Building a Boomer Annuity without the Insurance Company

I have been writing about money for almost thirteen years now and if anything thing has remained consistent over all of that time, it is my opinion of annuities. Not the idea.  I have always liked the concept that you had the knowledge in hand that a fixed amount of money was coming in each month, and even if it was diminished over the years by inflation and taxes, so be it.


On The Surface
I'm sure your probably wondering what's not to like about annuities? They have the ability to grow in value, guarantee a steady stream of income, never run out and are tax-deferred. Some have loan provisions and some even have nursing home language that allows you take more of your annuity out without penalties.

And that's where the annuity really takes a downside.  You might think all of those things about annuity I just mentioned are all worth the costs of what annuities charge.  But there is little reason to purchase an annuity if those costs can be had for some much less with almost no more effort.
All annuities have surrender charges.  These are penalties that often go away after seven years, sometime longer in the case of CD Type annuities; some, as in the case of fixed annuities, fifteen years. These charges can be steep and demand you consider how much of your money you want to be unable to touch without incurring huge costs if you change your mind.

And we all change our minds. In fact the older we get (studies point to this ability to get financially confused occurs after age 70), the greater the chances are we will make bad financial decisions. In fact, insurers know this about you and because this is part insurance/part investment, who you are also determines how much you can receive in the form of monthly payment over the course of your lifetime.

Inflation in layperson's terms simply tells us that each year that passes, your dollar will purchase a little less. Economists see this as a good thing if it is kept under control.  But the simple fact is that if you found ten bucks in your jeans, a pair you hadn't worn in a while, the money wouldn't go as far as it would have had you spent it the last time you had them on.

Taxes are the hidden surprise in annuities.  You buy an annuity with a fixed amount of cash. In a great many instances, this huge amount of cash comes to you upon retirement.  You are left with a couple of choices.  You could reinvest it back into an IRA - because, in most instances, the money in this lump sum payment is stuffed with cash that hasn't been taxed.  So you need to keep it that way. Or you could buy a tax-deferred annuity.

The oddest thing about this decision is that most folks turn down the opportunity based on what the stock market has done in the last six months. If it has done well, these newly minted retirees will take their chances and invest on their own.  If it hasn't done so hot, they look at the safety a regular monthly payment offers and how it makes them feel.

So back to the tax part.  Unlike every other form of investment which can be passed on to your heirs without any taxes being paid - until they decide to sell whatever you have left them, annuities are taxed.  And you and probably your heirs were not aware of this. And the tax is done on a stepped-up basis which means the taxes reflect the increased value of the annuity. And yes that is the other up-sell for the product, annuities gain over the years based on a guarantee of sorts from the insurance company.


Making it Better for Women
Because women live longer, they generally receive less as a monthly payment than their male counterparts. That's why annuities inside of a defined contribution plan like a 401(k) can be beneficial for women. In the current state of the economy, knowing how much income you could receive as you accumulate retirement savings can be a huge help in retirement planning.  If your plan doesn't have such an option, you can ask.  But the change may be coming.

One study suggests that "about one in four companies (22%) that offer DC plans provide an annuity as a distribution option, while 10% of those who don’t supply one are considering adding it."
The most interesting thing of all: You can do it yourself. And in many instances with just CDs. Here's how it works.


The DIY Annuity
First find a ten-year CD (or a five-year if you are skittish about the concept) with a low early withdrawal penalty (this can often be for a short-period of time, like two years and might not be so prohibitive an amount to pay if interest rates begin to inch their way up - and they probably will - and you want to turn the CD in). They are FDIC insured so you will never lose your invested money.  The government does tax your heirs if you should die before the CD matures.  The interest is still taxed more favorably than income or annuities. And the fees run about 0.02%.

Sure, you will have to buy another CD when it matures, or if interest rates go up making worthwhile to sell the CD you have in favor of a better one.  But this doesn't require a boatload of financial savvy to master.
Keep in mind, you should not bail on your retirement plans in favor of a total investment in CDs.  But having something else safely earning while your 401(k) works its own form of market-based compounding, is as good a way as any to build a safety net for the future.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer.

