Wednesday, December 21, 2011

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!

Thursday, December 15, 2011

The Boomer Conundrum: To Hire a Financial Planner

On the surface, financial planning has remained the same. You are looking for a path to retirement that will provide you with a secure future, a worry-free post-work life. And financial planners offer you their service as a guide on that journey. But choosing the right one seems to have become more difficult as the industry has converted itself into what they think is more user friendly. How do you chose? 

There was time in the not-too-distant past when financial planners were catering to only the elite investor, one who is already versed in the concept of spending money to keep money. These richer clients understood that making money was the easy part; keeping it on the other hand was tougher. The sort of planners these folks hired were asset-based. This means that if you had wealth, for a percentage of those assets, they would invest to keep it.

They had an interest, albeit conflicted, in keeping your money in motion. Not only would they get a portion of your returns, they might also receive pay from the very products they were suggesting you use. Beyond these conflicts, which have obvious pluses and minuses, their interest was in the growth of your portfolio. They did attempt to cultivate a long-term relationship and the way they constructed their business with ease of access to conversations. And they knew that if they did a good job, they wouldn't hear from you until you stumbled across some idea on your own. They might at the point weigh the option against their own self-interest: less money to manage because, for instance you thought a life insurance policy was a good idea for your estate, would be less of a percentage of the total wealth under management.

Until, of course, things go awry. When the markets nose-dived in 2008, not only did economists and financial students miss the event, but so did financial planners. This exposed to some of these wealthy clients the fallibility of their skills. Paying as much as 2% of the net worth of their portfolios and at the same time, losing value the same as someone who didn't pay anyone for advice, brought the industry to rethink their approach.

Enter the flat-fee financial planner. This seemed like the logical choice for those with not a lot of money but the same needs as those who had much more: they wanted to keep it. The question is, without the incentive to make more based on the strength of the portfolio, it seemed as if this was simply window-dressing planning - they charged a flat fee for people who didn't need a lot of ongoing advice and they didn't offer more than was needed.

Storefront financial planners popped up everywhere. They would take your plan, reconstruct it and channel you into other products, some you might not need. They might suggest refinancing (and they could help). They might restructure your life insurance needs (and they could help). They might steer you towards an annuity (and they could help there as well).

And once that was done and you seemed set, they made money on the commissions these product brought in and did so under the guise that it was all in your best interest. Sometimes it was. The problem was that this yearly or twice yearly visit could cost upwards of $1,000. This might be a good investment for those who are in relatively stable shape. But for many who sought this sort of advice, the money might have been better spent elsewhere.

The next phase of advice giving came as a result of the downturn. While many people lost a great deal of investable net worth, some had un-investable assets. the may have had muh of their net worth tied up in their business for instance, an asset but not one that would be considered liquid. These assets, while seemingly under management would be considered when any advice was given. The concept of protection although came at a cost that sometimes is twice that of the fee-based planner.

The advent of the hourly based financial planner seemed to be a good solution. Much like the service provided by lawyers, the concept of the clock-running seemed to be a good idea for some people. They paid for what they received. The relationship was even more important here than in many of the other types of planning scenarios: planners were paid by the hour so they kept that meter running. Call with a question: and the meter clocked the time. Stop by with a concern: and the meter clocked the visit even as they chatted up your personal life.

Removing the asset-based incentive will keep your financial planner working longer on your plan with results that aren't often eventful. None of this suggests that this group isn't without merit. Far too many people equate the time they spend making money as more fruitful than time spent keeping it. They could, in almost every instance, find the same solutions on their own. Ironically, they could save money by investing some of their own time.

Evan Esar, American humorist who once quipped: "The mint makes it first; it's up to you to make it last." Keep in mind, credentials play a role. Start with the certified financial planner designation and move towards the references. Even if someone you know recommends a planner, do your own background check. Ironically, once you satisfied your inner skeptic, calculate the amount of hours you did and the amount of hours after-the-fact that you questioned your decision.

On today's Financial Impact Factor Radio with Paul PetilloDave Kittredge and Dave Ng we discuss the role financial planners can play in your retirement planning. Even as the industry surrounding advice has shifted to a more consumer friendly format, it has become more difficult to chose the right financial planner for the task.

