tag:blogger.com,1999:blog-23618629556885354172024-03-14T02:17:47.056-07:00Retiring with a Plan@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.comBlogger288125tag:blogger.com,1999:blog-2361862955688535417.post-38100932988050339822019-04-04T05:54:00.000-07:002019-04-04T05:54:16.004-07:00What Retirement is Really LikeNew York Times reporter <a href="https://www.nytimes.com/2019/01/11/business/book-retire-early-but-how.html">Paul B. Brown reviewed a book on January 13th</a> that got me thinking. He didn't especially enjoy the read because, in his words: <span style="font-family: inherit;">"<span style="background-color: white; color: #333333;">Retiring early and successfully requires two things, she argues: knowing what you will do with your life without a paying job, and a lot of money to live on. </span><span style="background-color: white; color: #333333;">Ms. Hester is terrific in explaining the first part; so-so on the second." </span></span><br />
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<span style="font-family: inherit;">That got me wondering what he would write had he reviewed my book(s). But in light of that oversight by the NYT, I felt as though I should add these thoughts to the conversation and update one of the few remaining blogs I had authored - for you. So here is the second part of Building Wealth in a Paycheck-to-Paycheck World - the retirement part.</span><br />
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<b>The last post I entered on this site</b> happened almost six years ago. Since then, I have retired the site that would be considered as the main location for all of my financial thoughts. <a href="https://web.archive.org/web/*/bluecollardollar.com">BlueCollarDollar.com</a> (this link takes you to the Wayback Machine - my other work literary resume can be found at <a href="http://paulpetillo.com/">paulpetillo.com</a>) was officially deleted for a number of reasons: 1) It was entirely written in html, which meant that I could not, as Google requested 2) secure the site and 3) make it mobile friendly. Because the site was hand built and WordPress was not available, the process of updating and recoding 1989 urls simply proved to be too much.<br />
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That, and I was still working in a job that was ramping up to take in excess of 60 hours of my work week. So something had to go and the BCD was shutdown. It closed with a Google Page Rank of 4 (SEO folks will understand what that means - the New York Times according to one page rank checker available for free is only a Page Rank of 5.)<br />
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If I had known what I know now, I may not have "retired" the site - because another retirement came my way just a couple of months ago. I have not written a word about it since the day I actually left - a post on Facebook garnered quite a bit of support, with the obvious exception of a single person who worked with me posting a word. It could be expected though considering the fear that surrounds everyone who is left working in that establishment. I will address this condition throughout this post.<br />
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So what is retirement really like from a person who wrote about how to retire for almost twenty years. The following post will be broken down into the following segments: Fear, Guilt, Assessment, and Conditions.<br />
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<b>Fear</b><br />
Most people who know me well enough to consider me more than an acquaintance know that I tend to hurdle forward without much in the way of fear. Psychology Today describes fear as :"an emotional response induced by a perceived threat, which causes a change in brain and organ function, as well as in behavior. Fear can lead us to hide, to run away, or to freeze in our shoes. <br />
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<span data-dobid="hdw">fear </span><span style="font-size: medium;">/</span><span style="font-size: medium;">ˈfir</span><span style="font-size: medium;">/ noun</span></div>
an unpleasant emotion caused by the belief <br />
that someone or something is dangerous, <br />
likely to cause pain, or a threat.</td></tr>
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Fear may arise from a confrontation or from avoiding a threat, or it may come in the form of a discovery." And while my lack fear is often seen as cavalier - just ask my former employer - it is really rooted in my inability to allow emotion to enter into the equation.<br />
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That does not mean that the emotional response of everyone around me would not be impacted. It was and is an ongoing issue, even if it after a number of months it has subsided somewhat. I have described my exit as inelegant however, compared to the way I was treated in the closing months of my employment, my reaction to the incredibly spineless offer made to me to "stay in the job and get fired or take a demotion and get fired later" on the Friday after a weeklong trip to the farthest reaches of the company. The third option in this increasingly hostile environment was to retire - without the cake.<br />
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Keep in mind, this job commanded almost 70 hours of my week so the withdrawal from the demands of assisting 132 locations in an almost innumerable amount of small-to-large crises, creating cost savings where there were previously none and advancing the most ambitious sustainability programs that the company (not just the division I worked in) was not going to be easy. <br />
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I was incredibly successful at everything I undertook or was assigned - with one exception: I could not converse in any meaningful way with the person who would ultimately determine my fate. This particular VP of Hair-on-Fire was a volatile and close-minded individual who seemed to discharge someone from her service based on each time she was passed over for promotion. Yes, age and gender also played a role and I do get that this is the time when women need to take a commanding role in leadership (which was a very white male forward operation - and in many ways still is). It is their time. I get it. It is long overdue.<br />
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And despite my unwavering commitment to the company, I failed at bowing down to her in the manner she expected. (I had no idea how to!) Nothing I did was unsupportive however successful I seemed to become in my own role. Nothing I did was for my own advancement - I was simply trying to do my best in a role that few understood in an environment that could have cared less how much money I was saving for the company in the execution of my duties. I was apolitical and that is not a good survival tactic. I'm also a man and we are inherently stupid. I did see myself as the best middle manager a company could hope for - too old to shoot for promotion and too close to retirement to discard my own self-described ambition to leave the company better than I found it.<br />
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So I spent the weekend online tidying up what I could, calling all of my directs (except one incredibly disloyal subordinate that I inherited from a previous supervisor) and reaching out to specific vendors to thank them for their help and patience.<br />
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On Monday morning, at 5am, I entered the office with just my laptop, credit card and ID badge - I knew there would be footage so the wearing of shorts and t-shirt helped dismiss whatever questions might arise - crafted a note to my direct supervisor, an ambitious self-determined person who I believe could have cared less about anyone but her own gain and in it, outlined the hostile environment in which I was forced to retire from earlier than I had intended. In my mind, I needed another four years just to shore up the financial aspect of this process. But I had been preparing for this moment for over a decade.<br />
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I was fearless. <br />
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However I did not accurately gauge my wife's own fears as well as I should have done. She had grown up in a household that had suffered financial instability and had a focus on money that went beyond the planning stages directly to the worry. I had no fear because I believed in my plan and followed my own advice.<br />
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So how financially prepared was I to walk away from a good, benefit-laden position? While I had managed to lock in a pension from another career I had retired from almost a decade earlier, which, if I lived to be ninety would be worth well over a million dollars. Certainly nothing to sneeze about ad as far as pensions were concerned, it was well-funded and very well could last my whole life without interruption. My wife was drawing her Social Security. However, in my mind, this combination of income was my wife's retirement and the income I would provide to the mix would come in the form of my Social Security (which if I wait long enough will be substantial - in the $2200 per month range) and from my 401k, which is another $200k. We have a home worth a million dollars, which was to be sold as part of the retirement plan. This downsizing or whatever you want to call it will create a paid for house and an additional $400k in investable, nest egg cash. And we are incredibly healthy for our ages.<br />
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I was fearless. And yet, it is not about me.<br />
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So if I have a flaw in the plan I designed and wrote about for all those years it was the kids, all grown and yet somehow still dependent. The economic downturn in 2008, which prompted me to save even more despite the rash selling of assets that my coworkers were doing - even after they asked me what to do, coupled with the incredible rise in popularity of the Pacific Northwest that pushed the equity of my home higher also pushed the overall cost of living to untenable levels for those offspring. Two returned to the nest. And this has created a financial drain on the system I had in place. This was difficult to predict twenty years ago when we formulated this plan. But it is not a deal breaker by any means.<br />
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So my wife did worry and rightly so. She was angry with my (previous employer) and rightly so. She was all the emotion and that included fear that I was so comfortably devoid of. If you are planning for retirement, I do not believe you can anticipate this type of overriding anger even if the money is in place. She was pissed but I was grateful. I was fearless.<br />
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<b>Guilt</b><br />
Retiring means transferring to a new tribe. During the day, you are likely to encounter your fellow tribe members walking their dogs or simply strolling if the weather permits. As a young member of this new group, I am unaware of the language of retirement. I am not prone to complain, so that interaction will be limited to listening rather than sharing. That's fine; I'm a relatively good listener even if I tend to suffer when encountering stupidity.<br />
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This tribe is noticeably older looking than me. I know this because when I tell people that I am retired (which in concept I am; in principle I have only left my previous job), they say you look too young. They say the same about my wife when she reveals her age. So while the tribe is ours, we still feel as though we are fringe members.<br />
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The guilt I feel is not really guilt. I didn't do anything wrong nor am I offering an apology for anything. I imagine this feeling of doing something that I probably shouldn't be doing - enjoying my wife (I do have an intense regard for time and feel as though, if anything could be drawn from my early exit, it was getting these precious years to call our own), enjoying my big brain (I have novels to finish and a new business to run - more on that later in the Assessment section) and actually getting the house staged for sale - or for future comfort if we decide, for whatever reason, to hang in for several more years.<br />
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I feel guilty for having lived a really good life and for having followed my own (published) advice. I am an optimist and I have always felt guilty being one. To be an optimist according to Tali Sharot, writing in his 2011 book "The Optimism Bias: A Tour of the Irrationally Positive Brain" is to allow ourselves to allow rational reasoning to be taken hostage, "directing our expectations a better outcome without sufficient evidence to support such a conclusion." So how does one view retirement if not as either an optimist or a pessimist?<br />
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The question that always made me most concerned - and plenty of colleagues continue to ask, pulling on an emotion that is both morbid and incalculable - was will you outlive your money? The answer should always be yes. Or as it is quickly redirected, will you have enough money to leave your heirs?<br />
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This is a source of guilt. If I retire, you might ask yourself, will you have done so:<br />
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<ul>
<li>too soon;</li>
<li>too late to enjoy;</li>
<li>at the wrong time market-wise;</li>
<li>or will I continue to work so long as to have my health threatened;</li>
<li>where will I grow old;</li>
<li>can I age in place.</li>
