The Vote on the Debt Ceiling Doesn't Matter: 5 Thoughts

As we have watched the slow slog towards August 2nd and the expiration of the debt ceiling, there are a few things we should consider in advance of that date and a couple of additional thoughts in the days immediately following. Like most things, the debt ceiling expiration date is mostly arbitrary, much like the turning of a new year or the end of a quarter. In other words, 08.02.11 means little to the average person and in the days following, should not be of much concern. Here's why.

Borrowing: We have been in one of the most favorable borrowing environments since records began being kept. If you qualify for a loan, be it a home mortgage or other big ticket purchase, the date will not change your ability to borrow. It may cost you more but prudent borrowers should have already considered this eventuality prior to beginning their purchase. Interest rates may and probably should go up if an agreement isn't reached. The phrase "lock-it-in" will be considered sage advice as it should be. On the flip side, there is little likelihood the seller of whatever big ticket item you are purchasing may just offer additional financial incentives to offset any increased borrowing cost.

Selling: An increase in interest rates would not benefit those who believe their homes are worth a certain amount. It would stymy the housing market, slow the sale of automobiles and create a situation that most retailers have been dealing with already: more saving than spending. While less spending will not get the economy moving and certainly won't create more jobs, despite the argument in Congress that less spending has the opposite effect. We'll just be stuck in neutral for longer than we had hoped. But not as long as many suggest we will.

Markets, Bonds: If you are a conservative investor with money in bonds, you are much smarter than the media gives you credit. Savvy bond investors ladder their holdings for just such an event and will probably fair well. Yes, the foreign investor might become a little more cautious and the next Treasury auction will be weaker than most hope it will be. But over the long-term, the real reason folks hold bonds, the effect will be offset as time moves on. Yet, if you are in bond mutual funds, you should have little to worry about as long as your holdings aren't too much of your portfolio. If you're older, cash might be a better place in the interim.

Markets, Stocks: More than one person has suggested getting into much safer investments before the 08.02.11 deadline. Cash is okay but if history tells us anything, this might be amongst the worst long-term decisions you could make. Most companies could borrow if they needed to no matter what happens. But why bother. Most of the corporate debt has been refinanced to historically low levels. And most companies in the S&P 500, an index of the largest companies in the country, are flush with cash reserves. That has been the most worrisome part of the recovery: businesses could have hired, they could have afforded to hire but they didn't. Selling stocks even if they dip somewhat should provide an opportunity to buy shares that are worth more for less. If you are buying steadily, this should prove an advantage for those with time.

You: Turn off the television or change the channel. None of what you are hearing, none of the talking heads everyone is trotting out means anything. The politicians involved in the debate are saying little or nothing and in many respects, act like this is the first time such an event has ever happened. Personally, the President should simply invoke his right in the 14th amendment and raise it without Congress. Yes, it will cause an uproar and yes, it would be the right thing to do. But creating tension among the American people is not a solution to solving some of the nation's biggest concerns.

In the three years since the Great Recession began, you should have put all of your plan in place: reduced your personal debt, created a modicum of savings and in the process, increased your contributions to your retirement plans. If you haven't, this will probably send the message again that your wealth is not what Washington thinks it is. You should be much more pliable and hopefully, just a tad smarter - or jaded.

Paul Petillo is the managing editor of BlueCollarDollar.com/Target2025.com

Insuring Your Retirement Plan

The essence of the word plan suggests that you need to formulate a strategy ahead of time. According toBusinessDictionary.com a plan is a "Written account of intended future course of action (scheme) aimed at achieving specific goal(s) or objective(s) within a specific timeframe. It explains in detail what needs to be done, when, how, and by whom, and often includes best case, expected case, and worst case scenarios." 

In retirement planning, it means constructing an investment strategy that will help you meet the needs of a time when you no longer want to work - or at least work in the same capacity you have for most of your life. You make assumptions about that period of time and incorporate those into the plan: accumulating wealth, managing debt, staying healthy, paying off mortgages are just a few of the examples of acting to ensure that those assumptions have a chance of coming to fruition.

