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Top 6 Ways To Ruin Your Retirement

Posted on August 18, 2010 by Jason

San Francisco Chronicle, August 17th, 2010

Despite the plethora of websites, books, magazines, advisors and
other financial information and services available for retirees, there
will always be a contingent of people who fail to make their retirement
savings last for the rest of their lives. There are many ways to avoid
this, some of which are more proactive while others are reactive in
nature. But none of them are particularly difficult; all any of them
really require is discipline and common sense. Here are a few ways you
might be endangering your retirement.


  1. Too Much Risk
    You
    worked and sweated for years to accumulate enough money to be able to
    live a comfortable retirement. Therefore, this is probably not money
    that you want to use to start trading commodities futures contracts
    unless you are very experienced with them. Derivatives, small cap stocks
    and other high-risk ventures should be approached with caution and used
    judiciously as part of a well-thought out investment strategy.

  2. Too Little Risk
    This
    mistake can be every bit as costly as the previous one; those who
    invest their portfolios too conservatively may find that their expenses
    are outgrowing their income. Treasury securities and CDs can be great
    foundations for any retirement portfolio, but virtually all retirees
    need to have at least a small portion of their assets invested in either
    equities or real estate in order to provide themselves a hedge against
    inflation.

  3. Retiring Too Early
    Early retirement
    has become something of a status symbol among the upper-middle class.
    However, early retirement can be disastrous for those who are not
    adequately prepared for it. For every five years that one wishes to
    retire early, at least $100,000 of additional assets should be saved
    (assuming a payout of $2,000 per month and a rate of 6%).

    Those who
    choose this path should therefore be prepared to accept a reduced payout
    and a smaller Social Security check every month if they have not done
    this. (For related information, take a look at How Much Social Security
    Will You Get?)

Read more of this article.

Fed Says Reverse Mortgage Loans Pose Risks

Posted on August 17, 2010 by Jason

ABC News, August 18th, 2010

The Federal Reserve and other top regulators said on Monday reverse
mortgages pose “compliance and reputation risks” for lenders, and
offered guidance to financial firms on how to avoid such pitfalls.

The Fed said reverse mortgages, which enable borrowers to get a monthly
income stream by surrendering a portion of the equity in their homes,
are likely to become increasingly popular given an expected rise in the
elderly population.

The guidance puts no limits on fees that can be charged for reverse mortgages.

“Reverse mortgages present substantial risks both to institutions and to
consumers, and, as with any type of loan that is secured by a
consumer’s home, it is crucial that consumers understand the terms of
the product and the nature of their obligations,” the regulators said in
a statement.

“Lenders must institute controls to protect consumers and to minimize
the compliance and reputation risks for the institutions themselves,”
they said.

Supervisors said they want to ensure that lenders determine whether or
not borrowers are able to continue paying insurance and taxes on the
property, and avoid conflicts of interest by lenders trying to bundle
the loans with other products.

“Consumers are not always adequately informed that reverse mortgages are
loans that must be repaid (and not merely ways to access home equity),”
the agencies said.

Read more of this article.

About Reverse Mortgages:  It is imperative when considering a reverse mortgage to know what you are getting into.  The fees, interest rates, and terms of the loan are all important to bear in mind.  You can use the resources at NewRetirement.com to determine whether or not the program is right for you.

How to Retire Comfortably for Under $1,500 a Month

Posted on August 17, 2010 by Jason

US News & World Report, August 10th, 2010

Jason and Elizabeth Pearce moved from Canada to Belize three years
ago. They bought a piece of property on the sea. A year later, they
built a house. Today, they live in a beautiful Santa Fe adobe-style home
with gardens all around.

The
pair lives very comfortably, without wants or financial worries.
They’ve had no trouble making friends in their new community because the
folks in Belize speak English. They eat out three or four times a week.
They barbecue lobster and filet mignon at home. They have reliable
Internet to keep them connected to the outside world. By choice, they do
not have a television. “I used to think that the news was important,”
Jason explains. “But not anymore.” The retired couple has a maid and a
gardener, each of whom visit once a week.