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These are all viable questions. However, they have no answers. You will never know until you are actually faced with the decision and its fortunate/unfortunate consequences. I might have retired too soon but I feel as though I am incredibly marketable (more on that later) and because I have done a good job with my health, I am physically able to do most jobs. This doesn't mean I will get one if I applied or that I will need one to achieve some sort of benefit (health insurance premiums are still moderately low at this point and although a job with benefits would alleviate those costs, the time spent to access this benefit does not seem worth it). It simply means that I can.</div>
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The second question focuses on what you enjoy and how this activity should be engaged. Some people have expensive hobbies and toys and that bears a certain cost. I do not have these expenses. Give a library and I will be happy. <br />
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Allow me to walk around town and I will be content. And let me find things that make my wife happy. The last expense could also be an unknown and you will never know whether you worked too long to fully enjoy your loved one(s). And because I have found the time I am spending with her now the best benefit of being retired, her retirement wishes need to be calculated as well.</div>
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Retirement is often broken down into three spending arrangements. Retirement is not about you, it is about the cost of you. For the first 35 years of our marriage, we traveled and visited many of the places we wanted to visited, often with kids in tow. I came to the marriage a world traveler and she came to it as an ex-stewardess for United. We've been around. But what would happen when we have time - and can afford to take our time when we do travel, unbracketed so to speak? She says she'll go anywhere with me but she doesn't really have the overarching desire to travel. Her domestic approach to this time in her life makes her happy. She laughs. A lot. So this cost does not really exist in our house. Dining out in this foodie-rich area of the world is travel enough - at $100 a trip. We don't eat that much these days so this is a reasonable night out at the best places.</div>
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The market-wise timing should not be a thing. It is however, a thing. It is often touted amongst financial types that the withdrawal rate of your retirement plan should be done with percentages - 4% a year is often used - so as to never run out of money. <br />
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Some experts break down the retirement years as go-go, slow-go and no-go. My wife and I are already in the slow-go stage and ready to take either exit ramp should there be any financial changes. I say slow-go due to the aforementioned lack of need to travel, an expense that is often among the first dollars spent at retirement age, the extended vacation in a bucket list sport somewhere worth bragging about and posting endless pictures of on FB. However, the fact that we skipped that stage should not matter either. </div>
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At age 55, I began removing profits and shifting them into cash. The contribution I made to my 401k was increased with each pay raise so my involvement continued to grow. And this meant I was socking away 15%. (I am still surprised at the lack of involvement most people have in these plans, contributing only what the company might match.) The last time a raked off profits was at the beginning of 2018. This now amounts to 27% of my total savings and it will remain there. (I did get lucky as the market peaked at exactly the time when my rollover was taking place. I waited a couple of disaster market weeks before I put that money back in. This was NOT timing, just a series of events that worked out in my best interest. </div>
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If you regret getting up in the morning to go to a job you more-or-less dislike, your health is being impacted. And even though my health is in good shape, I was not aware of how much that job consumed some valuable brain power and was not being appreciated. That is important and although my body was doing fine, my head was possibly waiting to break. I only know this after-the-fact and how good I actually feel these days.</div>
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My wife was asked when she retired four years ago whether she wanted to retire in place. She said she did. She has since changed her mind. Now the house is too big, too cold. We're in no hurry but we will be moving, and when we do so, it will be in an equally nice but newer home/condo and probably nearby. The house we live in currently does carry a mortgage and although many people feel as though you should own your home at retirement, our situation was different. We purchased this incredibly large home in what was not the most desirable neighborhood at the time for $72k - 3500 square feet at an interest rate of 14% in 1984. Numerous refinances brought the interest rate down to 3.5% and we now carry just the remodel costs of making the house worth a million. Remove those costs and you can see why the house is part of the plan.</div>
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<b>Assessment</b></div>
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As I mentioned earlier, I spent the weekend - no, make that the week prior to my unplanned/planned exit - debating what I would do. The question of "what's next" often plagued my day-to-day activities. I cannot tell how often I sat at my desk contemplating what exactly I did. And even more importantly, how do I market these skills. I'm not sure others do this type of reflection. Seems to me that everyone I worked with within the organization had a clear idea of exactly what they did and how to vocalize those talents. Not me.</div>
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If you were to bump into me on the elevator, perhaps introducing yourself for the first time, I might describe my job as "saving money so someone else could spend it." Hardly an elevator pitch but it did sum up the complicated nature of the three words in my title. I managed expenses - which means straddling the fine line between bad daddy and giving stores what they need. Often, they did not know what they needed and responded to the daily trials they faced trying to run a business (that some leaders in the company suggested that they could not and would not do) and please those chaotic leadership directions. Calling me for help was the beginning of the juggling game - one request meant that another request would have to wait. In the budget I managed, we were the most profitable division - and, without sounding as if I was looking for a kudo or two for the way I did this job - no one said a word.</div>
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I managed sanitation. This involved ensuring that all the vendors responsible for the clean and safe operation of each location did their contractual job, often to the subjective reports filed by earnest store level employees trying to make their voice relevant. This part of the job dealt with everything from janitorial work to landscaping to pest control and literally everything in-between. Searching for objective reporting on the ground about these wide ranging functions was almost impossible. And god forbid a supervisor arrived at the exact same point some manager was having a subjective tantrum (often an overreaction and often an execution of that manager's team), the problem escalated in a very curious way. It went over my head and then back down to me. An easily solved problem became a shit-rolls-down-hill message from VP of Hair-on-Fire. Emails dinging my phone would arrive at nine or ten at night and require an answer within minutes. We were also among the top five cleanest division in the company and when you consider that our volume was three to four times the volume of other divisions, this was also worthy of a "hey, nice work." My wife tells me I have a martyr syndrome - and she is right.</div>
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However, when it came to sustainability, I was king-of-the-trash hill. There had been some semblance of a zero waste initiative in place prior to me taking the helm. It was almost simultaneous; the company introduced a cost reduction plan the would address fourteen lines of the thousands I was responsible for as a way to garner vast reserves of cash. They were right. I saw nothing but long hanging fruit when it came to the trash removal line. However, what I did not anticipate was the informational void I was about to enter, a place where anyone with a merchandising background, and this is the experience most everyone in this business has risen from, knew little about what happened to the waste they produced in pursuit of sales.</div>
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Each time I tried to update a supervisor, the blank look I received was noteworthy insomuch as it became a farcical report. Why was explaining the nuances of trash removal in terms of diversion, compactor upkeep and leak remediation - not to mention the pest issues that could and sometimes did enter the picture. I was not encouraged or discouraged. I was simply left increasingly to my own devices, reporting numbers on a periodic basis and experiencing disbelief as these costs dropped. I tried to coach my comments for those less versed in what would become my personally authored Zero Waste 2.0, a living document that was updated each month with new procedures and protocols, each vetted at store level for feasibility and executed with two green focuses in sight: Green for the profit via savings I was achieving and green for the environmental impact we were removing from the landfill. </div>
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It was complicated. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJSkPj_y4fBsuGzHLvh4R1V_i4HYDNc7YwVMXl5-6fb-EHaED_ViWBcMsp6hB-3WR0GZ2ZlUpndZmr3qSBO_1MQbNRIzGcWr8LGPfqdadIIKlb4iZ4IG-8FkOtfcR1tKtexjCkndyzh8ut/s1600/Screen+Shot+2019-01-18+at+8.06.51+AM.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="169" data-original-width="262" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJSkPj_y4fBsuGzHLvh4R1V_i4HYDNc7YwVMXl5-6fb-EHaED_ViWBcMsp6hB-3WR0GZ2ZlUpndZmr3qSBO_1MQbNRIzGcWr8LGPfqdadIIKlb4iZ4IG-8FkOtfcR1tKtexjCkndyzh8ut/s1600/Screen+Shot+2019-01-18+at+8.06.51+AM.png" /></a></div>
Waste removal companies were not happy as their revenue dropped, at one point as much as $160k in one 30 day stretch. Businesses who had never seen an opportunity with the company were now vendors: styrofoam recovery involved two trucking companies and a recycler, hangar recycling meant finding resellers for discarded mixed materials that, before China decided that the U.S. was not sending recyclable material in the condition we agreed upon and stopped taking our "trash" and was conveniently deposited into a commingle compactor, waxed cardboard, plastic bags and film, and whole host of other materials. However, organic recovery was the lowest of hanging fruit.</div>
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If 60% of what my industry discarded by weight was not finding a different path, I was given no help in trying to fix that issue. I'm not sure anyone knew it was an issue. We had some compost compactors, expensive and prone to leaks. But not for 132 locations. I had exactly 12 stores doing something akin to removing the waste from the trash. My goal was 100. Why not all? Because despite living in a part of the country I sometimes referred to as the granola belt, organic recovery was not available.</div>
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I'm not going to share the successes that might be viewed as a release of information that should be kept confidential. What I did, almost unwittingly, was push FM to the forefront of the sustainability quest in almost every region we operated. We were becoming green heroes, the business that could be emulated, placed on a pedestal. Except, as I mentioned earlier, no one knew or understood or cared what I was doing. Saving money, saving the planet, promoting the greatness of the company did not matter to the people (VP of Hair-on-Fire) that mattered. And even though the hostility was palpable, I moved forward. Even as I was beginning to feel as though my age and even my gender might be an issue, I still advanced the projects, worked with the community and internal business partners in both PR and marketing to do more as leaders and allowed myself to become the corporate pioneer in this category.</div>
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There is an old saying: Once you do not matter to the people that matter, you no longer matter. And I had to walk away from the job of a lifetime. Or perhaps this analogy is better: I was discarded.</div>
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<b>Conditions</b></div>
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Last night I met with two people who have made a significant impact in the world of sustainability. One helped me with the styrofoam project, the other was referred. And this is how it began. Recall how I regularly discussed with myself what and how to market this wildly diverse set of skills. Seems as if the ability I possessed in significant quantity, despite what appears to be an inclination to be a protean, was the most marketable. <a href="http://zerowaste-consultants.com/">Zero Waste Consultants LLC</a> was literally opened the day I left. The site was bought and built before noon of the same day I dropped off the last vestiges of a career that was driven by a consistent fear that each misstep was a step closer to the door. I suppose this is the case with most businesses but this one, where being replaced was always an option, as if every meeting was shadowed by someone' resume looming over your shoulder, someone not so much better qualified as a person who had not pissed anyone that matters yet. Building a site such as this in hours might seem daunting however, business on the web was nothing new to me. (I have an online resume here at <a href="http://paulpetillo.com/">paulpetillo.com</a>).</div>
