Retiring with a Plan

Does Your Retirement Plan Fit?

2012-01-10T05:31:00.000-08:00

Last week on the Daily Show with Jon Stewart, Charles Barkley, basketball star turned sportscaster offered his thoughts on retirement. 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 retirement usually means a second, perhaps third career managing that money, be it a car dealership or real estate investments or sportscaster.

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.

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.

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.

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?

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.

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.

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.

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.

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.

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.

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.

As we turn the calendar: Your retirement is in your hands - again!

2012-01-01T00:30:00.000-08:00

This article written by Paul Petillo originally appeared at Target2025.com

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 retirement, 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.

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 (401(k)). 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.

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.

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.

One: Revisit your idea of retirement. 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.

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.

Two: Don't reflect on what you've done. 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.

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.

Three: Don't over think the process. 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.

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.

Four: Stop being selfless. 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?

Five: Embrace the truth. 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?

Six: Stop worrying about it. 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.

Paul Petillo is the Managing Editor of BlueCollarDollar.com/Target2025.com

Your Retirement Plan in 2012

2011-12-21T06:06:00.000-08:00

This article originally appeared at BlueCollarDollar.com and was written by Paul Petillo

"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 ityou can never get it back." Harvey MacKay

One of the key elements in any financial transaction is time. If you want to retire, you must consider the amount of time. If you want to borrow, how long you have to pay it back can be translated into dollars and cents. Investing; timing they suggest can't be down but is important nonetheless.

If you are twenty, time is on your side. If you are thirty, there is time left. If you are forty, time is of the essence. If you are fifty, time is running out. If you are sixty, where has the time gone. And older than that, time is no longer on your side. It accompanies us through life like some dark passenger. It reflect back on us from the mirror. And when we look at our retirement plan, it stares at us without guilt or shame. Time is the truth.

When I first began writing these predictions, and I've been churning out these year end ditties for over a decade, many were laced with optimism, some with an urging that we learn the lesson and move forward armed with knowledge of past mistakes, and still others were exercises in reality. In 2012, we have some opportunities and some problems awaiting us, left on the table as we symbolically turn the calendar wiping out 2011. But it won't leave quietly.

So I have a few thoughts about what you can do - resolutions of sorts but not the drastic sort we make and break almost within hours of promising ourselves at midnight.

Increase your contribution I start with this obvious chant for two reasons: you aren't making a large enough contribution and two, I would be remiss in not telling you this right from the start. And I'm not just speaking to those with a 401(k).

There are the millions of you who are forced to (and because of that are not likely to) finance your own retirement through an individual retirement account. We lament at the worker who literally only has to sign up at his workplace and doesn't. And far too often, we say little about the person who has to sign-up (after finding a fund), commit with a fortitude that is somewhat lacking and to contribute some of their paycheck via direct deposit every week or month. That effort, it seems is a much more involved hurdle.

In 2012, the investment world will be little changed. It will roil and confuse and gyrate and possibly even nose dive - just as it has for decades. It will react to news - if not from Europe form China or even the presidential elections (which ironically tend to be excellent years to invest). This will have you second-guessing your investments. But this will only apply if you have no idea how much risk you can take.

Pay attention to diversification You may not be capable of rebalancing, the act of making sure that your investments are directed evenly across many investments. This is much harder than it seems. As long as you are involved - and that is YOU in capitals - the struggle to keep balance will not get any easier.

For the vast majority of us, mutual funds will be the investment vehicle of choice. These investments will see more movement towards fee reductions. Which is a good thing. Fees will and always have been a subtraction of gains. This makes an excellent argument for indexing.

Choosing six index funds across the following cross-sections of the markets will not solve the problem of rebalancing (some will do better than others) but it will provide diversification. Index the largest companies (an S&P 500 fund), a mid-cap fund (the next 400 companies in size), small-caps (the next 2000), an international fund (an index of the largest countries (those with established banking systems even if they are currently troubled and will continue to be so in 2012), an emerging market fund (after international funds, the most risky) and a bond index (one that covers as much fixed income as possible).

Some of you will wonder if exchange traded funds (ETF) wouldn't be just as good if not better than simple indexing. In 2012, ETFs will continue to drill down ever deeper into sectors of the markets that add risk along with the illusion of an index. ETFs will become more actively managed in 2012 offering you more risk at a lower cost. Cheap doesn't mean better. 2012 will be year of the ETF. If you are unsure what these investments are, consider this conversation I had with David Abner of Financial Impact Factor Radio recently to help explain what these investments are and how they work.

