Sometimes, Your Retirement Plan Needs a Different Approach

What if you knew there were going to be more risks, more downturns and more recoveries?  What would you do?  Run from the danger? Go even more conservative?  Or would you run towards the risk instead?

If you are in your fifties, the best you can do in the face of increased market risks is to increase your contributions and get your financial house in order. This is prime time to make concrete plans about what you envision your retirement will be like, how much you will need and how much you have. Refinance your mortgage and pay off your debts. (Easier said than done; but if you don’t focus on that now, you will not come close to where you want to be, healthy portfolio or not. Good advice for all of the previously mentioned age groups, but doubly so for this group.)


Risk isn't going away.  In fact the new retirement plan may be to run towards the danger.


Paul Petillo is the Managing Editor of Target2025.com and a fellow Boomer.

Scaring You into Investing More

This article previously appeared as a new feature at Target2025.com: Repercussion- A Retirement Review.

These days, if you really want to scare someone, use the words retirement and poverty in the same sentence. David McPherson used those words in a recent article published at ABC News.  Unfortunately, his suggestions may just help you get only a hair's breadth away.

Just a couple of thoughts on his suggestions: The sooner we think of the money we put away as an "investment" and not savings, the sooner we will get over the shock that we might lose a little ground along the way in order to gain more over the long-term. Far too many writers make this mistake.

He also suggests that a 1% contribution is the best place to start. I strongly disagree. A five percent jumping off point, match or no match, will not, in all most every instance, have any effect on a person's take-home pay.  And that is usually the focus of concern for most beginners whose focus is on the prize at the end of the week; not the end of the career.

The last thought: Don't be conservative about this effort.  Risk is the only path to reward over a long period of time.  If you are young, assume a lot of it.  As you age, assume less.

Read his thoughts here.

Bommer Update: Wall Street's Efforts Mask Intentions?

This article previously appeared as a new feature at Target2025.com: Repercussion- A Retirement Review.

Now that we have healthcare reform, which can only help the retirement efforts of a younger population and control the costs of the older generation closer to the retirement goal, it is time to focus on the problems in the financial system.  This is no easy task.

Senator Christopher Dodd of Connecticut, chairman of his chamber's Banking Committee takes up the challenge beginning on Monday (03.22.10) with the same opposition and negative opinions circling the effort as President Obama's healthcare bill.  Only this time, Wall Street is being asked for their say-so.  So far, it has been about what they don't want; not what they are willing to give.

Retirement focused Americans should be wary of WS efforts to soften the reform ("The fact is that there is relative uniformity in the financial-services industry that something ought to be done as long as it is reasonable," says T. Timothy Ryan, president and CEO of the Securities Industry and Financial Markets Association, or Sifma, a trade group representing hundreds of securities firms, banks and asset managers), enforce the Volcker rule (re-write of the Bank Holding Company Act, which would prohibit proprietary trading and hedge-fund sponsorship for "systematically important" institutions with assets of $50 billion or more) and make everyone in the financial system accountable ("We would hate to oppose this -- and we haven't been").

From Barron's.

Retirement is Not a Game of Horseshoes

After the 2008 investment season and early into 2009, there were only a handful of investors who could claim to have these elusive skills. As far back as Benjamin Graham, the skill that was needed to be a successful investor was widely believed to be a possession of the few.  It wasn't necessarily the wealthy either.  But a subset of the populace who, for some reason, understood the mechanism better than others.

This led more than few folks to look at target date funds as an investment that might hold the elusive key to investment success. Money poured into these types of funds and continues to this day.  This in large part because of the default option that new hires receive.

But Baby Boomers have an unique problem. Too conservative and there won't be enough money.  Too aggressive and there may be losses that are not welcomed.  But target date funds, while they have gained praise as they continue to underperform, are not the answer.

Paul Petillo is the Managing Editor of Target2025.com and a fellow Boomer.

Investing Responsibly with SRI

Earlier today, on MomsMakingaMillion radio, I discussed the topic of socially responsible investing.  I have written about this topic numerous times and will continue to do so as the effort to invest where the right thing is being done continues to expand.  Once it was all about ethics and morality.  Now it is including shareholder advocacy and community involvement.

Here is a transcript of the interview I had with Kat Bellucci.