You approach retirement planning with a certain degree of optimism. Otherwise, why bother? But adulthood can leave us far more pragmatic and because we know things can go wrong - investments can sour, housing can lose value, our health can take a turn for the worse, and debt can be created with the simplest of financial mishaps - and all with unforeseen results.

So we insure. We insure our property against lose, our health against illness and sometimes our investments as well. And we insure our personal contribution to the rest of the people in our lives with life insurance.

Insurance, particularly life insurance is bought when we feel responsible for those around us in a way that we can't really explain. We want these loved ones to continue on without us but to do so without financial hardship that our lives have prevented. We want them to continue on with their lives allowing our children to reach their potential (such as college) and our spouses to be able to live in a way that is supportive of our children.

There is no clear answer to how much is enough. If you were asked how much you would need to live comfortably without ever having to work again, say through a lottery winning, you would probably answer $2-3 million. Yet when we shop for insurance, we often think in terms of a fraction of that.

Insurance is part of a good retirement plan. Too much or the wrong type of insurance can put pressure on your ability to invest enough to get to a comfortable retirement. Not enough, and your family will not be able to survive financially should your income suddenly disappear.

The least expensive insurance is term insurance. It offers the most coverage for the smallest premium but comes with one caveat: it ends after a certain period of time. In other words, if you never use it (and both you and the insurer hope this is what happens), you lose it. Often sold in 20-year increments, it does what it is supposed to do and if you are fortunate, it will never be needed.

Whole life insurance is exactly that: it is a policy that lasts a lifetime provided you keep it long enough and pay the premiums. It builds up a cash value which acts as an investment of sorts and will, after a period of time, begin to pay the premiums for you. But the coverage for the same amount as a term life policy is often much lower and if you want a lot of coverage, the premiums are much higher.

If you are contemplating buying whole life do so only if you are on firm financial footing and can keep your retirement accounts fully funded. Buy term if you are younger, building a family and are likely to face financial hurdles in the coming years. The vast majority of those who buy whole life insurance end up selling the policy after a certain period and if they buy insurance again, they buy term.

Term life insurance is the least expensive when you are young and you can get the most coverage as a result.

You do need to keep two things in mind when buying any insurance product: be truthful and forthcoming with as much information as possible when buying the policy. Although, according to the insurance industry, almost all claims are paid without question, 0.05% of the remaining claims are challenged.  In all cases, be prepared for the fight that might ensue (an example can be found here) if the policy you are using was recently bought. And, always buy from a company whose name you recognize, is rated highly and will be around for the term of the policy.

Paul Petillo is the managing editor of BlueCollarDollar.com and Target2025.com

When Money Advice is Needed

In all likelihood you know someone who is marrying for the first time, blinded by the love they are in and at the same time, unable to see the future because of it.  Do you offer them advice?

Eventually, in the course of a serious relationship, the topic of marriage is discussed.  Because marriage is more than just being able to "kiss whenever you want to", the topic of money enters into the conversation.  This might come very early on as one half of the couple reveals their ability or inability to handle their own finances. Should it be a dealbreaker? Should you still consider the union of two people, which is more than love and compatibility but a business agreement when you are picking a spouse? Will it affect your retirement goals? Will you be able to buy a house, secure a lease or have a baby?

There was a time when the look of love was enough.  Now, couples consider each others attitudes towards frugality, their outlook for their monetary future and how much debt one or both bring to the union.  The focus on a far-off distant future has come to the forefront of many conversations in the recent downturn and with good reason.  The inability to handle a budget could restrict the ability to buy a house (for a reasonable interest rate), whether or not children are financially feasible, and should the relationship end for whatever reason, who gets left with what debt obligation.

Numerous couples are now considering the long-term effects of poor financial management as an insight into the future of the marriage.  While you might feel as though you have a bright future, shedding a light on how your potential spouse handled their past financial obligations has become the new pre-nup.

