to save an amount equivalent to their annual salary by age 35; twice their salary by 40; four times' salary by 50; five times' salary by 55; and eight times' income by age 67. These targets should allow average workers to replace roughly 85 percent of their income in retirement.

Jeff's retirement plan options are certainly expanding, now that he is working for himself. The Solo 401 (k0 will allow him to put away up to $50,000 pre-tax for retirement!

Tony wrote in asking how to determine the cost basis on his primary residence, which he is about to sell. As a reminder, individual taxpayers can exclude $250,000 of capital gains (couples $500,000), as long as they have owned the home and lived in it for 2 years. When it comes to improvements that can raise cost basis, those that are long-lasting are allowable (new roof, furnace), while general maintenance (painting, annual plantings) is not.

E-mails from Dennis and Linda prompted me to explain the rules surrounding how to claim an ex-spouse's Social Security benefits. To be eligible, you must have been married for at least ten years; be at least 62; your former spouse must be eligible for benefits, which means he or she must be at least 62; and you must have been divorced for at least two years.

We received calls from a couple of financially savvy young listeners. David, a 30-something 404 fan, inherited a CD and wants to know what to do with it. Amazingly, we found a way for him to lock-in a 7.8 percent, guaranteed rate of return! Patrick (26) from NJ had questions about his 401 (k) allocation.

Mary from MD asked about index funds and whether they appropriate for her? This led to a larger conversation about bond funds and how they distribute income to investors. Here's my portfolio for wimps that Mary mentioned:

Jill's Wimpy Portfolio:

-- 20% CDs

-- 15% Cash

-- 20% Bond Fund (Vanguard's Intermediate Term Bond Index fund (VFICX), Vanguard Short-Term Investment Grade fund (VFSTX), Vanguard Total Bond Market Index Fund (VBMFX), Schwab Total Bond Market (SWLBX), Fidelity U.S. Bond Index (FBIDX)

-- 15% International Bond Fund T. Rowe Price International Bond Fund (RPIBX) or if you want to assume more risk, you can add the T. Rowe Price Emerging Markets Bond (PREMX)

-- 10% Total Stock Market Index Fund (Fidelity Spartan Total Market Index, Schwab 1000 Index Fund Investor or Vanguard Total Stock Market Index)

-- 10% International Stock Index Fund (Fidelity Spartan International Index (FSIIX), Vanguard Total International Stock Index (VGTSX)

-- 5% Emerging Markets (Vanguard Emerging Markets Stock Index (VEIEX) or T. Rowe Price Emerging Markets Stock (PRMSX)

-- 5% Commodity Fund (Harbor Commodity Real Return Strategy (HACMX) or for gold bugs out there, Vanguard Precious Metals and Mining (VGPMX))

Finally, listen to the full financial plan that I conduct for "K" and the LTC advice I give to Gary.

Here are web sites and resources mentioned in this week's show:

-- Jill's Blog

-- NAPFA: National Association of Personal Financial Advisors (fee-only advisors)

-- Best CD Rates

--Social Security: File and Suspend

-- Social Security: Double-Dipping

-- Retirement Calculator

--Long-term Care - US government web site

-- Long term care conundrum

--Financial documents: What to shred, what to keep

-- Estate Planning: the Documents You Need

-- 529 plan info

Thanks to everyone who participated and to Mark, the BEST producer in the world. If you have a financial question, there are lots of ways to contact us:

Call 855-411-JILL and we'll schedule time to get you on the show LIVE

Send an email: askjill@moneywatch.com

Tweet me: @jillonmoney

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