Archive for May, 2008

Economy Has Boomers Rethinking Retirement

US News & World Report, May 27th, 2008

As gas and grocery prices rise, some cash-strapped older workers are
rethinking plans to retire. Some 27 percent of older workers say they
are putting off retirement because of the recent economic slowdown,
according to a recent AARP telephone survey
of 1,002 workers over age 45. Almost 25 percent of people between the
ages of 45 and 64 are taking money out of their 401(k)’s and other
investments. And younger baby boomers between the ages of 45 and 54 say
they are even postponing paying bills (27 percent) and cutting back on
medications (17 percent).

“Taking money out of your retirement savings has a compounding
effect, because that money is not allowed to grow at a time when you
have fewer working years to replace the losses,” says Tom Nelson,
AARP’s chief operating officer. “Even more troubling, shortchanging
your healthcare can lead to higher healthcare costs down the road.”

But for retirees already on fixed incomes, it’s too late to change
retirement plans short of re-entering the workforce. With each interest
rate cut, retirees lose income on their savings in certificates of
deposit and other interest-bearing accounts. Some 26 percent of
retirees say falling interest rates have cut into their income. And
nearly three quarters of respondents who own mutual funds, IRAs, or
401(k)’s say they have lost money, on paper at least, in the past 12
months as the stock market has declined.

Fixed incomes don’t stretch, of course, when everyday expenses soar.
Some 59 percent of those over age 65 say they’re having a hard time
paying for food, gas, and medicine. On top of that, fully a third of
retirees say they have helped a child pay bills in the past year. About
11 percent of retirees report seeking help from loved ones or charity
in the past year.

“Retirees and older Americans have had to deal with skyrocketing
healthcare costs on fixed incomes for years,” Nelson says. “For them,
the current economic slump means more of the same.”

Has this year been more of the same? Or do you think retirees have been hit especially hard by this economic slowdown?

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Bank failures to surge in coming years

Marketwatch, May 23rd, 2008

IndyMac, Corus, UCBH under pressure as credit crunch slows economy.

By April, Gary Holloway was almost three years into retirement.

He’d built a new home by a lake in Texas, bought a boat and was working
on his golf game. While taking on some part-time work, Holloway also
traveled for months across the U.S. with his wife, from Seattle to
Washington D.C., catching up with old friends and family.
That life of leisure
abruptly changed about six weeks ago when Holloway got a phone call
from his former employer, the Federal Deposit Insurance Corp., or FDIC,
which regulates U.S. banks and insures deposits.

Holloway, a 30-year FDIC veteran, had worked
extensively with failed lenders in Houston during the savings and loan
crisis in the late 1980s and early 1990s, when thousands of thrifts
collapsed.

Earlier this
year, the FDIC began trying to lure roughly 25 retirees like Holloway
back to prepare for an increase in bank failures. It’s also hiring
about 75 new staff.
Holloway quickly went
back to work. ANB Financial N.A., a bank in Bentonville, Ark. with $2.1
billion in assets and $1.8 billion in customer deposits, was failing
and an expert like Holloway was needed to value the assets and find a
stronger institution to take them on.

“I was very excited about coming back,” Holloway said
in an interview. “I’m now 57. There’s still a lot of life left and the
juices are flowing again.”

On May 9, life for ANB
ended when the FDIC and the Office of the Comptroller of the Currency,
another bank regulator, announced that the lender was closing.

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High-Tech Devices Keep Elderly Safe From Afar

New York Times, May 25th, 2008

First thing every morning, Lynn Pitet, of Cody, Wyo., checks her
computer to see whether her mother, Helen Trost, has gotten out of bed,
taken her medication and whether she is moving around inside her house
hundreds of miles away in Minnesota.

Last summer, Mrs. Trost’s husband had a stroke and died, but she
wanted to stay in the house, in Mankato, where she had lived for 36
years. She did not want a live-in helper, and she cannot drive. At 88,
Mrs. Trost has macular degeneration and takes medications for seizures, memory loss and restless leg syndrome.

“She’s a feisty gal,” Mrs. Pitet said of her mother. “She is fine
when she takes her medicines, but, even so, I was terrified of leaving
her alone.”

Mrs. Pitet and her sister decided to become part of a small but
growing number of people who have installed motion sensors and a remote
monitoring system to keep aging relatives safe. Sensors attached to the
wall are able to register when Mrs. Trost gets out of bed and whether
she stops at her medication dispenser, and to alert her daughters to
any deviations from her routine that might indicate an accident or
illness. The family is updated by electronic report every morning.

Monitoring systems like these, which go far beyond the emergency
response buttons that have been around for years, are not found in many
homes yet. Privacy is an issue for some older people, and the basic
package can range from $50 up to $85 a month for the motion sensors and
remote monitoring system like Mrs. Trost uses. More comprehensive
packages can include devices to track blood pressure, weight or respiration.