Focus on your financial well-being This refers to your credit score. It continues to impact your financial future and will become increasingly harder to ignore. A new credit rating service agency will add to the difficulty in 2012 and not only will the current scoring impact costs such as insurance, it will seek to trace the breadcrumbs of your financial life more thoroughly that the big three do.

There is little likelihood that the job market will increase as many of our returning troops will flood the marketplace, taking numerous jobs from your kids just out of college. Which means another year with your kids at home. The only answer to this problem is to continue to tighten down your budgets in 2012. As I mentioned earlier: "If you are forty, time is of the essence. If you are fifty, time is running out. If you are sixty, where has the time gone."

And you must do this understanding that inflation - not the reported number but the real number in your grocery bill - will still chip away at your wealth. This means you will move in two opposite directs in 2012: saving and investing more for your fleeting future (at least 6% but 10% would be best) and spending less in the present (easy of you don't use credit).

And the housing market will improve for those who have repaired any damaged credit or who have saved enough of a down payment to buy a house. people are still buying and selling. These people have found that while the market is not accessible to all, it is for those that have done right by their personal finances.

Do all of that this may not seem like a new year - but it will be a better year!

Seeing Retirement with a Financial Planner

2011-12-15T12:00:00.000-08:00

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

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

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

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

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

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

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

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

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

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

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

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

Listen to internet radio with

Paul Petillo of Target2025.com/BlueCollarDollar.com

at Blog Talk Radio

Your Retirement, Your Estimations

2011-12-02T06:24:00.001-08:00

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

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

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

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

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

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

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

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

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

So when a survey crosses the retirement radar suggesting that 25% of us are planning to work into our eighties, the number misses some key data. Workers who suggest that a retirement number - a dollar amount base on any number of formulae - is what will determine their time of retirement, the estimates they embrace may be outsized.

These folks fret over the stock market and construct a worse-case scenario for what might happen if the gains they had hoped for fail to materialize.

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

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

The only question left is how can you do it?

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

Exchange Traded Fund Questions Answered

2011-11-15T17:30:00.000-08:00

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

Listen to internet radio with

Paul Petillo of Target2025.com/BlueCollarDollar.com

at Blog Talk Radio

Remember When a Million Dollars was the Goal?

2011-11-11T11:59:00.000-08:00

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

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

Is a goal worth having?

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

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

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

So what is the number?

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

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

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

Is the answer your 401(k) plan sponsor's responsibility?

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

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

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

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

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

But they think the best option would be to not stop there with the incentives. They think a secondary match should kick in once the employee taps the 5% mark. Companies could offer a 25% match on the next 5% contributed.

If you were to see this next stage of the plan, it would look like this: 8.75% plus (0.25 x 5%) = 15% savings rate.

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

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

The Estate Plan Conversation You Haven't Had Yet

2011-11-01T02:00:00.000-07:00

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

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

In the second half of the show, Dave Kittredge and Dave Ng of FinancialFootprint.com 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.

Listen to internet radio with

Paul Petillo of Target2025.com/BlueCollarDollar.com

at Blog Talk Radio

Staying Home: For some, Retirement moves on

2011-10-28T16:27:00.000-07:00

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

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

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

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

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

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

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

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

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

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

Long-term, Short-term: Retirement and Payday Advance Loans

2011-10-27T05:13:00.001-07:00

Long-term, Short-term: Retirement and Payday Advance Loans

All financial advice should come with an asterisk. When you read or hear that “now is the time to invest in this” or “here is how much you should be saving every month,” understand that there is nothing wrong with that advice. But you will very rarely hear those same investment gurus talk about the car repair or month of emergencies that might instead send you to find a payday advance loan. This is because, sometimes, the best plans run up against the worst circumstances.

The asterisk is about real life. A way to borrow cash in an emergency really is a stress point safety release, that thing you keep on reserve for moments when nasty circumstances make it impossible to do the thing you intended.

Which is why everyone should think on two levels: long-term and short-term.

Save for retirement, and use easy payday loans to stay on track

The perception of payday loans is a little dicey and a lot unfair. So allow us to dissect what paycheck cash advances are and how they are a short-term tactic that fits into a long-term retirement plan:

• Meant to cover emergencies – With a paycheck loan, you are able to get money from your next paycheck early. This means that a car breakdown can be repaired immediately, not make you wait for the money until your next payday (and help you keep your job!).

• Help avoid late payments and overdrafts – With access to extra cash in a payday loan, you can keep your credit score intact because there will be fewer bank overdrafts or bounced checks.

• Easy to access at a moment’s notice – They are called easy payday loans because these payday advances are available online. In the past you needed to go to a retail store and spend hours doing it. Now, it takes about five minutes to apply on a paycheck cash advance website.