And here’s the best
part. Jason and his wife are living on their Social Security income
alone. In fact, they’re living on Jason’s Social Security income alone.
Elizabeth’s Social Security check goes into savings each month.

Everyone’s
spending habits are different, but here’s a sample monthly budget for a
couple living a comfortable expatriate lifestyle in Belize:

–Rent: $300

–Utilities, telephone, and Internet: $500 (Your biggest expense in this country.)

–Groceries: $150

–Health insurance: $50

–Entertainment: $100

–Car expenses: $300

One
of the most appealing things about Belize as an overseas retirement
choice is that it can make sense even if you’re nowhere near
conventional retirement age. Through Belize’s Qualified Retired Persons
program you can establish foreign residency as young as age 40.

Belize
is a beautiful little country. It’s a peaceful, eco-tourist retreat
home to more than 540 species of birds, 4,000 species of flowering
plants, and 700 kinds of trees. Nearly 40 percent of the country is
protected as parkland and natural preserves. Belize boasts the
second-largest barrier reef in the world. This incredible underwater
resource teems with colorful fish, coral, and unusual marine life,
making the waters off this country’s coast a fisherman’s and diver’s
paradise.

Read more of this article.

Retirement Calculator:  What are your retirement expenses?  How little could you get by on, and how little would you have to if everything fell apart?  Our calculator can help you determine the answers to these questions at NewRetirement.com

The Fed Is Not Out of "Silver Bullets"

Posted on August 17, 2010 by Jason

Yahoo Finance, August 13th, 2010

The Fed’s move on August 10 to “keep the balance sheet of the central
bank stable” and offset the run-off of mortgage-backed securities with
Treasury purchases was just a baby step.  Much stronger measures can and
should be taken to combat the economic slowdown.

As readers of
this column know, I am a strong supporter of Ben Bernanke, Chairman of
the Federal Reserve Board.  I think his bold measures to insure the
liquidity of the banking and financial system saved us from repeating
the misguided policy that led to the Great Depression of the 1930s. 
This is why I was disappointed in the Fed’s move on August 10 and
Bernanke’s testimony July 21 before Congress, one of the Fed’s ritual
semi-annual appearances that go back to the 1970s.

During his
meetings before Congress, Bernanke responded to a question by Senator
Bunning of Kentucky asking whether the Federal Reserve “was out of
bullets” in its fight against the faltering economy. Bernanke responded,
“I don’t think so.” Later he noted other measures the Fed might use to
stimulate the economy, but only said “there is some probability they
will be effective.”

Bernanke should not hedge.  When you are the
head of the world’s most powerful central bank, expressing doubt about
the Fed’s effectiveness is a mistake. It is mandatory that the
policymakers and central bankers display confidence in their policy
tools.  And the historical evidence is that Bernanke has every right to
believe the Fed can still be very effective.

Quantitative Easing

In last month’s column
I recommended that the Fed consider reducing the interest rate it pays
on bank reserves to zero and engage in quantitative easing to help the
economy emerge from the current soft patch.   Quantitative easing, or QE
as it is often called, occurs when the central bank expands the
quantity of Federal Reserve credit by increasing the reserves in the
banking system.  QE is employed when the normal policy instrument of the
Fed, the Federal Funds rate, is at or near zero.

In fact,
Bernanke had already engaged in significant quantitative easing during
the financial crisis in 2008 by supplying the banking system with over
$1 trillion of reserves in excess of the banks’ statutory requirements. 
These reserves were far more than are required to bring the Fed Funds
rate down to its current 0% to 0.25% level, a range that the Fed adopted
in December 2008.

Some argue that since banks already hold more
reserves than required, additional reserves would not have any further
effect on lending or economic activity.  But that conclusion is not
warranted.  Banks hold large excess reserves because they wish to show
regulators and investors a high level of liquidity. 

This does not
mean that banks would hold unlimited excess reserves.  In fact, banks
are not happy earning near zero interest on these reserves, nor are
investors satisfied with similar rates on their money market funds. 
Placing more zero-interest reserves into the banking system will tempt
more banks to make loans where the profit margin is much higher.

Read more of this article.