Mortgage Math for Boomers

There was a discussion on a popular morning business show about whether the interest rates on long-term, 30-year mortgage rates could ever get to one percent. They could, theoretically  get that low and it would certainly fix a huge amount of problems.  But most economists can't envision it ever happening based on the way our current bond market is structured. In the meantime, what should we do if we are close to retirement?

Yes, folks are still out there looking to purchase a mortgage. And yes, they, like the banks, are doing the calculations about what would be better for them: short-term loans or the traditional, long-term, 30-year variety. While the differences often seem easy to spot, on the surface at least, the nuances are harder to decipher.  The 15-year mortgage comes with a lower interest rate but because of the length of the loan, the monthly mortgage payment is higher.  The 30-year mortgage on the other hand offers a lower monthly payment but you end up paying more in interest over the life of the loan.

Those are the easy to see differences between the two.  The choice is also easy and depends on not only who you are as much as how your history of handling money plays into the equation. If you consider yourself disciplined, you might want to pick the longest term mortgage for several reasons, one of which stands out: flexibility.

Locking your cash into the higher mortgage payment will pay off the loan quicker and over a fifteen year period, cost less in terms of interest rate.  What you sacrifice is the ability to plan for the unknown.  Among those unpredictable moments that life can throw your way is a sudden change income, unexpected medical bills,  the chance that during that period, you may find another job that would force you to move.  Locking yourself into the higher monthly payment may have a negative effect on your retirement investments as well.

The person considering the 30-year mortgage can see some significant savings in terms of monthly outlays. On a loan of $300,000 spanning 30-years at 4.5%, the monthly mortgage payment would be around $1500 a month.

That same loan at a lower 15-year rate (currently about a half percentage point lower than the 30-year) the monthly payment would be about $700 more.  Looking into the future, when both loans are satisfied, the difference in interest savings can be sizable.  The 15-year mortgage would cost you about $100,000 over the original mortgage; a 30-year would show a lifetime interest payment of about $248,000.  You are going to pay interest.  The question is: Is paying $148k more worth the lower monthly payment.

While it does depend on who you are and the answer laid in bare numbers seems obvious, the statistics indicate that the longer loan is actually a better use of your money than the shorter term loan.  Conventional wisdom suggests that if you invest the saved dollars each month, you might be able to best the difference.  This requires not only investment savvy and consistent investment, but the long-term cooperation of the markets. Few have all of these attributes in place and are able to execute them without, at some point down the road, making a mistake.

There is a better argument for the long-term loan as opposed to the shorter one. If the mortgage holder of the long-term loan paid additional money to the principal each month, they could conceivable shave years off the mortgage.  In this case, an additional payment earmarked for the principal, could bring the life of the loan down just as quick as the loan for the shorter period of time.

It works like this: If the 30-year mortgage holder paid a thirteenth month payment ($1500 divided by 12 = $125) over the course of a year, they would have satisfied the loan in about 23 years.  Make a fourteenth month payment ($250 extra each month, directed towards the principal) and the loan would be paid off in about eighteen years.

Make a fifteenth month payment ($375 each month, directed towards the principal) and you would essentially have 15-year mortgage for about $325 a month.

Because mortgages are calculated each month, (interest against what is owed), by directing more money to the principal each money and doing so early on, you will also lower the amount of interest rate owed as well.  Of course your savings depends on the interest rate you get.  But the difference can be quite remarkable and will get you closer to what the 15-year mortgage holder received over the life of their loan.

You also need to consider the inflationary magic a mortgage works.  While inflation is somewhat benign now, it is not expected to stay that way forever.  If it starts to tick up, your dollar with be worth less, giving you less in terms of purchasing power.  Unless you have a fixed loan.  This could be quite sizable in terms of future savings.

Suppose your $1500 was effected by a 4% inflation rate over the next fifteen years.  In terms of purchasing power, that $1500 would be equivalent to $4865. ironically, you mortgage payment stayed the same.

You also need to consider the saved dollars -after you made the fifteenth month payment.  Invested in a super-conservative fashion, say in a Vanguard US treasury fund (VUSTX) and if the past is any indication of the future, your yield would average around 8%.  Even if that fell to almost half, you would still be on par with the owner of the shorter-term mortgage.

