Archive for August, 2007

Nothing Down, $0 a Month, Hammer Required

Posted on August 30, 2007 by Jason

The New York Times, August 30th, 2007

Why would some people willingly spend decades — and hundreds of
thousands of dollars — renovating houses they will never own? For a
small but growing number of so-called resident curators living in old
and cherished state-owned houses up and down the East Coast, the
answers include the pleasure of bringing an abandoned landmark back to
life, freedom from mortgage payments and the chance to live in the kind
of home that would otherwise be out of reach.

“We’re people of modest means,” said Darrold Endres, a nursing home
administrator who has been living in and restoring an 1860s farmhouse
near Boston with his family for 12 years. “We could not afford to live
in an incredible spot like this, in a town with wonderful public
schools for the girls, if not for the curatorship program.”

Programs
like the one in Massachusetts have come about because many state
governments own more houses of historical interest than they can afford
to maintain, mainly on farms acquired decades ago and converted to
parkland. Now a few states have begun turning these properties, along
with some of the surrounding land, over to live-in curators, who take
on restoration responsibilities in lieu of paying rent or taxes.

More
states are looking to resident curator programs as a way to hold onto
history, especially since a more familiar approach — opening the old
houses to the public as museums — is on the wane, mainly because of a
decline in visitors.

The houses mostly date to the 19th century,
and have often sat vacant for years in remote forested areas; their
tenants — typically married couples — often do much of the renovation
themselves. Many have professional experience in construction as well
as “creative skills that are especially good for dealing with the finer
details in the house,” said Kevin M. Allen, who oversees the 28
properties in the Massachusetts Historic Curatorship Program, founded
in 1994.

Read more of this article.

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Debunking money market fears

Posted on August 30, 2007 by Jason

CNN Money, August 28th, 2007

Question: With all the woes in the subprime market and
considering the reports that some money market funds hold money in
securities that include subprime debt, should I be worried that my
money market fund may “break the buck”? – Keith Lobel, Columbia, S.C.

Answer:
The news wires have certainly been abuzz lately with reports of
securities linked to subprime mortgages turning up in money market
funds. And reading some of these reports can scare the bejeezus out of
you, as many have a “the sky is falling” tone to them.

Indeed, some of the coverage conjures up images of “The Blob,” the
1958 sci-fi flick that featured that jelly-like mass that kept growing
and growing, devouring everything in its path.

I don’t want to
dismiss concerns about the security of money market funds. Given the
level of fear in the credit markets these days, it makes sense to be
cautious. But you don’t want to be paranoid. So to answer your question
of how worried you should be, let’s first step back and try to gain a
little perspective.

To begin with, you should know there has been some misinformation
floating around about this issue. Two weeks ago, a number of financial
news outlets reported that an Illinois money manager told clients it
wouldn’t satisfy redemption requests for the $1.5 billion it manages in
money funds.

The reports also referred to money market funds
investing in subprime-related investments. But the account in question
is a cash management account for commodity traders. It’s not a true
money market fund.

Prior to that report, two AXA funds that had
been swept up in the turmoil of the subprime market were also referred
to as money market funds, although they too were not true money market
funds. So you’ve got to be careful when reading press reports about
problems in money funds.

Read more of this article.

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A Sobering Census Report: Americans’ Meager Income Gains

Posted on August 30, 2007 by Jason

The New York Times, August 29th, 2007

The economic party is winding down and most working Americans never even got near the punch bowl.

The Census Bureau reported yesterday that median household income
rose 0.7 percent last year — its second annual increase in a row — to
$48,201. The share of households living in poverty fell to 12.3 percent
from 12.6 percent in 2005. This seems like welcome news, but a deeper
look at the belated improvement in these numbers — more than five years
after the end of the last recession — underscores how the gains from
economic growth have failed to benefit most of the population.

The
median household income last year was still about $1,000 less than in
2000, before the onset of the last recession. In 2006, 36.5 million
Americans were living in poverty — 5 million more than six years
before, when the poverty rate fell to 11.3 percent.

And what is perhaps most disturbing is that it appears this is as good as it’s going to get.

Sputtering
under the weight of the credit crisis and the associated drop in the
housing market, the economic expansion that started in 2001 looks like
it might enter history books with the dubious distinction of being the
only sustained expansion on record in which the incomes of typical
American households never reached the peak of the previous cycle. It
seems that ordinary working families are going to have to wait — at the
very minimum — until the next cycle to make up the losses they suffered
in this one. There’s no guarantee they will.

Read more of this article.