Experts on aging say the systems will become commonplace as the 76
million baby boomers approach ages when disabilities or conditions like
diabetes and failing eyesight
jeopardize the ability to live independently. The population of those
65 years and older is almost 40 million today, and the federal Census Bureau says that will more than double, to nearly 87 million, by midcentury.

Right now, there is little federal health care reimbursement for
such devices. And private insurance coverage is evolving because the
area is new, said Dr. Jeremy Nobel, a professor at the Harvard School
of Public Health who co-wrote a study on the feasibility of such
technologies. “We are at the beginning stages regarding the
availability of such services and before business models are
developed,” said Dr. Nobel, a medical doctor. “I expect we’ll see a
significant increase in the adoption of such systems in two to five
years, and widespread adoption in 10 years.”

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Reverse mortgages: Beware the come-ons

CNN Money, May 21st, 2008

The loans can help you tap the equity in your house. Just don’t get tripped up by greedy salespeople.

Last year, borrowers took out more than 132,000 reverse mortgages -
50% more than the year before and almost 10 times as many as five years
ago. Such loans, as you may already know, allow you to draw down your
home equity if you’re 62 or older without repaying it as long as you
stay in your house.

That’s good news. Reverse mortgages can help
cash-strapped retirees generate extra money for living expenses, pay
for home improvements, lower other debts or fund the occasional splurge.

There’s
also a downside to reverse mortgages’ growing popularity, however.
Loan-origination fees that can top $7,000 on a $500,000 home are
attracting aggressive salespeople intent on getting you to take out a
reverse mortgage whether you need one or not. Some may try to persuade
you to invest the proceeds in high-priced financial products, such as
annuities, boosting their commissions even more.

No one can say
how widespread such tactics are. But the Senate Special Committee on
Aging was concerned enough to hold a hearing in December, while FINRA
(the Financial Industry Regulatory Authority) issued an investor alert
in March. Several lawsuits have also been filed, including a
class-action alleging, among other things, that Financial Freedom, one
of the largest reverse-mortgage lenders, encouraged brokers to steer
seniors into the loans under the guise of providing financial planning
services. Financial Freedom says the allegations “are baseless and
without merit” and that the company “does not sell, require, promote or
recommend annuities to reverse-mortgage borrowers.”

So if you’ve been considering a reverse mortgage, how can you avoid making a misstep? Follow these three tips.

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More Than an Exercise in Vanity

New York Times, Mat 13th, 2008

DR. PAUL D. THOMPSON, a 60-year-old marathon runner and chief of
cardiology at Hartford Hospital, stood in front of a medical audience
recently and began his talk with a story about himself.

“I’ve been lifting weights since I was 12 years old and look at me,”
he said. Dr. Thompson is small and wiry with not a bulging muscle on
him. He speculated that he must have a genetic inability to build
muscles, no matter how hard he works at it.

But are his muscles healthy?

It is not the kind of question most people ask themselves. But
muscle researchers say it is important because muscle health is
emerging as an important part of overall health. And, they say, when it
comes to muscles, bulk does not matter. How big they can become depends
on your sex as well as genetics. What matters for health is whether, like Dr. Thompson, you use them.

Healthy muscles, researchers say, are those that have been worked,
stressed and pushed to their limit so that they have enough power and
strength to get you through life, especially as you grow older. And
keeping muscles fit takes effort, which means regular training with
weight lifting and cardiovascular exercise even if the results are not
a sculptured look, these experts add.

If you don’t work your muscles, they will atrophy, especially as you
grow older. Older people often fall because they are too weak to brace
themselves, and they have trouble with steps and opening jars because
their muscles have lost so much strength. Much of that loss can be
avoided, muscle researchers say. Even elderly people can gain muscle
strength if they work at it, studies have shown.

There are two aspects to healthy muscles: endurance and strength, said Robert H. Fitts, an exercise physiologist at Marquette University
and chairman of the biology department there. To maintain endurance,
you should engage in activities that pump blood to the muscles, like
walking. For strength, you need to lift weights, concentrating on what
Professor Fitts calls the antigravity muscles, those of the back and
legs. And, he adds, you should also maintain arm strength.

But while many people walk, fewer lift weights, and those who do
often use incorrect techniques, said William J. Kraemer, a professor of
kinesiology at the University of Connecticut.

Some try to do it on their own but tend to buy weights that are too
light and may not know the well-researched methods that get results.

Others go to gyms, where they may be intimidated when they venture
into weight rooms filled with people grunting and straining and
machines that can seem daunting. Those who do try to lift at the gym
can end up using weights that are not heavy enough to fully stimulate
their muscles.

