Showing posts with label retirement. Show all posts
Showing posts with label retirement. Show all posts

Tuesday, July 13, 2010

Manage Your Own Money For Retirement

Most companies will match a percentage of their employee’s contribution to their retirement accounts. This is a nice benefit as it encourages the employee to save money because they are being given an additional sum on top of their base salary.

This additional sum in your retirement account can be quite substantial as it cannot be withdrawn until you hit retirement.

Brokerage firms will also allow you to set up a direct retirement fund, called a Roth IRA. If you have the time and enjoy doing financial research, giving yourself control over your retirement savings might be a good idea.

You don't have to pay sales commissions and management fees to incompetent money managers who make money regardless of your portfolio performance. You also have destiny in your own hands by investing in your desired asset classes and executing the buy and sell orders.

However, managing your own retirement account is not without risks. The market is very volatile and you are not guaranteed to make profits from stocks. This approach is recommended if you buy risk free assets like Certificates of Deposit or Money Market short term paper. In such cases, engaging a financial planner is a waste of money.

It is only when you don't have the time or expertise in exotic investments, that you seek professional money managers. They can help you to diversify your portfolio into stocks, bonds or complex assets like options, forex, commodities.

You have speak to a real person about your financial goals, and work on a strategy that fits your needs. But remember that money managers do not always make money, so entrusting your money to them might not give you the best return.

To ensure a secure retirement, it is important to find a money management professional who has been in business for years. Check their track record and expertise in negotiating the volatility of the market.

Also check out red flags like your money being tied up for a significant period of time. Make sure that you can always gain access to your funds at any time as most fraudulent companies require you to lock up your money for years.

Wednesday, June 16, 2010

Protect Your Retirement Savings From Shady Money Managers

As you approach retirement, it is inevitable that you worry about sufficient savings to tide over your needs when you no longer have income. This is a scary moment, especially for those who have little savings to continue their lifestyles.

Fretting over the issue is a bit late by then and you should really squirrel away as much of your retirement account in your youth. However, even if you have fat savings, it is no guarantee of a comfortable retirement when you don't protect your savings.

In the past few years, many people lost their savings due to fraud (Bernie Madoff and Allen Stanford ponzi scams). There are many financial professionals that offer advice on money management but ended up cheating their client’s money or just collect fees without increasing your retirement portfolio.

Some hedge funds will promise you big returns, but do your research and ask around before you commit any of your retirement saving to them. As can be seen, the Securities and Exchange Commission is not always watching over average investors and they do their work on hindsight.

In order to sleep better at night, knowing you have enough savings to last through retirement and the money is safe from vampire suckers, you must research every company that you plan to entrust your money.

In conclusion, when something sounds too good to be true, it probably is...

Sunday, May 30, 2010

Americans Not Prepared For Cost Of Retirement

retirement cost for Americans

Retirement planning for Americans is a sad story. Looking at this chart from Kiplinger, it is no wonder most Americans are in a precarious position during their golden years.

The $1,000,000 retirement figure may seem high, even by most conservative estimates. However, with inflation, higher taxes and health/insurance cost soaring in the next few years, I don't think it is a wild estimate.

Growing our retirement nest will prove tricky though. For those who find stocks too volatile, they can sit on cash or invest in fixed income assets. However, you can't get rich or attain that $1 million target with the pathetically low interest rates on fixed income investments.

The situation becomes even more dire if lower wages become the norm and our homes, the most valuable assets, cannot recover from the housing market downturn.

Currently, the money market fund is paying less than 1%, and municipal bonds are in low single digits. By holding interest rates low and ramping up money supply, the Federal Reserve is actually punishing savers and retirees while rewarding risk takers.

The banks borrowed money from the Fed via the TARP program for close to 0%, and invest it in risk free Treasuries, proprietary trading, mortgage loans, as well as charging taxpayers sky high interest on their credit cards!

If we can get 8-10% interest on our savings account, we may require less than a million dollars to retire. Unfortunately, savers like us do not have access to TARP money to speculate.

What we can do is to save as much of our income during our working life. Living a high life with borrowed funds, just to keep up with the Joneses is a no-no. And get used to the idea of retiring later.

Source: Kiplingers

Sunday, November 15, 2009

Money Mangement As You Approach Retirement

A key element to successful money management is to live within our means. That is easier said than done in our culture of instant gratification. Fulfiling our basic needs is taken for granted and we desire luxurious comforts before we have saved enough money to afford them.

For those who are apporoaching retirement, it may seem that you have finally established yourself financially and deserve some indulgence. But your retirement needs (like medical cost, insurance, vacation, entertainment, etc) may have been underestimated and there are still outstanding debts to pay off.

Money Mangement As You Approach Retirement
To ensure a comfortable standard of living during retirement, mastering money management is essential.

