Part Two: No Investor Ever Folds

While many of you want to believe that you are on track for retirement - and many of you actually are, confidence is not something you are comfortable with. It wears like a wool sweater on a summer day: protects you from the sun while melting what you are protecting in the process. In other words, there is no happy medium anymore. It seems to have simply left the arena. Or has it?

Ironically, those of you who were able to answer the questions in the previous post, "Now What Retirement?" will probably not be able to do the same in the next segment of our look at "Now What?" as we grapple with investments. Yet retirement involved investing. Didn't it?

In some ways, retirement or the near proximity of it is a form of investing. You did, in all likelihood use the same place where investors flock: bonds, stocks, commodities, perhaps and in many instances, that access came via your 401(k). This is, for the average American, the extent of their investment exposure.

You might argue that your home is an investment. In the truest definition, it is not. It is neither liquid nor accurately valued at the end of each business day. The process for buying and selling is neither seamless or efficient. In fact, every dollar surrounding the buying and selling of a home seems to be a waste. So no, your home is not an investment. Unless of course, it is lumped in with your retirement plan. But the parameters have changed in that event and it becomes more asset than investment asset.

But the not-so-near retirement planners consider each move they make to be investment driven. Then drive as if it were. And in taking the proverbial investment wheel, you need to know what the rules are.

In a skittish market seemingly set off by the slightest hint that all is not so perfect (and when has it ever been?), the temptation to follow all of the bad investor habits we have discussed here over the years is multiplied tenfold. You want to sell when everyone else is selling and buy when they shift course. You worry that what was once a good decision is no longer as good, even though little has changed. Sure, the news is the news and is fluid. But the news is much of the same, recast.

So, as the siren of sell sings in your ear, remember this: Consider risk, not performance. Risk is basically a four letter word for "diversifying your assets across as many classes as possible". While you may not be able to buy individual assets in each of the major asset classes in quantities enough to make diversity work well, you can buy the indexes. In times of turmoil, parking your money in the broadest based places - and they should have been indexed in the first place, protects your money in the same way the wealthy tend to protect theirs.

The smartest investors are not the ones who are all-in. In the case of smaller investors, the emergency account you have built up is similar to the cash reserves that the wealthy might have. If you don't have to sell anything, and that temptation is there when the market begins to slide, because you have money on the sidelines, you can wait it out. And that is why those who consider themselves more savvy as investors still know the real value of a portfolio is the cash available. Even if the only opportunity is surviving until there is one!

No investors ever folds. The investors who have been in it for the long-term know that even if the market news is bad, even if the gyrations seem to be getting closer rather than farther away, even as the concerns have become more global, panic has never gotten anyone a profit. But patience has. You may sell a loss but for tax purposes. And you may sell a gain perhaps because of out-performance or rebalancing. But the wisest investors never sell based on fear.

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

The Greatest Problem for the Greatest Generation

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

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

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

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

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

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

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

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

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

Boomer Generosity

What would do if you could make your retirement plan last generations?

The assumptions you make about how much money you will need in retirement are probably the most difficult exercise in the whole of retirement planning. The unknowns are so numerous that simply thinking too much about it gives many people the incentive to simply ignore the question. Taxes and inflation play a role in how much money we will need along with the condition of our health, our portfolios and our living arrangements. Who could possibly guess with any accuracy what those costs will be?

Yet, some of us can with certain investments. If you can wait until you are 70 1/2 years-old to begin taking your distributions from an IRA, and you take only the minimum amount needed, you may be in a position to make that IRA last much longer, across generations. Called a Stretch IRA, the sort of planning can create untold wealth for a child or grandchild.

More on the Stretch IRA from Paul Petillo, managing editor of Target 2025.com and a fellow Boomer.

"TOM BROKAW REPORTS: BOOMER$!"

CNBC Presents "TOM BROKAW REPORTS: BOOMER$!" On Thursday, March 4th At 9PM ET/PT

Feb 12, 2010 - 10:38:23 AM

NBC News' Tom Brokaw Tells The Story Of History's Wealthiest & Most Influential Generation

They were born between 1946 and 1964, a vast and prosperous group of Americans who lived through the Cold War, Vietnam, Watergate and the housing bubble. They wore Buster Browns, played with hula-hoops, ate at the drive-thru and watched the Beatles play on "The Ed Sullivan Show." Raised during a time of unprecedented affluence, they exhibited extraordinary optimism and faith in the future. Now, as the oldest among them approach the age of retirement, they face a world of new challenges and opportunities they never anticipated or dreamed possible. 

On Thursday, March 4th at 9PM ET/PT, CNBC presents "TOM BROKAW REPORTS: BOOMER$!" a CNBC original reported by NBC News Special Correspondent Tom Brokaw. After defining "The Greatest Generation" in his bestselling book, Brokaw now turns his sights to their successors, the generation that vowed to change the world.

"Now, at this critical crossroads in the nation and in their lives, what do boomers do next - and how do they get there? It's a question that affects all of us and will for a long time to come," said Brokaw. 

