The Hard Sell

This is the point where two facts collide. You hear a lot of white noise about the so-called delayed retirement, the I'll-have-to-work-longer-because-my-plan-was-undone tales. Those headlines create anxiousness amongst even those who are prepared to retire as planned. This group second-guesses the plan they have in place even if it is viable. And then you also hear the unbelievable number of retiring Boomers that do take the leap, a number that doesn't seem real: 10,000 Boomers are reaching retirement age each day.

Who are these people? The unprepared and the prepared hurtling headlong into older adulthood. They both had expectations of retiring based on what can only be considered now as unrealistic math. They set goals and they weren't met as planned. A few got it right. Remember, there's no shame in that miscalculation. Folks have been doing it for decades. But your plan is all you really care about and if it hasn't met your expectations, which in many instances were a bit lofty, you resign to work longer. This is where the facts collide.

You know all too well that simply working longer will add to the amount of retirement income you will have but only if you significantly increase your contributions. Few resign themselves to do both.

But the other half of the equation, the Boomers who do retire, are often caught in the same anxiety ridden place. They question whether they made the right choice and more importantly, whether the money they have amassed will serve their purpose, remains hanging over every plan as an unknown.

That purpose is often clouded with not only the unpredictable cost of longevity but whether they might have enough to take care of their heirs - a serious consideration among a wide swath of retired adults and those about to retire. This last consideration is entertained by women more so than men, statistics have uncovered, which is often surprising. Why? This same group of women approaching retirement has often saved less, another unfortunate statistic concerning women and retirement.

Those that do retire should consider where they retire. And while there are many suggestions as to what to do and how to go about it, but a quick survey of your current surroundings will offer a great many answers to your dilemma.

For instance, seniors or those about to become seniors often fail to inventory the services they may need. Once retired, your daily life will require things you had previously not considered. More than just the availability of medical services, more than the infrastructure of city services such as public transportation and well-lit and well-patrolled neighborhoods, your current location needs to stimulate you or at least have accessible stimulation to keep you mentally sharp and involved. This is not how many American cities were designed. Far too many cities and their suburbs require a car. And while this may be seen by many older Americans as a freedom, not being able to drive can imprison some seniors if they find where they live too far away from these activities. Only vast sums of retirement income can change that one item and few seniors, who essentially are on a fixed income, want to reach for their wallet or purse to pay to go shopping.

To pre-Boomers or those who are still working, where you live is not often what you can afford. If you live in the city, chances are you rent. If you live in the suburbs, chances are you have a mortgage. If you have a mortgage, chances are you can't afford it. That's a lot of "ifs" but they are an approaching nightmare for those about to retire.

While many of believe that the cities we live in should adjust to us and our current and future retirement needs, it probably won't happen soon. So retirees look to communities that cater to their needs. This ghetto-izing of seniors, much like Florida and Arizona is not only unappealing to many Boomers, it is not as healthy as it first appears. Sure, these senior-only communities do provide like-minded companionship, concentrated services and accommodations that cater to gradual aging, but they are often culturally void of the stimulation that all walks of life can provide. Being isolated is not the answer.

So what is? Cities are struggling with their finances and as a result are cutting back on services that once were taken for granted. We might be living longer but in far too many instances, your health may compromise that statistic or impact the quality of that longer life. And the cost of where you live - assuming your mortgage is paid off before you retire - is not getting cheaper. Add inflation into the mix and you have eliminated all but the most obvious choice: you have fewer options.

Of course, you can stay put in a house that might be too big and too costly to maintain. This will gradually eat away at your fixed income and reduce your opportunities to engage with the outside world. Now one plans on spending their day at McDonalds sipping bad coffee with fellow seniors, no matter how well-lit, no matter how inexpensive the house brew and no matter if the loitering rules don't apply. But take away any portion of that spendable income and you limit the choices.

Where is the right place? While there is no firm answer, you do have options. For instance, if family is important to you, be sure your family shares this thinking as well. The dynamic of marriage - and I am speaking of your children's marriage - can create some confusion. Deciding that you can rely on your children and their spouses for the help you might need is something you need to discuss well in advance of retiring.

At some point, one of your kids or their spouses may find you in their care. Perhaps not in the day-to-day sense or even the long-term care situation, but in the need to check-in, help with errands or assume a financial role. This needs to be discussed in advance, a discussion that should be instigated by you. This is no easy discussion.

You do need to tell your children what you expect from retirement, even if you are unsure. Answer the hard questions (can you afford to stay in your house for instance) and when the time comes, unfold your finances for them to see. Let them know where you stand and what your plan is.

Boomers will be sold a retirement that is unlike any other before them. If you live longer as the statistics suggest you will, what do you expect of your surroundings? What role does your community play in the decision? What role will your kids have? Retirement is much more than simply amassing cash. It is amassing support. And believe it or not, that is old school thinking, a throwback to the time when retired family members depended on their kids for everything. But those kids, who may not be thinking along the same lines as you need to be involved now, rather than later.


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

Borrowing to Build Retirement?

Over the years I have written about the topic of retirement planning, I have witnessed some incredibly crazy thinking. Many of those thoughts have come home to roost often too late for the investor to do anything to fix the situation. We plan, we tell ourselves, to retire at a certain age with a certain amount of money based on a certain withdrawal rate.  But those plans are often dashed by unforeseen events that, in hindsight we should have anticipated.

Recent reports have pointed towards an increase in employee contributions to their 401(k) plans. These upticks, however slight lead many to conclude that we are starting to get the message. But which message are we holding on to? Is it the need to simply save more because we know the chances are we will need more or is it the result of some other encouraging news? I'm inclined to go with the second choice.

Retirement planning is a whole package endeavor. In other words, simply putting money away for retirement is not enough. Numerous other pieces of the puzzle come into play and this is what is often ignored. The effort is noteworthy only if you have developed a budget that is actually less generous, forcing you to face the reality of an income in retirement that is not the same as the one the you had while working.

This income reduced budgeting is practiced by too few close-to-retirement planners. At no time in the history of retirement planning - and I'm going way back to the generous days of the defined benefit plan or pension - was the payout at retirement designed to replace 100% of what you live on now. The number was actually closer to 70% replacement and that was only if you had worked within the confines of that pension for thirty years or more (and it was not impacted by changes from the company). The remainder was to be supplemented by Social Security.