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And because I inherently dislike Facebook and prefer the LinkedIn environment, I began taking my thoughts on a wider, more diverse journey designed to attract clients. Due to the fact the vast majority of my online experience was delivery relevant, SEO friendly content. I did it for myself over numerous websites I owned over the last 20 years. I did it for other businesses as diverse as paddle boards and real estate. I did it for other sites that had an interest in the financial thinking I was espousing. In these posts, I took on the previous roadblocks I had encountered and began to formulate my ideas to improve the overall world of recycling.</div>
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What was amazing was how many people from my former employer's office were paying attention. I get it. <br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhADZP3Wdf_CVeBqJK1UPvmFzhLYkKZzblgNHi-YznaY2AnCE7IlYTKKSb65dW9M95vy0EKscruA0Q7p_sqt1t1wAJx78C4CBi-PTmKVeETHvArdTQvnEc-YAFSYRdMmI-mlyu8Lr912xgy/s1600/Screen+Shot+2019-01-19+at+7.35.20+AM.png" imageanchor="1" style="clear: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" data-original-height="224" data-original-width="342" height="209" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhADZP3Wdf_CVeBqJK1UPvmFzhLYkKZzblgNHi-YznaY2AnCE7IlYTKKSb65dW9M95vy0EKscruA0Q7p_sqt1t1wAJx78C4CBi-PTmKVeETHvArdTQvnEc-YAFSYRdMmI-mlyu8Lr912xgy/s320/Screen+Shot+2019-01-19+at+7.35.20+AM.png" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>A screenshot of some of the analytics provided by LinkedIn on <br />who viewed what I posted.</b></td></tr>
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I did some amazing things in my previous position - so much so that when I did strike out on my own in the same field, people reached out. In fact, the concept of bridging the gap between the people who control the purse strings and the people tasked with a company's sustainability in the form of consultation was proving viable.</div>
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This has not completely settled and there is still quite a lot of determining how to proceed. My services are needed in the organic recovery effort that some businesses feel as though they are participating in even if they are still failing to remove as much as 40% of the recoverable wasted food (I do prefer the term wasted food over the popular terminology of food waste - because this product is not the end of the line by any means) that is still headed to the landfill. Also, these businesses are tempting fate and lawsuits by sending unexamined food stuffs to animal farms. There is a liability there and the food industry has not embraced this issue - and consumers have not either.<br />
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My experience is also needed in the plastics industry. This particular area has an image problem, a logistics issue and a lack of governmental support to achieve a circular economic model. I wrote in a recent post that the price of oil - drill baby drill, or frack baby frack - will be a headwind for this industry and our landfills and our oceans and worse, for future generations. But I have an idea how to fix that as well.<br />
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And then there is the novels. I have self-published two of the three books in a trilogy that explores a person's moral dark side. The third is awaiting editing and will be ready to publish in the next month of so. Now that I have a few free hours to devote to selling the idea - and the fourth novel that kills the protagonist in a made for Netflix conclusion to that journey is waiting in concept and is two hundred pages in draft.<br />
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Will I go back to work? Possibly. I know what I want to do know moving forward and it will not involve being a martyr for another VP of Hair-on-Fire. There are people who want to change the world and there are people that want to enrich themselves. I want to find people to work with that want to do both.<br />
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However, if I was to draw a conclusion from the long essay - one that could be the germ of a follow-up to <a href="https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=Paul+Petillo+books">my first books</a>. Who knows? I have followed my own advice and I have the whole world in front of me and it is mine to do what I want. And I did it without ever earning six figures in any given year - ever.<br />
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I will say though, that having my wife with me, someone who laughs and cries freely, my emotional muse who feels things that I do not, jumps at scary movies that do not seem to phase me, acts independently of what others think but somehow at the same time, cares what others think. She is as real people as a person could hope for, fully formed and fragile and strong. I have dedicated every book I have written, every breath I have taken and the reason I rise in the morning.<br />
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So that is what retirement is really like. At least what mine is.<br />
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<br />@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com6tag:blogger.com,1999:blog-2361862955688535417.post-80978147170967122712013-04-22T04:56:00.000-07:002013-04-26T04:56:44.538-07:00The Argument for Dividends<span style="background-color: white;">Suggest dividends to someone and watch their reaction. Depending on their age, they may seem put off by the concept (if they are young) and willing to embrace the notion (if they are near to retirement). For one group, dividends imply old age; for the other, dividends suggest steady income. Are either one of these two groups of investors correct in their assumption?</span><div style="background-color: white;">
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Both are wrong to some degree. Dividends are the result of company profits. To appease shareholders that wonder what a business plans on doing with the profits they have made, the company awards a share of those profits to its shareholders. This is called yield.</div>
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The word yield, often associated with bond investing can confuse both the younger group and the older. The youngest believe that yield might be fine and a nice return on their investment. But they also look to the stock to move as well. Older investors believe that yield means safety when in fact, the strength of the yield is still calculated against the performance of the stock.</div>
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Companies who pay dividends are under no obligation to do so. But these businesses may have reached a point in their life cycle where they can no longer grow. Their market share may be all that they need to achieve those profits. So the stock price may languish in one spot for long periods of time, giving the investor the feeling that the risk is no longer present. It still is but the dividend can mask that health. Too high a payout (in relation to the stock price) can suggest increased risk that the dividend may need to be reduced or eliminated. Too low a dividend may suggest that the stock price is moving too much.</div>
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In a down market, dividend paying stocks can outperform the overall market (in part because of the dividend yield). In a market on an upward path, the dividend paying stocks and the mutual funds that invest in them, will lag behind, even lose more money that the index that is benchmarked to them.</div>
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Older investors might confuse them for bond funds. They are not. They appear to be fixed because of the trading range of the security, but bonds are different in several ways. The yield on a bond is fixed. </div>
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The yield on a dividend paying stock is not. Bond investors are always first in line should the company default. Dividend investors, like equity shareholders in non-dividend paying stocks, get nothing in that situation.</div>
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The question is: should you buy a dividend focused mutual fund? Yes. But you do need to be cautious and understand that what you hold in your other investments and mutual funds may cross over and that we all know is the first cardinal sin of investing: all your eggs in one basket. These types of funds can cost more in some cases than the <a href="http://mutualfunds.answers.com">index funds</a> you may own that pay dividends as well (S&P 500 returns are driven by dividend paying companies).</div>
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There is also the chance that your dividend paying mutual fund has gone overseas looking for yield. In 2012, this is a risky bet as the European crisis continues to unfold.</div>
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And because of that risk overseas (and any market downturn), the risk in these investments, the risk the dividends will need to be cut, is still there. The key is time. No equity investment performs as good in the short-term as it does in the long-term. Funds that invest in dividend paying stocks tend to have steadier performance results over a five or ten year period.</div>
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<span style="background-color: white;">Looking for dividends should have no age barrier. Young people with time on their side, could actually benefit more than if they simply sought securities that grow without dividends. Older investors could see some better yields than a simple bond investment. There is and always will be risk. But dividends pay you, often handsomely to take it.</span><br />
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(this article was reprinted by permission from bluecollardollar.com)@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-58275324539173226372013-03-08T13:34:00.000-08:002013-05-30T13:34:41.702-07:00The importance of a mutual fund portfolioThere are three things to consider when building a mutual fund portfolio. First, the most respected investors in history believe in what a mutual fund portfolio provides the small investor. Second, the most respected investors in history may never advocate for a mutual fund only portfolio. And lastly...
You can read the full article <a href="http://mutualfunds.answers.com/types-of-funds/mutual-funds-the-importance-of-a-mutual-fund-portfolio">here</a>.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-39203910748809100612013-03-07T13:30:00.000-08:002013-05-30T13:31:19.877-07:00Mutual Funds: investing in fixed incomeMutual funds are numbered in the tens of thousands investing in every conceivable investment opportunity. They range from equity (stocks) to fixed income (bonds) to money markets, commodities and beyond. And they break down even further to investments focused on domestic offerings to international, emerging markets to total global coverage.
You can read the full article <a href="http://mutualfunds.answers.com/types-of-funds/mutual-funds-investing-in-fixed-income">here</a>.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-2310221791989541942013-03-06T13:27:00.000-08:002013-05-30T13:27:55.547-07:00What is an Index Fund?Before they downturn in 2008, now commonly referred to as the Great Recession, indexed mutual funds were used mostly by the conservative investor and the investor new to the experience. These two groups found the experience of investing with other mutual funds disconcerting.
Read the full article <a href="http://mutualfunds.answers.com/types-of-funds/what-is-an-index-fund">here</a>.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-7970803017193624752013-03-04T13:23:00.000-08:002013-05-30T13:24:42.427-07:00Index funds: The mutual fund for most investors.Recently, Etrade began advertising their mutual fund selection. They boasted an inventory of 8,000 mutual funds. Choosing among those available mutual funds can be a daunting task for even an experienced investor. You will need to know not only who you are but what you hope to achieve.
You can read the full article <a href="http://mutualfunds.answers.com/types-of-funds/top-five-things-to-look-for-in-a-mutual-fund">here.</a>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-80356920496113071022013-03-03T13:18:00.000-08:002013-05-30T13:21:04.842-07:00Mutual Fund Investing: Buying a mutual fund for the first timeFor millions of investors, finding the right mutual fund is as easy as tapping your company's retirement plan. For millions of other potential investors, the mutual fund can provide a unique investment opportunity to build your own retirement plan.
You can read the full article <a href="http://mutualfunds.answers.com/types-of-funds/mutual-fund-investing-buying-a-mutual-fund-for-the-first-time">here</a>.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-49759054299326646552013-02-28T13:13:00.000-08:002013-05-30T13:16:55.836-07:00What is a mutual fund?For decades, mutual funds have been a part of the investing landscape. They are easy to use, are available in a wide range of investment options, and are generally accessible to everyone. Mutual funds offer a safety in numbers approach that benefits the investor in numerous ways by spreading risk, offering diversity, and for better or worse, a mutual fund manager to guide the process.