Of course borrowing money seems at odds with saving money – until you read the asterisk where you learn that short-term fixes help build a long-term outcome.

Should Long-Term Care Insurance be a Consideration?

2011-10-18T12:00:00.000-07:00

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

Listen to internet radiowith

Paul Petillo of Target2025.com/BlueCollarDollar.com

at Blog Talk Radio

Your Retirement Plan is Not the Solution

2011-10-14T05:36:00.000-07:00

Under the current laws governing tax-deferred retirement plans such as a 401(k), withdrawing money has consequences. I have mentioned many of them here over the years, not the least of which is the early withdrawal penalty, the payment of taxes on those tax deferred investments and of course the loss of retirement money. Yet, those penalties haven’t stopped many of the people who have found it difficult to make their monthly budget work.

Of course, I am assuming a monthly budget. Without some anchor in reality, not having a budgetcan lead to rash decisions withut considering the far-reaching impact. Without a monthly budget, you will have no idea what could be cut to maintain some level of financial stability when times get rough. It is also safe to assume that if you do not have some sort of monthly accounting of your finances, you probably don’t have an emergency account. Both of these would have served the households with troubled income streams.

Two Georgia Congressmen think that those 401(k) plans might be able to help. Their idea: Hardship Outlays to protect Mortgagee Equity (HOME) Act. Introduced last week, U.S. Senator Johnny Isakson (R-Georgia) and U.S. Representative Tom Graves (R-Georgia) want their proposal considered as a way to keep homeowners in their homes. The concept, somewhat like throwing you a lifeline of your own making and designed to rescue you from poverty in the future offers a short-term fix in the near-term. They believe that if you have been a diligent saver, adding to your 401(k) religiously over the years, you shouldn’t be punished for needing the money now as opposed to later.

Rep. Graves is convinced that the housing crisis is the reason the economy has not recovered. Calling up his decades in the real estate business, he suggests: “This bill will help Americans who risk foreclosure use their own resources to make their mortgage payment on time without being penalized by the federal government.” If his assessment of who may need this money now – 23% of those who have mortgages are underwater but not necessarily facing foreclosure – the government should step out of the way and allow these folks to withdraw that money without penalty.

They are proposing that there be a lifetime cap on these withdrawals of $50,000 or one-half of the present value of one’s 401(k) account (whichever is smaller), so long as those funds are used for that purpose within 120 days of withdrawal. This is not the first bill of its kind.

Since the Great Recession began, Congress has struggled with what to do with corner of the financial world. A similar bill was introduced in 2009 and never debated on the Senate floor.

Numerous homeowners should not be in the homes they own in the first place. They may have obtained these residences with fraudulent applications, been unable to afford those homes during what would be considered a normal buying environment and failed to restructure their loans or worse, keep with the terms of their bankruptcy decisions. Because tax-deferred retirement accounts are not considered in these proceedings, some mortgage holders may have been in a position to financially right their own ship. But because of the penalties associated with tapping those accounts, they simply chose not to.

The HOME Act will allow wealthier homeowners to save their residences without penalty, while the rest of us, those that underfunded their retirement accounts or couldn’t wait for Congress to act, have already drained those accounts, paid the penalties and taxes and tried to move on. This effort woud do little to help those currently in the foreclosure vortex or who have been spat out by the continued downturn in housing.

No matter who you are, this last ditch effort is not the way to go. Reducing future retirement payouts (compounding and time suggest that $50,000 in retirement savings would provide only about $290 a month in retirement – a projected shortfall of over $1200) would set the average wage-earner, hardship or no, back decades in support of keeping the house. Few of these folks, given the opportunity and the consequence of this decision will consider the long-range impact of that decision. And if it gets Congressional approval, it will push the real problem further down the road.

On the surface, it might seem like the right thing to do. But beneath the veneer of a tax and penalty holiday the problems this money promises far outweigh the immediate salve it may provide. There are solutions, none of them pleasant.

If you are seeing the problem on the horizon, don’t wait until the day of reckoning. Contact your lender before you run into problems. If the problem has arrived, keep in mind, as devastating as it seems, it is not the end. While temporary may well last several years, longer if you successfully pursue a bankruptcy, protecting your future, a time when this will all be an unhappy bump in life’s road will be worth the sacrifice.

True, protecting your credit is important. Just keep in mind, it wasn’t as important when you bought the house as it is to you now. This too will pass.

The bottom line: those 401(k) provisions were established decades ago when the thinking was to make it painful to withdraw your money all the while giving you the illusion that if need be, you could tap it. Now provision, recent or past will stop you if you have made up your mind. But for those who see this as an exit strategy for a bad decision, this Act will add to the problem.