But with advent of the defined contribution plan (401(k), 403(b)), with the responsibility for funding your retirement placed squarely on your shoulders, we were forced to face the possibility that 70% of our current income would not be replaced. In order to get those kinds of post-work rewards, we would have had to invest 12-15% of our pre-tax income, every year without fail, in good markets and bad. For too many people with this plan, that sort of budget-busting restriction was simply too much to embrace.

We are to be forgiven for our human-ness however. We make mistakes and follow the herd - when they sell, we sell and when they pile in, we follow. In both instances we turn our backs on the whole concept of retirement planning: steady and ever-increasing contributions without consideration for what the overall market is doing.

Our employers didn't help much either. They gave us matching contributions, took them away or reduced them, and when they re-introduced them, they were far smaller. And we misinterpreted this as a sign that they knew something we didn't and mimicked their actions: we reduced our contributions when the matches were lowered and increased them when they were raised. As I said, we can be forgiven this tendency but we won't be absolved of this sin of remission when we begin thinking about retirement.

One of the other keys to the seemingly good news about an increase in contributions in 2011 is backlit with some additional news. Auto-enrollment helped to raise the account balances of the overall plan (and as employment improves, so will the news that we are using the plans in a more robust way). But those auto-enrolled new hires were placed squarely in the plan's target date fund of choice.

Long-time readers know about my reservations with these funds. New readers should note: target date funds are often less transparent than stand-alone funds, the underlying portfolio can be suspect, the target date may not be far enough in the future to be realistic and to date, the rebalancing implied in the fund is not determined by any specific guidelines. In other words, those who are put in a target date fund via auto-enrollment would be wise to get into an index fund (or four raging across a variety of markets) as soon as possible.

Those folks, the youngest among us who are the most likely candidates for these auto-enrollment options can make changes that will get them much closer to the goal. Older workers, however don't. And they know it. But they have some advantages, at least in their mind that the younger worker doesn't: equity.

And that equity in their homes, combined with the historically low interest rate environment has given many Baby Boomers a second option: to borrow against their homes and take the refinanced money and put into their retirement accounts. Is it a good idea or one that is bound to backfire?

Three things make it risky. One the equity in your home may not recover. Older homeowners who tap their home's equity are doing so at the risk of increasing their mortgages at a time when additional debt, no matter how inexpensive is not prudent. Two: They are eliminating a safety valve that could be used if retirement got too rough: the reverse mortgage. And third, if they are forced to or simply want to sell, the equity in their property is not there to give them a downpayment for new housing.

Leveraging your home to finance your retirement account does come with some tax advantages though. Just because one account increases as one is leveraged doesn't necessarily give you a balanced approach. In other words, there are "veiled risks".

You will still need to allocate your portfolio to perform better than the cost of the new loan and the interest rate you pay. This means that year-over-year, you will need to do much better than you may have calculated. A four percent mortgage added into the cost of the refinance (another one percent) added to the rate of inflation (another three percent if it holds steady) means your portfolio will need to return north of eight percent year over year - without fail.

The only way to give your retirement income any sort of sure footing is to increase your contributions by a much wider margin than what has become known as the average - 8% - and pay down your mortgage.

Fifteen percent is still the optimum contribution rate and even that number will give you only 75% of your current income in retirement - provided you saved for twenty years or more. Paying down the mortgage reduces your overall cost of debt service while increasing your equity.

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

Is Real Estate Part of Your Retirement Portfolio?

We have been told to diversify our portfolios. We have been told, and Boomers will know exactly what I am speaking of, to re-balance the risk in our portfolios as we age. We should go from a more risk prone investment to one that is more stable, even fixed as we head towards and eventually retire.

That's good advice and there are a number of ways to do exactly that. But one you may not have considered involves investing in real estate through the use of REIT or real estate investment trust.

As Will Rogers once said: "Don't wait to buy land, they aren't making any more of it.” But we have developed it making the ground far more valuable and those who own what’s on it, in some instances richer because of it. Over the last couple of days we have focused on your immediate real estate. While your home is not an investment per se, it is often considered one. Owning a hundred homes, or a shopping center or an office tower is an investment. The roof over your head, not so much an investment as a stewardship. You pay for it, you fix it up, you might even spend your entire life in it but at some point, you pass it on to the next owners. And you care for it in that manner, improving it so it is saleable to those next in line.

On this edition of the Financial Impact Factor Radio with Paul Petillo, Dave Kittredge and Dave Ng, we have someone who has focused his career on real estate as an investment: Brad Thomas. Mr. Thomas researches and writes on a variety of real estate based fixed- income alternatives including both publicly-traded and non-traded REITs or real estate investment trusts. He has a broad background in capitalization and sustainable net lease investing. Mr. Thomas currently writes weekly articles for Seeking Alpha and Forbes where he maintains “real time” research on many of the equity REITs and retailers.

Among the topics Brad explained included the risk of owning these investments, how they are structured and the dividends they offer, how to analyze their worth and most importantly, how these investments react to various economic forces. REITs have been around for over five decades and are a widely suggested part of a diversified portfolio.


This is a must listen show for not only the curious investor but those looking to better understand the subject of REIT investments.

Listen to Financial Impact Factor Radio with your hosts:
Paul Petillo of Target2025.com/BlueCollarDollar.com and Dave Kittredge and Dave Ng of FinancialFootprint.com

The show is broadcast daily, online at 6amPST/9amEST.

Happy New Year's Boomers: Your Retirement Resolutions

To be a Boomer means many things. Even as our bodies age and our eyes lose some of their focus, one thing we can all see clearly, is our retirement. Are we really looking though?

Jimi Hendrix once wrote: "I used to live in a room full of mirrors; all I could see was me. I take my spirit and I crash my mirrors, now the whole world is here for me to see." When it comes to the reflection staring back at us, our retirement, like those images, are a search for imperfection. We don't look at ourselves to admire how good we look; we look for flaws. We don't imagine a future; we see the relics of past decisions.

If you consider yourself a Baby Boomer, the reflection in the mirror is an image that polarizes: we are comfortable in the what the future holds or we are worried. There is good reasons for this feeling of either hope or dispair, with no real middle ground. This group has seen the demise of the defined benefit plan (pensions) and the introduction of the defined contribution plan (401(k)). You have seen the greatest bull market in investing history and witnessed two major crashes that have rattled your confidence in the decade following. You are the first generation to realize that your future is in your hands and you were not ready for the responsibility.