Read the full article <a href="http://mutualfunds.answers.com/types-of-funds/what-is-a-mutual-fund">here</a>.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-23802016785855301692012-08-27T05:06:00.000-07:002015-09-03T04:41:27.110-07:00Reduce debts or save for retirement – Which one to go for?You should be concentrating on paying off your debts. It is important that you pay off your debts as soon as possible to get your financial condition back on track. Well, things are always not that easy. There are issues that crop up as you age. This article is going to focus on the necessity of saving for retirement and how your idea to payoff debt first could be a good one.<br />
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Factors that will help your judgment<br />
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Should you focus on getting rid of debts or start investing money in some retirement plan? This may seem to be a recipe for confusion when it actually isn’t. All that you need to do is consider a few points that will help you decide on something that would actually work for you. You must not forget that requirements vary with individuals and there is absolutely no need to panic if a particular option doesn’t fit your profile. Mentioned below are a few questions that will help you make better judgments. Try to consider them to make sure you end up on the winning side.<br />
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Debt amount – Try to draw an estimate of your total debt amounts. It is important to consider the interest rates on your outstanding debts as well. This is the primary requirement when you’re planning to sort out the retirement plan that suits your profile.<br />
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Age – This is the most important part. There is no need to worry as a lot of people would like you to. Age should be considered not just while you’re choosing a retirement plan, but when you’re making debt payments as well.<br />
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Roth IRA – Go ahead and open a Roth IRA if you don’t have a 403b plan, business 401k plan or a SEP retirement plan. You won’t need anything to be eligible for the Roth IRA plan. Most people usually have the eligibility for this plan. You’re going to get a lot of benefits as soon as you start with one. Make sure you do this only when your debt amounts are low enough.<br />
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Employment – You need to have a stable source of income to be able to give these plans the right shape. It is important that you don’t plan to quit your present job in the near future and even if you do, make sure you’re earning 20% vesting annually. Don’t pay attention to what people have to say. Focus on the reality and move ahead with the right choices.<br />
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Daily expenses – There is absolutely no need to go for a retirement plan if that requires you to have a tough time living your life. Food and groceries are way more important than anything else. If your present is not good enough, chances are that your future is also not going to hold bright prospects for you. Focus on your priorities and things will sort themselves out if they have to.<br />
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It is always important that you consider your finances before investing in a retirement plan. Always remember to pay off all of your debts before you go for any investment in the future.<br />
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@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com1tag:blogger.com,1999:blog-2361862955688535417.post-23758454327778704232012-04-04T07:18:00.001-07:002012-05-17T07:29:49.652-07:00The Plight of the Rational (Investor)<div style="text-align: left;">For those of you who may not know what rational choice theory is, the behavior of picking what is right for you when it comes to your retirement plan creates what many are seeing as the greatest hurdle. The leap between what is right and what is most cost-effective, is the result of how we compare one move to another. This thinking which gave rise to behavioral studies that made Daniel Kahneman famous has proven to be less reliable than economists previously thought.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">Consider the annuity. There is no doubt in anyone's mind that the concept of a steady stream of reliable income in retirement is what we all want and stive for. Knowing what we can expect gives us the much needed push to place a single monthly amount as the focal point in our plans for a post-work life. From a rational point of view, knowing what we can live on should drive us to pick this sort of product over any other method. But this is where rational choice theory fails.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">If you knew you could determine the amount of income a certain investment could provide the logical (rational) choice would be to gravitate towards that choice. But those that do buy annuities are not governed by that thinking. And those who don't choose annuities for even a portion of their retirement investments seem to be ignoring what would be considered the most rational choice.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">Perhaps we should first look back on the way we used to think. There was a time when pensions dominated the landscape. This sort of plan, referred to as the defined benefit plan had its drawbacks: it wasn't portable (you couldn't take it with you if you decided to change jobs) and it was at its most beneficial in the last years of employment (essentially a trade-off for years of sweat equity which became capital equity at retirement). The introduction of plans such as the 401(k) or defined contribution plan changed that thinking giving workers greater mobility (you could take your contributions and any matching employer contributions with you when left provided you worked for a certain amount of time called the vesting period) and of course the much advertised ability to self-direct your investments according to who you are.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">These pre-401(k) days also saw a focus amongst workers of paying down mortgage debt in order to gain home equity. While this is still a good idea, it has fallen out of favor over the last three-to-four years for what could be called obvious reasons. Economic troubles aside, we view the pension as prohibitive and full ownership of our homes as all but unattainable.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">Three decades later, after numerous bull markets and more bear markets than we feel should have occurred, we are back to thinking that this pre-retirement knowledge of how much we will actually have at when we stop working is not such a bad idea. And while paying down your mortgage hasn't gained the same attention, our thinking about retirement income is gradually shifting.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">This shift is based on knowing how much you will actually receive rather than continually trying to calculate how much you can withdraw. But does the annuity provide the best offset between worrying about drawing down your retirement savings too fast and potentially outliving your "nest egg" or learning to live within the confines of a set amount paid to you year-over-year. Some of the decision is based on the ability to adjust spending while you are working, usually with the adoption of a "spend what you make" thinking which upon retirement become a "spend what you can [afford]". Neither work well.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">While we are working, our spending increases to meet our income. That option disappears once you are retired replaced by spending that adjusts to you ability to optimize your portfolio to meet the needs you might have. You have no way of knowing what those needs are when you are working and only a slightly better idea what they are once you retire.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">According to a recent paper titled "Annuitization Puzzles" Schlomo Bernartzi, Alessandro Previtero and Richard H. Thaler, the the conceptually difficult question of how much is available to spend is answered with the annuitization of retirement savings. In other words, annuities take the calculations out of the mix. Studies have revealed a certain type of withdraw (or drawdown mentality) that many attribute to two basic ideas: fear of health costs and the wish to bequest. These 401(k) retirees focus not so much on how much they will need to spend but how much they will have left to spend should something happen medically and if that doesn't occur, how much they will leave to their estate once they are gone.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">The paper makes it clear that conservative withdrawal rates at retirement are usually attributed to wealthier retirees and quicker drawdown rates that are mostly done by poorer retirees are not the problem: it is the calculation of how much is enough. The bequest motive, the authors point out is confusing considering most of those who focus on leaving money behind live on less to leave more for children who quite possibly don't need it and in more instances than not, are more affluent than their parents. Poorer retirees entertain the bequest motive as well but usually find that they need the money in greater quantities sooner than they anticipated.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">Can annuities fix this "hard" calculation? Possibly but there are some psychological hurdles. One is the focus on retirement at 65. The less educated you are, the more you focus on this age even if you know that by waiting you will gain even more spendable income in retirement. But also ironically, the better educated retiree is more focused on leaving something to their heirs and in doing so, underspend.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">While the choice of annuitizing is difficult, in part because our biases are so strong, the benefits of knowing should come to the forefront. Researchers suggest that if annuities were part of your retirement options in a 401(k), we would use them. Research has also pointed to the pivot point, when we retire and how the markets are doing at that point, as playing a role in the decision. If markets are robust, we don't buy annuities. When we feel less confident in the markets, we tend to purchase annuities.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">Annuities do have cost hurdles with a great many people suggesting the fees and expenses as a reason to look the other way. Perhaps the best way to beat these biases is to plan with an annuity long before you make the decision to retire and having the choice inside your retirement plan at an early age could make your future plan more clear. It is no easy choice and it certainly shouldn't be your only choice, but for a portion of your retirement savings it could be the single easiest idea to take the worry out of retirement. Knowing also by default, focuses your savings as well.</div><br />
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<a href="http://www.choicepersonalloans.com/">Learn more</a>. You can even <a href="http://www.choicepersonalloans.com/nocredit/">get approved</a> for no credit loans.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com1tag:blogger.com,1999:blog-2361862955688535417.post-85606947884464812732012-04-02T07:13:00.000-07:002012-04-04T07:14:58.342-07:00Is it Time to Rebalance Your Portfolio?<p style="text-align: left;">We are all familiar with the most popular stories from “The Tales of a Thousand and One Nights”. But what you may not know is that this expansive collection of stories has no named author or authors, no dates or places of composition and no single national tradition. In Marina Warner’s new book “Stranger Magic” she offers this guideline to the stories: “I think,” she writes, “that the reader should enrich what he is reading. He should misunderstand the text; he should change it into something else.” She believes that the reality of magic resides at two poles: one the poetic truth and the other bound in inquiry and speculation.</p><p style="text-align: left;">We as investors are guilty of wishing for, even trying to conjure magic for our investments and the portfolios in which they are nested. We attempt to make the leap from the known to the unknown, to embrace the magical thinking of a thousand different storytellers. And like this tale, there is always another story left incomplete at dawn.</p><p style="text-align: left;">So I thought today on the Financial Impact Factor Radio with Paul Petillo, Dave Kittredge and Neil Plein we’d discuss the magical thinking around the portfolio rebalance. We have watched with great amazement, our investments rebound and take on new life in 2012. Markets are up and this is one of those rare feel-good moments. Unfortunately, feeling good isn’t something you relax with when it comes to how you are invested. In fact, the maintenance these portfolios require is often counterintuitive. If your car, for instance is running and performing as it should, we are not inclined to look under the hood for potential problems. Rebalancing a portfolio however requires you to do just that: look for a problem where you might not have thought one exists. As I mentioned earlier, there are a thousand and one ways to do this. So let’s start there.</p><p style="text-align: left;">A quick glance at your statement might reveal a strong move to the upside. Why should we do anything?</p><p style="text-align: left;">How do we know when to do this and I have asked numerous guests who come on the show how do we pick our risk level, which is essential in the rebalancing?</p><p style="text-align: left;">How do we get beyond the concept of funding our losing positions and selling off our winning ones in an effort to adjust our portfolios?</p><p style="text-align: left;"><object id="162844" width="210" height="105" classid="clsid:d27cdb6e-ae6d-11cf-96b8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=6,0,40,0"><param name="quality" value="high" /><param name="wmode" value="transparent" /><param name="menu" value="false" /><param name="allowScriptAccess" value="always" /><param name="src" value="http://www.blogtalkradio.com/btrplayer.swf" /><param name="flashvars" value="file=http%3A%2F%2Fwww.blogtalkradio.com%2Ffinancialimpactfactor%2F2012%2F03%2F26%2Ffinancial-impact-factor-radio-with-paul-petillo%2fplaylist.xml&autostart=false&shuffle=false&callback=http://www.blogtalkradio.com/FlashPlayerCallback.aspx&width=210&height=105&volume=80&corner=rounded" /><param name="pluginspage" value="http://www.macromedia.com/go/getflashplayer" /><param name="allowscriptaccess" value="always" /><embed id="162844" width="210" height="105" type="application/x-shockwave-flash" src="http://www.blogtalkradio.com/btrplayer.swf" quality="high" wmode="transparent" menu="false" allowScriptAccess="always" flashvars="file=http%3A%2F%2Fwww.blogtalkradio.com%2Ffinancialimpactfactor%2F2012%2F03%2F26%2Ffinancial-impact-factor-radio-with-paul-petillo%2fplaylist.xml&autostart=false&shuffle=false&callback=http://www.blogtalkradio.com/FlashPlayerCallback.aspx&width=210&height=105&volume=80&corner=rounded" pluginspage="http://www.macromedia.com/go/getflashplayer" allowscriptaccess="always" /></object></p><br />
<div style="font-size: 10px; text-align: center; width: 220px;"><p style="text-align: left;">Listen to Financial Impact Factor Radio with your hosts:<br />
<strong>Paul Petillo </strong>of <a href="http://target2025.com">Target2025.com</a> and <a href="http://bluecollardollar.com">BlueCollarDollar.com</a>,<br />