Next step for Social Security

Posted on August 12, 2010 by Jason

Baltimore Sun, August 12th, 2010

Old enough to retire, but still working hard. Extraordinarily popular.
Has served America, helping countless people. About to celebrate a
milestone birthday, but poised to embark on new challenges to serve the
nation better and more efficiently.

Sounds like a senior’s personal ad? It might make a good one, but it
would hardly draw the tens of millions of people who love, rely on, and
think about the subject of this short blurb.

Our hero and object of affection? Social Security, which turns 75 Saturday.

We may blast government spending (and no government program in the world
spends more than Social Security) and snarl at entitlements. We may
enumerate the many things wrong with a program that may be inequitable
to the young and the lower and middle classes, that may be raided to
mask deficits even larger than the ones the government owns up to, that
may discourage work (and, thus, higher national income and federal
revenues), and that may gobble up 5 percent of GDP better spent on
education, energy, the environment or national security while still
leaving millions of elderly or disabled Americans with insufficient
income.

Yet, we absolutely love it — more than any other U.S. government
program. While the young widely assume it will be dead by the time they
would be eligible, and experts (including the President’s National
Commission on Fiscal Responsibility and Reform, due to report in
December) have many ideas to reform and sustain Social Security, most
politicians don’t want to touch it. It’s long been called the “third
rail” of American politics: Touch it, and adios Washington.

However, after we rightfully acknowledge Franklin D. Roosevelt‘s
achievement in winning overwhelming, bipartisan support (a 77-6 vote in
the Senate!) for the Social Security Act that he signed into law
in1935, this is no time to sit around popping the champagne and cutting
the cake. Social Security — this esteemed, aging figure in American life
— needs to use this birthday to begin making significant changes so
that it can live on at least another 75 years, albeit with a modestly
changed modus operandi.

Let’s breeze through the familiar recitation of Social Security’s
problems: It spends too much, with trillions of dollars of unfunded
liabilities in the decades ahead. It will have insufficient revenues to
pay benefits, as the ratio of workers to beneficiaries is declining. The
population is aging, and Americans spend decades in retirement. It
doesn’t sufficiently tax the highest earners, and the pay-as-you-go
payroll tax is a flawed revenue raiser in many regards. It’s unfair: Bill Gates
and the wealthy can draw Social Security they don’t need, while tens of
millions of middle-class and poorer Americans scrap by on average
benefits of barely $1,000 a month. What’s more, the other traditional
supports for retirement security — private pensions and savings — have
withered during the last 25 years, putting undue burdens on Social
Security.

Some think we should ditch much of Social Security and the very
principal of public pensions in exchange for private accounts, while
others assert that fiscal Chicken Littles decry a problem that barely
exists. Some equate reform with “weakening” the safety net upon which 52
million older and disabled Americans depend. Others say that without
drastic reforms, America will be immeasurably weakened within a
generation. None are right.

Social Security’s benefits and revenue structure is off-kilter, as are
its built-in perverse incentives and its suitability for a population
that lives 15 years longer than when FDR signed the act. But they are no
more broken than a house that needs a little redesign and sprucing up.
Unlike health-care cost control — the key issue for debt reduction,
which was all but ignored in the recent health-care reform law — the
entire house need not be torn down, and Americans could benefit from the
changes.

Read more of this article.

Social Security Optimization:  Venerable and well liked as it is, Social Security has rules that you can learn and exploit to ensure that you receive all of the benefits you are rightly entitled to.  Our Social Security Calculator can help you make the proper decisions for this purpose.

Reverse Mortgage Proceeds are Likely to Decrease on October 1st

Posted on August 11, 2010 by Jason

Reverse Mortgage Review, August 11th, 2010

Seniors should be informed that the budget proposals working their way
through both the House and Senate, as currently drafted, bring a 150
percent increase in annual FHA (Federal Housing Authority) insurance
premiums, as well as reductions in available proceeds on FHA-insured
HECM (Home Equity Conversion Mortgage) reverse mortgage loans.

“Now is a good time for seniors to take advantage of low rates on
reverse mortgages and get the maximum return on the product before the
new fiscal year starts this fall,” said Jeff Lewis, Chairman of
Generation Mortgage Company.