In a landmark two-hour documentary, CNBC, First in Business Worldwide, and Brokaw take viewers on a provocative and evocative journey down memory lane and peer into an uncertain future. From Woodstock to the civil rights movement, in war and politics, Brokaw chronicles the extraordinary impact 78 million baby boomers have had on American society over the past six decades. He sits down with a fascinating cross-section of boomers to talk about their generation's life and legacy, including U.S. Senator and Vietnam veteran James Webb, author and critic Michael Eric Dyson, and political satirist P.J. O'Rourke. Brokaw also profiles quintessential boomer actor Tom Hanks, and has an intimate and gripping conversation with the parents of Denise McNair, the 11 year-old girl slain, along with three friends, in the 1963 Sixteenth Street Baptist Church bombing in Birmingham. That infamous episode brought the first casualties of the boomer generation in a civil rights struggle that led to the election of the nation's first black president. That transformation, together with historic advances made by women in all aspects of American life, is captured as part of the story of a generation that has delivered on some of its promises but not - as yet - on others. 

Brokaw also introduces viewers to everyday boomers and their children -- real people who have lived through unprecedented prosperity and now find themselves facing significant financial, physical and social challenges. For years, by their sheer heft in numbers, baby boomers altered the economy, and now, it has altered them. After experiencing historic wealth, many boomers now find themselves likely to outlive their money. Brokaw captures the stunned disbelief of a downsized generation that never saw it coming and that now confronts rising unemployment and dashed dreams of retirement. He also examines the boomers' unique and unyielding quest to preserve their youth, leading one writer to describe these children of Woodstock as, "Generation Ageless."

Mitch Weitzner is the Senior Executive Producer of "TOM BROKAW REPORTS: BOOMER$!" Jonathan Dann is the Senior Producer. Ray Borelli is the Vice President of Strategic Research, Scheduling and Long Form Programming.

"TOM BROKAW REPORTS: BOOMER$!" will re-air on CNBC on Saturday, March 6th at 7PM ET, Sunday, March 7th at 9PM ET and Monday, March 8th at 8PM ET.

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Leaving a 401k behind?

Job separation can come for any number of reasons. But a late in life job change comes with additional considerations. What to do with that 401k you left behind?

Keeping the money in a 401k has its advantages. For older workers, the ability to begin disbursement at age 55 is an attractive plus. Although it is generally ill-advised under almost every circumstance, keeping the money in the 401k retains your ability to borrow from the plan. Some of us will consider keeping this option open. It's an option albeit, not a good one.

Generally, the fees are better in a 401k. Institutions may get a much better deal from the plan sponsor and consideration of this is important in the rollover decision. A much larger plan may come with more options or simply less expensive ones. Fees are an important aspect of total return and a worthwhile item to focus on when making any decision to move.

But you may not have an option if the balance is less than $5,000. This means you are faced with the choice of taking the cash in the account (along with the 20% the account must hold for income taxes and the 10% penalty). The scariest statistic, two-thirds of you take the money and pay those hefty penalties.

The terms of disbursement are spelled out when you leave the job in the 402(f) notice. This explains your options for handling a 401k disbursement. Even if you want to stay, your old employer really doesn't want the continued burden.

Bottom Line: Once you receive that 402(f), begin to research your options. And even if you think that money will come in handy, never take the cash.

Next: rolling to an IRA.

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

Building Wealth with Dividends

Every Friday morning, I discuss different aspects of investing and retirement planning. The hosts of MomsMakingaMillion Talk Radio believe that if women were paid what men are paid for the same job, poverty in this country would decrease by 50%. This week, on 11.20.09, we will be discussing the art of dividend investing. (The format for my segment is broken down into five questions.)

So what are dividends?
When a company makes a profit there are basically three things that can be done. Some reinvest it, which is what newer companies or growth companies do. They take those profits and channel them back into the company in the form of research or simply hold the cash for future mergers and acquisitions. Some companies use the money to buy back their own shares. This happens when the company realizes that its share price is below what they think it should be. Some use the cash to clear up their balance sheets by buying down their debt exposure. Others share it with the shareholders.

These are all good things to do with the cash they have made but nothing benefits the shareholder over the long run better than dividends do. Why is that?
Dividends are old school. I wasn't that long ago that Wall Street considered the act of dividends the most important aspect of an investment. Now we can look to dividends for one thing: to increase our wealth.

How often do companies pay their shareholders?
Dividends are decided by the board of directors. Then they set a declaration date, which is the day the dividend payment to shareholders becomes a liability on the company's books. This is followed by the shareholder of record date. If you are holding the stock on that date, you receive the payment. They refer to this point in time as the ex-dividend price for the stock. If you buy the stock before the dividend is paid, you get the dividend. But be careful, a company considers the shareholder of record a person who owns the stock four days before the dividend is actually issued. Buying a stock in this four day period means you will not get the dividend; the person who sold it to you will. And the other important date in this process is when the company actually pays you.

Do they always pay cash?
This is the most common way of doing it. A company will declare a dividend and that amount usually is split among four quarters. So if the business offers you a dollar dividend, each quarter you would receive 25 cents for each share you own. Sometimes they offer a one time special dividend which is a lump sum payment with no other date specified when they will do this again.

What do investors need to keep in mind when buying dividend paying stocks?
Three thing investors can keep in mind when looking a dividend paying stocks: they are less volatile because the companies who pay them tend to be far more stable in terms of share price than other companies, they outperform non-paying dividend companies by almost 3%, and the are easily reinvested providing the investor with additional opportunity to buy more stock which means more dividends.

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