If you are younger than a Boomer, you are the first  generation to have never seen any other opportunity to finance your future than with a 401(k). And you have come to realize that this is not the plan it was intended to be. 401(k) plans were not designed to be the one and only vehicle for retirement. We were sold a notion that this was the end-all-to-be-all plan that would afford us a better retirement than our parents only to find out that it hinged on two extremely volatile concepts: your ability to consistently earn money and your level of contribution. Your 401(k) became your anchor and your wings.

I imagine that many of you will look back on the highlights of 2011 and find yourself in either one or two camps: you were able to hold onto your job, pay your bills and put some money away for retirement or you will be looking back at a year of indecision, regret and the promise to do better in 2012. You may be celebrating simply getting through it or wishing it never happened. To that, I offer some simple resolutions to embrace in 2012.

One: Revisit your idea of retirement. You can promise to save more money for your future, increasing your contribution to your plan or perhaps, in the absence of a plan, begin one of your own using IRAs. But you do this without really looking at that future. Retirement will not be the same of any two of us. For some it will be a life of struggle, an ongoing effort to make ends meet when they may never  met while they were working. For some it will be the realization that the balance between the now and the future relies on a level of personal sacrifice we were smart enough to embrace while we were working. For others, it will simply be a resignation of sorts, a belief that it will never happen.

Retirement is three things: A time when we find new opportunities outside the confines of what we called a career, a place of unimaginable risk and/or a chance to take a breather. It is not a place of no work and all play. It is not a time spent waiting for the end to come. It is not what we imagine because, if we looked closely at that image we see flaws. So we don't look as closely at those who are retired, examine how they live and ask if this is what they had planned. In revisiting the idea of retirement, your concept of that future, consider looking closer. If you don't like what you see, resolve to change it. But don't look away.

Two: Don't reflect on what you've done. You made mistakes; we all have. Some of us took too much risk, some not enough. Some contributed as much to their retirement as their budgets allowed, others did not. Some of us made poor mortgage or credit decisions, others did not. No matter what you did or didn't do, looking back will not improve the look forward.

Looking forward doesn't mean turning your back on on any of those events. It means focusing all of your energy on fixing them. This is a twofold effort, the first being getting the budget you may not have in line with your paycheck and focusing on paying down your mortgage (keep in mind that even if your home is underwater - meaning your mortgage is greater than the value of the house itself - the interest you pay on than loan is eating away at your future invest-able or save-able dollars). Does this mean you should not put money away in a 401(k) plan and redirect every dollar to the day-to-day? Not at all. Keep in mind that a 5% contribution will, in almost every instance, not impact your take home pay.

Three: Don't over think the process. From every corner of the financial world you will hear: rebalance your 401(k). If you chose a minimum of four index funds spread across four sectors, or four ETFs that do the same thing, rebalancing is a waste of time. You diversify so you can capture ups in one market and downside moves in another and your contribution doesn't allow you to buy more when one market moves up and allows you to buy more when it goes down.

We want to think we are in control when in fact, the only thing you actually control is how much money you want to put in. Markets will do what they do best: move. It might be up one day and down the next. It doesn't really matter. What matters is that you do something and in 2012, it should be significantly more than you are doing now.

Four: Stop being selfless. One of the hurdles we are told, for women investors specifically, is their inability to put themselves before their family. This is a cause for concern of course but not  a disaster in the making. Take a good long and hard look at your family and ask yourself: could I spend my retirement years living with any of them? Do they want you to?

Five: Embrace the truth. Now there will be an increased amount of pressure from every financial professional to get advice on your investments. This educational effort will evolve in the next several years from long, drawn out seminars on how your 401(k) works to short, ADD friendly videos that last several minutes and offer key points on what to do. The truth still relies on your ability to put more money away. Five percent will net you 25% of your current take home in retirement. A ten percent contribution over the average working career will pay you about 50% of what you earn today in retirement. Fifteen percent contributed to a 401(k) plan with average (modest) historical returns will allow you to live on 75% of your current income. Can you handle that truth?

Six: Stop worrying about it. According to HealthGuidance.org, you are killing yourself with worry. Michael Thomas writes: "Worrying leads to stress and stress has been linked with a number of health problems. People who suffer from high levels of stress are much more prone to cardiovascular disease, gastrointestinal issues, weight problems and there has even been a link made between stress levels and certain cancers." Instead resolve to do more saving than you have ever done, spend less than you did last year and embrace the reality of what fixed income is. Retirement is fixed income. Resolve to live like that now.

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

In 2012: What Boomers Can Expect

"Time is free, but it's priceless. You can't own it, but you can use it. You can't keep it, but you can spend it. Once you've lost it you can never get it back." Harvey MacKay

One of the key elements in any financial transaction is time. If you want to retire, you must consider the amount of time. If you want to borrow, how long you have to pay it back can be translated into dollars and cents. Investing; timing they suggest can't be down but is important nonetheless.

If you are twenty, time is on your side. If you are thirty, there is time left. If you are forty, time is of the essence. If you are fifty, time is running out. If you are sixty, where has the time gone. And older than that, time is no longer on your side. It accompanies us through life like some dark passenger. It reflect back on us from the mirror. And when we look at our retirement plan, it stares at us without guilt or shame. Time is the truth.

When I first began writing these predictions, and I've been churning out these year end ditties for over a decade, many were laced with optimism, some with an urging that we learn the lesson and move forward armed with knowledge of past mistakes, and still others were exercises in reality. In 2012, we have some opportunities and some problems awaiting us, left on the table as we symbolically turn the calendar wiping out 2011. But it won't leave quietly.

So I have a few thoughts about what you can do - resolutions of sorts but not the drastic sort we make and break almost within hours of promising ourselves at midnight.

Increase your contribution I start with this obvious chant for two reasons: you aren't making a large enough contribution and two, I would be remiss in not telling you this right from the start. And I'm not just speaking to those with a 401(k).

There are the millions of you who are forced to (and because of that are not likely to) finance your own retirement through an individual retirement account. We lament at the worker who literally only has to sign up at his workplace and doesn't. And far too often, we say little about the person who has to sign-up (after finding a fund), commit with a fortitude that is somewhat lacking and to contribute some of their paycheck via direct deposit every week or month. That effort, it seems is a much more involved hurdle.

In 2012, the investment world will be little changed. It will roil and confuse and gyrate and possibly even nose dive - just as it has for decades. It will react to news - if not from Europe form China or even the presidential elections (which ironically tend to be excellent years to invest). This will have you second-guessing your investments. But this will only apply if you have no idea how much risk you can take.