<strong>Dave Kittredge </strong>of <a href="http://financialfootprint.com" target="http://financialfootprint.com">FinancialFootprint.com </a> and <strong>Neil Plein </strong>of <a href="http://investnretire.com" target="http://investneretire.com"> InvestnRetire.com</a></p><br />
</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-83122177823714347932012-03-10T05:48:00.001-08:002012-03-15T05:50:57.879-07:00Insuring Your Home: A Focus on Mortgage Insurance for Boomers<p style="text-align: left;">On a recent episode of Financial Impact Factor Radio, we discussed the topic of insurance. If you have never tuned into this show, I think you will find it interesting and topical. We have a wide range of guests and often discuss the very questions that concern Baby Boomers, their children and their parents. Because being a Boomer is more than just being a certain age. All of our shows on <a href="http://fifradio.com">Financial Impact Factor Radio can be found here.</a><br />
<p style="text-align: left;">As a Boomer, I am always intrigued by the offers that begin showing up in my inbox/mailbox. Although they don't on the surface seem to be age related, one can't help but read between the lines. Are they talking to me? Are they worried about whether I will make it to the end? That "end" involves satisfying the largest debt any of us will ever own: our mortgage.</p><p style="text-align: left;">Last week I received a letter in the mail from the bank that holds my mortgage that would make most mortgage holders think twice. It was the offer of life insurance. My bank might think there are good reasons for offering this product that is different that many of the other types of insurance offered with these types of loans. For instance, PMI is private mortgage insurance the bank makes you buy if you are putting less than 20% down on a mortgage. The sole beneficiary in this instance is the lender, who knows that if you are going to default, this riskier loan covers their interest in the transaction. Known as PMI, its cost has begun to weigh on borrowers who find their loans underwater. Once you pass 78% mark because the value of your house compared to the amount of your initial downpayment, you can cancel the policy.<br />
<p style="text-align: left;">There is also mortgage insurance which for some borrowers seems like a good option as well. Essentially the lure of this product is to pay-off the mortgage in the event of your death. The insurer doesn’t pay you directly instead writing a check directly to the mortgage company or lender.</p><p style="text-align: left;">The letter I received offered a term policy that would last until I turned 80 years old, which is about 26 years from now. Like all insurance policies it plays on your fears and comes at a time when the typical term policy is about to expire if you bought insurance in your thirties, which is typically the time when most folks consider coverage. But it isn’t cheap. In fact, this sort of policy has a seven year flat rate, just a few medical questions without an exam and of course the tug-on-your-heart-strings assurance that your loved ones will be taken care of.</p><p style="text-align: left;">So today I thought we’d talk about late in life insurance coverage and whether we should consider it.</p><object id="162844" width="210" height="105" classid="clsid:d27cdb6e-ae6d-11cf-96b8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=6,0,40,0"><param name="quality" value="high" /><param name="wmode" value="transparent" /><param name="menu" value="false" /><param name="allowScriptAccess" value="always" /><param name="src" value="http://www.blogtalkradio.com/btrplayer.swf" /><param name="flashvars" value="file=http%3A%2F%2Fwww.blogtalkradio.com%2Ffinancialimpactfactor%2F2012%2F03%2F05%2Ffinancial-impact-factor-radio-with-paul-petillo%2fplaylist.xml&autostart=false&shuffle=false&callback=http://www.blogtalkradio.com/FlashPlayerCallback.aspx&width=210&height=105&volume=80&corner=rounded" /><param name="pluginspage" value="http://www.macromedia.com/go/getflashplayer" /><param name="allowscriptaccess" value="always" /><embed id="162844" width="210" height="105" type="application/x-shockwave-flash" src="http://www.blogtalkradio.com/btrplayer.swf" quality="high" wmode="transparent" menu="false" allowScriptAccess="always" flashvars="file=http%3A%2F%2Fwww.blogtalkradio.com%2Ffinancialimpactfactor%2F2012%2F03%2F05%2Ffinancial-impact-factor-radio-with-paul-petillo%2fplaylist.xml&autostart=false&shuffle=false&callback=http://www.blogtalkradio.com/FlashPlayerCallback.aspx&width=210&height=105&volume=80&corner=rounded" pluginspage="http://www.macromedia.com/go/getflashplayer" allowscriptaccess="always" /></object><br />
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Listen to Financial Impact Factor Radio with your hosts:<br />
Paul Petillo of <a href="http://target2025.com">Target2025.com</a><strong>/</strong><a href="http://bluecollardollar.com">BlueCollarDollar.com</a> and <a href="http://financialfootprint.com" target="http://financialfootprint.com">Dave Kittredge and Dave Ng</a> of <a href="http://financialfootprint.com" target="http://financialfootprint.com"> FinancialFootprint.com</a><br />
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</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com1tag:blogger.com,1999:blog-2361862955688535417.post-55607216537794061512012-02-26T06:48:00.000-08:002012-02-26T06:48:44.802-08:00A Boomer POV: RetirementThis is the point where two facts collide. You hear a lot of white noise about the so-called delayed retirement, the I'll-have-to-work-longer-because-my-plan-was-undone tales. Those headlines create anxiousness amongst even those who are prepared to retire as planned. This group second-guesses the plan they have in place even if it is viable. And then you also hear the unbelievable number of retiring Boomers that do take the leap, a number that doesn't seem real: 10,000 Boomers are reaching retirement age each day.<br />
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Who are these people? The unprepared and the prepared hurtling headlong into older adulthood. They both had expectations of retiring based on what can only be considered now as unrealistic math. They set goals and they weren't met as planned. A few got it right. Remember, there's no shame in that miscalculation. Folks have been doing it for decades. But <em>your</em> plan is all you really care about and if it hasn't met your expectations, which in many instances were a bit lofty, you resign to work longer. This is where the facts collide.<br />
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You know all too well that simply working longer will add to the amount of retirement income you will have but only if you significantly increase your contributions. Few resign themselves to do both.<br />
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But the other half of the equation, the Boomers who do retire, are often caught in the same anxiety ridden place. They question whether they made the right choice and more importantly, whether the money they have amassed will serve their purpose, remains hanging over every plan as an unknown.<br />
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That purpose is often clouded with not only the unpredictable cost of longevity but whether they might have enough to take care of their heirs - a serious consideration among a wide swath of retired adults and those about to retire. This last consideration is entertained by women more so than men, statistics have uncovered, which is often surprising. Why? This same group of women approaching retirement has often saved less, another unfortunate statistic concerning women and retirement.<br />
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Those that do retire should consider where they retire. And while there are many suggestions as to what to do and how to go about it, but a quick survey of your current surroundings will offer a great many answers to your dilemma.<br />
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For instance, seniors or those about to become seniors often fail to inventory the services they may need. Once retired, your daily life will require things you had previously not considered. More than just the availability of medical services, more than the infrastructure of city services such as public transportation and well-lit and well-patrolled neighborhoods, your current location needs to stimulate you or at least have accessible stimulation to keep you mentally sharp and involved. This is not how many American cities were designed. Far too many cities and their suburbs require a car. And while this may be seen by many older Americans as a freedom, not being able to drive can imprison some seniors if they find where they live too far away from these activities. Only vast sums of retirement income can change that one item and few seniors, who essentially are on a fixed income, want to reach for their wallet or purse to pay to go shopping.<br />
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To pre-Boomers or those who are still working, where you live is not often what you can afford. If you live in the city, chances are you rent. If you live in the suburbs, chances are you have a mortgage. If you have a mortgage, chances are you can't afford it. That's a lot of "ifs" but they are an approaching nightmare for those about to retire.<br />
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While many of believe that the cities we live in should adjust to us and our current and future retirement needs, it probably won't happen soon. So retirees look to communities that cater to their needs. This ghetto-izing of seniors, much like Florida and Arizona is not only unappealing to many Boomers, it is not as healthy as it first appears. Sure, these senior-only communities do provide like-minded companionship, concentrated services and accommodations that cater to gradual aging, but they are often culturally void of the stimulation that all walks of life can provide. Being isolated is not the answer.<br />
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So what is? Cities are struggling with their finances and as a result are cutting back on services that once were taken for granted. We might be living longer but in far too many instances, your health may compromise that statistic or impact the quality of that longer life. And the cost of where you live - assuming your mortgage is paid off before you retire - is not getting cheaper. Add inflation into the mix and you have eliminated all but the most obvious choice: you have fewer options.<br />
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Of course, you can stay put in a house that might be too big and too costly to maintain. This will gradually eat away at your fixed income and reduce your opportunities to engage with the outside world. Now one plans on spending their day at McDonalds sipping bad coffee with fellow seniors, no matter how well-lit, no matter how inexpensive the house brew and no matter if the loitering rules don't apply. But take away any portion of that spendable income and you limit the choices.<br />
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Where is the right place? While there is no firm answer, you do have options. For instance, if family is important to you, be sure your family shares this thinking as well. The dynamic of marriage - and I am speaking of your children's marriage - can create some confusion. Deciding that you can rely on your children and their spouses for the help you might need is something you need to discuss well in advance of retiring.<br />
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At some point, one of your kids or their spouses may find you in their care. Perhaps not in the day-to-day sense or even the long-term care situation, but in the need to check-in, help with errands or assume a financial role. This needs to be discussed in advance, a discussion that should be instigated by you. This is no easy discussion.<br />
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You do need to tell your children what you expect from <a href="http://bluecollardollar.com/retirementplanningbooks/retirementplanning.html" target="_blank">retirement</a>, even if you are unsure. Answer the hard questions (can you afford to stay in your house for instance) and when the time comes, unfold your finances for them to see. Let them know where you stand and what your plan is.<br />
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Boomers will be sold a retirement that is unlike any other before them. If you live longer as the statistics suggest you will, what do you expect of your surroundings? What role does your community play in the decision? What role will your kids have? <a href="http://target2025.com/retirement-planning-you-are-confusing-the-experts/" target="_blank">Retirement</a> is much more than simply amassing cash. It is amassing support. And believe it or not, that is old school thinking, a throwback to the time when retired family members depended on their kids for everything. But those kids, who may not be thinking along the same lines as you need to be involved now, rather than later.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-65649915560947372792012-02-13T05:07:00.000-08:002012-02-17T05:09:46.837-08:00Leverage and Retirement<div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Over the years I have written about the topic of <a data-mce-href="http://bluecollardollar.com/retirementplanningbooks/retirementplanning.html" href="http://bluecollardollar.com/retirementplanningbooks/retirementplanning.html" style="color: #743399; line-height: 1.5;" target="_blank" title="retirement planning">retirement planning</a>, I have witnessed some incredibly crazy thinking. Many of those thoughts have come home to roost often too late for the investor to do anything to fix the situation. We plan, we tell ourselves, to retire at a certain age with a certain amount of money based on a certain withdrawal rate. But those plans are often dashed by unforeseen events that, in hindsight we should have anticipated.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Recent reports have pointed towards an increase in employee contributions to their 401(k) plans. These upticks, however slight lead many to conclude that we are starting to get the message. But which message are we holding on to? Is it the need to simply save more because we know the chances are we will need more or is it the result of some other encouraging news? I'm inclined to go with the second choice.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Retirement planning is a whole package endeavor. In other words, simply putting money away for retirement is not enough. Numerous other pieces of the puzzle come into play and this is what is often ignored. The effort is noteworthy only if you have developed a budget that is actually less generous, forcing you to face the reality of an income in retirement that is not the same as the one the you had while working.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">This income reduced budgeting is practiced by too few close-to-retirement planners. At no time in the history of retirement planning - and I'm going way back to the generous days of the defined benefit plan or pension - was the payout at retirement designed to replace 100% of what you live on now. The number was actually closer to 70% replacement and that was only if you had worked within the confines of that pension for thirty years or more (and it was not impacted by changes from the company). The remainder was to be supplemented by Social Security.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">But with advent of the defined contribution plan (401(k), 403(b)), with the responsibility for funding your retirement placed squarely on your shoulders, we were forced to face the possibility that 70% of our current income would not be replaced. In order to get those kinds of post-work rewards, we would have had to invest 12-15% of our pre-tax income, every year without fail, in good markets and bad. For too many people with this plan, that sort of budget-busting restriction was simply too much to embrace.