According to Lewis, starting October 1st, both bills will change the
HECM value proposition if approved in their current form. “With the
upcoming Senate vote, seniors have limited time to take advantage of the
current pricing on reverse mortgages,” commented Lewis. “Reverse
mortgages provide financial independence to thousands of seniors
struggling to sustain their retirement. A majority of our borrowers use
reverse mortgages to pay off existing traditional mortgages, and free up
much-needed income.”

In early July, the Transportation Housing and Urban Development, and
Related Agencies Appropriations Subcommittee met and provided $150
million in funding for the Federal Housing Administration’s reverse
mortgage program. The bill passed the full House Appropriations
Committee late last month and went to the House of Representatives two
weeks ago. In the house, the appropriation was lowered to $140 million,
and later passed by a vote of 251 to 167. It is not yet clear when the
bill is headed to the Senate.

Read more of this article.

About Reverse Mortgages:  If this news is correct, then the amount of money available to seniors from the HECM reverse mortgage program will be drastically decreasing soon.  Once this happens, the ability for many seniors to qualify for a reverse mortgage at all may be eliminated.  Given this, it may be a good idea to see about getting a reverse mortgage now, before the new changes come into effect.

Battle Looms Over Huge Costs of Public Pensions

Posted on August 10, 2010 by Jason

The New York Times, August 6th, 2010

There’s a class war coming to the world of government pensions.

The haves are retirees who were once state or municipal workers. Their
seemingly guaranteed and ever-escalating monthly pension benefits are
breaking budgets nationwide.

The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts
have taken a real beating in recent years and are not guaranteed. And
soon, many of those people will be paying higher taxes or getting fewer
state services as their states put more money aside to cover those
pension checks.

At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.

The figure comes from a study
by the Pew Center on the States that came out in February. Pew
estimated a $1 trillion gap as of fiscal 2008 between what states had
promised workers in the way of retiree pension, health care and other
benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.

So a question of extraordinary financial, political, legal and moral
complexity emerges, something that every one of us will be taking into
town meetings and voting booths for years to come: Given how wrong past
pension projections were, who should pay to fill the 13-figure financing
gap?

Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.

Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year.

This sort of thing just isn’t done. States have asked current workers to
contribute more, tweaked the formula for future hires or banned them
from the pension plan altogether. But this was apparently the first time
that state legislators had forced current retirees to share the pain.

Read more of this article.

But Will It Make You Happy?

Posted on August 10, 2010 by Jason

The New York Times, August 7th, 2010

Editor’s Note:  We talk a great deal in this blog about financial stability, but sometimes it’s important to step back and consider what actually is important in one’s life…

SHE had so much.

A two-bedroom apartment. Two cars. Enough wedding china to serve two dozen people.

Yet Tammy Strobel wasn’t happy. Working as a project manager with an
investment management firm in Davis, Calif., and making about $40,000 a
year, she was, as she put it, caught in the “work-spend treadmill.”

So one day she stepped off.

Inspired by books and blog entries about living simply, Ms. Strobel and
her husband, Logan Smith, both 31, began donating some of their
belongings to charity. As the months passed, out went stacks of
sweaters, shoes, books, pots and pans, even the television after a trial
separation during which it was relegated to a closet. Eventually, they
got rid of their cars, too. Emboldened by a Web site that challenges
consumers to live with just 100 personal items, Ms. Strobel winnowed
down her wardrobe and toiletries to precisely that number.

Her mother called her crazy.

Today, three years after Ms. Strobel and Mr. Smith began downsizing,
they live in Portland, Ore., in a spare, 400-square-foot studio with a
nice-sized kitchen. Mr. Smith is completing a doctorate in physiology;
Ms. Strobel happily works from home as a Web designer and freelance
writer. She owns four plates, three pairs of shoes and two pots. With
Mr. Smith in his final weeks of school, Ms. Strobel’s income of about
$24,000 a year covers their bills. They are still car-free but have
bikes. One other thing they no longer have: $30,000 of debt.

Ms. Strobel’s mother is impressed. Now the couple have money to travel
and to contribute to the education funds of nieces and nephews. And
because their debt is paid off, Ms. Strobel works fewer hours, giving
her time to be outdoors, and to volunteer, which she does about four
hours a week for a nonprofit outreach program called Living Yoga.