It was just a few short years ago, when everyone held bright and optimistic outlooks for their futures, that these sorts of financial considerations took a place on the back burner.  You understood the downside of poor money habits.  But the feeling that things would eventually work themselves out has diminished. Now, the prudent saver and investor is examining the financial statement of their partner, something you only did when one of the couple was rich.

Now, no one wants to marry debt.  With the current unemployment rate at unacceptable levels and many of those out-of-work folks in possession of large, unwieldy student loans, people are wondering if marriage is such a good idea.  Your outlook may dim your love somewhat as you try to see the future.

Financial responsibility is a learned art.  If you have found the right person for you, is there any proof that your influence over financial matters couldn't be taught?  Chances are, your experience has given you the financial outlook you possess now.  Can you teach someone who may not have had the same experiences, the same parental guidance, or the same lessons you have learned?

I'm inclined to believe it can happen.  In many marriages, this realization that one member of the couple does not possess the money management skills needed to achieve the hopes and dreams that helped you decide you could spend the rest of your life with came after-the-fact.  In those instances, one of you has stepped up to the responsibility of running the household finances.  This didn't stop the other half from committing financial infidelity (and some marriages have ended because of it).

There are a couple of things you need to keep in mind before you tie that financial knot.  Your spouses student loans are theirs - should the relationship end badly.  But while you are married, you should assume they belong to both of you.  If they have spent tens of thousands of dollars on higher education, the hope that they can eventually find work with enough income to handle those debts still remains.  We won't always be in a  downturn.

But your spouses credit record can have a downside effect on any money you might borrow as a couple.  Outstanding credit card debt will need to be handled and in many instances repaired.  And the frugal half of the couple needs to calculate just how long this might take.  To understand this timeframe, you should ask.  Money may not be able to buy you love yet on the other hand, love doesn't solve money problems.

Ron Lieber, writing in the New York Times suggested: "One advantage to prenuptial agreements is that they force the issue, even if it does turn the talks into a negotiation. “At least half the time, people are shocked at what the other person’s attitude is,” said Susan Reach Winters, a matrimonial lawyer with Budd Larner in Short Hills, N.J. “You ask how they’d handle it if someone wanted to stay home after having a baby, and at the same time they give completely different answers.”

These are worthwhile considerations, even if you are decades away from your retirement. And they need to be asked.  Student debt doesn't necessarily show that one of you is not able to handle money.  But it does put long-term pressure on many financial decision you might want to make.

To read more of Mr. Leiber's article.

 Paul Petillo is the managing editor of BlueCollarDollar.com/Target2025.com.

The Pursuit of Retirement

Ask any psychiatrist what worrying is and you might get this sort of response: it is " the ubiquitous human practice of imposing suffering upon oneself. Worry is a good example of self-inflicted suffering."  A layman might characterize the worrying as simply being not-so-positive, having crossed some imaginary line between what is feeling good and not so much.  If that is the case, we have become a nation of worriers, inflicting suffering on ourselves about a future we don't know about, preparing for a time when we have absolutely no certainty about inflation, taxes or the eventual returns that our retirement plans might yield.

Personally, I tend to characterize worrying as an activity that suggests lack of preparation or planning.  You can't possibly prepare for every contingency, life has things that simply aren't subject to any sort of plan, but you can make the effort.

Retirement planning, something I have described as a whole life effort at looking at all of the possibilities and making arrangements to address each, offers us the ability to have some control.  Worriers will still worry.  But at least they will worry less and begin to straddle that fretful line separating positive and negative.

There are several things that you can do, in the short-term to help alleviate any worrying that might be haunting you.  There will always be those who say save (although I prefer the word invest) for retirement.  I am one of them and in many instances, those with 401(k) plans will have the easiest time in accomplishing this first and most vital step. But those who don't will need to develop a discipline that isn't quite there or if it is, not fully formed.

Those with a 401(k), who have been on the job long enough to have access to the plan, should contribute 5% of their pre-tax income. To further alleviate the worry - and you will once you are faced with the choices in the plan, many of which are not that great - simply put it in an index fund, either one called Total Market or one that tracks the S&P500. (You can learn more later, after you tackle the next problem.)