Pay attention to diversification You may not be capable of rebalancing, the act of making sure that your investments are directed evenly across many investments. This is much harder than it seems. As long as you are involved - and that is YOU in capitals - the struggle to keep balance will not get any easier.

For the vast majority of us, mutual funds will be the investment vehicle of choice. These investments will see more movement towards fee reductions. Which is a good thing. Fees will and always have been a subtraction of gains. This makes an excellent argument for indexing.

Choosing six index funds across the following cross-sections of the markets will not solve the problem of rebalancing (some will do better than others) but it will provide diversification. Index the largest companies (an S&P 500 fund), a mid-cap fund (the next 400 companies in size), small-caps (the next 2000), an international fund (an index of the largest countries (those with established banking systems even if they are currently troubled and will continue to be so in 2012), an emerging market fund (after international funds, the most risky) and a bond index (one that covers as much fixed income as possible).

Some of you will wonder if exchange traded funds (ETF) wouldn't be just as good if not better than simple indexing. In 2012, ETFs will continue to drill down ever deeper into sectors of the markets that add risk along with the illusion of an index. ETFs will become more actively managed in 2012 offering you more risk at a lower cost. Cheap doesn't mean better. 2012 will be year of the ETF. If you are unsure what these investments are, consider this conversation I had with David Abner of Financial Impact Factor Radio recently to help explain what these investments are and how they work.

Focus on your financial well-being This refers to your credit score. It continues to impact your financial future and will become increasingly harder to ignore. A new credit rating service agency will add to the difficulty in 2012 and not only will the current scoring impact costs such as insurance, it will seek to trace the breadcrumbs of your financial life more thoroughly that the big three do.

There is little likelihood that the job market will increase as many of our returning troops will flood the marketplace, taking numerous jobs from your kids just out of college. Which means another year with your kids at home. The only answer to this problem is to continue to tighten down your budgets in 2012. As I mentioned earlier: "If you are forty, time is of the essence. If you are fifty, time is running out. If you are sixty, where has the time gone."

And you must do this understanding that inflation - not the reported number but the real number in your grocery bill - will still chip away at your wealth. This means you will move in two opposite directs in 2012: saving and investing more for your fleeting future (at least 6% but 10% would be best) and spending less in the present (easy of you don't use credit).

And the housing market will improve for those who have repaired any damaged credit or who have saved enough of a down payment to buy a house. people are still buying and selling. These people have found that while the market is not accessible to all, it is for those that have done right by their personal finances.

Do all of that this may not seem like a new year - but it will be a better year!

On the Radio with a Behavioral Economist

Think you know yourself, the hidden investor inside? As a Boomer you would think so. On Monday's Financial Impact Factor we had Victor Ricciardi, professor at Goucher College and editor of Social Science Research network eJournal. His field of expertise is risk and the show focused on the numerous biases we as investors use when it comes to making financial decisions. His background in behavioral finance and related fields of investor psychology gave us some curiosity satisfying answers about what we can do moving forward with our retirement accounts, 401(k) plans and investing with skill.  

Listen to internet radiowith

Paul Petillo of Target2025.com/BlueCollarDollar.com

and Dave Kittredge and Dave Ng

of FinancialFootprint.com

on

The Financial Impact Factor

at Blog Talk Radio

Boomers: Do You Know Where Your Money Is?

Every second, a Boomer retires. This statistic alone should be a comforting thought. It is but not necessarily for Boomers. Billions of dollars of invested money will suddenly come under the direct control of this group and many simply don't know what to do. Yes they will want to ensure they don't run out of money. But they will have just as many opportunities to lose it all - in a scam that promises to make sure they don't run out of money.

On the Monday Financial Impact Factor Radio hosted by Paul Petillo we had Pat Huddleston, author of The Vigilant Investor: A Former SEC Enforcer Reveals How to Fraud-Proof Your Investments Mr. Huddleston is also a lawyer and CEO of Investors Watchdog LLC. As a former SEC Enforcer, he has seen more scams than you could imagine. With his new book, he takes those stories and the effect it has had on the victims and gives us the ultimate tell-all on how to spot what the people we may trust are actually doing - often right under our noses.

This is a must listen show for those on the cusp of retirement, those who have already retired and those who have elderly parents who are already retired. In other words, everyone stands to gain when they steel their hard-earned portfolios against a loss.

Listen to internet radiowith

Paul Petillo of Target2025.com/BlueCollarDollar.com

and Dave Kittredge and Dave Ng

of FinancialFootprint.com

on

The Financial Impact Factor

at Blog Talk Radio

Can the 403(b) what it should be?

Labor Day has passed and the passing of that date signals the beginning of the school year with crosswalks filled with school aged kids - so be cautious out there. But inside the building, there are teachers in the crosswalks of retirement and their caution can cost them in terms of what future they envision.

Unlike the private sector workers with the 401(k) plan, a self-directed tax deferred plan the sometimes comes with a company match, teachers have the 403(b) plan. Also tax-deferred and almost always void of any school district matches, the 403(b) does a poor job of mimicking the attributes of the 401(k). So I thought I'd take a moment and make current and potential teachers (and those in no-profit institutions) aware of some of the pitfalls that await them.

In theory, as most things are when the thought materializes for the first time, the 403(b) plan should have been just as good as the 401(k). Of course, most 401(k) plans lack many of the features that would make them more worthwhile and yet, even with those problems, the retirement grass does seem greener in those plans when compared to 403(b)s. The reasons boil down to the same problems facing 401(k) plans.

Fees are always an issue. In 401(k) plans they can come from two directions: the cost of the investments and the administration of the plan. It is no different in the 403(b). Often it is worse. The administrative costs of running these plans is an haphazard affair. Unlike corporations who might assign a person to oversee the plan's direction, choosing from different administrators as they search for the best one, school districts often do not. Because of this, 403(b) plans often have numerous administrators and no real trained inner office personal to watch over the process.

In other words, the single most important aspect of the plan is often neglected. Without prudent guidance from the person in charge of the plan at company level (or in the case of a school, the district level) the investment houses they hire often charge whatever they feel the market will bear. They mask this effort with investments they claim are designed for the group but are often not suitable for any investor.