I know it’s old school but it is worth repeating: get a budget (and figure worse case scenario, not current spending habits to allow a downturn picture to standout), attempt to negotiate before the problem strikes (ironically, most job losses are not a surprise) and divide this time and the future into two separate lifetimes. Borrowing – or in this case, stealing from the future is not a good short-term remedy. It is a bandaid on a gapping wound.

Why Cartoon Laws Apply

2011-10-08T14:04:00.000-07:00

Remember Saturday mornings, cartoon, pajamas and a bowl of cereal. We entered into a world of animation that had rules in play we knew only existed there. Boomers may have forgotten those laws and have grown up thinking that was then, this is now. But perhaps...

It all seems so otherworldly these days. As if everything that seems familiar isn’t and the laws the govern rational – and often irrational behavior no longer apply. Markets are up then down and then post the worst third quarter in recent memory – and we’re not sure what that means. Does it indicate something wicked this way comes or perhaps the end of the episode? So I turned to some laws that explain the world of finance, retirement and just getting-by in a world gone wacky.

Cartoon Law I.

“Any body suspended in space will remain in space until made aware of its situation.” We basically have two things to focus on: our future and what will happen next. We are continually being told to invest, max-out that 401(k), do everything you can now, pain equals pleasure which has replaced risk equals reward. That is until we chance to look down. And you know what happens next.

Cartoon Law II.

“Any body in motion will tend to remain in motion until solid matter intervenes suddenly.” Our retirement goals have experienced this law firsthand. Hitting the cartoon telephone pole at full speed is, as this Law II suggests, the only way to stop forward motion with any success. There is the comic slide down the pole immediately following the impact which can only mean two things: we will sit as the cartoon stars whirl around our collective heads, trying to regain our reason for moving forward. Once our heads are cleared, Law II is waiting with the next pole a little further down the road.

Cartoon Law III.

“Any body passing through solid matter will leave a perforation conforming to its perimeter.” If you follow the markets, any markets, no matter how much information you think you have, now matter how timely it seems to be, the person in front of you will create their own cookie-cutter hole, exit, leaving you to get ahead of the problem that no one, including you is sure is a problem. So instead of leaving by the door, they exit through a wall, evidently not a solid enough surface to allow Cartoon Law II to come into play. We are at the mercy of speculators it seems who apparently have little regard for laws of supply and demand but understand two things: your predictable behavior and the ability of cartoon physics to protect them.

Cartoon Law IV.

“The time required for an object to fall twenty stories is greater than or equal to the time it takes for whoever knocked it off the ledge to spiral down twenty flights to attempt to capture it unbroken.” This is my favorite axiom of all. Who among us has not seen the Federal Reserve try and do this? We are watching this occur as we speak as Fed chairman Ben Bernanke races down the stairs with his latest effort in Operation Twist. Only Cartoon Law IV is a waste of time. The priceless nature of the economy, the object hurtling through global space in this instance, falls victim to the inevitable comic result: it might be too big to fail but the attempt to catch it will prove unsuccessful as well.

Cartoon Law V.

“All principles of gravity are negated by fear.” I offer last quarter’s frenetic trading as proof that investors can spin their feet so quickly that they do not touch the ground while any news good or bad propels most of them straight up a flag pole. These days many average investors are left scratching their heads as they realize that just the sound of the unknown can change the direction of the market dramatically.

Cartoon Law VI.

“As speed increases, objects can be in several places at once.” You know this one as the cloud of dust and debris brawl, to be witnessed as the candidates begin their battle for the White House. With the economy hanging in the balance or at least by their telling of the tale, the next year should provide numerous occasions of spinning and throttling as no candidate so far can pinpoint where the nation is right now and offer a plan of where we should be.

Cartoon Law VII.

“Certain bodies can pass through solid walls painted to resemble tunnel entrances; others cannot.” This inconsistency has played itself out to great effect in housing. The folks who stand at the helm of the economy have painted an imaginary tunnel and allowed millions of Americans to pass through but when those that needed help the most attempted to follow, the surface was once again solid. This trick surface has left many wondering why something cohesive can’t be done. Housing may never recover if recovery is gauged by where it was. Yet so many people are wondering why the supposedly smart financial people who aided and abetted in this financial crime won’t simply understand that they have an option – and it isn’t achieved by raising ATM or debit card fees.

Cartoon Law VIII.