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Beware Early Retirement Promises

Posted on August 29, 2007 by Jason

The Motley Fool, August 29th, 2007

Wall Street scams never cease to amaze me. I’m not talking about the
really brilliant ones, the multilayered market-manipulation attempts
that would make a fine premise for a mystery novel. I’m talking about
the dumb ones, where professionals who surely know better make wild and
unrealistic promises to unsophisticated investors.

Don’t they have any foresight? I mean, if you sell someone on the
idea of early retirement on the premise that the market is going to go
up every year, do you think you won’t hear from them when the market
fails to perform as you promised?

Back in June, the NASD hit Citigroup‘s (NYSE: C)
Global Markets unit with a whopping $3 million fine and ordered them to
pay $12.2 million in restitution in exactly this kind of case. What
happened? A group of Citi brokers — acting without authorization from
the home office, of course — made a series of presentations to
BellSouth employees, telling the employees that if they cashed out
their pensions and 401(k)s and invested with the brokers, they could
expect to make 12% a year. That may not seem totally outrageous …
until you find out that they were telling the employees they could
retire early, withdraw 9% a year, and still see capital accumulation
over time.

Of course, they neglected to note that those 12% investments were
just a little riskier than the employees’ pensions, and they also seem
to have forgotten to disclose that they’d be taking a 2%-3% fee off the
top. Now, in the annals of whoppers, it’s not a big deal to say that a
stock investment is likely to return 12% on average over an extended
period, given that the market’s average has been a shade over 10% a
year over time. But 12% after fees, when those fees might be 3%? That’s
entering whopper territory.

Read more of this article.

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Prepare for a Gruesome Retirement

Posted on August 29, 2007 by Jason

The Motley Fool, August 28th, 2007

It’s time for some tough love. After all, I want you to have a
comfortable retirement doing things that you enjoy and have always
desired. That may mean dining in fine restaurants, traveling to the
Galapagos Islands to see blue-footed boobies, or taking your
grandchildren to Hershey, Pa., to eat chocolate to their hearts’
content — then coming home from these activities to your spiffy
retirement community.

But, judging from some startling statistics I discovered, you’re in
danger of a retirement that’s quite the opposite. Picture dining on
Salisbury steak TV dinners, traveling to the Git’n'Go down the street
for a bag of chips, and taking your grandchildren to the Salvation Army
as you shop for some new clothes — all while living in a relative’s
damp basement.

The facts

According
to the 2006 Retirement Confidence Survey (RCS), we can be confident
that many people will have gruesome retirements. In fact, according to
a separate survey, 31% of Americans would rather scrub a bathroom
than plan for retirement. Rest assured: If you’ve been putting off
planning for your retirement, you’re not alone. (I can’t speak for the
scrubbing thing.)

Check out the numbers from the RCS. They reflect the total savings
and investments (not including the value of the primary residence) of
today’s workers, broken down by age group:

Read more of this article.

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Use of income annuities in retirement gets a plug

Posted on August 28, 2007 by Jason

Investment News, August 28th, 2007

While income annuities are the most cost-effective way to provide
income at retirement, investors are reluctant to purchase them,
according to a new study.

Consumers aren’t annuitizing enough of their portfolios, according
to the study, which was released Aug. 14 by the Wharton Financial
Institutions Center at the University of Pennsylvania in Philadelphia
and New York Life Insurance Co. Inc.

In addition to paying
investors a return on their investment, income annuities are designed
to pay them a portion of the original principal with each payment.

As
a result, buyers are guaranteed a permanent stream of income, which
they wouldn’t get if they put their nest egg in a traditional portfolio
of stocks and bonds.

How much is enough?

The study, “Investing Your Lump Sum at Retirement,”
concludes that individuals should annuitize 50% to 70% of their assets,
and in some cases, up to 80%, said David F. Babbel, a fellow at the
Wharton Financial Institutions Center and a professor emeritus of
insurance, risk management and finance at the University of
Pennsylvania. He is the co-author of the study.

“When you treat
an annuity as another asset class, the risk and return characteristics
are so attractive that you end up using a good portion of the rest of
your assets devoted to annuitization,” Mr. Babbel said.

Read more of this article.

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Schwab Institutional Study Finds Even the Affluent are Anxious About Retirement

Posted on August 28, 2007 by Jason

CNN Money, August 28th, 2007

Sixty-one percent of financial advisors say that having sufficient
retirement savings to maintain their desired lifestyle is a constant
concern of their clients, reveals Schwab Institutional’s most recent
Independent Advisor Outlook Study. The study also finds that another 35
percent of advisors say their clients worry about this at least some of
the time.

Schwab Institutional is a leading provider of custodial,
operational and trading support to more than 5,000 independent
investment advisors. The semi-annual Independent Advisor Outlook Study
measures the views of independent Registered Investment Advisors (RIAs)
on a variety of topics. Nearly 1,100 independent investment advisors
with $235 billion in total assets under management participated in this
study in late July. Clients of these advisors are typically
millionaires.

