Posted: April 6th, 2011 | Author: Joe | Filed under: Retirement | Tags: Debt, Retirement, Retirement planning | 2 Comments »
This is a sad story about Susanna Wilson, 70, who never planned for the future. She has no retirement savings and now realizes she “can never retire”.
Not to seem heartless, but this is another example of poor (or no) planning, and bad choices. Not everyone is born a good decision maker, and some are better than others. But by and large, decision making is a skill and it can not only be learned, but it can be improved.
I offer this story to my readers as a means to learn form another’s mistakes, and remind ourselves of the importance of proper planning and not letting our emotions rule our decisions entirely.
Planning is important.
Despite owning a several businesses (a clothing line, perfume maker for example) and earning $65,000 a year in the 70′s she never saved a dime for retirement. Being self employed, she could have saved up to 25% of that per year in a Keogh plan – tax deferred! That’s $16,000 per year in her account, and off the top of her tax bill!
Following your heart and ignoring your head can be costly.
Her free spirited ways led her to leave University of California, Berkeley before graduating to follow and marry her college sweetheart, a “minimalist sculptor and sometimes rock musician.”
I’m not saying you have to be Mr, Spock all your life and let your passions wither on the vine in a desert of logic, but if it was truly meant to be, then it would still be meant to be after she graduated college. Postponing would have at least given her a degree – an important commodity in the decades following her stint at Berkeley in the late 1950′s.
Besides, in all likelihood, she would have realized it wasn’t meant to be and she could have saved herself one of her eventual two divorces. Incidentally, Divorce is also a costly “life event”, especially for Ms. Wilson since she never received any alimony.
There are always possibilities.
Flash forward to today and things look bleak. Ms. Wilson lives on her social security check of $900 a month, and a one day a week job at a local jewelry store for $12.50 an hour.
She’s got a house with a $5,477 mortgage, and about $9,000 in credit card debt. The credit card debt is from living expenses, so her income is clearly not enough to get by.
The good news in all this is her house. She inherited it with no mortgage, but had to take out a mortgage to pay for repairs. That leaves her with more than $150,000 in equity and since she’s over 62, she’s a candidate for a Reverse Mortgage. In fact, she’s probably a poster child for one!
A reverse mortgage would get her a monthly check from the bank. Not to mention, it would eliminate her mortgage bill in the process. Increased income, and decreased expenses – it’s all around winning!
Read Susanna Wilson’s story here.
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Posted: March 2nd, 2009 | Author: Joe | Filed under: Retirement | Tags: 401(k), Retirement planning | 3 Comments »
I’m getting exasperated. It seems like every time I turn around, there’s another article about “fixing the 401k.” Repeat after me: The 401k does NOT need to be fixed!
Don’t believe me?
Consider this recent article on CNN/Money, titled It’s time to fix the 401(k), by Penelope Wang,.
Ms. Wang details some of the things she views as the shortcomings of the 401k plan as it pertains to saving for retirement.
“Lots of people start saving too late, save too little or make missteps with their portfolio. And all of us are vulnerable to risks that we can’t control. … Or you may hit a market storm at precisely the wrong moment: the year you stop working.”
She also references the 10% penalty on early withdrawals. The problem here is not the 401k, it’s the investor! There will always be some who either cannot or choose not to learn proper money management. If these people were investing in an IRA or a general stock market (i.e. non- tax deferred) account, they’d have the same problems.
She goes on to say:
“Over the past 12 months, a 64-year-old investor in an age-tailored “target date” mutual fund has lost 26%. Savers with high balances can recover from that. But many lost more, and the typical near-retiree with a 401(k) has less than $50,000 stashed away in it. “
Again, this is not specific to the 401k, it’s the stock market in general. Many stock portfolios have dropped 26+% over the past 12 months, whether they were held in a 401k, IRA, Roth IRA or standard brokerage account.
So, she’s not happy with the 401k plan. What’s her proposed solution to this “problem”?
“Our current retirement system hasn’t broken – it was never really a working system to begin with. No law-makers designed the 401(k) to displace the traditional pension, although that’s what ultimately happened.”
I have a serious problem with the premise of this: namely that law-makers (i.e. bureaucrats in Washington) are knowledgeable enough to create a plan that solves the problems outlined above. Where is the evidence of this? The bankrupt Social Security system? The current bailout/tarp/spending fiasco taking place (and driving the market down) on a daily basis ? I don’t think so.
In fact, much of the article seems geared toward pushing the Ghilarducci plan that I wrote about here. In that plan, workers would forfeit the opportunity to earn higher returns on their retirement savings for a “guaranteed” return of 3% per year, inflation adjusted.
3% per year in the positive may sound great when you’re looking at your 401k balance down 30% over the past year, but when your balance is growing at a double digit clip (as it will again someday) it’s not looking so good.
The real problem isn’t the 401k, or the free markets – it’s education.
No retiree 5-10 years out from retirement should have 90% of his savings in stocks. That’s an insane amount of risk (unless he doesn’t need the money for 1st 20 years of retirement!). Ms. Wang does outline some actual problems with many 401k plans. For instance:
” Your employer might not offer a plan or might choose one with second-rate investments. “
Other potential problems might be high fees, and no employer match. I’m all for standardizing and expanding investment options in 401ks – just keep the Government out of my retirement thanks.
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Posted: July 22nd, 2008 | Author: Joe | Filed under: Investing, Retirement, Saving | Tags: 401(k), Investing, IRA, Mistakes, Retirement, Retirement planning, Saving | 2 Comments »
According to a recent BankRate poll:
“Only about three in 10 workers (28 percent) expect to have enough money to retire comfortably. “
Summary:
* “One-third (33 percent) say they’ll have just enough to get by.
* Two out of 10 (17 percent) say they will not have enough money to retire without worrying.
* Nineteen percent say they are afraid they’ll never be able to retire.“
Which group are you in?
Chances are, if you’re in the 69% outlined above it’s because you made emotional decisions to make the wrong move at the wrong time. That’s what the analysis of the report is from BankRate.
What kinds of mistakes?
“One out of six Americans have increased their retirement savings as a result of the slumping economy. …But experts are stunned that nearly 16 percent have actually increased the amount they’re saving as a result of the current economic downturn. “
I’ll say! Economic downturns are exactly the time people should be buying more equities in their retirement accounts. Of course, even if you’re setting aside the same amount as you were 2 years ago you’re buying more now. That’s the beauty of dollar cost averaging. But here’s the other thing – “experts are stunned”! I think this is because experts don’t have a handle on the average person and his knowledge or awareness of investing.
Experts are stunned because they are financially literate and know you should buy more when the market is down and buy less when the market is up, all other things being equal. But the average “man on the street” only hears and sees that the world in general and the economy in particular is going to hell in a hand basket week after week in the papers and the nightly news. There is a definite lack of context and historical perspective in the news media today, and the financial media isn’t very different.
“”That seems to me very hard to explain, or understand,” says Alicia Munnell, director of the Center for Retirement Research at Boston College.”
Because they have financial training and don’t feel the fear and panic the average worker feels.
To be fair, it isn’t as though the majority of 401(k) and IRA participants is pulling their money out of the retirement fund in favor of the mattress.
Here’s the breakdown:
- 15% Decreased contributions.
- 16% Increased contributions.
- 73% Kept contributions the same.
- 8% Stopped contributing altogether.
- 9% Made a withdrawal from your IRA or taken a loan from your 401(k) or retirement account
But the 27% that have put their retirement in question, if not jeopardy, by decreasing contributions or withdrawing funds prematurely are only shooting themselves in the foot.
Have you cut back on your retirement savings? If so, do you regret doing so?
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