That is especially true of women, Dr. Kraemer said, even those who
work with personal trainers. While women often say they are afraid they
will bulk up, this fear is unfounded, Dr. Kraemer and others say.
Acquiring muscle mass requires testosterone levels that women don’t have. Instead, the toning that many women say they want comes from lifting heavy weights.

The most effective way to stimulate muscles is with a system known
as progressive resistance. This approach can take about three hours a
week and includes days, once a week or so, when you lift weights so
heavy that you can do only three to five repetitions before your
muscles are too tired to lift again.

Other days are devoted to moderate resistance, with weights you can
lift 8 to 10 times. And then you should have some light days, with
weights you can lift 12 to 15 times before your muscles tire.

It may sound like a lot of effort, but even people like Dr. Thompson, who does not acquire bulk, benefit.

“I still lift,” he said, “because it makes doing other stuff —
yardwork, carrying groceries, carrying grandkids — easier. “I think
some folks outlive their muscles, meaning that they are fine mentally
and cardiacwise but have so little muscle strength that they can’t
catch themselves with their other leg when they start to fall,” Dr.
Thompson added. “And if they fall they cannot get up.”

He does not want to be one of those people.

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Older Brain Really May Be a Wiser Brain

New York Times, May 20th, 2008

When older people can no longer remember names at a cocktail party,
they tend to think that their brainpower is declining. But a growing
number of studies suggest that this assumption is often wrong.

Instead, the research finds, the aging brain is simply taking in
more data and trying to sift through a clutter of information, often to
its long-term benefit.

The studies are analyzed in a new edition of a neurology book, “Progress in Brain Research.”

Some brains do deteriorate with age. Alzheimer’s disease,
for example, strikes 13 percent of Americans 65 and older. But for most
aging adults, the authors say, much of what occurs is a gradually
widening focus of attention that makes it more difficult to latch onto
just one fact, like a name or a telephone number. Although that can be
frustrating, it is often useful.

“It may be that distractibility is not, in fact, a bad thing,” said Shelley H. Carson, a psychology researcher at Harvard whose work was cited in the book. “It may increase the amount of information available to the conscious mind.”

For example, in studies where subjects are asked to read passages
that are interrupted with unexpected words or phrases, adults 60 and
older work much more slowly than college students. Although the
students plow through the texts at a consistent speed regardless of
what the out-of-place words mean, older people slow down even more when
the words are related to the topic at hand. That indicates that they
are not just stumbling over the extra information, but are taking it in
and processing it.

When both groups were later asked questions for which the
out-of-place words might be answers, the older adults responded much
better than the students.

“For the young people, it’s as if the distraction never happened,”
said an author of the review, Lynn Hasher, a professor of psychology at
the University of Toronto and a senior scientist at the Rotman Research
Institute. “But for older adults, because they’ve retained all this
extra data, they’re now suddenly the better problem solvers. They can
transfer the information they’ve soaked up from one situation to
another.”

Such tendencies can yield big advantages in the real world, where it
is not always clear what information is important, or will become
important. A seemingly irrelevant point or suggestion in a memo can
take on new meaning if the original plan changes. Or extra details that
stole your attention, like others’ yawning and fidgeting, may help you
assess the speaker’s real impact.

“A broad attention span
may enable older adults to ultimately know more about a situation and
the indirect message of what’s going on than their younger peers,” Dr.
Hasher said. “We believe that this characteristic may play a
significant role in why we think of older people as wiser.”

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Mom forced to live in car with dogs

CNN, May 20th, 2008

Barbara Harvey climbs into the back of her small Honda sport utility
vehicle and snuggles with her two golden retrievers, her head nestled
on a pillow propped against the driver’s seat.

A former loan
processor, the 67-year-old mother of three grown children said she
never thought she’d spend her golden years sleeping in her car in a
parking lot.

“This is my bed, my dogs,” she said. “This is my life in this car right now.”

Harvey
was forced into homelessness earlier this year after being laid off.
She said that three-quarters of her income went to paying rent in Santa
Barbara, where the median house in the scenic, oceanfront city costs
more than $1 million. She lost her condo two months ago and had little
savings as backup.

“It went to hell in a handbasket,” she said.
“I didn’t think this would happen to me. It’s just something that I
don’t think that people think is going to happen to them is what it
amounts to. It happens very quickly, too.”

Harvey now works part
time for $8 an hour, and she draws Social Security to help make ends
meet. But she still cannot afford an apartment, and so every night she
pulls into a gated parking lot to sleep in her car,along with other women who find themselves in a similar predicament.

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Retirement money worries mount for workers

San Francisco Chronicle, May 20th, 2008

Americans are worried that
they might not have enough money for retirement, as health care costs
rise and inflation erodes the value of their savings, according to a
survey released Monday.