Wednesday, December 7, 2011

Saving Money, Saving the Planet

Whether you’re retiring early or trying to piece together an eventual retirement, every dollar counts, and any way you can save a few bucks here or there can really add up.  Taking a look at expenses, you’ve got rent, bills, and leisure… Wouldn’t it be great if you could take a little bit out of the bills and spend it on an extra vacation?  Fortunately, you can.  Electricity and gas have reached ridiculous prices over the past decade, and for many, investing in some energy star appliances can pay off big.  Fridges and freezers built more than a decade ago can be costly for a number of reasons, and many energy star fridges can reduce energy usage by over sixty percent!  Even if investing in a new fridge seems a bit drastic, installing energy efficient light bulbs into your fixtures and lamps can pay off quick!

I don’t know how they do it, but some light bulbs are now built to last up to 80,000 hours!  Here are some of the most efficient light bulbs that won’t cost you much more than a regular one.  Never change another light bulb again!

Stop wasting money on huge energy bills, and consider investing in some energy saving products.  Feeling really techy?  Take a look at these solar panels which can reduce your electricity bill even further.

Friday, December 2, 2011

Retirement Planning: The Statistical Boomer

I understand that it is difficult to sum up all of the issues facing our quest for retirement, from our biases to having to participate in a market that seems almost impossible to embrace. So for the sake of this discussion: Here's the problem facing Baby Boomers. 

Paul Barnes wrote in 1987 that the reason ratios (percentages are used ) is a mathematical one "and is basically used to facilitate comparison by adjusting for size".  What he quickly pointed out was that their use is "only good if the ratios possess the appropriate statistical properties for handling and summarizing the data". It is why, when the information culled from a recent Wells Fargo survey expressed as a percentage, that 25% of the adult population would need to work into their eighties, a postponement of retirement that has become newsworthy of late. The survey even suggested that they accepted the fact.

Now we have always been barraged with percentages: 10% off this, we are the 99%ers that, the markets down such-and-such a percentage for month, the quarter, the year. Whatever it is, it blurs some distinct realities by ignoring, as Mr. Barnes suggested, some important data. And we don't need to go far beyond our own observations to find the underlying reasons why some people (25% evidently) are not retiring historically.

Let's start with the unemployment rate. Expressed as a percentage, perhaps because of the space needed to write such a large number over and over, it is hovering at 8.6%, give or take a re-estimate or revision. And quickly you will be told that to add in the disparaged worker, the underemployed person or even the fully employed person who is getting less and the percentage of people who will not be able to retire based on the typical timeline of a thirty year or even forty year career this number becomes almost impossible to calculate. Estimates push the real unemployment rate to around 14%. If you are older and long past the benefit-of-time growing your savings and a stat in this group, the trouble with these numbers can be even more devastating.

Let's from there move towards the participation rate in 401(k) plans. Or better, how about we look at the number of 401(k) plans there are, which is less than 50% of the workplaces. And that is only for those who don't have access to a 401(k). those percentages get worse when you consider that more than half of this group doesn't do a single thing to prepare for retirement.

And what about the folks that do have a 401(k)? Participation rates are up in some surveys, down in others. Chances are, if you were just hired, you were auto-enrolled in your company's plan. Recent numbers suggest that 90% of those newly hired chose to not opt out. While that is a headline number, the 10% who chose not to participate is more worrisome and adds to the quarter who will not have enough for retirement - although they may not be old enough to embrace the full consequence of that decision. But even auto-enrollment has its problems as two-thirds of those who are automatically enrolled don't do anything to adjust the default investment the plan picked.

Pamela Hess, director of retirement research at Hewitt Associates suggests that "Most employees who are automatically enrolled tend to stick with the employer-provided default contribution rate, so simply getting them into the 401(k) plan at a minimal contribution rate isn't going to help them meet their long-term retirement needs." That minimal contribution rate is often 3% and not close to adequate. In fact, in the larger picture, less that sixty percent of those who are in a plan contribute more than 5% of their pre-tax pay.

