Today I give thanks to the countless men and women who struggled and sacrificed that I may wake up this morning to enjoy freedom, prosperity, family and sunshine on my face.
Memorial Day 2012
Reply
Some Boomers May Choose Door No. 3
Instead of working longer or retiring on time with less money than anticipated, there may be a third alternative that financial advisors can show their clients that may give them the best of both worlds.
An alternative may be to continue working full or part time and use money that had been going into savings to begin enjoying “retirement activities” before actually retiring.
“It is a case of balancing time and money,” says Christine Fahlund, senior financial planner at T. Rowe Price, which recently studied the alternatives available to those nearing retirement who do not like the two standard options.
“We advocate a new transitional strategy,” Fahlund explains. “While this approach involves working longer, it can provide more discretionary income during these transition years to start seriously pursuing your retirement aspirations well before you thought you could.”
In order to steer clients in the right direction, financial advisors need to be well versed on the possibilities and on the advantages of delaying taking Social Security benefits, she says.
A number of variations of the T. Rowe Price plan can be initiated, but a standard example might be a 62-year-old couple making $100,000 who wants to retire. Receiving Social Security benefits of $30,800, plus withdrawing $21,100 from retirement savings gives them only 52% of their preretirement income, less than the 75% recommended by T. Rowe Price. In addition, their $500,000 in savings would only grow to $526,000 by age 70. (All figures are expressed in today’s dollars, using a 3% discount rate.)
They decide to keep working, but discontinue making contributions to their retirement plan, which gives them an additional $15,000 to pay for some enjoyable activities. Each year they wait to start taking Social Security benefits, their initial benefits increase approximately 8%, based on Social Security formulas—regardless of what the market does.
In addition, if they do not tap into their retirement savings prior to their fully retiring, their investment portfolio will have increased as well. If they retire at 70, withdrawing $34,900 from savings and collecting combined Social Security benefits of $54,100, they have a total retirement income of $89,000 and their retirement nest egg would have grown to $775,000 by age 70, according to the T. Rowe Price calculations. That’s almost a 90% replacement rate, rather than the 52% replacement income percentage the couple that retires at age 62 realizes.
Being able to use some of their time and money earlier to live out their retirement dreams might make working longer less onerous. Basically, their salaries would be funding their fun. T. Rowe Price recommends they should also use this transition phase to pay off debts, including mortgages.
“People have to make a decision whether they want to continue working, at least part time, or if having more free time trumps the extra money they would have in salary as well as later in retirement,” Fahlund says.
“Unfortunately, given today’s economy, not everyone is in a position to consider these options,” she adds. “However, T. Rowe Price believes that even if you both work part-time in your 60s while you begin playing, the financial benefits may be significant, or, in some cases a couple may choose to have one spouse retire while the other continues working.
“Whatever you do during the transition phase, if you are married, try to delay having the higher wage earner take his or her own Social Security benefits until age 70. That way, the benefit received will be as large as possible, and will be available for the rest of the surviving spouse’s life, regardless of which one survives. If you are single, the same rationale applies.
Fahlund notes that this approach to retirement may be appealing to some financial advisor’s clients––especially those who have not yet saved enough and those who may have saved but are not emotionally prepared to leave the work force.
— Karen DeMasters ( See SOURCE here… )
Only Half of Americans Financially Prepared to Live Longer
My Comments: I know, I know, I promised to add stuff that was more positive going forward. Only it’s hard to find. And as I age, along with you, I’m reminded that given medical advances, both of us might be dead by now had we lived a 100 years ago. But we’re not, and that’s a good thing. So there!
By Paula Aven Gladych
Americans are completely unprepared to live into their 70s, 80s or 90s, according to a new study by Northwestern Mutual. The “Longevity & Preparedness Study” asked people, based on their current financial plan, how prepared they feel to live to age 75, 85 and 95.
Findings revealed that only slightly more than half of Americans surveyed feel financially prepared to live to age 75. Less than half, 46 percent, feel financially prepared to live to age 85 and 36 percent feel prepared to live to age 95.
According to the Centers for Disease Control, average life expectancy in the U.S. has increased to 78.2 years (75.7 for men and 80.6 for women). For couples in their 60s, there is a 50 percent chance that one partner will live to the age of 94, and one out of 10 couples will have a partner that lives to be 100 or older, the report found.
“This research indicates that many Americans are financially unprepared to live long lives,” said Greg Oberland, Northwestern Mutual executive vice president. “With longevity comes an increased need to proactively manage your personal finances, which includes a solid risk management strategy. No matter what age you’ll live to, it’s important to protect the dollars you’ll eventually depend on to provide an income in your retirement years.”
The company’s research also found that men are more likely to feel financially prepared for living longer than women, and younger Americans, those under age 59, feel less prepared than older Americans to live beyond age 75.
Northwestern Mutual sponsored the Planning and Progress study to evaluate the state of financial planning in America, and where people stand in the way of progress toward reaching their long-term financial goals. Independent research firm Ipsos conducted the online survey of 1,015 Americans aged 25 or older between Feb. 2 and Feb. 13, 2012.