Those without a 401(k) (and now that those that have a 401(k) have begun to invest) should begin to focus on what they can do in the short-term.  In the vast majority of instances, your household spending needs to be reexamined. As much as I want to avoid saying so, if you are living paycheck to paycheck, it is not the size of the check that is the problem, it is what the check is paying for.

Credit may be the great social equalizer, giving everyone the impression that you are worth more than you are able to pay for but debt is an economic destabilizer and a very serious threat to your ability to remain positive.  This is and should be the short-term focus for those who wonder what life will be like in retirement.

Oddly, you may always have debt of some sort and even more oddly, some of it will be considered good. Good debt is fixed at a certain rate for a period of time with a pay-off date when the balance will be zero. This includes a house payment and a car payment.  Credit card debt is not considered good debt. It can be paid off although and this is where you will develop the discipline to take the first step towards retirement.

Using a sliding scale plan, your credit cards could be paid off in full in a much shorter time than you imagined.  Try this: Suppose you have three cards - and most of us carry a balance from month to month on this amount - list all three cards in terms of their minimum payments.  It might be $15, $25, $50.  Take the lowest minimum and pay double on it while paying the minimum of the other two (paying double the minimum on all three is better, but we are dealing with manageable amounts here).  Do this until it is paid off.

Now roll the minimum payment you doubled onto the next card's minimum making that payment $55 ($15 x 2 + $25) and continue the $50 minimum on the other card.  Once that accelerated paydown is complete, roll the $55 to the remaining card.

This could take several years to accomplish but what it will do is keep you from stepping backwards each time you try to move forward. While investing for your future is always a priority, the longer you have this sort of debt, the markets where you have invested your retirement dollars will have to outperform to a degree that may not be possible.  They would have to return almost twice as much as the interest rate you are paying your creditors to get to even.

Yes, you will still be behind in the pursuit of retirement but you will know be able to look at the discipline you have created as a new found way to keep worry at bay and begin to build the next phase of your retirement plan: the emergency fund.  having solved this problem and the next will be giving you the ability to resist using credit in times of crisis and tapping your retirement in times of emergencies.  For those of you that have a 401(k) and began your investment plan at 5% of your pre-tax income - a level of investment that in most cases does not alter your take-home pay, your focus on debt and then your emergency account is critical as well.

These remain the two biggest problems facing your future retirement.  I'll never suggest you stop worrying.  But getting these tow things - your debt and your family's emergency fund - under control will put you on a wholly different path, one you will never have to worry about again.

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

Retirement Planning: Fixed Income is Worrisome

If retirement is the goal, why would you handicap your chances of arriving when you imagined? Evidence of this shift has challenged those imaginations: Year-to-date  (third quarter 2009), the US household sector is shown to have purchased $529 billion of US treasuries. Granted, a great deal of this was due to money flowing into more conservative 401(k) investments via mutual funds. This pace, the purchase of approximately 45% of what the Treasury was selling, is four times that of the previous year.

This sort of immunization has not gone unnoticed. The problem with many of these commitments to a more conservative approach may be creating a bubble of their own.  These types of debt instruments are based on price and yield.  As one goes up, the other goes down.  The more someone is likely to pay for a bond, the lower the yield that is offered. 

If this sort of pace continues, and it looks as if it may as the temptation to be able to even consider retirement strengthens as the economy gradually improves.

But with more people flocking towards these fixed income investments, the price paid will begin to become unattractive, in large part because inflation remains benign.  That won’t last forever.  And when those conservative investors begin to realize that the yield is now negative to inflation, the selling will begin.

The real paradox will then kick in.  Now what? More

Retirement Planning: Fix that Credit Score Now!

That sounds easy enough. Fix that credit score and the world of low interest rates, hassle free loans and financial security await you. And that is true. But how much should you agonize over the number? Apparently not that much. (Unless of course you are close to retirement.)