Ms. Hess believes that  "Companies should strongly consider increasing the default contribution rate and coupling automatic enrollment with contribution escalation, which automatically increases employee contributions to the 401(k) plan and helps get them to a better savings rate over time." Auto-escalation has helped, a method of putting some or all of the employee's raises into the plan but unless the worker understands the implications of failing to do so, they often don't opt for this benefit.

I have pointed out before that the recovery will need jobs that people want to stay in long enough to benefit from the company match. As much lip service as these plans offer when they match the contribution, vesting is still an issue. Some workers may be deciding to not stay long enough to get the matched contribution, a period that usually last five years and decide to not bother. And many who slashed their contributions have not returned to offering them, pushing participation down in their plans even for those who are fully vested. If these businesses have restored the match, they have often cut benefits elsewhere making the choice of contributing more a financial one with a harsh reality.

So when a survey crosses the retirement radar suggesting that 25% of us are planning to work into our eighties, the number misses some key data. Workers who suggest that a retirement number - a dollar amount base on any number of formulae - is what will determine their time of retirement, the estimates they embrace may be outsized. 
These folks fret over the stock market and construct a worse-case scenario for what might happen if the gains they had hoped for fail to materialize.

And then they turn around and overestimate their comfort zone, attempting to replicate exactly what they have now. Here is where they become discouraged. Previous generations of retirees had something we never had: modest outlooks. Skip back just three generations and the elderly were likely to move in with children in retirement.

When the numbers tell only part of the truth, as if shining a narrow beam of light and describing what it illuminates is all that matters to the discussion, we need to refocus and see what we've been missing. Retiring can still happen when it should - which is when you want and not when your retirement account statement says so based on some target. So embracing a time, which 20% of the surveyed did, is a much more realistic parameter. 
The only question left is how can you do it?

Two answers are worth repeating: you need to become a little more austere in your fifties and save more, much more. The reality of the harsh regime will stiffen your resolve for when work is not what you want to do. It is practice with a safety net. the second is readjusting your expectations and plan for those realities. The investment you make to mentally prepare yourself for this less-than-what-you-had-previously-planned retirement is still a plan and will work. And if its any comfort, the data shows that too many don't even have that!

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

Tuesday, November 29, 2011

Financing Your Way into Retirement

Credit Cards.  Some love them, some hate them... but no matter what, pretty much everyone uses them.  But with over 150 Credit Cards out there to choose from, it can be hard to figure out exactly what card is right for you.  From Ongoing Purchase APR, annual fees, reward types (miles, anyone?), and credit history, there are a seemingly endless amount of factors to consider when choosing a card.  How does any keep track?

Today I just wanted to show you a great new tool that can help find the perfect credit card for whatever your preferences are.  A new comparison engine has built a tool that can help filter through the options and find a card that meets your own preferences, not just what someone else suggests to you - and best of all, its completely free!  Play with the widget right here on Boomer's Retirement, or take a look at the full credit card comparison right here.

Wednesday, November 16, 2011

An Expert on ETFs

This past week, on the Financial Impact Factor with Paul Petillo, Dave Kittredge and Dave Ng we had David J. Abner. He is the Director for Institutional Sales and Trading at Wisdom Tree and the author of The ETF Handbook: How to Value and Trade Exchange Traded Funds (Wiley Finance) These funds, that trade like stocks have been coming to the forefront of the investment world for almost a decade. But even after all that time, their purpose isn't clearly understood, their benefits less so and the media, suggesting volatility has dampened our enthusiasm towards them. Mr. Abner discusses these products, what they are and why they are important. ETFs will begin showing up in your 401(k) as investor demand and plan administrator's fiduciary responsibility tightens. This increase exposure is good for the funds; but are the good for you?

Saturday, November 12, 2011

Is a Million Dollars Enough?

As long as I have been writing about financial topics, the million dollar mark has been the goal that most every retirement planner suggested was necessary to leave the workforce and have enough to live comfortably for the rest of your life. And then, not coincidentally, the post-2008 landscape changed that configuration, in many instances, actually lowering the goal.