And the choices you have can be so vast as to be daunting. In California, teachers can pick from over 3,000 investment options spread amongst six providers. It is often common wisdom that choice is good. And it is often warned that too many choices is quite the opposite. Confusion and investing make awkward bedfellows. The average 401(k) plan could serve most of its participants with as little as 20 choices, most of which will come as index funds followed by some target date offerings. Too many choices actually raises the costs of administration and stifles active participation.

And the choices they do get include annuities. This escalates the concern for fees amongst retirement plan advocates. These plan participants could be paying not only upfront sales charges of the annuities they are purchasing, deducted directly from savings. But also could be faced with higher than anticipated surrender charges. While some 401(k) plans would do well to offer some annuities to their plan participants, the 403(b) has been doing so and with little success for the participants.

Even as the government has mandated that these plan be better monitored, you the investor needs to stand-up and complain. It often works in these plans. Asking for low cost alternatives is serving to cull some of the bad plan providers from the mix.

And you the investor, once you get the low cost you seek, need to invest more often, with or without the match.

With only 10% of the school districts throwing a match their way, and expect that number to go down, not up, retirement investors need to make up the shortfall. If the typical match is 3% and you planned on investing 6%, you will need to make your investment 9% of your pre-tax income to come even. And even the best of calculations, over a thirty year career will not give you more than 50% of your current income in retirement worth that investment contribution.

If you do get a low cost plan, invest with diversity. Even as we hear stories about how the S&P 500 essentially was flat over the last decade, investing in six different index funds including that large cap fund would have given you over 8% - provided you didn't panic in 2008-2009 and held tight.

If the plan is not low-cost enough, consider investing in an IRA (which is tax deductible) or a Roth IRA (which is funded with after-tax contributions). But you must do something.

Yes it might put a crimp in your current lifestyle. And yes, it won't be easy to bring not only your retirement outlook into focus while reining in your financial house at the same time. And yes, try as it might, 403(b) plans won't ever be 401(k) plans. But no plan is worth its while if you don't use it.

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

The Five W's of Retirement Planning

Most of you recognize those five Ws from a class on journalistic writing. Or perhaps it is simply a process of decision making that you have developed on your own. Either way, retirement poses the same questions, queries that everyone needs to answer at some point.

Who - There is no pat answer to the question of who should or shouldn't retire. For some, a career choice made decades ago will simply not allow you to go beyond the traditional retirement age. Those folks have always known that they not only should retire, But that they have to. And even as debates seem to suggest that working longer is an option, I fear that these folks who simply can't seem to muster the physical willpower to go another day are being left out of the conversation.

It is more than a simple blue-collar equation, one where your physical work life has been such that your body will fight you each morning the alarm clock rings. For others, who consider themselves white-collared but doing the mundane tasks that are mentally draining, the same sense of not being able to go on another day, the answer to the question is now.

To answer the who might be easy. But to answer the other questions, not so much. If you are fortunate enough to have some kind of career that allows you a few extra years of income production, you will benefit mightily. For those who can't, a couple of expectation adjustments will be necessary.


What - Most folks don't project what retirement will look like until they are so close that the options have been culled to the point where only few choices remain. This question needs to be answered long before the "age" approaches. This might involve a cold, hard look at where you live and if staying where you are is do-able. While it seems as if we are getting ahead of our questions, what retirement will look like is unknown and only somewhat subject to plans. Yet, some conversation about what you expect is in order as you approach fifty. Once at that age and beyond, tailoring your "what" should be the focus of your equation.


When - If you have answered who and what you are, the when would seem to be easier to answer. But often it is a coordinated affair, aligning your retirement with your spouse or perhaps with a certain work goal. But retirement doesn't and shouldn't be a stop sign on a road well lived. It should be more of a yield, a merger into into another place in the journey. It might look like work to an outsider. But to you, when should mean the ability to segue nto something you have always wanted to do. If there is a paycheck involved - great. If not, just as wonderful.


Where - For some reason, this is a very stressful decision. If you live somewhere you really like for whatever reason, where is a moot point. You will be happier staying put and living your life surrounded by those people, places and things that your pre-retirement life found enriching. But if it is the other way around, spend some time, preferably before you work your last day, examining your options.

It would probably be wise to involve your family in your thought processes if only to give them time to prepare. Why? Life happens fast and sometimes things go wrong. It will be your family that will help you through this trying time and they should know as much in advance of your decision to prepare as well.


Why - This might simply be answered by a question: why not. No one can make this determination for you but you.

On the Eve of the Vote: Five Things

As we have watched the slow slog towards August 2nd and the expiration of the debt ceiling, there are a few things we should consider in advance of that date and a couple of additional thoughts in the days immediately following. Like most things, the debt ceiling expiration date is mostly arbitrary, much like the turning of a new year or the end of a quarter. In other words, 08.02.11 means little to the average person and in the days following, should not be of much concern. Here's why.

Borrowing: We have been in one of the most favorable borrowing environments since records began being kept. If you qualify for a loan, be it a home mortgage or other big ticket purchase, the date will not change your ability to borrow. It may cost you more but prudent borrowers should have already considered this eventuality prior to beginning their purchase. Interest rates may and probably should go up if an agreement isn't reached. The phrase "lock-it-in" will be considered sage advice as it should be. On the flip side, there is little likelihood the seller of whatever big ticket item you are purchasing may just offer additional financial incentives to offset any increased borrowing cost.


Selling: An increase in interest rates would not benefit those who believe their homes are worth a certain amount. It would stymy the housing market, slow the sale of automobiles and create a situation that most retailers have been dealing with already: more saving than spending. While less spending will not get the economy moving and certainly won't create more jobs, despite the argument in Congress that less spending has the opposite effect. We'll just be stuck in neutral for longer than we had hoped. But not as long as many suggest we will.


Markets, Bonds: If you are a conservative investor with money in bonds, you are much smarter than the media gives you credit. Savvy bond investors ladder their holdings for just such an event and will probably fair well. Yes, the foreign investor might become a little more cautious and the next Treasury auction will be weaker than most hope it will be. But over the long-term, the real reason folks hold bonds, the effect will be offset as time moves on. Yet, if you are in bond mutual funds, you should have little to worry about as long as your holdings aren't too much of your portfolio. If you're older, cash might be a better place in the interim.