This sort of flexibility allows for those hiccups in our daily lives to happen and do so without creating financial hardship. And it is avoiding those potential mishaps and possibly profiting when they don't occur that is key to ensuring that we have enough to pay our bills and invest in our retirement futures.

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

Bubble, Bubble, Trouble in Bonds?

Boomers should probably pay attention.  What is or better what could happen in the bond arena will impact not only what you know about your potential retirement wealth but whether your retirement wealth can withstand what may happen.

Personally, I don't like the term bubble.  It implies that once punctured, the pop is immediate.  But that's not how market bubbles usually react.  There is the slow hiss of the initial investors leaving somewhat quietly, who begin to see that things aren't going as planned.  This of course follows the big investors making statements that make sense, are largely ignored and then, suddenly embraced and the selling begins. The next to bail on the bubble is the individual investor who may have used that certain security as a parking place for their money or even as a short-term investment.

Following that, the retirement investors.

All the while the value of said bubble decreases. It doesn't "pop" as bubbles do but instead offers pain to those slow to react. The warnings are starting to surface at a more frequent pace and if this is a typical bubble scenario, those who went conservative after losing a great deal of their portfolio value in the last market debacle and began investing in bonds will be the last to react.  And be the worst hurt.

Many folks invest in bonds as part of an aging portfolio rebalancing.  In numerous cases, they do this via bond mutual funds and not the individual kind.  Unfortunately, this carries some additional risk.  Individual bonds have fixed maturity dates.  If held until that point, they will do exactly as they promised, paying you whatever the coupon book suggests.  That is, unless they default at some point.

Bond mutual funds, like all mutual funds are a basket of bonds with varying maturity dates.  Your reliance on the mutual fund manager to have a good mix, be wary of maturity dates and offer some considerations for the potential of default (when a bond is not bale to pay the value of the bond, which is essentially a loan).  But even more, the length of those bonds in the portfolio might be at risk as well.

Bonds have seen a lot of new fans.  Investors worried about not having enough to retire on, worried that the markets betrayed them in 2007-2008, and the concept that retirement as originally planned will need to be re-thought, even reconsidered, saw a great deal of rebalancing.  This "rebalancing may have been just as unbalanced as an equity heavy portfolio was - and what got them into trouble in the first place.

The old idea that your bond allotment match your age has found many investors poised to be disappointed, if, what the bond gurus are saying comes to pass.  And what they say is not good news. Bill Gross, the king of PIMCO sees trouble on the horizon. And yet, you hold on for more proof that the one man who probably knows everything there is to know about bonds is right. By then, it will be too late for many investors.

So why is he, and numerous other experts worried? There are several reasons, one of which I already mentioned: default. We hear numerous reports of how flush many businesses are with cash.  While there are quite a few with huge reserves, enough to worry the White House and economists alike, there are many more who simply must go to the bond markets to continue to finance their operations.  While this seems like a good idea on the surface, worries about the prolonged nature of the recession have also raised fears that many of these bonds will not be repaid.

Untangling this sort of mess in a mutual fund environment can be the most difficult.  And when investors catch wind of this possibility, fund mangers begin to sell to cover those departing the fund.  From there, its is a quick tumble towards the bottom for those remaining and the bond markets in general.
Inflation is also a concern.  This has been more or less benign of late.  Yet no one expects it to remain that way, new bond investors may not have the savvy to recognize the negative effect of this on their portfolio.  As inflation rises, the money involved in the bond - which is fixed in terms of how much is owed to you and the yield you expect - is worth less.  Not worthless, but not worth as much as you might assume it would be.

Ty A. Bernicke, writing in Forbes sees trouble on the horizon in the form of interest rates.  The Federal Reserve could hold rates low in the near term.  But don't expect it.  He writes: "There are three striking similarities between the 1940s economic landscape and today. The U.S. is experiencing an extremely low interest rate environment, our country is coming off a prolonged period of low inflation, and there are elevated concerns regarding defaults on bonds. The same three factors were present just prior to the beginning of the prolonged bear market in bonds from 1940 to 1980." In 1980, we began a bull market in bonds that has lasted until today.  There is evidence that this is beginning to unravel.