Paying off the past

To live within your means, you need to implement responsible money management by paying past debts first. As an example, your children’s college bills are still outstanding. If you used PLUS loans (federally sponsored education loans for parents), you have standard, graudated, extended or consolidated repayment options to choose from.

You probably want to pay off the loans as soon as possible. It is better to live debt-free during retirement, as you no longer have employment income to offset expenses.

Avoid Credit Card Debts

It is of the utmost importance now, with retirement approaching, to avoid credit card debt. Whatever you purchase, make sure you can afford it and that it does not take away from your retirement savings.

Staying Smart and Rational

As you approach retirement, your kids will have finished their education, moved out and started their career, so they are financially independent. For the first time in many years, you may be responsible for just your spouse and yourself.

With this money freed up, you have more funds to meet your retirement needs. However, you need to stay smart and rational to prevent falling prey to get-rich scams, impulse buying, stock market exuberance, or other folly ventures.

Watch Expenses And Invest in the future

I believe most people should have accumulated a comfortable retirement nest in the few years prior to retirement.

It is easy to succumb to an extravagant lifestyle with surplus cash lying around, but spending recklessly now means you could outlive your retirement funds. That is not to say you can't indulge occasionally (like buying gifts, fine dining, or a vacation) during retirement if basic living expenses are well taken care of.

Investing in the future (on a conservative note) is also necessary, not so much for capital gain but to protect your purchasing power. The effects of Federal Reserve money printing will be felt keenly in the next few years, thus inflation is a threat to your wealth.

Tuesday, August 18, 2009

Retirement Planning: Can You Make Do With Less?

Since the 80's, we have benefited from strong GDP growth, low inflation, lower taxes, and bull markets in both equities and bonds. It was easy to build up our wealth but gone are those days.

For the last year or so, a lot of people suffered immense losses in the financial crisis. Even if the worst of the recession is behind us, we have to prepare for a different economy.

Retirement Planning: Can You Make Do With Less?
Due to tighter regulations and lesser debt-fueled consumer spending, forecasts for economic growth and investment returns are expected to be lower. For a lot of baby boomers who are likely to retire in the next decade, that is bad news.

Yet, financial planners still impress upon us the need for an 80% replacement rate of pre-retirement income to enjoy a reasonable standard of living after retirement. This is a lofty target and if your wealth has been decimated in the financial crisis, achieving the goal looks even more distant.

For most of us, circumstances will ensure that we make do with less or continue working past retirement age. According to the Federal Reserve’s 2007 Survey of Consumer Finances, the median income for households headed by retirees is just $25,000 a year.

That is about half of the median income for all families, which is $47,000. Clearly, a lot of retirees are doing well on a modest 50% of pre-retirement income.

I do not like to set any benchmark to measure our retirement success but I won't say that the 80% target specified by financial planners is entirely unrealistic. It is true that the future contains many challenges which require that we save as much in our retirement fund as possible. And don't mention early retirement to me.

For a start, runaway inflation, or stagflation, thanks to the relentless money printing by the Federal Reserve to back-stop losses in the financial system and stimulate the economy, will whittle our purchasing power considerably.

Next up is Social Security which has been billed as one giant Ponzi scheme. As it is, the problems with funding Social Security are serious. Given the trillions of dollars in debt racked up by the U.S. government, from its years of practicing a reckless policy of "deficits don't matter," it has finally reached a stage where higher tax rates are inevitable.

And then there’s the problem of soaring healthcare costs. The Employee Benefit Research Institute reveals that a typical 65-year-old male retiree may need about $173,000 to cover health insurance premiums and out-of-pocket expenses in order to have a 50-50.

Of course, the longer you live, the more money you need to set aside. President Obama is advocating healthcare reforms to bring it in line with the core rate of inflation, but I am not sure how effective that policy will be.

In the end, 50% or 80% of pre-retirement income targets depend on individuals. To ensure self-sufficiency, we should get serious about a retirement plan as soon as possible and not wait till 5-6 years before retirement.

In a globalized economy where jobs are outsourced, manufacturing plants relocated and our skills rendered redundant quickly, we have to prepare for long periods of job losses, thus, our retirement goals should also be realistic.

I also prefer to pay off mortgage loans before retirement. This will greatly improve our cash flow and let us sleep better at night, knowing that whatever happens, we have a roof over our heads.

If possible, we should accumulate 1-2 years of cash to prepare for emergencies. This will prevent us from making panic decisions on our other investments.

There is no harm in saving too much money but if we retire with little assets and are debt-ridden, then it could be disastrous. I doubt the government will be able to look after our retirement needs.

Looking at California's budget crisis which is always a good reflection of America's state of affairs, who knows if the federal government will declare bankruptcy in a decade's time, when the dollar loses its reserve currency status and the world has had enough of US debts.

Hence, we should really set our savings target as high as possible and to get started saving money today.