Markets, Stocks: More than one person has suggested getting into much safer investments before the 08.02.11 deadline. Cash is okay but if history tells us anything, this might be amongst the worst long-term decisions you could make. Most companies could borrow if they needed to no matter what happens. But why bother. Most of the corporate debt has been refinanced to historically low levels. And most companies in the S&P 500, an index of the largest companies in the country, are flush with cash reserves. That has been the most worrisome part of the recovery: businesses could have hired, they could have afforded to hire but they didn't. Selling stocks even if they dip somewhat should provide an opportunity to buy shares that are worth more for less. If you are buying steadily, this should prove an advantage for those with time.


You: Turn off the television or change the channel. None of what you are hearing, none of the talking heads everyone is trotting out means anything. The politicians involved in the debate are saying little or nothing and in many respects, act like this is the first time such an event has ever happened. Personally, the President should simply invoke his right in the 14th amendment and raise it without Congress. Yes, it will cause an uproar and yes, it would be the right thing to do. But creating tension among the American people is not a solution to solving some of the nation's biggest concerns.

In the three years since the Great Recession began, you should have put all of your plan in place: reduced your personal debt, created a modicum of savings and in the process, increased your contributions to your retirement plans. If you haven't, this will probably send the message again that your wealth is not what Washington thinks it is. You should be much more pliable and hopefully, just a tad smarter - or jaded.

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

Baby Boomers: Now is the Time to Plan for Alzheimer's

Search out the deadliest diseases that have plagued mankind and you will likely turn up such unsavory candidates as Small Pox (considered to have killed more people than any other infectious disease), Spanish Flu (some experts put the death toll for that single year as high as 50 million people worldwide), the Black Plague (thought to have killed 25 million people in Europe—about a third of the population—from 1347 to 1350), Tuberculosis (still kills nearly 2 million people a year and is ranked as the eighth leading cause of death worldwide by the WHO), Malaria (more than 1 million people die from it annually), Ebola (known to kill up to 90 percent of its victims), and Cholera (doesn't pose a problem when clean water and proper sanitation is available). Not on that list and not infectious as the previous maladies are but sure to be added to one of the deadliest disease is Alzheimers.

When you get Alzheimers, you will not recover. According to Harry Johns, president and CEO of the Alzheimer’s Association. "It is as much a thief as a killer. Alzheimer’s will darken the long-awaited retirement years of the one out of eight baby boomers who will develop it." Statistics suggest that over 10 million baby boomers will develop this affliction and at least as many of us will feel the emotional and financial repercussions of it.

Before we get to the financial implications of this problem, I thought I'd look at some of the information on this problem outlined on the Alzheimer's Association National Office website. Just because you are forgetful, doesn't mean that you have the disease. As one expert put it, it is not forgetting your keys that indicates the onset of this problem; it is forgetting what they are for. While memory plays a role in the gradual and always fatal disease, it is much more complicated.

These disruptions can impact what you do every day. More than just making yourself lists, asking for constant repetitive reminders for things that are consider part of your daily life - taking medication, getting dressed, even leaving the daily newspaper on the stoop might be qualifiers, if not to you to someone in your family. If you not only can't remember an appointment but can't recall why you made it, you might be in the initial stages.

You or a loved one might begin to forget certain aspects of their favorite activities, the rules to a game, what you went to the grocery store for or as one older woman I encountered on a grocery store aisle the other day. She had a list in her hand, a few odd items in her cart and was looking around at the overhead signs. Familiar with the store, I asked if I could help her. Seems I couldn't. She had written "dinner" and was searching for some sort of item to match her note. (I joked and suggested that my wife regularly wrote something just like that on lists she gave me. But you could tell she thought that there was just such an item somewhere in the store. She was dressed well which made me feel even more helpless, wondering if her family saw what I saw in just those brief seconds.)

Alzheimers manifests itself in other ways. At least this woman knew she was somewhere that might provide what she sought on her list. But not knowing where you are, having difficulty driving, or simply not understanding what was being said can also be additional signs that this cognitive slip has begun to take hold.

One of the easiest to spot signs are often the ones most often overlooked. Normally predictive reactions to every day events are no longer the ones you witness. In fact, if you are surprised by this frustration, perhaps the anger that accompanies it, you might be witnessing something worth your concern. These emotional disruptions go unnoticed with people living alone.

So what now? Your parent or relative is not acting as they always have. You show up to pick them up for a lunch date and they are still in their bedclothes without any recall of the event. You should be concerned. But simply writing it off as a sign of age is the easy way out. In fact, you are buying into one of the oldest myths. But don't be so quick to judge the older relations as the most prone. Alzheimers knows no age limit. And there is no cure.

As I mentioned there are some serious financial implications at play here. Our independence relies on our ability to take care of our financial well-being. While I regularly suggest that parents guide their children in their financial decisions, using their expertise and wisdom to help them, Alzheimers strips some of those abilities. 

This can not only cost them in the short-term (losing a wallet, forgetting to pay the water bill) but in the long-term as well. They are quite often avid shopping channel customers, susceptible to scams and overly generous on a limited income.

While you may not at first witness these changes in their ability to handle money, some of their contacts often do and feel unable to do much of anything. According to the NYTimes: "The Financial Industry Regulatory 

Authority, the largest nongovernmental regulator for securities firms doing business in the United States, recently met with individual financial services companies and the Alzheimer’s Association to formulate guidelines on how to deal with clients who have trouble remembering and reasoning, a problem that is not new but is increasing as the population ages."

Their doctors and attorneys have the same sort of problems in dealing with this situation. But there is something you can do and now is the time to begin to execute your plan.

Be sure their will is up-to-date. Lawyers will sometimes question whether their client is in the right state of mind when making decisions regarding this and other legal documents. And they wonder whether any changes made will be one day challenged. Your parents should include you in all of these appointments and if a living will needs to be created, now is the time to consider it. In fact, the attorney might feel as though the conversation would be worth having if you are present. (This, to the best of my knowledge, implies permission to discuss the client's issues or the lawyer's concern in front of you. Otherwise, they can't discuss the situation.)

A living will according to the National Institute of Aging "includes instructions and pages where you can specify your wishes for: (1) the person you want to make health care decisions for you when you can’t make them for yourself, (2) the kind of medical treatment you want or don’t want, (3) how comfortable you want to be, (4) how you want people to treat you, and (5) what you want your loved ones to know."

Also in the article written by Gina Kolota, she notes that "The bar association’s handbook for lawyers, written with the American Psychological Association, tries to provide some guidance. But the handbook acknowledges that it may not be easy to determine a client’s capacity to sign a will, execute a contract or transfer property."