If that happens, we could be in for a long stretch of not much of anything.  beginning in 1940, and lasting for forty years, the "five-year government bonds averaged 3.38% per year" and "corporate bonds with maturity dates near 20 years averaged 2.8% per year".

There are only a couple of things you can do if you have invested heavily in bonds or bond funds.  Begin rebalancing now, lowering your exposure to these securities.  Some younger investors have far more than the traditional rule of thumb suggests (percentage of bonds equal to your age) and older folks should pay heed as well.  You could look towards the stocks that paid dividends consistently throughout the downturn.
Dividends paying mutual funds tend to be the most stable, spreading the investment over a wide swath of the top 100 or so companies that pay.  That's not to suggest that you couldn't buy the dividend paying stocks yourself, individually.

The only other thing might be to go short-term and look for the highest interest rate.  This will take a little bit of homework on your part.  But your investments will be somewhat safer, more liquid and not among the casualities that are bound to be tallied by this time next year.

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

The Greatest Problem for the Greatest Generation

When it is all said and done and the history books have had a chance to prove and reprove it, Baby Boomers are going to get the blame for everything. Most of the problems we have faced since the term was first coined will be attributed to those who were born between 1946 and 1964.  We sowed the seeds of consumerism, entitlement, privilege, wealth and health and redefined what retirement could be. Boomers saw themselves as different from the previous generations, a cultural swing that through sheer numbers changed how things were done. Boomers have been described as the "pig in the python" a huge generational bulge that was unmistakeable yet somewhat unpredictable as well.
And here we are, tossing around the notion of retirement while our children and sometimes even their children face a future where this will not be possible, at least framed the way Boomers had envisioned.  And as we think about this future of our own, for some a prolonged and redefined work career, the generation we sought so hard to distance ourselves from is closing in on us.

Aging parents are the discussion we don't want to have.  We thought our affluence would have allowed all boats to rise.  Most of could see a growth of our own wealth as being enough to cover all problems should they arise, give us enough to retire on comfortably, live the life of leisure we were so focused on and do so on the investments we made while we were working.  Like so many things we were presented with, we didn't think this through to its endless possibilities.

Aging parents are presenting a great deal of Boomers looking to retire in the next decade with a number of consideration they had previously ignored.  Boomers grew up knowing that everything would be okay.  Give it time, we thought, and a solution will present itself.  Now we have smaller portfolios, redefined dreams and working careers that could extend - if we have remained healthy enough - well beyond what we originally intended. And aging parents.

Here are three things to consider that you may not have fully faced quite yet.

1. There may come a point in the near future when your parents may not be able to live on their own.  This is presenting problems for Boomers that run the emotional gamut. How do you convince an older parent that they are vulnerable to their own inability to live alone in the their own house?  Ignoring the problem is not the answer, and in a vast majority of the situations, is only confronted when there is an accident.  This can add additional costs to an issue that was easier to confront prior to a fall or a dramatic loss of weight.
If you need to enlist a doctor's help, don't hesitate. In many instances, this is the single person that can convince the aging parent that they need someone to come in a cook their meals, tidy-up the house and even do a little shopping for them or with them.

2. Consider the assisted living facility before they need it.  They will all resist it. The sales pitch will be off-putting but like so many things in life, discuss it with friends.  They also have aging parents and are facing the same problems as you. They know or have heard of these places and, if they can't offer any real advice on which one is best, they can offer you some insight on what they are feeling, if they had made the decision and how, and how they feel after-the-fact.

Examining your true motives may not be easy.  If you are asking yourself questions about how this will affect you, you may be asking the wrong questions. If an assisted living facility is something that is simply easier on you, it will be. You will have some peace of mind and a feeling that there is some continuity in your parent's life.  But that may not be shared by your aging parent.  Keep that in mind before signing any long-term commitment with any housing. They may not like it.

3.  Determining that your parent is a danger to themselves and others is perhaps the most difficult - especially if you live a considerable distance from them. They are adults and they are allowed to make mistakes. The only thing you can do in this instance is be persistant, not pushy, but patient in your explanation that it may be time to give up the fight for independence. As Carol L. Rosenblatt, RN, BSN, PHN, attorney, is author of The Boomer's Guide To Aging Parents suggests: "Our ongoing encouragement and respectful, patient offers of help may be heeded over time."