“The idea that you need to go bigger to be happy is false,” she says. “I
really believe that the acquisition of material goods doesn’t bring
about happiness.”

Read more of this article.

Right Financial Plan: Reverse Mortgages

Posted on August 10, 2010 by Jason

CBS Moneywatch.com, August 5th, 2010

Retirees are often house rich but cash poor, their homes being their
largest assets. There used to be just three significant ways to get
equity from a home:

  • Sell it
  • Rent it
  • Borrow against it using either a cash-out refinance or a home-equity loan

Reverse mortgages present a fourth option, allowing homeowners to
receive some of the home’s equity without moving or making regular loan
repayments. Reverse mortgages provide an alternative financing method
(though an expensive one) that can help homeowners maintain their
independence as well as an adequate standard of living.

People who take out reverse mortgages often:

  • Have a regular need for additional funds
  • Live on a fixed income with their home equity as their most significant asset
  • Do not plan to leave their home to their heirs

Reverse Mortgage Features
Reverse mortgages resemble conventional mortgages in that lenders pay
homeowners based on the equity in the home. The biggest difference is
that with a reverse mortgage homeowners do not immediately begin paying
back the loan. Generally, the loans are not due until the home is no
longer the homeowners’ principal residence. Money received from reverse
mortgages is not taxable and typically does not affect homeowners’ other
assets or their Medicare or Social Security benefits.

Borrowers can repay reverse mortgages with other assets but typically
repay them by selling the home. Any equity remaining after selling the
home belongs to the homeowners or their heirs. Most reverse mortgages
have a nonrecourse clause, meaning the debt cannot be passed along to
the estate or heirs.

Read more of this article.

About Reverse Mortgages:  Reverse Mortgages are programs designed to allow seniors to “age in place”, meaning remain in their homes and access the equity thereof without needing to burden themselves with monthly payments they may be unable to make.  Is the reverse mortgage program a fit for you?

Prognosis guarded for Medicare and Social Security

Posted on August 5, 2010 by Jason

AP Newswire, August 2nd, 2010

Medicare and Social Security — the foundation of a secure retirement —
are facing strains from an aging population and an economy that can’t
seem to get out of low gear.

And despite assertions to the
contrary by the Obama administration, the new health care law doesn’t
improve Medicare’s solvency by much.

As the government releases
its annual financial checkup Wednesday on the two giant programs that
support millions of middle-class retirees, the prognosis is guarded.

Demand
for services is going up, and income from payroll taxes can’t keep
pace. Meanwhile, the government has used trust fund surpluses to pay for
other needs, leaving Medicare and Social Security with a pile of IOUs.

Interest
in the trustees’ report is running high this year because it’s expected
to delve into the effects of the new federal health care law on
Medicare.

The report is being issued by three top administration
officials, Treasury Secretary Tim Geithner, Health Secretary Kathleen
Sebelius and Labor Secretary Hilda Solis. They will be joined by a
fourth trustee, Social Security Commissioner Michael Astrue, appointed
to a six-year term in 2007 by former President George W. Bush.

But
the number-crunching and analysis are done by nonpartisan professionals
at the Office of the Actuary, an obscure economic unit in the Health
and Human Services Department that has a reputation for independence.

To
the consternation of White House officials, recent reports from that
office have raised questions about the heath care law’s impact on
Medicare.

An April 22 analysis pointed out that the highly touted
gain of 12 years of additional solvency for Medicare from the health
overhaul is largely an “appearance,” stemming from how Medicare cuts are
handled under federal accounting rules. Savings from those cuts would
be used to finance coverage for the uninsured.

“In practice, the
improved (Medicare) financing cannot be simultaneously used to finance
other federal outlays (such as the coverage expansions) and to extend
the trust fund, despite the appearance of this result from the
respective accounting conventions,” the report said.

A companion
report concluded that some of the $575 billion in Medicare savings over
10 years “may be unrealistic” because future Congresses could be
pressured to roll back cuts to providers in the health care law.

Read more of this article.

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