Kat Bellucci: A lot of us have become very aware about what we eat, what we buy and what kind of a footprint we leave. And then, when we invest our money, we often don’t consider that the companies we are buying in our mutual funds might be the very businesses we would avoid in the marketplace.

Well ladies, its time to take a look at taking your investments down a path that suits your concerns about the world around and the world your children will inherit?

Paul Petillo: Most investors are narrowly focused.  They want to make money.  But some investors want to make money without destroying the environment, without violating their personal values and possibly even helping others in the process.

While these types of investments have been around for decades, the cost of doing this sort of investment was not always cheap.  The sorts of investments first came across my radar when my daughter, a free spirit who was interested in investing asked me: “are there any mutual funds that are ethical?”

What she was really asking was whether the companies that the mutual funds invested in were screened for more than just performance.  While we would like to believe that all mutual funds are ethical; what about the companies they invest in?

Kat: So what describes ethical?

Read the full interview here at Target2025.com

Boomers Can Not Afford To Retire.

According to CNN/MONEY, more people say they just don't have the money to retire these days.

Seventy-two percent of workers over the age of 60 can not afford to retire as indicated in a survey by Careerbuilder.com, a career resources website. The results from the survey indicate more pessimism than in 2008, when about 60% of retirement-aged workers blamed the economy for delaying retirement.

Fear of retirement are higher with women. 76% of women said they were not financially secure enough to stop working, compared to 68% of men.

http://money.cnn.com/2010/03/03/pf/retirement_delay/index.htm

Is it Too Late to Start Over?

Boomers are faced with a double whammy of sorts.  First, they have limited time in which to take risks and when they did, they didn't take enough of them.  But there are still some things that can be done.

A great number of investors reacted in a very predictable fashion as the Great Recession took hold.  They sold their holdings on the way down, in large part because no one could predict how far down would actually be and stopped contributing to their 401(k) plans.  Employers, as we have discussed here, suspended their matching contributions for several reasons (no need to spend money where it didn't need to be spent and there was no longer any reason to offer this as an incentive to keep or hire new employees).

Adding to the mad dash to protect dwindling balances, target date funds and bond funds swelled with new contributions. This was, in many instances, akin to stuffing money under the mattress.  Not that some these funds did poorly or had mediocre performance, although many did, investors felt protected or at least safe from the chaos and volatility of the open markets.  It was a flight to risk-free, or at least, invest-and-forget investments.

Once-Bitten

Historically, the bad news of a falling stock market lasts about six months.  This quick, fall-off-a-cliff drop to the bottom is often followed by a market where investors find innumerable bargains. Over the last decade, unlike all of the previous data on the equities market, recent recoveries, this one included have come at record speed.  Five years in-between market drops and recoveries is not the norm.  But possibly, could be.

This may have something to do with a much larger segment of the investment market coming from 401(k) investments. Although these plans have been around for thirty years, they have not really caught on until recently and even that trend is not fully employed by those who have access to these types of plans.  Pensions may have gone away but 401(k) plans have not fully replaced them with the working public.

That fact leaves many investors vulnerable to their emotions and to the forces that promote the marketplace.  A recent study done by Hewitt Associates found that the vast majority, or what they termed typical, investor under the age of forty had moved some or all of their retirement funds into target date funds.  Those over the age of forty found the move to bond funds more appealing.  Both of these investments, albeit conservative in nature, were forgivable. They were doing what any "once bitten" investor would do.

Read more here.

Paul Petillo is the Managing Editor of Target2025.com and BlueCollarDollar.com and a fellow Boomer.

The Future of Our Retirements is Within Our Control - sort of

Boomers face retirement dilemmas of epic proportions.  These problems at first glance, seem insurmountable.  Some of the real issues are beyond our control.

The problem lies in an unknown future filled with financial events that are largely beyond your control.  We can't predict inflation.  It could be mild as it is currently or it could skyrocket.  We can't predict taxes.  They could remain stable and if the popular theory of being taxed less in retirement holds any validity, we can make educated guesses as to what that rate will be - but not much more.  We can't predict the markets.  We tend to be an optimistic sort projecting past historic returns as a measure of future results.

So if inflation doesn’t cooperate and taxes could rise and the markets continue to be volatile, where does that leave us?  And with what controls?

Read more here.

Paul Petillo is the Managing Editor or Target2025.com and a fellow Boomer.