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">We are to be forgiven for our human-ness however. We make mistakes and follow the herd - when they sell, we sell and when they pile in, we follow. In both instances we turn our backs on the whole concept of retirement planning: steady and ever-increasing contributions without consideration for what the overall market is doing.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Our employers didn't help much either. They gave us matching contributions, took them away or reduced them, and when they re-introduced them, they were far smaller. And we misinterpreted this as a sign that they knew something we didn't and mimicked their actions: we reduced our contributions when the matches were lowered and increased them when they were raised. As I said, we can be forgiven this tendency but we won't be absolved of this sin of remission when we begin thinking about retirement.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">One of the other keys to the seemingly good news about an increase in contributions in 2011 is backlit with some additional news. Auto-enrollment helped to raise the account balances of the overall plan (and as employment improves, so will the news that we are using the plans in a more robust way). But those auto-enrolled new hires were placed squarely in the plan's target date fund of choice.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Long-time readers know about my reservations with these funds. New readers should note: target date funds are often less transparent than stand-alone funds, the underlying portfolio can be suspect, the target date may not be far enough in the future to be realistic and to date, the rebalancing implied in the fund is not determined by any specific guidelines. In other words, those who are put in a target date fund via auto-enrollment would be wise to get into an index fund (or four raging across a variety of markets) as soon as possible.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Those folks, the youngest among us who are the most likely candidates for these auto-enrollment options can make changes that will get them much closer to the goal. Older workers, however don't. And they know it. But they have some advantages, at least in their mind that the younger worker doesn't: equity.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">And that equity in their homes, combined with the historically low interest rate environment has given many Baby Boomers a second option: to borrow against their homes and take the refinanced money and put into their retirement accounts. Is it a good idea or one that is bound to backfire?</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Three things make it risky. One the equity in your home may not recover. Older homeowners who tap their home's equity are doing so at the risk of increasing their mortgages at a time when additional debt, no matter how inexpensive is not prudent. Two: They are eliminating a safety valve that could be used if retirement got too rough: the reverse mortgage. And third, if they are forced to or simply want to sell, the equity in their property is not there to give them a downpayment for new housing.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Leveraging your home to finance your retirement account does come with some tax advantages though. Just because one account increases as one is leveraged doesn't necessarily give you a balanced approach. In other words, there are "veiled risks".</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">You will still need to allocate your portfolio to perform better than the cost of the new loan and the interest rate you pay. This means that year-over-year, you will need to do much better than you may have calculated. A four percent mortgage added into the cost of the refinance (another one percent) added to the rate of inflation (another three percent if it holds steady) means your portfolio will need to return north of eight percent year over year - without fail.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">The only way to give your retirement income any sort of sure footing is to increase your contributions by a much wider margin than what has become known as the average - 8% - and pay down your mortgage.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;">Fifteen percent is still the optimum contribution rate and even that number will give you only 75% of your current income in retirement - provided you saved for twenty years or more. Paying down the mortgage reduces your overall cost of debt service while increasing your equity.</div><div style="color: #444444; font-family: Georgia, 'Bitstream Charter', serif; font-size: 16px; line-height: 1.5; margin-bottom: 24px;"><br />
</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com2tag:blogger.com,1999:blog-2361862955688535417.post-34979686001142526802012-01-29T07:09:00.000-08:002012-01-29T07:09:28.280-08:00How Going Back to College Impacts Your Retirement<div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">When you send your son or daughter off to college this year, the person sitting next to them in that lecture hall is more likely now than ever before to be your age, or close to it. If the rates of college borrowing are any indication, forty year olds and older are finding themselves back in school. While attending college has been touted most recently as a way to add ten-years to your life, or at least your mental health, these students are more interested on improving their chances at getting a job. Not a better one; any job.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">The stress facing an older worker or recently unemployed person turned student can be monumental. There may be numerous reasons why you didn't complete <a data-mce-href="http://bluecollardollar.com/personalfinance.html" href="http://bluecollardollar.com/personalfinance.html" target="_blank" title="BlueCollarDollar.com">college</a> in the first place or find yourself with a worthless piece of paper from your previous go-around. None of those matter. You have decided, and the experts suggest that this is correct, that getting more training is better than not.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">But college at forty or older comes with its own unique problems. Not the least of which is the worth of the education. <a data-mce-href="http://target2025.com/the-cost-of-college-save-invest-or-borrow/" href="http://target2025.com/the-cost-of-college-save-invest-or-borrow/" target="_blank" title="The cost of college">College tuitions</a> are increasing as parents of children in the typical age group know all too well. When you make the decision to return to school as an older worker, the cost may be offset by some prior attendance experience or work-life experience.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">One of the easiest ways to offset the tuition cost is to challenge the course, suggesting to over 2,900 accredited colleges that you know what that course offers and don't need to take it for the credit. This challenge not only save money but time that could be better spent getting the education sooner to allow you to get back in the hunt for employment. CLEP, the College Level Exam Program, is the most widely accepted "life experience" challenge exam program and the one every older student should use. The CLEP program features 32 single-subject college exams and five general exams. (For more information about CLEP exams, contact: <a data-mce-href="http://www.collegeboard.com/student/testing/clep/about.html" href="http://www.collegeboard.com/student/testing/clep/about.html" title="The College Board">The College Board</a>, 800-257-9558.)</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">There are other ways to help in getting your degree quicker and for less cost. Your employer might have in-house programs designed to finance higher and continuing education. If you are not employed, research and study what you know as much as possible before taking these tests.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">You have three things that are to your advantage and three things working against your success.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><strong><br />
</strong></div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><strong>The three things in your favor.</strong> First: you probably have the focus to do well. College isn't your first experience with independence. Of course I'm not suggesting that all-students entering or in college aren't focused; they just have a higher degree of potential available distractions to take them off course. Two: you know how much this is really costing. You have a better concept of what these dollars cost against what they can return. Three: Your work ethic comes from actually working and should be transferrable, at least in your head, to a better framework of organization. In other words, you can place the most important tasks first and that ability to prioritize is probably something you didn't even realize you possessed.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><strong><br />
</strong></div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><strong>The three things working against you.</strong> One: Your focus to do well may actually overload your ability to do as well as you would have hoped. Taking on too much will find you in conflict with the rigors of what your daily life has become. This is certainly not insurmountable. Experts agree that you should get as much sleep as possible and find a scheduled time to study and prepare. That advice is given to twenty year olds as well. But it is doubly important for the older student.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">Two: You have a much firmer grasp of time and the time you have left to not only pay back the loan but to do so with enough of an income to make it worthwhile. And like younger students, you need to balance the loan to potential income. According to the STudent Loan Network: "By keeping your borrowing to one year's salary, you're effectively dedicating 10% of your future income to repayment, which is a manageable amount of debt. Statistically speaking, graduates who have 10% or less of their income dedicated to debt repayment are able to manage their debts; those who exceed 15% of their income tend to default." And for the older worker, this calculation is incredibly difficult to make. There is no guarantee that you will get adequate compensation when you do get a job upon graduation.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">Three: Your work ethic will actually work against you. You may have previously sleep-walked in your previous job, focused on the daily grind with the least amount of energy. Re-prioritizing your life will come without the usual support groups afforded the younger student, you will need to build a self-centered support and wedge it into your regular routine. College for the older student requires an enormous amount of focus. There are some things that can help you keep the objective in reach and not lose your forward momentum. They include: staying organized, getting more sleep than you afforded yourself when you were working, and studying. The last may take a little re-learning so be sure to give yourself time to learn how to learn again.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">If you are still working, don't become complacent. Continue to improve your chances and opportunities even if life has become somewhat complicated. Spending a little at a time is far wiser than borrowing a huge sum to attend college full-time. If you aren't working, keep in mind that even the best degrees don't always end up in the best paying jobs. Get as much counseling as you can before picking a course of study. Some job choices are fleeting or don't return in salary what you expect them to pay.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;">The popular notion is that we will work longer than our parents, postponing retirement beyond the age of 65. If that's the case, choose a career that gives you longevity in the workforce and not just something that provides a paycheck. And even if all it does is add ten-years to your mental health, it might be worth considering.</div><div style="font-family: Georgia, 'Times New Roman', 'Bitstream Charter', Times, serif; font-size: 13px; line-height: 19px;"><br />
</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-51340893015556576682012-01-19T09:00:00.000-08:002012-01-21T10:48:59.360-08:00Will you self-direct your retirement?Today on the Financial Impact Factor Radio with <a title="Paul Petillo" href="http://paulpetillo.com" target="_blank">Paul Petillo</a>, Dave Kittredge and Dave Ng we continue the discussion we began <a title="Financial Impact Factor Radio" href="http://www.fifradio.com/2012/financial-impact-factor-radio-01-18-12/" target="_blank">yesterday about self-directed IRAs</a>. While having control over your retirement is important, how much risk is too much and who can handle the increased potential of loss or gain.
<p>To listen to yesterday's show, <a href="http://www.fifradio.com/2012/financial-impact-factor-radio-01-18-12/" title="fifradio.com" target="_blank">click here</a>.
<p>Here are some outtakes from this conversation:
<p>Yesterday we discussed a different corner of the retirement investment world when we talked about self-directed IRA. I suggested that “If there is one thing we all seem to be seeking and at the same time, remains as elusive it is control. Our investments often seem to want us to master its fate, as if simply involving yourself is enough.” T.S.Eliot seemed to agree although we all know he wasn’t talking about your retirement plans when he wrote: "Only those who will risk going too far can possibly find out how far it is possible to go."
<p>Jim Hitt of AmericanIRA.com to discuss the IRA that you control. There is a lot left to be discussed it seems and little clarification is needed in advance. Jim is a third party administrator or TPA. We have had a few professionals who ply their trade as a go-between, somewhat detached from the other two parties but necessary in the legal and tax compliant execution of a retirement plan. Sometimes we need to be reminded that all retirement investments, 401(k)s, 403(b)s, IRAs in all their incarnations are essentially parts of the tax code. And I’d be willing to wager that when taxes are mentioned, there is a certain fear, perhaps caution that moves to the forefront. Self-directed IRAs are no different.
<p>On numerous occasions, we have, in advance of a guest appearing on the show prepped the listening audience, discussed what we knew about the next day’s topic and did so in almost every instance, without the guest’s knowledge. Today, we’re going to look back.
<p>Most of us have had out retirement plans nestled safely – and I’ll describe what I mean by safely in a moment – inside a 401(k). The way these plans are constructed give us a sense that someone else is watching over us. They choose the investments. They made the match. They suggested that they had a fiduciary responsibility to us. I asked Jim if he had just such a responsibility and he simply replied: no.
<p>So we began the discussion there as I asked Dave and Dave if they would like to tell us what fiduciary responsibility is?
<p>Now we all know that risk is something we need and knowing how much of a risk you can take is key in the way you execute your goals. But this is no easy task when it comes to this type of IRA. "Trust your own instinct, “ <em>as</em><em> Billy Wilder once said:</em> “Your mistakes might as well be your own, instead of someone else's."