Keep in mind that goals are backward looking even as they are forward reaching. You need one they suggest to know what you need to do to get there. The question that lingers is how much is a goal worth having if the goal creates stress on your well-being, your family dynamic and your overall health? In fact, the answer may eventually answer the question of how long will we live in retirement?

Is a goal worth having?
Yes and no. First it identifies what needs to be done to achieve whatever it is you dream of doing. You want to go to the movies, the goal is to produce the twenty bucks or so it will cost. This is a fixed goal with real tangible numbers to accompany the desire. You know the real cost of going: tickets, concessions, babysitter, etc. You also equate exactly how many hours you may have worked to achieve that goal. Retirement unfortunately is much different.

You don't know what anything will cost. Folks throw out inflation as a concern, healthcare as an untenable cost and your longevity is the long-term savings reducer rather than the concept that it will give you more fruitful lives. 

You do know that you don't want to be newsworthy. You don't want to be headlines: "woman says death preferable to living in poverty" or "man says I didn't plan on being poor". So you do two things that enable what might seem inevitable. You worry and you don't save.

So what is the number?
There is no number. There is just you trying to figure out the day-to-day while ignoring the future. Keep in mind that no retirement plan was ever designed to replace 100% of your current income. Eight-five percent is considered good and seventy percent of your current income would be do-able. You can subtract your projected Social Security Income and you have some sort of idea how much you will need based on how much you need now.

In survey after survey, you have answered with comments that suggest you are no where near where you should be. Of course you aren't. Even if you haven't invested/saved all that much, time will make it somewhat better. Compounding still works. The investments you make now will be better off in the future, even if only slightly so. And the budget you keep now will help you stomach living on less in the future.

In survey after survey, the folks who look at the data, construct the questions and parse the info the answers supply see a landscape littered with dispair and angst. They see people lamenting that they will work until they die. They see people complaining that they will do worse than their parents and suggest that they will do worse than any generation prior to this one. They find that people are unwilling to adjust their dreams and use that as the goal, even if it is wholly unrealistic.

Is the answer your 401(k) plan sponsor's responsibility?
Russell Investments thinks this may be the key. They did a study recently that suggested two things: higher income wage earners will be better prepared for any problems they may encounter in retirement (healthcare costs, market volatility, inflation, etc.) while lower income wage earners will struggle with the day-to-day expenses prohibiting them from finding any available cash in which to save. The study does suggest that Social Security plays a lesser role in the higher pre-retirement income wage earners plan (about 36%) as compared to the lower income worker (about 51% of current income could be replaced).

But where the study differs from other reports on the dire state of this affair is helping the plan sponsor reconstruct their role in the process. Without citing the cost to businesses for retaining older workers (some numbers have put the cost as high as an $50,000 per worker past normal retirement age), focusing on the near-term expenses by making the plan better may be the best way to move this worry into the realm of manageable.

I'll give you the link to the whole study (here) but the element that intrigued me the most was the suggestion that the defined contribution side of the equation, the fiduciary responsibility of the company, could play the role that has been often overlooked. It is easy to say save more without offering the employee any hope of finding the right investments in which to do just that.

The way they suggest it would work is first to induce the employee to use the plan. Rather than a dollar for dollar match up to a certain percentage, they suggest that the employer match 75% of the first 5% contributed. Five percent has long been considered a sort of break even point for the employee providing some contribution without impacting the take-home pay needed by the lower income earning group.

If you were to see it written as a math sentence, it would look like this: A 75% match of first 5% of income creates a savings rate of 8.75% or 5% plus (0.75 x 5%) = 8.75%

But they think the best option would be to not stop there with the incentives. They think a secondary match should kick in once the employee taps the 5% mark. Companies could offer a 25% match on the next 5% contributed.
If you were to see this next stage of the plan, it would look like this: 8.75% plus (0.25 x 5%) = 15% savings rate.

The study goes a bit further suggesting that auto-enrollment and auto-escalation (essentially forwarding pay raise to the plan instead of to the paycheck) would get these hesitant savers on board sooner rather than later. It would also require the plan administrator to refocus on the core demographic of the employees, tailoring the underlying investments towards that group and controlling expenses better in the process.