Our Relationship With Afghanistan and Raising Teenagers
I hope the title got your attention. My plan is to draw a parallel between our military and diplomatic efforts in Afghanistan and helping our teen age children mature into young and self-sufficient adults.
This insight came to me as I read a book by Robert B. Parker. Among his leading characters has been a female private detective named Sunny Randall.
In the book I read, Sunny assumes responsibility for a 15 year old girl who has run away from what can only be described as a dysfunctional family. It seems the girl witnessed something bad at home which is why some bad people are after her to cause her harm.
There is dialog in the book that reveals the girl is oblivious to social etiquette, fundamentally resistant to outside pressure to behave, and the inherent value of being able to think for herself and make choices that lead to either freedom or servitude. Attempts are made to persuade her that knowledge is power, over yourself, and over others, and that leads to choices that offer pleasant relationships, happiness, and a sense of worth.
I don’t know if you have teenagers in your house, whether you expect to have them, or if yours are grown and gone. But I’ve had teenagers in my house and they require patience, understanding, coaching, discipline, rewards, and love. Mine had that from day one yet my wife and I were not prepared for the inevitable trauma that happens in the best of homes.
Now think how it might have been if there had been no coaching, no discipline, no encouragement, no rewards, little love and a future where the best hope is to die and find fulfillment on the other side. And, yes, he or she has an AK47.
There was an exchange between the main character and the teenage girl that was entirely plausible, given my frame of reference as a parent. And I suddenly drew a parallel between those characters in the book and the relationship between the government of the United States and the characters at play in Afghanistan.
How in the world can anyone expect a positive outcome unless there is someone to provide coaching, patience, understanding, discipline and rewards. For us to go in there, whether it be Iraq or Afghanistan, or Somalia, or Yemen, or Syria or any of those places, and expect them to embrace democracy, the rule of law, have an understanding of property ownership, civil rights, voting responsibility, and all that we in the west take for granted, is inherently stupid.
Should we make an effort? Most certainly, since the failure to do so will likely lead to a really bad outcome for the rest of us. But we have had a propensity to simply go in and kick ass and then expect those that are left, to suddenly be like us. Is that how you raised your teenage children? You may have wanted to kick some ass from time to time, but that’s usually the best way to get the very outcome you are trying to avoid.
We’re trying to impose the rules of democracy, commerce and justice, rules that we in the west have developed and come to terms with over the past 200 years. The folks on the receiving end are essentially tribesmen, who until a few short years ago, had no clue what existed beyond the next sand dune or ridge line. And the leadership wanted it to stay that way, because it allowed them to stay in charge. And, in some respects, want it to remain that way today. Witness the attitudes toward women being educated.
I don’t have a best answer. There may not be one. But as someone I like to read pointed out a few years ago, if those folks with AK47s find themselves at age 35, with a job, with a family, with children to support, and a future they can envision, they are not likely to go on jihad.
So our best chance is to somehow encourage more and more connectivity. Globalization works and is evidenced by the growing middle class in Brazil, in India, in China. It’s coming in Africa, and the rest of South America, and in Southeast Asia, and one day, hopefully, in the Middle East. We should be leading from behind so that those teenagers in Afghanistan and Iraq and Egypt and wherever grow into people like us. And it was all “their” idea.
Romney, College Education, and Economic Growth
My Comments: Yes, I’ve been a partisan Democrat all my adult life. I’ve not always voted along party lines, but I’m clearly not among the 1%, so I think I have a better understanding of what the rest of us face on a daily basis about paying bills, saving for the future, dealing with health care issues that require money, and so on.
Being in the 1% does not disqualify you for national office. In fact, it often helps, since if you got there as a result of your own efforts, it suggests you have a work ethic, are intelligent, and have discipline. But if you got there largely because you started with a silver spoon in your mouth, to me you are less likely to have a compassion for the other 99%.
Like it or not, this country is made up of 100%. That means the folks all the way down to the last percentage are citizens of these United States. And in a civilized society such as ours, you can’t simply take those at the bottom out and shoot them, or suggest they “self-deport” themselves. (That started out as a satyrical suggestion by Daniel D. Portado)
May 19th, 2012 12:00 am Cynthia Tucker
It’s that long-anticipated season for college seniors and their families.
Having completed four — or five or six — years of studies, students will don caps and gowns, march into an assembly and listen to a speaker exhort them to go forth and change the world. Then, having received that magical document, they will proceed to confront the mountain of debt they have amassed.
Some grads are luckier, of course. They were born to affluent families who can easily afford the cost of a college degree, even at the nation’s pricier institutions.
Most graduates, however, didn’t draw the lucky numbers in the birth lottery. Even if their parents were hardworking and thrifty members of the middle class, they probably couldn’t sock away enough to cover the ever-escalating cost of a college diploma. That’s doubly true if there are three or four kids to send.
According to a lengthy recent report in The New York Times, 94 percent of students who earn a bachelor’s degree borrow money to pursue higher education. That’s up from 45 percent in 1993, the Times said.
The money now owed from college loans — more than a trillion dollars, by most estimates — has rekindled intertwining debates over the reasons for skyrocketing college costs and whether the diploma is worth its prodigious price tag. The first question, one I’ve asked many college presidents over the years, is worth serious study — perhaps research by a budding young economist with her eye on the Nobel Prize.