<p>As Baby Boomers begin this massive wave of retirement, many are for the first time going to get their life’s retirement account to control. I was caught by one thing Mr. Hitt suggested as to the people who come to him: they come in good times and bad.
<p>The risk of self-directing your IRA is there. Jim discussed using this money for real estate investment purposes, business opportunities and other investments such as gold, commodities, etc. And it all boils down to coordination.
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Listen to Financial Impact Factor Radio with your hosts:
Paul Petillo of <a href="http://target2025.com">Target2025.com</a><strong>/</strong><a href="http://bluecollardollar.com">BlueCollarDollar.com</a> and <a href="http://financialfootprint.com" target="http://financialfootprint.com">Dave Kittredge and Dave Ng</a> of <a href="http://financialfootprint.com" target="http://financialfootprint.com"> FinancialFootprint.com</a>
The show is broadcast daily, online at 6amPST/9amEST.@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-68582532515330256722012-01-10T16:00:00.000-08:002012-01-18T03:46:53.328-08:00On the Radio with Lynnette Kalfani-CoxI believe it was Einstein who suggested that “we cannot solve our problems with the same thinking we used to create them”. And with us today, we have a very special guest who has done what many of us might think impossible, taking something as abstract as credit and money and turning it into a reality that we can all relate to.
<p>Lynnette Khalfani-Cox is known as <a href="http://themoneycoach.net/" target="_blank" title="Money Coach">The Money Coach®</a> has done more than just expose the soft-underbelly of everything financial – she has performed surgery. Her efforts as a personal finance expert, television and radio personality, and the author of numerous books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom has created a wealth of information for those who face the incredible hurdle of mastering the income they earn. Lynnette once had $100,000 in credit card debt and in three years, did what many of us might consider impossible: paid it off.
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Listen to <a href="http://www.blogtalkradio.com/">internet radio</a>with
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Paul Petillo of <a href="http://target2025.com/">Target2025.com</a><strong>/</strong><a href="http://bluecollardollar.com/">BlueCollarDollar.com</a></div>
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and <a href="http://financialfootprint.com/" target="http://financialfootprint.com">Dave Kittredge and Dave Ng</a></div>
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<a href="http://financialfootprint.com/" target="http://financialfootprint.com"> of FinancialFootprint.com</a></div>
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on</div>
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<a href="http://www.blogtalkradio.com/financialimpactfactor">The Financial Impact Factor</a></div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-57501596475194531152012-01-10T05:31:00.000-08:002012-01-10T05:31:45.578-08:00Does Your Retirement Plan Fit?<br />
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Last week on the Daily Show with Jon Stewart, Charles Barkley, basketball star turned sportscaster offered his thoughts on <a data-mce-href="http://bluecollardollar.com/" href="http://bluecollardollar.com/" target="_blank" title="BlueCollarDollar.com">retirement</a>. Granted, professional athletes are hardly the poster boys and girls of those seeking to retire. They have made huge sums of money in a relatively short amount of time and <a data-mce-href="http://target2025.com/is-your-retirement-plan-really-different/" href="http://target2025.com/is-your-retirement-plan-really-different/" target="_blank" title="retirement">retirement</a> usually means a second, perhaps third career managing that money, be it a car dealership or real estate investments or sportscaster.</div>
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So they aren't usually who writers such as me profile as "retirees". But he did make one comment that was noteworthy: "I was bored out of mind by the third month of retirement". (I'm paraphrasing of course but it was as close to the quote as I intend to get.) We spend so much of our time and mental effort focusing on the goal of retiring at whatever age we pick, that we seldom realize that for many of us, a whole lifetime may await us when we retire.</div>
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I know what you are already thinking: yes, you might live for an additional twenty or thirty years after retiring but they are hardly years of increasing quality. And as one well-to-do acquaintance recently suggested: "rich people never retire". So when I suggest that whole lifetime awaits you in retirement, the suggestion either falls on deaf ears or scares you more than you want to admit.</div>
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In reality, you will live at least an additional ten years after whatever date you pick to retire. While 75 or 80 doesn't seem to be that old, at least in the conversations I have overheard, it is. You are not the person you once were and the mechanized hum of that inner world of you is not humming along the way it did when you were forty. In fact, when you were forty you barely heard it. At sixty, your insides send you regular messages. At eighty, I imagine its a cacophony of sounds.</div>
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So have you asked yourself what retirement will really be like, beyond the dreams you may have harbored for most of your life? Have you equated what your body has told you about those dreams in some sort of altered wish? </div>
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Probably not. What you may have thought would have been the ideal place to retire, the ideal lifestyle to live, may no longer be what you are capable of doing.</div>
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So you should try it on for size. First, the dream place. Warm climates attract your tired bones with thoughts of heat and sun and outdoor activities you may have enjoyed for week long vacations while you were working. Resort living is not the same as permanent residency. Many warmer, resort like climates offer an enticing postcard view of how you might end your days. But proximity to good medical care - even if you think you are healthy - should be a consideration.</div>
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Hawaii, for example is warm and tropical and part of the US. Medical care there is good. But the cost of living on the islands, and that includes medical, food and utilities, is almost twice the cost of living based on the whole of the contiguous US. Accumulate a month's worth of vacation and spend it in your dream locale before you retire. </div>
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Many resort locations have rentals that are more residential and less beachfront. Families often seek these places out in the hopes of saving a few bucks. Compared to what it might cost to live there full-time, you will get a fairly accurate picture of the day-today expenses.</div>
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I have been an advocate for second careers for as long as I can remember. So try your second career out now. You may like where you live. It is close to friends and family, places you are familiar with and activities you enjoy. So take a month off and stay at home. Mr. Barkley said that by month three he was going crazy. And he had a good sum of money put away to indulge in whatever whim passed his way. You won't have that luxury - you'll be on a fixed income. A month should be enough on the average income to understand what you can do and what you can't afford to do. It will also give you the chance to work at career two.</div>
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Which brings me to the last part of my try it on for size. Your income will be fixed. Although in reality, it will be diminishing, which is fixed with minuses. Inflation, taxes and insurance will play a much more major role when it comes to your income. Yes it might be the same amount each month but each passing month will take a little piece of it. Try this concept on for size.</div>
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You could do a lot of positive things for yourself in 2012. But pretending to be retired, if only for a month, will give you some clear understanding of what retirement, at least the early years of it, will be like. Doing it while you are working gives you time to alter the course and embrace a new life while still living in your old one.</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-16796185156298566072012-01-01T00:30:00.000-08:002012-01-01T00:30:01.230-08:00As we turn the calendar: Your retirement is in your hands - again!This article written by Paul Petillo originally appeared at Target2025.com<br />
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Jimi Hendrix once wrote: "I used to live in a room full of mirrors; all I could see was me. I take my spirit and I crash my mirrors, now the whole world is here for me to see." When it comes to the reflection staring back at us, our <a data-mce-href="http://target2025.com/as-we-enter-2012-a-few-thoughts-on-retirement/" href="http://target2025.com/as-we-enter-2012-a-few-thoughts-on-retirement/" target="_blank" title="retirement">retirement</a>, like those images, are a search for imperfection. We don't look at ourselves to admire how good we look; we look for flaws. We don't imagine a future; we see the relics of past decisions.</div>
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If you consider yourself a Baby Boomer, the reflection in the mirror is an image that polarizes: we are comfortable in the what the future holds or we are worried. There is good reasons for this feeling of either hope or dispair, with no real middle ground. This group has seen the demise of the defined benefit plan (pensions) and the introduction of the defined contribution plan (<a data-mce-href="http://target2025.com/retirement-and-your-401k-changes-in-201/" href="http://target2025.com/retirement-and-your-401k-changes-in-201/" target="_blank" title="401(k)">401(k)</a>). You have seen the greatest bull market in investing history and witnessed two major crashes that have rattled your confidence in the decade following. You are the first generation to realize that your future is in your hands and you were not ready for the responsibility.</div>
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If you are younger than a Boomer, you are the first generation to have never seen any other opportunity to finance your future than with a 401(k). And you have come to realize that this is not the plan it was intended to be. 401(k) plans were not designed to be the one and only vehicle for retirement. We were sold a notion that this was the end-all-to-be-all plan that would afford us a better retirement than our parents only to find out that it hinged on two extremely volatile concepts: your ability to consistently earn money and your level of contribution. Your 401(k) became your anchor and your wings.</div>
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I imagine that many of you will look back on the highlights of 2011 and find yourself in either one or two camps: you were able to hold onto your job, pay your bills and put some money away for retirement or you will be looking back at a year of indecision, regret and the promise to do better in 2012. You may be celebrating simply getting through it or wishing it never happened. To that, I offer some simple resolutions to embrace in 2012.</div>
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<strong>One: Revisit your idea of retirement.</strong> You can promise to save more money for your future, increasing your contribution to your plan or perhaps, in the absence of a plan, begin one of your own using IRAs. But you do this without really looking at that future. Retirement will not be the same of any two of us. For some it will be a life of struggle, an ongoing effort to make ends meet when they may never met while they were working. For some it will be the realization that the balance between the now and the future relies on a level of personal sacrifice we were smart enough to embrace while we were working. For others, it will simply be a resignation of sorts, a belief that it will never happen.</div>
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Retirement is three things: A time when we find new opportunities outside the confines of what we called a career, a place of unimaginable risk and/or a chance to take a breather. It is not a place of no work and all play. It is not a time spent waiting for the end to come. It is not what we imagine because, if we looked closely at that image we see flaws. So we don't look as closely at those who are retired, examine how they live and ask if this is what they had planned. In revisiting the idea of retirement, your concept of that future, consider looking closer. If you don't like what you see, resolve to change it. But don't look away.</div>
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<strong>Two: Don't reflect on what you've done.</strong> You made mistakes; we all have. Some of us took too much risk, some not enough. Some contributed as much to their retirement as their budgets allowed, others did not. Some of us made poor mortgage or credit decisions, others did not. No matter what you did or didn't do, looking back will not improve the look forward.</div>
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Looking forward doesn't mean turning your back on on any of those events. It means focusing all of your energy on fixing them. This is a twofold effort, the first being getting the budget you may not have in line with your paycheck and focusing on paying down your mortgage (keep in mind that even if your home is underwater - meaning your mortgage is greater than the value of the house itself - the interest you pay on than loan is eating away at your future invest-able or save-able dollars). Does this mean you should not put money away in a 401(k) plan and redirect every dollar to the day-to-day? Not at all. Keep in mind that a 5% contribution will, in almost every instance, not impact your take home pay.</div>
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<strong>Three: Don't over think the process.</strong> From every corner of the financial world you will hear: rebalance your 401(k). If you chose a minimum of four index funds spread across four sectors, or four ETFs that do the same thing, rebalancing is a waste of time. You diversify so you can capture ups in one market and downside moves in another and your contribution doesn't allow you to buy more when one market moves up and allows you to buy more when it goes down.</div>
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We want to think we are in control when in fact, the only thing you actually control is how much money you want to put in. Markets will do what they do best: move. It might be up one day and down the next. It doesn't really matter. What matters is that you do something and in 2012, it should be significantly more than you are doing now.</div>
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<strong>Four: Stop being selfless.</strong> One of the hurdles we are told, for women investors specifically, is their inability to put themselves before their family. This is a cause for concern of course but not a disaster in the making. Take a good long and hard look at your family and ask yourself: could I spend my retirement years living with any of them? Do they want you to?</div>
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<strong>Five: Embrace the truth.</strong> Now there will be an increased amount of pressure from every financial professional to get advice on your investments. This educational effort will evolve in the next several years from long, drawn out seminars on how your 401(k) works to short, ADD friendly videos that last several minutes and offer key points on what to do. The truth still relies on your ability to put more money away. Five percent will net you 25% of your current take home in retirement. A ten percent contribution over the average working career will pay you about 50% of what you earn today in retirement. Fifteen percent contributed to a 401(k) plan with average (modest) historical returns will allow you to live on 75% of your current income. Can you handle that truth?</div>
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<strong>Six: Stop worrying about it.</strong> According to HealthGuidance.org, you are killing yourself with worry. Michael Thomas writes: "Worrying leads to stress and stress has been linked with a number of health problems. People who suffer from high levels of stress are much more prone to cardiovascular disease, gastrointestinal issues, weight problems and there has even been a link made between stress levels and certain cancers." Instead resolve to do more saving than you have ever done, spend less than you did last year and embrace the reality of what fixed income is. Retirement is fixed income. Resolve to live like that now.</div>
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<a href="http://paulpetillo.com/">Paul Petillo</a> is the Managing Editor of <a href="http://bluecollardollar.com/">BlueCollarDollar.com</a>/<a href="http://target2025.com/">Target2025.com</a></div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-69085114872657705602011-12-21T06:06:00.000-08:002011-12-21T06:06:00.813-08:00Your Retirement Plan in 2012<p>This article originally appeared at <a href="http://bluecollardollar.com">BlueCollarDollar.com</a> and was written by <a href="http://paulpetillo.com"> Paul Petillo</a>
<p><strong>"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</strong>
<p>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.