The study sponsored by the Society of Actuaries, a professional
organization based in Illinois, found widespread economic insecurity
among retirees and those approaching retirement.

About 57 percent of those already retired and 63 percent of those
near retirement age said they were concerned that the value of their
savings wouldn’t keep up with inflation. And just over half of retirees
and 69 percent of pre-retirees fretted that they wouldn’t have enough
money to pay for adequate health care.

Actuaries calculate how long people are likely to live, what kind of
health or nursing care they might need, and how much money might be
required to pay living and medical expenses. They emphasize that many
people are not financially prepared for life after they stop working.

“As an actuary, I wish people had been more concerned, because they
probably aren’t as concerned as they ought to be,” said Chicago
consultant Anna Rappaport, who chaired the committee that commissioned
the report.

According to the society, the life expectancy for a 65-year-old man is 17 years and for a woman it’s 20 years.

“Some of these people are going to live a very long time. Their
money is going to get used up quicker than they expect. They’re not
worried enough,” Rappaport said.

Women who outlive their husbands are at special risk, she said,
noting that 40 percent of widows live almost exclusively on Social
Security.

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Your House Can Pay You to Retire

The Motley Fool, May 19th, 2008

Getting income for life and staying in your home as
long as you want sounds like the perfect combination. If you’re
cash-strapped and having trouble making ends meet, a product that
promised a deal like that would look like a life-saver.

For homeowners over 62, reverse mortgages offer exactly that promise. To seniors who struggle with ever-increasing costs of living and falling CD income, it sounds like the perfect solution — they can supplement their cash flow without having to sell their home and move.

But before you or your loved ones decide on a reverse mortgage, make
sure you understand its limitations and shortfalls as well as its
promises.

What a reverse mortgage does
Reverse
mortgages allow you to tap into your home’s equity without having to
sell it. Unlike regular mortgages, you don’t have to make any monthly
payments to your lender, and the lender can’t collect the principal
until you sell your home, pass away, or move to another primary
residence, such as a nursing home.

Depending on your age and the value of your home, a lender will offer
you a variety of payment options. One option is to take a lump sum. You
can also establish a line of credit you can draw on at will, or get
fixed monthly payments as long as you stay in your home.

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Five Basics for Building a Solid Financial Future

NYTimes, May 17th, 2008

The stark truth about managing our money these days is that we are mostly on our own.

Few employers want us around for 40 years, so our income is likely
to have ups and downs and disappear altogether for brief periods
between jobs. Saving for retirement is now mostly our responsibility,
too. Health insurance, for those of us who have it and manage to keep
it, requires increasingly large amounts of money out of our pockets.
The list goes on and on.

At the same time, all sorts of individuals and institutions have
smelled opportunity and lined up to peddle their wares, resulting in an
explosion of credit cards, bank products and advisers of various
stripes. Some of this is helpful because competition has led to lower
costs. But in other instances — say, newfangled adjustable-rate
mortgages — the result has been painful.

Complicating all of this is the housing downturn, which has affected the largest asset in many portfolios. Rising fuel and food prices along with tougher loan standards do not help.

Given the stakes, it is hard to avoid the persistent low-grade fear
that we have made wrong choices or cannot find the right ones, even
though they are out there somewhere.

“There’s no guarantee that the choices will be available,
attractive or appropriate for everyone,” said Jacob S. Hacker, a
political science professor at Yale University
and author of “The Great Risk Shift,” which looked at how corporations
and governments have pushed financial responsibility onto individuals.

So as I take on the Your Money column (and later this year, a companion personal finance site at nytimes.com),
I want to devote some space to treating the subject in much the same
way that this newspaper’s critics treat new films or restaurants.
Important new offerings — whether mutual funds or a shopping search
engine — will merit a review. And one by one, we will figure out what
is worth using and what is best to ignore.

Until then, here are five basic guidelines. Think of them as the
first principles of Your Money, guidance that can be useful in making
just about any financial decision.

INVESTING IS SIMPLE The author Michael Pollan
offered an elegant seven-word mantra in his best-selling book “In
Defense of Food” that provides clarity amid the bounty of choices on
supermarket shelves: “Eat food. Not too much. Mostly plants.”

Boiling down investing is a similar exercise: Index (mostly). Save a ton. Reallocate infrequently.

For most of us, investing in index mutual funds and similar vehicles
— and sticking with them — is the hardest part of the mantra to accept.
There are about 7,500 stocks on the three major exchanges in the United
States and roughly 8,000 mutual funds. It would seem that with such an
array of choices, we should be able to create portfolios that can
outperform the market averages.

The fact is, however, besting the overall market in most investment
classes is nearly impossible over long periods of time. Sure, it may be
fun to try. But if you enjoy that sort of thing, do it with a tiny
piece of your portfolio. And remember to call it what it actually is:
gambling.

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