And that would change the question of whether a million dollars was enough to "aren't we in this together?"

Tuesday, November 1, 2011

Are You Thinking Estate Planning?

Boomers aren't considering their estate plans the way they should. Perhaps the costs seem high. Perhaps the language too difficult. Perhaps we don't want to come face-to-face with our own mortalities. But talking about estate planning isn't just for the older ones among us. On the Financial Impact Factor Radio we hosted Deborah L. Jacobs, author of "Estate Planning Smarts".

This was an important show for those of us who may not have taken the important first step and made a will. And you'll find out that this is actually the next step in a good estate plan! Tune in to find out what the first step was. Deborah, a columnist and estate planning expert at Forbes discussed how to approach this topic with your parents, your spouse, your family and your lawyer.

 In the second half of the show, Dave Kittredge and Dave Ng of and my cohosts discussed the upward challenge of re-educating yourself for a new career, even if you graduated 30 years ago. College doesn't come cheap and when Boomers focus their attention on getting trained for a changing work environment, everyone benefits.


Friday, October 28, 2011

A Retirement Plan in the House

I have to wonder what people sometimes think, Boomers in particular. Confidence is down but spending is up. The recession isn't really a recession but for many it seems like one.The media talks of millions of homeowners looking for mortgage relief, being foreclosed or worse, are feeling the crush of owning a home adversely impact their retirement plans. And yet, some people are still planning a future with their house as part of the process.

Could be a sign of the times and then again, it might be the progression of where we would be in our retirement plan. If the results of the latest Associated poll are any indication, we have reached a pivotal point in retirement planning. Should I stay or should I go?

A great many retired couples have told me over the years that the biggest mistake they may have made was selling the family home. They have opted for a dream instead and chased it with their new found retirement freedom. But many failed to take into consideration that a place is more than just a shelter. It can be proximity to children and grandchildren, services such as health care facilities or other seniors and often, in communities that are growing with younger cohorts. And almost equally as many have found the size of the house they own in their pre-retirement years is simply too large to accommodate - or worse, afford.

Should it be a surprise that we begin making post-work plans in midlife? Or is the surprise the decision we make? According to the recent Associated poll, three out of ten midlife retirement planners are suggesting that they will look elsewhere when they do retire. And according to the poll, they are resigned to sell the family home for less than what they had thought it was worth a decade ago.

But that is understandable for two reasons: those out-sized estimates of property worth have been adjusted to fit a lackluster economy and there is a greater chance that the equity they may have calculated has shrunk due to refinancing. Folks in the midwest are more likely to stay put, more so than their east coast neighbors.

The poll also suggests according to Barbara Corcoran: "more than four in 10 want a smaller home, 30% would like a different climate, 25% will look for a more affordable home, and 15% will pack up our bags for the sole purpose of moving closer to family." And when they do move these people dream of a one-level home with enough room to accommodate the occasional visitor, close to medical facilities and not in-city. And those that stay put waste almost no time converting their children's rooms into something more focused on their evolving interests.

Oddly, the question of taxes didn't come up in the poll, something of major interest to older people planning on a fixed income lifestyle. A larger home requires upkeep and maintenance that might not configure into a retired income. And the thought of a second home was not amongst the wishes this group had either. In fact, only about 12% want to feel the sea breeze in their graying hair.

The question is: how much of a role should your home play in your retirement plan? Many people have factored in the equity in their plans - or at least they used to - and the mistake made by these folks is twofold. One, you need to live somewhere and two, unless you own your home and have considered the chance that you might reverse the mortgage at some point. this equity is nothing but paper dreams.

A harsh reality but more true than not. If you are factoring in your home as part of an estate, then no doubt you have made all of the considerations, tax and otherwise, surrounding that decision. But if the home will become unmanageable (how hard is the upkeep now?), then looking for the opportunity to sell it, no matter how much you might "love" the house, the location, the neighbors, should be weighed.

As retirees approach that magical time when you either cutback or stop working altogether, the best advice woud be to begin to stage the sale of the property now while your income is less fixed. If you don't sell, you will have a slightly improved place. If it does sell, it will help you get the price, or closer to the price you might think it is worth.