<p>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.
<p>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.
<p>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.
<p><strong>Increase your contribution</strong> 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).
<p>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.
<p>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.
<p><strong>Pay attention to diversification</strong> 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.
<p>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.
<p>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).
<p>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 <a href="http://www.fifradio.com/2011/financial-impact-factor-radio-11-14-11/">David Abner of Financial Impact Factor Radio</a> recently to help explain what these investments are and how they work.
<p><strong>Focus on your financial well-being</strong> This refers to your credit score. It continues to impact your financial future and will become increasingly harder to ignore. A new <a href="http://bluecollardollar.com/credit-scores-corelogic-reports-120311.html">credit rating service agency </a>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.
<p>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."
<p>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).
<p>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.
<p>Do all of that this may not seem like a new year - but it will be a better year!@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-47640654103082285932011-12-15T12:00:00.000-08:002011-12-15T12:00:06.918-08:00Seeing Retirement with a Financial PlannerOn the surface, financial planning has remained the same. You are looking for a path to <a href="http://bluecollardollar.com/" target="_blank" title="BlueCollarDollar.com on retirement">retirement</a> 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?
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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).<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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On today's <a href="http://fifradio.com/" target="_blank" title="Financial Impact Factor Radio with Paul Petillo">Financial Impact Factor Radio</a> with <a href="http://paulpetillo.com/" target="_blank" title="Paul Petillo">Paul Petillo</a>, <a href="http://financialfootprint.com/" target="_blank" title="financialfootprint.com">Dave Kittredge and Dave Ng</a> we discuss the role financial planners can play in your <a href="http://bluecollardollar.com/" target="_blank" title="BlueCollarDollar.com">retirement planning</a>. Even as the industry surrounding advice has shifted to a more consumer friendly format, it has become more difficult to chose the right <a href="http://target2025.com/" target="_blank" title="Target2025.com">financial planner</a> for the task.
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</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-24177400421235609202011-12-02T06:24:00.001-08:002011-12-02T06:25:24.320-08:00Your Retirement, Your Estimations<br />
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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. </div>
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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 <a data-mce-href="http://target2025.com/retirement-planning-is-a-million-dollars-enough/" href="http://target2025.com/retirement-planning-is-a-million-dollars-enough/" target="_blank" title="retirement">retirement</a> that has become newsworthy of late. The survey even suggested that they accepted the fact.</div>
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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.</div>
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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 <a data-mce-href="http://bluecollardollar.com/personalfinance.html" href="http://bluecollardollar.com/personalfinance.html" target="_blank">retire </a>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.</div>
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Let's from there move towards the participation rate in <a data-mce-href="http://target2025.com/your-401k-keeping-up-with-the-jones/" href="http://target2025.com/your-401k-keeping-up-with-the-jones/" target="_blank" title="your 401(k)">401(k)</a> 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.</div>
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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.</div>
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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.</div>
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Ms. Hess believes that "Companies should strongly consider increasing the default contribution rate and coupling <a data-mce-href="http://target2025.com/the-401k-debate-bright-siders-v-the-naysayers/" href="http://target2025.com/the-401k-debate-bright-siders-v-the-naysayers/" target="_blank" title="auto-enrollment in a 401(k)">automatic enrollment</a> 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.</div>
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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.</div>
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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. </div>
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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.</div>
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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.</div>
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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. </div>
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The only question left is how can you do it?</div>
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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!</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-37925892312467939152011-11-15T17:30:00.000-08:002011-11-15T17:30:01.353-08:00Exchange Traded Fund Questions AnsweredThis past week, on the <a title="Financial Impact Factor Radio" href="http://fifradio.com" target="_blank">Financial Impact Factor</a> with <a title="Paul Petillo" href="http://paulpetillo.com" target="_blank">Paul Petillo</a>, <a title="Financial Footprint" href="http://financialfootprint.com" target="_blank">Dave Kittredge and Dave Ng</a> we had David J. Abner. He is the Director for Institutional Sales and Trading at Wisdom Tree and the author of <a href="http://www.amazon.com/gp/product/047055682X/ref=as_li_ss_tl?ie=UTF8&tag=bluecollardol-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=047055682X">The ETF Handbook: How to Value and Trade Exchange Traded Funds (Wiley Finance)</a><img style="border: none !important; margin: 0px !important;" src="http://www.assoc-amazon.com/e/ir?t=bluecollardol-20&l=as2&o=1&a=047055682X&camp=217145&creative=399369" alt="" width="1" height="1" border="0" />
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. <a title="target2025.com" href="http://http://target2025.com/the-debate-continues-mutual-funds-or-etfs/" target="_blank">ETFs</a> 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?
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Listen to <a href="http://www.blogtalkradio.com">internet radio</a> with
<div style="font-size: 10px; text-align: center; width: 220px;">Paul Petillo of <a href="http://target2025.com">Target2025.com</a><strong>/</strong><a href="http://bluecollardollar.com">BlueCollarDollar.com</a></div>
<div style="font-size: 10px; text-align: center; width: 220px;">and <a href="http://financialfootprint.com" target="http://financialfootprint.com">Dave Kittredge and Dave Ng</a></div>
<div style="font-size: 10px; text-align: center; width: 220px;"><a href="http://financialfootprint.com" target="http://financialfootprint.com"> of FinancialFootprint.com</a></div>
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</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-83629333405234332622011-11-11T11:59:00.000-08:002011-11-15T12:02:20.004-08:00Remember When a Million Dollars was the Goal?<br />
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As long as <a data-mce-href="http://paulpetillo.com" href="http://paulpetillo.com/" target="_blank" title="Paul Petillo">I</a> have been writing about financial topics, the million dollar mark has been the goal that most every <a data-mce-href="http://target2025.com/your-401k-the-illusion-of-free-money/" href="http://target2025.com/your-401k-the-illusion-of-free-money/" target="_blank" title="retirement">retirement</a> 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.</div>
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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 <a data-mce-href="http://bluecollardollar.com/retirementplanningbooks/retirementplanning.html" href="http://bluecollardollar.com/retirementplanningbooks/retirementplanning.html" target="_blank" title="retirement">retirement</a>?</div>
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<strong>Is a goal worth having?</strong></div>
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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.</div>
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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. </div>
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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.</div>
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<strong>So what is the number?</strong></div>
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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.</div>
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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.</div>
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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.</div>
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<strong>Is the answer your 401(k) plan sponsor's responsibility?</strong></div>
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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).</div>
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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.</div>
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I'll give you the link to the whole study (<a data-mce-href="http://www.russell.com/Institutional/research_commentary/PDF/Whats_the_right_savings_rate_.pdf" href="http://www.russell.com/Institutional/research_commentary/PDF/Whats_the_right_savings_rate_.pdf" target="_blank" title="russell">here</a>) 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.</div>
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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.</div>
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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%</div>
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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.</div>
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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.</div>
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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.</div>
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And that would change the question of whether a million dollars was enough to "aren't we in this together?"</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0tag:blogger.com,1999:blog-2361862955688535417.post-57201505031152623062011-11-01T02:00:00.000-07:002011-11-01T03:47:08.945-07:00The Estate Plan Conversation You Haven't Had YetBoomers 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 <a href="http://paulpetillo.com/" target="_blank" title="Financial Impact Factor Radio with Paul Petillo">Financial Impact Factor Radio</a> we hosted Deborah L. Jacobs, author of "<a href="http://estateplanningsmarts.com/" target="_blank" title="estate planning smarts">Estate Planning Smarts</a>".<br />
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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 <a href="http://blogs.forbes.com/deborahljacobs/" target="_blank" title="forbes">Forbes</a> discussed how to approach this topic with your parents, your spouse, your family and your lawyer.<br />
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In the second half of the show, <a href="http://financialfootprint.com/" target="_blank" title="financialfootprint.com">Dave Kittredge and Dave Ng of FinancialFootprint.com</a> 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.<br />
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Listen to <a href="http://www.blogtalkradio.com/">internet radio</a> with
<br />
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Paul Petillo of <a href="http://target2025.com/">Target2025.com</a><strong>/</strong><a href="http://bluecollardollar.com/">BlueCollarDollar.com</a></div>
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and <a href="http://financialfootprint.com/" target="http://financialfootprint.com">Dave Kittredge and Dave Ng</a></div>
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<a href="http://financialfootprint.com/" target="http://financialfootprint.com"> of FinancialFootprint.com</a></div>
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on</div>
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at Blog Talk Radio</div>
</div>@PaulPetillohttp://www.blogger.com/profile/14377545844624900027noreply@blogger.com0