The Best Credit Score
You have heard people boast about their high credit scores, suggesting that once you breach that 800 mark (850 being the highest mark Fair Isaac, inc or FICO gives to the best), it will all be clear sailing. But if you didn't know, you don't even need an income to score that high. You don't need a good employment history. heck, you don't even have to own a single asset. That college grad/student living in your basement, with no job and no debt (some have actually paid as they went, using the community college option to keep costs down and college debt doesn't show up until your graduate) could score higher than you.

As Karen Blumenthal of the Wall Street Journal refers to it as: "less like a report card and more like an SAT score—your results on a particular date that seek to predict your future credit success or failure." This flies in the face of what you may think about these scores. Behavior is not the only thing these credit scorers look at.

When credit scorers look at you through their lenses, what they see is someone who uses credit. You may assume because you pay off your bill, you place on the pedestal is assured. It may be provided you use less than half of what (credit limit) is available to you each month. Charging everything you buy in the hopes of getting rewards such as cash back or airline miles can actually jeopardize that score - even if you pay it off each month.

Some Quick Thoughts
If you plan on applying for a mortgage or buying a car, back off on your credit card usage in the months prior to the application. Although a good credit history can stay on your report for life - from the very fist card you have to the accounts that were closed in good standing to the cards in you wallet - what you do stays with you.

That doesn't mean you will always be perfect. No one is. But if you do find yourself behind as much as one day, don't put the call off. In many instances, your creditor does not report your tardiness for thirty days, even though they will charge you a late fee immediately. Calling assures them you are aware of the problem and not about to let it go for an additional month. At that point, they will report you.

Keep in mind, these mishaps stay around for about seven years. But good credit lingers. Some folks believe that lots of open accounts signals a problem. That may be so in some instances but those inactive accounts with zero balances reflect the creditors unwillingness to close the account due to inactivity - not your need to remove the temptation.

Beware the offers to monitor your credit score monthly. These services are mostly unnecessary. You know where you stand and if you don't, once a year should suffice for most of us. AnnualCreditReport.com offers a once year check on your credit but does not give out a score.

Keep in mind that once you are over the 700 level and approaching the 750 mark, you have done all that is worthwhile to improve your credit profile. Higher than that will not reflect in a lower rate. But every 20 points leading up to that mid-700 number will have a slightly better impact on your overall score, netting you a slightly better interest rate.

When it comes to Retirement Planning
Credit scores are for more than first time home buyers. They need to be repaired will you are still working. If your credit score is in need of repair, now is the time to do it. For many of us, we will be working later in life or carrying a mortgage into retirement - something our parents never did. Getting the best possible loan is key to making your retirement cash last. Although paying off the loan is still better.

Some Retirement Account Suggestions

A recent Boston Globe article offered this: "When millions of U.S. investors open their second-quarter retirement account statements soon they might be disappointed with their dividends, analysts say.

"Most investors will find their stock and bond funds in 401(k) and individual retirement accounts sank between April and June amid skyrocketing fuel prices and a slowing economy." The temptation many fear is that these individuals will begin tapping those plans, seeing the balances as better used for day-to-day living expenses rather than day-to-day expenses in the future.

You should avoid touching that 401(k), now posing more as a 201(k) after recent market turmoil for two reasons: One, if you are well away from retirement (say fifty or below) you are looking at a long time for the markets (and your savings tied to those markets) to recover.

The second reason has more to do with why. If it is for debt relief, then scale back your contribution and use the extra cash towards debt (contribute only what matches). If it is for market relief, reduce the fees in your plan and index your savings. Normally, I suggest index funds be held outside your defined contribution plans for the better tax treatment but with the markets sending mixed signals and more aggressive funds failing to offer fee relief, perhaps the switch would make the losses less painful.

These times do make pensions (defined benefit plans), those antiquated savings stabilizers (like Social Security) look awfully good. I just hope next time some politician suggests privatization, that we remember these trying times.

Taxes and Retirement Planning

As the late George Carlin once said, “the poor are only there to keep the middle class going to work each day.” And so it goes, we are off to work each day, hoping beyond hope to scrap by without having your life’s work stripped away by health insurance costs, lack of creditworthiness and kids and/or parents who are becoming increasingly dependent on your incomes.