Paul Petillo is a fellow Boomer

Wednesday, October 26, 2011

On Socially Responsible Investing

Turns out, Boomers are very interested in this sort of investing. On Financial Impact Factor Radio we had Ron Robins, an MBA, founder and analyst for Investing for the Soul to discuss socially responsible investing. Dave K, Dave Ng and myself were curious about what even after decades continues to be a niche investment for many people. The main problem as Mr. Robins pointed out was the lack of recommendation by the financial services industry, even as the need and ultimately the performance of these investments has grown, and the low exposure in 401(k) plans (about 30% of the plans offer them).

Monday, October 24, 2011

Five Ways to a Booming Retirement

A previous post, The Five W's of Retirement Planning, addressed the “who”, “what”, “when”, “where”, “why” of retirement planning. While choosing when and how to retire is a personal decision, this post offers some approaches to answer the “what” to do when it comes to defining your retirement question.


If you’re retired, or are considering it, tailoring your post-professional plans is probably your primary focus.

Some other retirement websites suggest golfing, knitting or clipping coupons; but there are other ways to utilize your newfound freedom from the 9-5 to redefine retirement. In case you are in need of some inspiration, here are 5 ways to retire the cliché of retirement:           

1)      Become Techie – Retirees 65 and older are the fastest growing demographic of social network users, so if you’re not yet part of the technological revolution, now’s the time to get on board. With the perpetual introduction of new phones, computers and websites, consider taking a computer class at your local community college or find a design school online and learn to create a blog, check email, design a website or follow grandkids on Facebook and Twitter.

2)      Become a Foodie – Always loved food, but never had the time to cook? Learn to make delicious meals that will impress your spouse, family or friends at one of the best culinary schools in Dallas, New York City or close to home. There are full-time culinary schools that offer bachelors, masters or individual classes. There are also schools that focus solely on baking and pastries.

3)      Fly Solo – Of course, you don’t have to actually fly alone, but learning to fly (a plane) is not for the faint of heart. Take private flight lessons for a few hours in your area, or find a certification course; if you really do want to fly solo, a certification takes at least 60 hours in the cockpit, depending on the state.

4)      Get Schooled – Hablas Español? Parlez-vous français? Like the saying goes, it’s never too late to learn! Language learning software programs, like Rosetta Stone or Fluenz, allow you to practice fluency at your computer on your own schedule. Additionally, they offer a variety of different languages, so you could be speaking Mandarin in no time!

5)      Road Trip! – Yes, edifying one’s self later in life is certainly important. But, if you’ve had enough of academia, and you’re itching to boohit the open road, then purchase or rent an RV or Motorhome and tell the grandkids you’re coming to visit. Consider driving down the Pacific coast of California on Highway 1, the Atlantic coast between New York and Florida or across the country on US-50. Note that some RVs also convert into Campers, if your road trip leads you into the wilderness.

Tuesday, October 18, 2011

An Important Show about Long-Term Care Insurance

On Monday's Financial Impact Factor Radio we had a guest of interest to all Boomers. Jesse Slome of American Association for Long-Term Care Insurance joined us to teach us about LTCI. This is a multi-faceted topic that has long-range implication for the near retiree and their retirement planning strategies as well as someone who is already retired. Jesse was nice enough to stop by and explain many of the nuances of this product and offer some helpful tips on what to look for when buying long-term care insurance, where to purchase it and when.

Friday, October 14, 2011

Don't be Tempted to Borrow from Your 401(k)

