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Retirement Planning in a Volatile Economy

Sat, 14 Jan 2012 17:00:21 +0000

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In the coming days and weeks, leading Democrats will make the case that their historic trouncing at the polls last night was the inevitable fallout of a brutal economy. There’s a bit of d?j? vu here: George Bush blamed his plummeting approval ratings on an unpopular war.

It’s not just the economy, stupid

What is a 401K? Once you have money in one, can you loose any of that money do to a failing the economy?

Thu, 27 Oct 2011 10:00:17 +0000

cluelessblue asked: My mom said her 401K was getting smaller and smaller and she is not sure why. so she was told to cash it in. is that the right thing to do?
Question posted courtesy of: Brent

What is a 401K? Once you have money in one, can you loose any of that money do to a failing the economy?

Yes Virginia, there is a Santa Claus rally

Wed, 28 Sep 2011 12:00:02 +0000

Lower tax rates may not get the economy back on track again. But they may spare investors from a nasty little sell-off at the end of the month.

Yes Virginia, there is a Santa Claus rally

Thu, 01 Sep 2011 14:00:02 +0000

Lower tax rates may not get the economy back on track again. But they may spare investors from a nasty little sell-off at the end of the month.

Yes Virginia, there is a Santa Claus rally

Old Money Rules That No Longer Apply (and Two That Still Do)

Sun, 21 Aug 2011 02:00:06 +0000

Many traditional money management concepts or principles, such as saving three to six months of expenses for emergencies, have been passed down to become “rules” of a sort. but given all that’s changed with the economy, old school advice may no longer be relevant. Here are some rules to reconsider, and ones that still stand the test of time.

Old School Thinking that may No Longer ApplySave 3 to 6 months’ worth of expenses in your emergency fund

Squirreling away enough to cover three to six months of expenses in case of unemployment, a medical emergency, or other financial disaster is an important goal—but it may not be enough. You’ve probably heard (or worse, witnessed) the horror stories of massive unemployment making it much harder to find a new job. the process can take well over six months; in fact, recent data shows the average length of unemployment has surged to an all-time high of 40.4 weeks.

Whether this is an unusual financial circumstance or the “new normal,” the uncertain economy and crappy job market means, for most people, “three to six months of expenses” is a good place to start, but not a smart place to stop (as one commenter noted on a blog post about the need for bigger emergency funds at the Squirrelers personal finance blog).

So how much should you save? Eight to twelve months might be the new three to six, but if that seems like an enormous goal, don’t get disheartened. as before, just start saving as much as you can…but don’t stop at the six month mark.

Refrain from using credit cards

A cash-only policy may help you get out of debt or keep tabs on your spending more easily, but not using your credit can also have a negative effect on how lenders view your creditworthiness.

SmartMoney reports that lenders are closing or slashing lines of credit for borrowers with high FICO scores (median 770) due to inactivity. that lowered credit limit available means their credit scores would drop. And credit scores aren’t what they used to be, either: Time says that a score of 750, which used to be considered “elite” may now be at the bottom of “very good,” due to tighter lending practices these days.

The moral is to go ahead and swipe that plastic regularly, and pay off the bills in full, of course.

SmartMoney has a few other old school financial rules you may want to break, challenging conventional wisdom like converting your traditional IRA to Roth (if you’re up to 10 years away from retiring, it can take years to make up for the taxes on the conversion).

Retire at age 65

Speaking of retiring, it may be time to put aside notions of 65 being the ideal retirement age. (So long, decent retirement age, we hardly knew you.)

The Simple Dollar points out that when the national retirement age of 65 was established for the Social Security Act in 1935 (over 75 years ago!), the average American lifespan was 61.7 years. Today, we still think of retirement age as 65, but the average lifespan is now 78 years—16 years more.

What this means for retirement planning is that we’ll probably have to change our approach and our perspective, looking at the period beyond age 65 as one of productivity (perhaps for a second career). While retirement investment tools are still helpful, we may need to tweak the inputs to account for longer lifespans, a second line of work, or just increased savings needs.

Just as “8 to 12 months” may be the new “3 to 6 months” for emergency fund savings and 750 may be the new 680 for credit scores, 65 may be the new 45 when it comes to our age and productivity.

Golden Rules of Money Management that Will always be Relevant

Two very basic money principles won’t ever change:

Spend less than you earn and invest the difference

It’s a boring and old piece of advice, but it’s also one you can count on: to increase your wealth, spend less than you earn, and invest the difference. this may be easier said than done, but the principle of living within your means is really the fundamental rule of personal finance.

Invest in assets, not liabilities

Of course, this also begs the question of what to do with the surplus or where to invest it. the other basic rule that will also stand the test of time is to direct your money to those items that will increase in value or produce income (assets), rather than those that will depreciate in value or end up requiring even more investment or upkeep (liabilites). this is the secret to building wealth most people ignore, the Frugal Dad blog says: “Buy Assets, Avoid Liabilities.” as an example, you could spend $200 on a new smartphone and then have to shell out more each month for the data and calling plans…or you could buy $200 in Verizon stock.