More than one-third (39%) of these advisors’ clients consider
themselves to be retired; however, many of these individuals haven’t
completely exited the rat race — nearly six in 10 (59%) retired
clients are pursuing a new career interest. And these affluent retirees
aren’t necessarily considering a second career just for fun or to
pursue a passion — according to the study, the need for additional
income is a strong consideration. Advisors say that more than half
(51%) of clients who are already retired continue to work to maintain
their lifestyle; 48 percent say their clients work to fund leisure
pursuits, while 39 percent of advisors say clients do so to cover
unanticipated expenses.

“Almost no one is immune to retirement unrest, but our study shows
that over the past six months, on average only 12 percent of advisors’
clients needed reassurance that they were on track to meeting their
financial goals,” said Charles Goldman, executive vice president of
Schwab Institutional. “Clearly, the personal approach and long-term
view that independent advisors take instills a measure of confidence
and trust with their clients so that they can sleep well at night.”

Read more of this article.

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Consumer confidence down in August

Posted on August 28, 2007 by Jason

Yahoo News, August 28th, 2007

Consumer confidence weakened in August as volatile financial markets
and housing problems took a toll, a private research group said Tuesday.

The New York-based Conference Board said that its Consumer
Confidence Index, declined to 105.0, from a revised reading of 111.9 in
July, which was a six-year high.

Although the index was down, it was slightly stronger than the 104.5 that Wall Street analysts expected.

“A softening in business conditions and labor market conditions has
curbed consumers’ confidence this month,” said Lynn Franco, director of
The Conference Board Consumer Research Center. “In addition, the
volatility in financial markets and continued subprime housing woes may
have played a role in dampening consumers’ spirits.”

The survey is closely watched because consumer spending represents
two-thirds of the U.S. economy and confidence levels tend to influence
spending.

Read more of this article.

Care insurance good for single women

Posted on August 27, 2007 by Jason

Seattle Times, August 27th, 2007

Q: I am 60 years old. My financial adviser is
strongly urging me to buy long-term-care insurance (before September,
when Genworth is raising its rates).

My mortgage is paid off (home value: $325,000). My investments and
retirement portfolio stand at $350,000. My income is $35,000 with
minimal liquid cash. I plan to work indeterminately and am healthy,
though I will need to buy health insurance upon “retirement.”

Though I understand the benefits of LTC, it’s difficult to part with
hard-earned money, acknowledging it’s going nowhere until when and if
it’s needed.

I’ve found it difficult to research this subject. Financial advisers
and insurance companies naturally want you to buy this product; others
advise selling your home at the crucial point. I’d appreciate your
thoughts.

A: The best candidates for long-term-care insurance
(LTC) are single women like you. You are likely to live long enough to
need long-term care. More important, you don’t appear to have
alternatives to institutional care — such as a daughter who lives less
than an hour away.

This is the dilemma millions of women face as they age. So I think
you are a good candidate for this insurance, despite doubts I have
expressed about LTC insurance in the past.

Another way to think about LTC insurance is to consider it as “portfolio insurance” on your net worth.

With your net worth of $675,000, a policy that cost $2,500 a year
would cost about 0.37 percent of your net worth a year. It would
provide you with some assurance that you won’t go broke, and even a
three-year coverage period would allow plenty of time for an orderly
liquidation of assets in the event you needed more than three years of
care.

Read more of this article.

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Same-Sex And Worried About Retirement

Posted on August 27, 2007 by Jason

The Washington Post, August 26th, 2007

Ken Hausman and his partner, Deane Bergsrud, have been together for 27
years, and like many couples their age, they’re thinking ahead to
retirement. They both have 401(k) plans at work and individual
retirement accounts, and Hausman has a pension.

Nonetheless, “we worry a great deal about the future,” Hausman said.

One of their worries is whether the surviving partner will be
adequately protected when the other dies — because of their unmarried
status.

Unmarried couples lack the automatic legal protections that kick in
when one member of a married couple dies. And they lack other
advantages in planning for financial security in retirement that are
taken for granted by most couples.

But marriage is a solution that is unavailable to Hausman and Bergsrud. They live in Virginia, where marriage is prohibited for same-sex couples, as it is in most of the United States.

Together they make a decent income that has allowed them to save for
retirement, and they have little debt. But they worry whether they have
done everything they need to do to ensure that one won’t be left with
too few assets after the other dies. Compounding their worries is a
Virginia law that prohibits civil unions or other marriage-like
contracts between same-sex partners.

Read more of this article.

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