And the one hidden menace, lurking in the background is taxes. Sure, I focus a great deal on the influences of the economy at large, the subtle impact of inflation and the political landscape of money, but taxes, the thing that no one likes to admit keeps the public engine running in communities across the country, are about to increase. But will you notice?


On the Local Level
Revenue for state and local governments ebb and flow with the state of the economy. When property values jumped dramatically, taxes tied to the assessed value of those home filled the coffers and made new project planning easier. But as those values decrease, those revenues will still be needed to keep the communities running even if its residents feel as though those taxes would be better kept on their own side of the balance sheet.

Some states are making swaps, using one revenue source to pay for another that may not be doing as well. A good example of these kinds of swaps is cigarette and alcohol taxes increasing as property taxes are frozen (usually at 1-3% of assessed value), capped or cut.

Expect sales taxes, if your state has them, to increase over the next several years. This does help tourist rich cities to capitalize on outside sources of revenue but for the most part, it slows the economic growth by taking spending money from the consumer.

Look for an increase in amnesty programs, events designed to get delinquent taxpayers back into the system using the lure of payment without penalties of late fees.

On the Federal Level

This is the big unknown question. Senator Barrack Obama has made I clear he believe that the families with household incomes exceeding $250,000 should be paying what he refers to as “their fair share”. Investors expect that this group, the ones most likely to support the capital gains tax of 15%, to pay more for the sale of stocks if he is elected. (The prevailing belief is that even if Obama is elected and increases this tax on the wealthiest of families, it would be capped at 28%.)

Senator John McCain on the other hand, is offering much of the same program that has been successful, but only if you ask the right people. Mr. Obama’s plan would force many folks who have not diversified, specifically those with illiquid assets, to do so before the new president takes office.

If Obama gets his way, states and local municipalities would see a huge influx in revenue from tax-exempt municipal bonds. This can be tricky territory though. Some munis trigger the alternative minimum tax (AMT) because they pay interest.

The Effect on your Retirement Plan

Unless you are among the highest wage earners, your approach to retirement planning should be focused not so much on how much is in the nest egg but how much income, less taxes and inflation, will allow you to be comfortable. That number is generally different for each of us and unfortunately is based on a perfect situation (usually calculated without considering taxes and inflation).

Most of us can expect to take home – after retirement – a paycheck that is 30% lighter than we estimate (3% for inflation – modest and hopeful guess, 15 – 20% income taxes on earnings from deferred income sources like pensions and retirement accounts, and 10% on property and local taxes).

That means you will need to save an additional 30% above what you are currently putting away for your future or, lower your expectations on how much you will need.

We can count on one thing: Your elected officials feel your pain but can do little about it. Taxes will not go down no matter whom takes the helm in Washington or at the local level. The best you can do is plan for the worst.

H is for Honesty - Retirement Planning

We all want honesty, except when it comes to our finances. We desperately want to be told what we want to hear about our retirement plans rather than what we need to hear. And the honesty we look for - or better yet, the lies we would like to be told are as follows:

1. We will have enough money to retire.
I would love to believe that you or any one has this calculated correctly. It seems that each day the free market has the opportunity to do what it does best, the number we have assumed is best case scenario, needs to be recalculated.

2. We will be able to get debt free.
Debt free is a nice goal but debt management is a more honest approach to what your future holds. We use credit at the pumps, in restaurants or any time - and this is just good advice - we lose sight of our credit cards during a purchase. So each month, we need to manage that debt.

3. We will be able to estimate the cost of insurance.
Most of can't do that now. Do you assume that it will be easier on a fixed income? think again. Fidelity suggests that a nest egg of just over a million dollars might be enough to cover your future health insurance costs.

4. Our kids and in some case, our parents will not have an effect on our retirement plans.
If you believe this to be true, you never had kids and/or your parents have since been deceased. otherwise, these two groups will cost you more than you think. A recent New York Times article suggested that inheritances that may have been expected by many near-to-retirement adults can no longer be assumed. For those of us with parents who have no inheritance to spend down, you may be the only salvation for their financial well-being. And your kids...