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

The Next Step After Frugality: Preserving Capital With Low-Risk Investment Vehicles

At the outset of the Subprime Mortage Crisis during 2008, I had a fascinating conversation with two successful business professionals.  Both were their early 50’s. One was a partner in a large Real Estate investment firm in Chicago, and the second was a Physician who owned his own medical practice.  During the course of our conversation, both of them communicated to me that if they had invested all of their net worth in T-Bills for their entire professional careers, both would have been able to retire early.  I was shocked!  They had each experienced such massive losses in the market throughout their career, and then oftentimes got out at the worst of times, that they would have been much better off if they had simply invested in low-interest, but extremely safe, T-Bills.

This exact story is why many investors are currently adjusting their portfolios by adopting a lower risk investor profile.  Preservation of capital is the number one priority for many investors in the current economic climate of uncertainty that is present in most developed nations around the world.  As rumors of a possible double dip recession surface in various news publications, the one thing people one more than anything is to not lose money.

Savings Accounts

Savings Accounts offer the smallest rate of return in comparison to other low-risk investments.  While they are the most liquid, they also have the weakest return.  Furthermore, when the Federal Reserve lowers interest rates in the United States due to economic recession, the rate of return on a Savings Account will likewise fall.  This very low rate of return, sometimes even below 1%, is why many investors do not like to keep funds in a Savings Account for very long.  However, if liquidity and preservation of capital is your goal, a Savings Account is an excellent place to park funds.  Also, they are considered extremely safe because if a bank were to fail, the FDIC insures against loss.

Money Market Accounts

Money Market Accounts are similar to a Savings Account.  Investors deposit funds in a Money Market Account at their banking institution, but they are offered a return that is slightly higher than a savings account.  The risk on the investors side is still very low, but they are subject to different terms concerning the minimum amount deposited and how often they can deposit and withdraw funds.  For this reason, Money Market Accounts are seen as less liquid than a standard savings account, but they do offer a higher rate of interest.  This investment vehicle is great for an investor who knows that the investment funds will not be needed for a longer period of time.

Certificates of Deposit

Certificates of Deposit (CD’s) are a favorite amongst investors seeking to preserve capital with a low risk investment vehicle.  While CD’s are also issued by banking institutions, they offer a higher interest rate than a standard Savings Account of Money Market Account.  They are the highest returning investment vehicle that the FDIC still insures against loss.  The downside to CD’s is they are much less liquid.  In fact, depending on the CD, funds generally cannot be withdrawn for several months up to several years.  Funds withdrawn before the maturity date are hit with various fees.

Bonds

Bonds are issued as debt by a company.  Thus, when you purchase a corporate or sovereign bond, you are essentially loaning that company or country money.  For this reason, bonds are seen as a relatively safe investment.  Bonds do, however, vary in their risk profile.  Bonds are generally rated with a letter sequence, such as AAA, that signifies how risky they are.  A bond issued by a company such as Microsoft is regarded as extremely safe, with little to no chance of default.  An investor can take more risk in search of greater reward and invest in junk bonds.  These bonds will return a higher rate of interest, but the risk of default is also much higher.

T-Bills

T-Bills are seen as the safest form of investment for very large players in the financial world.  When investors want to protect their capital, but still want to get a small return on their investment, they will oftentimes purchase Treasury Bills.  Treasury Bills are debt issued by the U.S. Government.  When an investor purchases a T-Bill, he or she is essentially loaning the U.S. Government money.   This investment vehicle is seen as extremely safe, since the probability of the U.S. Government defaulting on its debt is extremely low.  T-Bills will also typically return less than a bond, since the risk is less.  In currency trading, when there is a large amount of T-Bills being purchased during times of economic uncertainty, the U.S. Dollar will often rise in value due to this great demand for U.S. safety.

The are serveral types of low risk investment vehicles, but it is up to you to decide which one is best for you. Always preform a 3rd party check before commiting to an investment broker, and take the time to do a little research. Part of preserving your hard earned money for retirement is making sure inflation doesn't eat away at it slowly underneath your matress.