However, the second question has already been answered many, many times: A college degree is worthwhile not only for its individual recipient but also for his or her community. The only real mystery is this: Why do so many politicians seem unaware of that?
As America confronts not only the lingering effects of the Great Recession but also a structural economic shift brought on by global forces, most economists and public policy experts agree that the country must have a better-educated work force to preserve its economic hegemony. Many Americans understand that we have lost manufacturing jobs to poor nations with cheap labor, but do they also understand that we are losing creative capacity to emerging powers such as China and South Korea, which have heavily invested in education?
One of the reasons that college students are so heavily indebted is that states have relentlessly cut the support they have provided to public colleges and universities. As college costs have increased, that gap has produced a bigger and bigger hole, which schools have leaned on students to fill.
Why haven’t parents and teachers and students demanded more affordable college educations? Why does the public hold politicians responsible for gasoline prices but not for the high cost of college?
President Obama has stressed the need to raise the nation’s college completion rates and to provide more federal assistance to pay the costs. But Mitt Romney, his likely opponent, has taken a very different tack. While attacking the president for the rise in college costs, Romney has also implicitly criticized students who leave college burdened with a staggering debt load.
Last month, he advised students to “shop around. … Don’t just go to the (college) that has the highest price, go to one that has a little lower price where you can get a good education, and hopefully you’ll find that and don’t take on too much debt and don’t expect the government to forgive the debt that you take on.”
The lack of empathy was staggering coming from a man with a wealthy father who could well afford to send him to tony schools. But Romney also completely misunderstands the connection between college and economic growth: The degree doesn’t just aid the recipient; it also benefits the entire country, which can draw on a larger pool of highly educated labor.
Once upon a time, the nation’s leaders understood that connection. That’s why they supported a generous GI bill for veterans returning from World War II. That college aid educated my father and millions of others, helping to create a growing middle class. How did we forget that?
(Cynthia Tucker, winner of the 2007 Pulitzer Prize for commentary, is a visiting professor at the University of Georgia. She can be reached at cynthia@cynthiatucker.com.)
J.P. Morgan Weekly Market Recap – May 21, 2012
For those of you who pay attention and want to time the market, here’s this weeks best summary:
The Paradox of Being Prepared
My Comments: The author of this article has a blog about investments that is both entertaining and informative. As much as anything, he doesn’t take himself too seriously, which is a fault many of us have. It’s long, but a good one…
by Jeffrey Dow Jones
Turns out our newsletter last week on China was rather timely. Shortly after publication, we got the latest data on Chinese industrial production. It missed expectations and fell to the weakest level since May of 2009. Suddenly PIMCO’s below-consensus call for mid-7% growth doesn’t sound so crazy anymore.
China is a rapidly growing economy and it’s going to continue to grow. Later this decade it will be the largest on the planet. There are 1.3 billion people over there! Their economy is changing in a meaningful way. My concern about China is that of an investment and the concern is very specific.
I don’t want to be a long- or medium-term investor over there for three reasons:
1. By definition, its economic model — producing cheap stuff and selling progressively more of it to the world — is not sustainable. The more China grows from this, the more successful their economy, the more expensive it becomes for them to keep using that model. This is the essence of what they’re bumping up against right now and it’s the reason why the latest 5-year plan, the “Twelfth Guideline,” has a very different direction.
2. They seem to have made relatively little progress transitioning the economy to one supported by internal consumption. There isn’t much of a middle class in China, and both direct and tangential exposure to their real estate bubble is going to create some big problems.
3. Its demographics are very troublesome. Their population is peaking. China’s population has doubled in the last 50 years and it should fall around 10% in the next 50. That doesn’t mean their economy will stop growing, because GDP-per-capita has plenty of room to run. But it does mean that the favorable demographic tailwinds will now act as a headwind. Their population is getting top heavy, too. Ask Japan how much fun it is when your population not only isn’t growing, but is also getting older.
Anyway, this latest bump in the road is more indicative of a global slowdown. It says more about the rest of the world than it does about China. But it is a reminder how leveraged China is to the economic health of everybody else. That’s what will move the Chinese stock market up and down on a cyclical basis, while the three factors I listed above will drive its longer term performance.
The Whale gets Harpooned
The other major story in the last week was JP Morgan. I doubt you missed it, but in case you did, their latest investor call created something of a fiasco in the marketplace. They revealed a $2 billion loss on some bad “hedges” going awry.
I’d been reading stories about the “London Whale” — a shadowy trader at a major bank who was making enormous bets, distorting the credit markets, and pissing off a lot of hedge funds — for a few weeks in the FT and Bloomberg. It was a neat story, kind of a cloak-and-dagger soap opera, but I had no idea it would lead to this! This is real money. Real news.
It vindicates just about all of the criticism of the banking industry in the last few years. With various bank stocks up 40-90% since last October, a lot of investors were excited that all was clear in the banking sector once again. Most banks have been making pretty good money since the bailouts. It seems we now have an answer to the question, “at what cost?”