5. Your investments are not as honest as you once assumed they were.
Look at oil. Look at the stock market. Look at bonds. Look at your tax bill. Need I say more?

Being financially honest with yourself is step one in considering how far you need to go to get to some semblance of retirement.

A is for Asset Allocation

B is for Balance

C is for Continuity

D is for Diversity

E is for (Tracking) Errors

F is for Free-Float

G is for Gross Income

Retirement Planning and the Advice of Professional Money and Investment Planners

In a recent column in the San Diego Union Tribune, a financial planner was enlisted to offer a reader a financial make-over. The goal was to retire at 55, after a divorce, after a recent home purchase, and after racking up a five figure debt with credit cards.

The planner suggested:

"Use emergency savings to pay off debt.

"Decrease monthly retirement contributions from $500 to $300; use the extra $200 to rebuild emergency fund.

"To retire at 55, work part time for 10 years (with a minimum salary of $20,000) and consider selling home and buying a smaller property outright to eliminate a mortgage during retirement.

"Establish a budget to manage current spending habits.

"Revise W-4 form with employer to account for mortgage and property tax deductions; doing so will increase income by $400.

"Take on more risk and diversify asset allocations to maximize returns for the next few years before retirement.

"Look into the purchase of a $1 million umbrella policy as well as disability insurance.

"Have a coordinated will and trust drawn up along with applicable medical directives and powers of attorney."

And because the article allowed for comments, I added the following: "Sounds like her planner needs to suggest the harsh realities. Let's start with her inability to come up with or budget for those property taxes. With a current liability (mortgage payment, which seems to me was adjusted at some point) and a $5,000 a year property tax bill (something that is guaranteed never to decline), Ms. Ventura will not even come close to enough to live on with her pension. If she were to retire right now, with the assets she has, she would have about $300 a week for all of her other incidentals.

"Her planner," I wrote, "wants her to decrease her retirement contribution by 30%, add more insurance, not really retire (work part-time for earning least $20,000 a year - doing what?) and rearrange her asset allocation to get 10.68% a year return (even without the use of index funds, no short term or intermediate bond investment coupled with large-cap and international exposure could hope to get those kinds of returns which so far over the last ten-years hasn't and projecting even optimistically out over the next ten years will).

"And after all of that, he wants her to sell her home.

Why not just keep working until she is 65, put away the credit cards (while continuing to pay them down - which if she took her current personal savings to do would allow her to redirect that $450 to rebuilding that account - which would still have, according to the numbers listed above, well over $13,000 in checking and savings) and budget in another $300 towards the mortgage payments bringing the overall life of the loan down to around fifteen years. This will leave her living tight - like the rest of us - but will also increase the chance that she will have her home when she retires (meaning when she stops working) and might be able to pay for the taxes on the property.

I see no mention of health insurance in Mr. Phelps plan short of a disability policy or an employer sponsored long-term care arrangement. That 403(b) and 457 plan will begin to cover that but if a recent estimate by Fidelity suggests, her savings for insurance in a post-work life will fall short by $850,000.

True, Ms. Ventura is doing better than most but she is going to need to rethink those post-divorce goals. And this is true for many of us.

When we calculate how much we will need, we tend to gloss over numerous factors in an attempt to tailor our dreams to fit. Her financial make-over would have cost her $1,200 and she would not really be any closer to the truth about her future than had she just faced the facts.

One: Divorce changes the whole retirement picture. Ms. Ventura is no exception, she will have to recover much more financially than had she remained married.

Two: The cost of retirement is rising every day, just like everything else. Plan on a 15% increase in those costs, year-over-year. Can she handle that and still retire at 55? Not likely.

Three: There are no guarantees. That employer sponsored pension may falter. Those investments may weaken. That house may be worth less as the taxes on it rise.

The best base calculation she can make: Can she live on half of what she is making now? Because that, for an increasing number of us, is the reality of retirement.