The following article was the beginning of a series on women. because so many Boomers have been faced with the need to remake their careers and even remarket their talents, many have looked to business ownership as the road they need to travel.  Also consider the time you might devote to this sort of venture.  Conceivably, at age 55, you could create business that could need your stewardship for tow decades or longer.  That said, there are many things to consider.

I just recently began season two of a radio show with Gina Robison-Billups and Kat Bellucci.  Quite often, Gina reminds us what this project is designed to do: help women in business not only achieve their goals but to level the playing field in business. This playing field, it seems, isn't level for any of the players when it comes to retirement planning.

We have discussed numerous ways for the women in the her audience to create and maintain a retirement that is both affordable and provides the right incentives for all of their employees.  But while women (and men) concentrate their time and efforts into growing the business itself, what you don't see or accidentally ignore, could cost in terms of legal fees and quality employees.

Once the business you are in becomes big enough to consider more than just a self-employed IRA for your retirement plan, an IRA suited best for the business owner and employer of one, the decisions seem to suddenly become more complicated and costly.

You might be CEO, chief sales person, plant manager and human resource department among the numerous hats you might be donning as your business grows.  But don't forget, you will also be the chief financial officer.

CFOs are faced with numerous problems when it comes to creating and maintaining a 401(k) plan.  You will need to hire a plan sponsor. At first, you will wonder if this is a necessary step.  But there are numerous reasons why you should hire what you can afford.

In a small business situation, the simple plan is probably the best.  Often referred to as a prototype, the plan comes with some basic elements in place and some you may not have considered. The best advice in structuring your 401(k) is to separate the elements of the plan.  Mutual fund and insurance companies offer a complete package of services designed to make the plan a sort of one-stop shop sort of affair.  Now, I'm not saying that this is a bad idea and on the surface it may look as if it might be the most cost efficient.  But in the long-run, as your company expands, it might become more burdensome.

As the CFO, you need to consider compliance and regulation issues. This is almost impossible to do in-house. Hiring outside of your company may cost a little more than your typical investment/insurance company might offer, but consider asking yourself these questions when hiring them: are they capable of protecting your plan and its participants from costly mistakes, regulatory penalties, liability exposure and all nature of aggravations that will act as distractions and interfere with the operation of your business or non-profit organization?  They might say yes but the simple truth is, much of those issues fall back to you should they become legal actions.

According to CFODailyNews.com, one of the scariest parts surrounding 401(k) plans, is the participant lawsuit. Why? because if you haven't done your job, you will probably lose a lawsuit. According to the site: "Recently, there’s been a spike in employee lawsuits over excessive 401(k) fees. The scary part: If you can’t prove that your company did its best to negotiate lower fees from your 401(k) provider, courts are likely to rule against you."

One of the main reasons employers use 401(k)s, aside from their ability to create retirement wealth that is directed by the employee themselves, is the matching contribution.  This is something the employer provides and people beginning their plans should keep a couple of things in mind when deciding how much to offer or even to offer anything at all.  We have all heard news reports over the last couple of years about companies reigning in the 401(k) matches, citing difficult economic times.

While we have also heard about the huge amounts of cash they are hoarding, taking something away from employees is harder to do than you might imagine.

So when beginning to offer a match, keep in mind that no match or a little match can be improved upon. Small business employees will understand your prudence and might even see it as a wise business choice made by a smart owner. If you do decide to offer something, consider selecting a match that motivates current and potential employees, increases employee participation in your plan, affectively works at appreciation of the 401(k) plan and helps reduce employer contributions needed to pass ADP/ACP tests (actual deferral percentage/actual contribution percentage).

Now you might think that no match or a low match might be considered stingy.  But studies have begun to show that the higher the match, the higher the likelihood your employees will contribute only the enough to meet the match. Another consideration when building these plans is to offer them some sort of way to see the future.  It used to be that a number goal was what we all chased.  Now, we need to know how long the number goal will last.