Financial planners are also something that you should be in contact with. This is incredibly difficult from a distance. But often they can spot problems sooner rather than later. But not having one only amplifies the potential for problems. One of the easier remedies to this situation is to have your name placed on a to-call list. But by the time a landlord, bank or lender calls to suggest a discrepancy, the damage may be already done.

This conversation is a two way street. You need to be trustworthy enough to warrant their including you in what may among their most private affairs. Parents may appear open and honest about how they feel you should handle your finances. But the total opposite may be how they treat their own.

Your financial strength gives them greater reason to trust you in their affairs. And while you are at it, consider some of the following: Do the same for your loved ones who might be needed in the event something happens to you (living wills and wills are great start). Begin to plan for the cost their problems might have on you (without a doubt it will mean lost time at work, lost retirement contributions and lost insurance might also play a role in upsetting your financial apple cart.) Consider long-term care insurance before the symptoms begin. And lastly, realize now that your personal financial situation is so much more than just your immediate world and begin to plan for it now.

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

The Time of Your Life: Boomers Have Choices to Make

I wanted to take moment to address Baby Boomers, both early and late. Now this doesn't preclude those who fall into the various other generational groups that have emerged on the scene since that term was coined. In fact, those among you that are young(er) could benefit even more by the following retirement planning suggestion than Boomers could. But it is all about the timing.

There are two things which continue to pop up in missive such as these. Diversification is always key and should always be part of the subtle and not-so-subtle conversations about about investments. Although only a few of us actually achieve this, it is still worth the effort. Why do you ask is this simple sounding process, one described as not investing all your eggs in one basket so hard to accomplish?

Diversification is often too easy to explain away, either by the successes you may have achieved while ignoring it or simply by complacency. In other words, you know better but have an excuse why you fail to do anything about it.
Suppose for example you purchased the stock in your company's 401(k) plan because, it was perhaps inexpensive to do so (lower than open market transaction costs might be a reason) or because it is the only match the plan offers to something like I-really-believe-in-the-business you work for also believing it will always be great and therefore, worth investing in).

All good reason to buy the company. Yet we often buy so much that if something did happen and something always does, we create an imbalance in a plan that is meant to last a lifetime. You know better and often only acknowledge the fact after it is too late to do anything. Diversification could be as important as being the eleventh commandment.

The downside consequence of failing to diversify and be reversed in a number of different ways. You could educate yourself about what the plan offers and in doing so, do what you had been promising yourself you would do for a long time. You will find out that if your company is among the top 500, you probably own additional exposure in an index fund, in a large cap equity fund, perhaps in a target date fund and even some exposure in a fixed income fund as well. Combine all of those together and you can no longer claim to be diversified. If you ever could make the claim.

You have a wide variety of funds in a 401(k). Most offer about 20 options and even if those plans are costly (many 401(k)s have boasted that they have found funds with lower expenses and then turned around and raised your administrative costs), they are what you have to work with. So spread out you exposure to one stock across all of those funds. If you have more than 20% of your 401(k) in one stock, you have too much. And there are more than a few of you who have over 70% invested.


Now I mentioned this was directed towards Boomers and I also mentioned there were two things. The other is asset allocation. Diversification and asset allocation are not one in the same yet are close enough to be inseparable. Often, looking to achieve one, you will help fix the other.

Asset allocation suggest that because you can choose from so many different types of investments (stock, bonds, funds that offer both, commodities, and perhaps other investment options as well) you should be taking steps to minimize the risk you may have taken in your youth so as to protect what those risks have rewarded you with. Because there is only so much money to go around, moving from a big exposure in stocks to something more conservative, such as a fixed income investment, could help solve the diversification issue.

Not always though. I'd be willing to wager that if you do begin, perhaps as part of this suggestion to realign your assets, you will probably sell your investment in the company store last. And by doing so, you increase your exposure to one investment and by default, actually decrease your diversification - or what little you had. If you must, put a number that you are trying to get that outsized investment in your company's stock down to and sell it to get there. Perhaps 20% would be as good a goal as none.


Now back to the Boomers. You have two opportunities to help you with both your asset allocation and your diversification issue, if you have any. And it is all about the timing. Coming up in April 1st, those who are 70 1/1 need to begin taking distributions. The first wave of baby boomers officially retired this year as well. If you haven't changed your asset allocation or diversified your investment significantly to protect yourself, choosing which money to begin spending can help.

If you begin disbursements this year, sell off the stock side of your portfolio first. This keeps any failure on your part from becoming bigger as time goes on. The longer you hold on to equities, the longer your risk stays high.
Now some of you close to retirement can achieve somewhat the same effect by investing any tax return (or bonus) into a fixed income fund. You have until April 18th to do this; later if you are filing an extension.

You can also begin to redirect how your money is invested in your 401(k) as well. Less going to stock and more towards protecting what you have earned is always sage advice but few of us actually sell one thing to move into something more conservative. Particularly if there is a nice run on the stock market occurring at the time. Waiting until a bear market simply means you waited too long. Target date funds are attempting this but have yet to prove that they can achieve this.

There is only so much money to go into your retirement account and if you are maxing it out, congratulations. But if you aren't increasing your contribution levels can help you achieve both asset allocation and diversification, simply by choosing something new that fits the concept.

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

Is Investing a Journey?

J.K.Galbraith once said: "The world of finance hails the invention of the wheel over and over again, often in a slightly unstable version."  Why then do we continually fall prey to the lure of something new or even the advice of those who suggest that the future is easily told?

As investors, we look for patterns where there are none. We look to others who have been down one path, boast that their way is the right way, and no matter how crooked the journey, we follow nonetheless. It is difficult to be a contrarian, to fight off the preached legitimacy of what appears to be profound wisdom and to look beyond the fact that for every buyer, there is a seller who had a reason to unload their last be-all-to-end-all decision?

We are often beset by the desire to do something, a reflex called action bias. To not do anything if often seen as indecision. We have discussed risk often in these posts as something you should understand even if once you have that understanding, it is no longer something you can logically argue as worthwhile or even worth it. James Montier suggested that: "Risk clearly isn't a number. It is a multi-faceted concept, and it is foolhardy to reduce it to a single figure." Yet we try and use the search for this tolerance as something permanent, unwavering throughout the years of our investing lives.

"This time is different" is famously ignored quote by Sir John Templeton as the four most dangerous words in investing. I leave you with a poem today, something written decades ago about the path that men and women take based on the path that men and women have taken before.