Under the current laws governing tax-deferred retirement plans such as a 401(k), withdrawing money has consequences. I have mentioned many of them here over the years, not the least of which is the early withdrawal penalty, the payment of taxes on those tax deferred investments and of course the loss of retirement money. Yet, those penalties haven’t stopped many of the people who have found it difficult to make their monthly budget work.
Of course, I am assuming a monthly budget. Without some anchor in reality, not having a budgetcan lead to rash decisions withut considering the far-reaching impact. Without a monthly budget, you will have no idea what could be cut to maintain some level of financial stability when times get rough. It is also safe to assume that if you do not have some sort of monthly accounting of your finances, you probably don’t have an emergency account. Both of these would have served the households with troubled income streams.
Two Georgia Congressmen think that those 401(k) plans might be able to help. Their idea: Hardship Outlays to protect Mortgagee Equity (HOME) Act. Introduced last week, U.S. Senator Johnny Isakson (R-Georgia) and U.S. Representative Tom Graves (R-Georgia) want their proposal considered as a way to keep homeowners in their homes. The concept, somewhat like throwing you a lifeline of your own making and designed to rescue you from poverty in the future offers a short-term fix in the near-term. They believe that if you have been a diligent saver, adding to your 401(k) religiously over the years, you shouldn’t be punished for needing the money now as opposed to later.
Rep. Graves is convinced that the housing crisis is the reason the economy has not recovered. Calling up his decades in the real estate business, he suggests: “This bill will help Americans who risk foreclosure use their own resources to make their mortgage payment on time without being penalized by the federal government.” If his assessment of who may need this money now – 23% of those who have mortgages are underwater but not necessarily facing foreclosure – the government should step out of the way and allow these folks to withdraw that money without penalty.
They are proposing that there be a lifetime cap on these withdrawals of $50,000 or one-half of the present value of one’s 401(k) account (whichever is smaller), so long as those funds are used for that purpose within 120 days of withdrawal. This is not the first bill of its kind.
Since the Great Recession began, Congress has struggled with what to do with corner of the financial world. A similar bill was introduced in 2009 and never debated on the Senate floor.
Numerous homeowners should not be in the homes they own in the first place. They may have obtained these residences with fraudulent applications, been unable to afford those homes during what would be considered a normal buying environment and failed to restructure their loans or worse, keep with the terms of their bankruptcy decisions. Because tax-deferred retirement accounts are not considered in these proceedings, some mortgage holders may have been in a position to financially right their own ship. But because of the penalties associated with tapping those accounts, they simply chose not to.
The HOME Act will allow wealthier homeowners to save their residences without penalty, while the rest of us, those that underfunded their retirement accounts or couldn’t wait for Congress to act, have already drained those accounts, paid the penalties and taxes and tried to move on. This effort woud do little to help those currently in the foreclosure vortex or who have been spat out by the continued downturn in housing.
No matter who you are, this last ditch effort is not the way to go. Reducing future retirement payouts (compounding and time suggest that $50,000 in retirement savings would provide only about $290 a month in retirement – a projected shortfall of over $1200) would set the average wage-earner, hardship or no, back decades in support of keeping the house. Few of these folks, given the opportunity and the consequence of this decision will consider the long-range impact of that decision. And if it gets Congressional approval, it will push the real problem further down the road.
On the surface, it might seem like the right thing to do. But beneath the veneer of a tax and penalty holiday the problems this money promises far outweigh the immediate salve it may provide. There are solutions, none of them pleasant.
If you are seeing the problem on the horizon, don’t wait until the day of reckoning. Contact your lender before you run into problems. If the problem has arrived, keep in mind, as devastating as it seems, it is not the end. While temporary may well last several years, longer if you successfully pursue a bankruptcy, protecting your future, a time when this will all be an unhappy bump in life’s road will be worth the sacrifice.
True, protecting your credit is important. Just keep in mind, it wasn’t as important when you bought the house as it is to you now. This too will pass.
The bottom line: those 401(k) provisions were established decades ago when the thinking was to make it painful to withdraw your money all the while giving you the illusion that if need be, you could tap it. Now provision, recent or past will stop you if you have made up your mind. But for those who see this as an exit strategy for a bad decision, this Act will add to the problem.
I know it’s old school but it is worth repeating: get a budget (and figure worse case scenario, not current spending habits to allow a downturn picture to standout), attempt to negotiate before the problem strikes (ironically, most job losses are not a surprise) and divide this time and the future into two separate lifetimes. Borrowing – or in this case, stealing from the future is not a good short-term remedy. It is a bandaid on a gapping wound.
Paul Petillo is the managing editor of and a fellow Boomer.
Paul's latest book "ReBuilding Wealth in a Paycheck to Paycheck World" is available at Smashwords