We’re all for buying smartphones and value them as a productivity tool, but it makes sense to apply this reasoning to every major purchase: will it improve your quality of life or increase in value, or will this item make you spend additional money each month just to have it?

Staying Flexible Is Key

The main lesson here may be to regularly take stock of what our financial priorities are and our progress, and to update our plans and budget according to changing circumstances and our goals. Previously mentioned financial priorities worksheets can help you plan for your big picture goals—which you should reevaluate whenever your life (and the world around you) changes in any big way.

Being able to adapt and adjust to changing financial challenges may be the best money management skill to have. what are your money management “rules” for this new economy? Photo by Lexie Rydberg.

You can follow or contact Melanie Pinola, the author of this post, on Twitter.

Send an email to Melanie Pinola, the author of this post, at melanie@lifehacker.com.

It’s not just the economy, stupid

Consumer Corner: Is your nest egg big enough to support retirement?

Thu, 07 Jul 2011 04:00:06 +0000

CHICAGO, June 26 (UPI) — think you’ve saved enough to retire in style? about half of Americans think so. whether they’re right or wrong depends largely on the economy and exactly how they define enough.

Keith Brannan, vice president of financial security planning for Country Financial of Bloomington, Ill., said about two-thirds of people queried think the magic number for retirement is $1 million.

“One-million dollars is a lot of money,” Brannan said. “I think you can retire on $1 million. It all depends on the plan you have in place.”

In the latest Country Financial Security Index, 51 percent of the 3,000 people queried said they think they have enough to retire comfortably, down 5 points from last year, and 58 percent said they have enough money to send their children to college, up 2 points from last year.

“What we’ve seen is a consistent decline since last October (in people’s confidence about their retirement prospects),” Brannan said. “As the economy ebbs and flows, there’s been a consistent decline.”

The 51 percent response represents the lowest level of confidence since the poll began in February 2007.

Overall, Americans are getting more pessimistic about the economy despite all the cheerleading from the White House.

A national survey last week by the Pew Research Center for the People and the Press indicated 29 percent of the 1,502 adults surveyed expect economic conditions will be better by next June but 23 percent said things will be worse. last October, 35 percent said they expected economic improvement while 16 percent said they expected things to be worse.

The latest poll indicated 38 percent think their personal finances are excellent or good and 56 percent are expecting their situations to improve in the next year.

Twenty-nine percent said they had trouble paying for or getting medical care in the past year, 26 percent said they have problems paying rent or their mortgages, 16 percent said they had been laid off or lost their jobs and 27 percent said they’re afraid of losing their jobs.

With the decline in defined benefit plans offered by companies, U.S. workers have put the bulk of their retirement savings into 401(k) plans and individual retirement accounts — and most people need the help of a savvy financial adviser to determine and get to their magic number.

“The burden of responsibility is now on the individual,” Brannan said.

As a general rule, Brannan said, people will need to have saved enough to generate 80- to 85 percent of their current income, including Social Security benefits, which range from $500 to $2,000 a month, to live comfortably into their golden years.

“When you immediately retire, you have a long list of things you want to do,” Brannan said. “As you age, the cost of healthcare absorbs what used to be expendable cash. that takes a fair amount of income.”

The recent recession definitely has put a crimp in people’s retirement plans. People who were hoping to retire at 60 three years ago are now shooting for 63 or 64.

“The economy keeps going up and down. Most concerning is the housing market. many middle-class Americans have the lion’s share of their assets in their homes. It (the decline in the housing market) hurts long-term. There’s been a true wealth decline,” Brennan said.

The Country Financial Security Index, which stands at 63.7 compared to 64.8 in June 2010, also found only 37 percent of those queried said they’d rate their overall financial security as excellent or good, compared to 41 percent last June and 45 percent said they are able to set money aside for savings and investments, down 1 point from last year.

Women are generally more confident than men with 53 percent saying they think they’ll have a comfortable retirement, compared to 49 percent for men, and 78 percent of women said they’d be able to pay their debts on time, compared to 75 percent of men.

“When it comes to finances, men and women exhibit different attitudes and levels of risk tolerance. the sharper the divisions, the more important it is for couples to collaborate on their finances,” Brannan said. “Despite differences, both men and women need to put equal focus on planning for their short- and long-term financial goals to achieve financial security.”

The survey was conducted by Rasmussen LLC and had a margin of error of 2 points, with a 95 percent level of confidence. Full results are due out in August.

The Pew survey had an error margin ranging from 3.5 percent to 6 percent and a 95 percent level of confidence.

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The Federal Reserve has kept a tight lid on interest rates?since?the financial crisis brought the markets crashing down?three years ago,?but as the economy gains steam, interest-rate hikes are coming ??possibly later this year. Should investors be worried?

Investing with an eye toward interest-rate hikes