"The Calf-Path"
by Sam Walter Foss. Public Domain
One day through the primeval wood
A calf walked home as good calves should;
But made a trail all bent askew,
A crooked trail as all calves do.
Since then three hundred years have fled,
And I infer the calf is dead.
But still he left behind his trail,
And thereby hangs my moral tale.
The trail was taken up next day
By a lone dog that passed that way;
And then a wise bell—wether sheep
Pursued the trail o'er vale and steep,
And drew the flock behind him, too,
As good bell—wethers always do.
And from that day, o'er hill and glade,
Through those old woods a path was made.
And many men wound in and out,
And dodged and turned and bent about,
And uttered words of righteous wrath
Because 'twas such a crooked path;
But still they followed — do not laugh -
The first migrations of that calf,
And through this winding wood-way stalked
Because he wobbled when he walked.
This forest path became a lane
That bent and turned and turned again;
This crooked lane became a road,
Where many a poor horse with his load
Toiled on beneath the burning sun,
And traveled some three miles in one.
And thus a century and a half
They trod the footsteps of that calf.
The years passed on in swiftness fleet,
The road became a village street;
And this, before men were aware,
A city's crowded thoroughfare.
And soon the central street was this
Of a renowned metropolis;
And men two centuries and a half
Trod in the footsteps of that calf.
Each day a hundred thousand rout
Followed this zigzag calf about
And o'er his crooked journey went
The traffic of a continent.
A hundred thousand men were led
By one calf near three centuries dead.
They followed still his crooked way.
And lost one hundred years a day,
For thus such reverence is lent
To well-established precedent.
A moral lesson this might teach
Were I ordained and called to preach;
For men are prone to go it blind
Along the calf-paths of the mind,
And work away from sun to sun
To do what other men have done.
They follow in the beaten track,
And out and in, and forth and back,
And still their devious course pursue,
To keep the path that others do.
They keep the path a sacred groove,
Along which all their lives they move;
But how the wise old wood-gods laugh,
Who saw the first primeval calf.
Ah, many things this tale might teach —
But I am not ordained to preach.


Do we need to follow the same path?


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

A Birthday Not-so-jubilantly Celebrated: Your 401K turns 30

It seemed like a good idea. But you have to consider where we were in terms of retirement when the line in the tax code was uncovered. We had pensions and companies didn't much like the idea. These defined benefit plans were designed to keep employees in one job over an entire career and add to that, they were costly and unpredictable. For the employee, the time needed to vest was often long, sometimes as much as ten-years, and the pension once vested, although it was yours, could not be brought with you should you find a better job somewhere else.

The pension also represented the ability to increase your retirement income as your pay increased. This trade-off from human capital in the first years of employment to retirement capital in the later years, made the company liable for the investments and the guarantees that the money would be there. Higher paid workers, often in much higher tax brackets than we have today, were allowed to also save money after those taxes.

When Ted Benna found this line in the tax code (section 401(k) 30 years ago, he realized that this was the answer to what his higher paid clients were looking for: the ability to put money away on a pre-tax basis and if the company so chose to do, it could match those dollars. Business saw this as a way to shed those obligations of managing their pensions and shift the obligation of retirement to the employee.

Sure, the company said, we'll help. We'll hire some experts to set up a plan, we'll load it with a bunch of investments and we'll act as fiduciaries. Heck, they said, we'll even provide the incentive of a match - even though these companies would lace it would all sorts of caveats much like the vesting period of the pension. Yet it would, in their minds, be the answer to a question they had not asked but possibly should have.

Even better, these new plans would be portable. You could take the money you had put aside with you when you left. Once again, this was more a win for the company than the employee, who often left before they got the fully vested match and was forced to roll the money into their own IRA. The fully vested match is often something that happens over time, sometimes as long as ten-years, more commonly over five years.

It can work in a number of ways and this information is part of the Investment Policy Statement that every plan has and few people read. During your first year, you might get the company match - in theory - but if you were to leave, it would not go with you; only the money you had invested would be yours. Perhaps by year two, the company would allow you to take 25% of the company match, and each successive year, a little more. Some companies give the full 100% after five years. So consider the employee who finds a new and better job opportunity and decides to quit a week before the five year waiting period is up. They would lose five years of company matching funds simply because they didn't wait.

This line in the tax code also created a multi-layer business to accommodate this plan, from mutual fund houses to insurance companies to brokers at the investment level to third party administrators and lawyers to help with the legalities. This line in the tax code also created some huge problems for the worker.

Now they needed to find investments in those plans to give them the best retirement. They needed to participate beginning as early as possible and stay involved as long as possible. They needed to get historic returns and be disciplined in an endeavor they had little or no knowledge about prior to this shift. It was a great social experiment in self-help that has failed many people. It also helped a great many people who might not have had much otherwise.

But the plan has problems that have never been suitably addressed, in part because of the belief that people wouldn't allow these provisions. One problem that should have been better adressed was the portability part of the plan. Mr. Benna in a recent interview with the Baltimore Sun bemoaned this ability to "take the money with you". He knew that our natures would get in the way of the right choice. Too many people would cash the plan out, pay the penalties and the taxes and squander the early start that these plans depend on. He thinks that the employee would be better served being forced to leave the money at the old employer.

He also knew that if the 401(k) allowed for a borrowing provision, people would use it. Mr. Benna's redesign of the 401(k) would include auto-enrollment and auto-deductions that would begin at 4% and increase until they reached 10%. He also admits to the problems in target date funds (which we have discussed here in previous essays) but thinks the idea is right. People make emotional choices with their investments and target date funds are designed to take that emotion out of your hands.

Of course you could opt-out but history has shown that few people do. He also suggested that this plan should be, in a perfect world, a supplement to a pension plan. But he was quick to point out that companies still have problems with the predictability of pension costs. Much the same way 401(k) investors have difficulty with investment risks.

In either case and even if you are fortunate enough to have both types of plans, the responsibility of your retirement is still with you. Arriving as close to it debt free is still the best approach to retirement. Investing as much as you can and then more, perhaps twice what you think you can afford, is a better plan. Think of retirement as a storm that is approaching. You wouldn't gather enough supplies to last for a day or two. You would get more than you need. Most folks have not filled their retirement pantries with much more than a loaf of bread and a jar of peanut butter. How prepared are you for a storm that is likely to last for thirty years?

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