“Cartoon cats have more than the traditional nine lives.” They become like water snapping back to whatever they were prior to their mishap, even assuming the shape of the container if they happen to find themselves in one. Seems that we alone know this to be true and no matter how many times the economy can be “decimated, spliced, splayed, accordion-pleated, spindled, or disassembled, it cannot be destroyed.” It becomes the equivalent of a cartoon mulligan. Someone please tell those in Washington. They think that what the economy needs is simple: more self-regulation and perhaps a little agency consolidation, a trillion dollar cut in spending here and an entitlement cutback there. We’ve seen it before and it gives us hope. We know that after the economy regains its shape, these set-backs (weak dollar, global slowdowns, market volatility and commodity speculation) will prove there are lessons we haven’t really learned and why should we have. We are pretty confident as a group that we will have another life to do it over again. At least we hope that this cartoon law is real.

Cartoon Law IX.

“Necessity plus Will provokes spontaneous generation.” This opens the door to the “controversial pocket theory” which “suggests objects can be drawn from unseen recesses of a character’s costume, or from a storehouse immediately off-screen” or can be borrowed directly from what you will owe at some point in the future. And then, as if by magic, this future they tell us will just show up as if it “merely defers the question of how any absolutely apt object is instantaneously available”. Of course, you do need to believe in magic and if magic is the suspension of disbelief, saving will help – a lot.

Cartoon Law X

“For every vengeance there is an equal and opposite re-vengeance.” This is the one law of animated cartoon motion that also applies to the physical world at large. The bottom line is that we are not to blame. Each time I talk to an expert on my radio show we are told is our behavior that is the reason we are in the mess we are in. Every nuance we have is examined and studied and plans for re-vengeance are hatched. It has become us versus them. Instead of financial products getting simpler and more easy to understand, they ultimately become more nuanced, more layered with possibilities and as they get less expensive, they don’t become less expensive. It seems that all we want is to fall on the right side of cartoon law.

These laws were borrowed liberally from “Elementary Education” by Mark O’Donnell (Knopf (1985) in the hope that when you encounter these situations, you may fall on the right side of cartoon law.

Paul Petillo is the Managing Editor or Target2025.com/BlueCollarDollar.com

FIFRadio: A conversation about annuities and long-term care insurance

2011-10-03T16:26:00.000-07:00

On Monday, we had Steve Cooperstein on the Financial Impact Factor Radio show with Paul Petillo, managing editor of BlueCollarDollar.com/Target2025.com and Dave Kittredge and Dave Ng of FinancialFootprint.com. Steve's recent book was the topic for today's show: “Implications of the Perceptions of Post Retirement Risk for the Life Insurance Industry: Inside Track Marketing Opportunity, But Requiring Focused Retooling”.

It may have been written for advisors and academics and the insurance industry, but in doing so it offers us some interesting insights into how these folks think about us: the end user. Did I mention that Steve is an actuary?

We talked to him about annuities and Long Term Care Insurance, the impact both of these products have on all age groups, what is wrong with them and how they can be improved. We solved a great deal in the hour we had together!

Listen to internet radiowith

Paul Petillo of Target2025.com/BlueCollarDollar.com

at Blog Talk Radio

ReBuilding Wealth in a Paycheck-to-Paycheck World

2011-10-03T08:54:00.000-07:00

I just published my fifth book - this time with Smashwords! And a special offer to readers of this blog, ReBuilding Wealth in a Paycheck-to-Paycheck World by Paul Petillo is available for a limited time (until 10.29.11) you can use this coupon code to get the ebook for half price or $1.50. The code for the coupon is UJ76Q This ebook is available across all platforms including iPad and iPhone, Amazon and Sony.

The Threat from the Future: Boomer Retirement Concerns

2011-09-21T05:54:00.000-07:00

Every second, a Boomer retires. This statistic alone should be a comforting thought. It is but not necessarily for Boomers. Billions of dollars of invested money will suddenly come under the direct control of this group and many simply don't know what to do. Yes they will want to ensure they don't run out of money. But they will have just as many opportunities to lose it all - in a scam that promises to make sure they don't run out of money.

On the Monday Financial Impact Factor Radio hosted by Paul Petillo we had Pat Huddleston, author of The Vigilant Investor: A Former SEC Enforcer Reveals How to Fraud-Proof Your Investments Mr. Huddleston is also a lawyer and CEO of Investors Watchdog LLC. As a former SEC Enforcer, he has seen more scams than you could imagine. With his new book, he takes those stories and the effect it has had on the victims and gives us the ultimate tell-all on how to spot what the people we may trust are actually doing - often right under our noses.

This is a must listen show for those on the cusp of retirement, those who have already retired and those who have elderly parents who are already retired. In other words, everyone stands to gain when they steel their hard-earned portfolios against a loss.

Listen to internet radiowith

Paul Petillo of Target2025.com/BlueCollarDollar.com