And most importantly, women business owners can do their female counterparts a huge service by offering a lifetime annuity in their plan choices.  Now, as a rule I am not a fan of the annuity.  They cost a lot and are sold with all sorts of add-ons.  But they are particularly treacherous for women who receive a lump sum at retirement.  Annuities consider length of life and determine the payout based on actuarial assumptions. Shopping for one after retirement, leaves women vulnerable to getting far less than they would had they had access to it while they were working.

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

Married to Debt

Boomers may have already been married for decades by the time you read this.  Or perhaps not.  But in all likelihood you know someone who is marrying for the first time, blinded by the love they are in and at the same time, unable to see the future because of it.  Do you offer them advice?

Eventually, in the course of a serious relationship, the topic of marriage is discussed.  Because marriage is more than just being able to "kiss whenever you want to", the topic of money enters into the conversation.  This might come very early on as one half of the couple reveals their ability or inability to handle their own finances. Should it be a dealbreaker? Should you still consider the union of two people, which is more than love and compatibility but a business agreement when you are picking a spouse? Will it affect your retirement goals? Will you be able to buy a house, secure a lease or have a baby?

There was a time when the look of love was enough.  Now, couples consider each others attitudes towards frugality, their outlook for their monetary future and how much debt one or both bring to the union.  The focus on a far-off distant future has come to the forefront of many conversations in the recent downturn and with good reason.  The inability to handle a budget could restrict the ability to buy a house (for a reasonable interest rate), whether or not children are financially feasible, and should the relationship end for whatever reason, who gets left with what debt obligation.

Numerous couples are now considering the long-term effects of poor financial management as an insight into the future of the marriage.  While you might feel as though you have a bright future, shedding a light on how your potential spouse handled their past financial obligations has become the new pre-nup.

It was just a few short years ago, when everyone held bright and optimistic outlooks for their futures, that these sorts of financial considerations took a place on the back burner.  You understood the downside of poor money habits.  But the feeling that things would eventually work themselves out has diminished. Now, the prudent saver and investor is examining the financial statement of their partner, something you only did when one of the couple was rich.

Now, no one wants to marry debt.  With the current unemployment rate at unacceptable levels and many of those out-of-work folks in possession of large, unwieldy student loans, people are wondering if marriage is such a good idea.  Your outlook may dim your love somewhat as you try to see the future.

Financial responsibility is a learned art.  If you have found the right person for you, is there any proof that your influence over financial matters couldn't be taught?  Chances are, your experience has given you the financial outlook you possess now.  Can you teach someone who may not have had the same experiences, the same parental guidance, or the same lessons you have learned?

I'm inclined to believe it can happen.  In many marriages, this realization that one member of the couple does not possess the money management skills needed to achieve the hopes and dreams that helped you decide you could spend the rest of your life with came after-the-fact.  In those instances, one of you has stepped up to the responsibility of running the household finances.  This didn't stop the other half from committing financial infidelity (and some marriages have ended because of it).

There are a couple of things you need to keep in mind before you tie that financial knot.  Your spouses student loans are theirs - should the relationship end badly.  But while you are married, you should assume they belong to both of you.  If they have spent tens of thousands of dollars on higher education, the hope that they can eventually find work with enough income to handle those debts still remains.  We won't always be in a  downturn.

But your spouses credit record can have a downside effect on any money you might borrow as a couple.  Outstanding credit card debt will need to be handled and in many instances repaired.  And the frugal half of the couple needs to calculate just how long this might take.  To understand this timeframe, you should ask.  Money may not be able to buy you love yet on the other hand, love doesn't solve money problems.

Ron Lieber, writing in the New York Times suggested: "One advantage to prenuptial agreements is that they force the issue, even if it does turn the talks into a negotiation. “At least half the time, people are shocked at what the other person’s attitude is,” said Susan Reach Winters, a matrimonial lawyer with Budd Larner in Short Hills, N.J. “You ask how they’d handle it if someone wanted to stay home after having a baby, and at the same time they give completely different answers.”

These are worthwhile considerations, even if you are decades away from your retirement. And they need to be asked.  Student debt doesn't necessarily show that one of you is not able to handle money.  But it does put long-term pressure on many financial decision you might want to make.

To read more of Mr. Leiber's article.

 Paul Petillo is the managing editor of BlueCollarDollar.com/Target2025.com and a fellow Boomer.