Forbes just recently announced a top 40 list of the top American recession –proof cities to retire in. Forbes used such factors as average income, current and expected home prices through 2014, job-growth predictions through 2014, and the cost of living and median monthly housing cost. Also, Forbes used the number of sunny days in their calculations; a factor I believe holds no value for how recession-proof a city may be. Nonetheless, Atlanta, Dallas, Tampa, Houston, and St. Louis rounded out the top 5, and New York City and outlying areas came in at surprisingly the 40th spot. For a complete list visit Forbes.com.
Archive for the 'General Retirement' Category
NewRetirement’s Advisor Bud Hebeler of AnalyzeNow.com was just featured in a New York Times Article titled “To Retire in This Weak Market, the Magic Word Is ‘Focus’” that discusses some very interesting and important approaches for retirement preparation. There were quiet a few great takeaways from this article of which I will include two below.
While planning for retirement it is always important to set goals for your future, and the article brings up some clairvoyant questions you must ask yourself. “The first question assumes you have all the money you need –how would you live your life today? In the second, you are told that you have five years to live: what would you do with that time? And the final question aims right at the heart. You have 24 hours left on earth –what did you miss? Whom did you not get to be?” These questions allow you to step back for a minute and decide what is vital to your future, which in many cases does not have to do with financial concerns. Once you can decide what you truly want out of life, then you can set out the course for a retirement plan that will help you meet your goals.
Mr. Hebeler’s advice is also very insightful because retirees rarely budget for wear and tear items. If you put in the expenses for replacing or repairing cars, air conditioners, and your home, then you will have a much clearer picture of your necessary retirement finances.
From the AP – - After raising 401k contribution limits $1,000 to $16,500 for 2009, the IRS has just announced that 401k contributions will remain stable at that amount for 2010. The maximum contribution is established by using a formula tied to the third-quarter Consumer Price Index for all urban consumers — the CPI-U, which measures the average change in the prices of goods and services including food, clothing, shelter, fuel, drugs and other day-to-day items bought by U.S. urban consumers. This year the CPI-U fell 1.3 percent over the past 12 months. Accordingly and in theory, the IRS could have lowered maximum contribution limits; however, and luckily the law does not allow for a decrease in contribution.
The IRS also declared it was keeping many of last year’s tax deductions, some of which also are determined by inflation figures.
Several deductions for 2010 are unchanged and others change slightly. They include:
- The value of each personal and dependency exemption available to most taxpayers is $3,650, unchanged from 2009.
- The new standard deduction for heads of household is $8,400, up from $8,350 in 2009. For other taxpayers, the standard deduction remains unchanged at $11,400 for married couples filing a joint return and $5,700 for singles and married individuals filing separately. Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.
- Various tax bracket thresholds will see minor adjustments. For example, for a married couple filing a joint return the taxable income threshold separating the 15 percent bracket from the 25 percent bracket is $68,000, up from $67,900 in 2009.
- The annual gift tax exclusion remains unchanged at $13,000.
A report released today by the Hispanic Institute think-tank and the Americans for Secure Retirement (ASR) coalition finds that most Hispanic Americans are lacking proper retirement preparation. Because two-thirds of Hispanic Americans are employed in the service-related field, a field that usually does not offer employer-sponsored retirement plans; they are not adequately prepared for retirement. Furthermore, Hispanic Americans appear to have on average insufficient financial literacy and lower levels of personal savings. This lack of financial literacy, as I have alluded to in the post entitled The Retirement Planning Divide, could certainly be based on linguistic barriers, as Spanish does not contain some vocabulary imperative to retirement planning. What is clear from the report is that Hispanic Americans must consider many retirement vehicles to supplement Social Security and make up for the fact that they might not have access to employer plans. A lifetime annuity is such a product that could build retirement savings as well as offer a secure guaranteed income.
Here are some noteworthy findings from the report:
– Only 41 percent of Hispanic workers say they have saved money for retirement.
– Only 25.6 percent of Hispanics are covered by employer-sponsored retirement plans, compared to 42.5 percent of whites and 40 percent of
African-Americans.
– Of the Hispanics receiving Social Security benefits, almost 80 percent rely on these benefits for at least 50 percent of their retirement
earnings.
– Among people 65 and older receiving Social Security, on average Hispanics receive about $2,124 less in earnings than non-Hispanics.
– Between 1979 and 1999, middle-class Hispanics households increased nearly 80 percent. In the same period, the group of Hispanic households earnings between $40,000 to $140,000 grew to include about one-third of the total Hispanic households nationwide.
A new Edward Jones report released this morning has some interesting details on parents saving for retirement and college for their children. The report says that a third of parents are saving equally for retirement and paying for college, a third are putting more money into one than the other and another third aren’t saving for either. To further analyze this data, the report states that younger parents (35-44) are more likely to save for both (37%) than those ages 55-64 (23%). This is interesting data considering retirement and paying for a child’s college education many times come around the same time. So remember that retirement savings are just one of many financial considerations when growing older.
In other news, in regards to a USA Today posting on 401(k)’s it seems that the IRS may just reduce the amount you are allowd to contribute to your 401(k) in 2010 to $16,000. This is truly upsetting news considering now is the time that people are going to have to put as much as they can back into their savings because they had to delve into during the recession. Let your Congressmen know that this should not happen, now is the time to save away for the future!
Dusting off some Milton Friedman from 1979 on Phil Donahue. Worth watching to get his perspective on how self interest and greed can drive positive change. I don’t think that taxing wealthier investors and businesses and giving those resources to bureaucrats to use is going to fix our current situation. We need to innovate our way out of this mess and get people incented to invest and work hard vs. hunker down just focus on how to protect their dwindling assets and resources. (Some redistribution of wealth is probably required, but at a certain point it’s counter productive – see Laffer curve
http://blogs.reuters.com/great-debate/2009/01/20/us-and-uk-on-brink-of-debt-disaster/
This is along the lines of the Barron’s interview. Private indebtedness increased 300% faster than GDP from 1970 on. Total public and private sector debt is over 355% of GDP. This debt cannot be serviced out of current cash flow; we either need to restructure the debt on a massive level (bankruptcies, refinancing of short term to long term debt) or inflate so nominal GDP increases fast enough to service existing debt.
Still, given the commodities induced inflation scare in the middle of ‘08, the path of inflation might not be a given or a free lunch either. High inflation would probably squeeze margins for companies in the face of weak demand and increase the amount of money needed for living expenses, leaving less for debt servicing by consumers.
I imagine the Fed really is trying to walk a fine line between deflation and inflation. Either course would wreck the economy for years to come. However, the Fed will feel real pressure from congress. What congress wants is another matter altogether. Treasury and the administration I think understands that you can’t keep gorging banks on loans to get it out of this mess. That’s why the Geithner TARP revamp didn’t have specific requirements for increased bank lending from government money. But they’re hesitant to take decisive action on this. People know some of the largest banks are insolvent but we’re still playing the Fannie and Freddie game of last summer with them. Congress of course wants increased lending and wants Fannie and Freddie and FHA to swallow or guarantee every defaulting loan out there and for the Fed to drive mortgage rates down to 0. The administration also had to reign in their own party in the overreaching salary caps put into the economic stimulus bill.
The question is not just economic anymore, but also political so I don’t know if massive private bankrupcties will be tolerated well either. I think I heard something like 2000 economists signed a letter against Smoot-Hawley during the great depression but that peice of protectionism went through anyway.
What’s your vote – deflation or inflation or do we get a series of bankruptcies and write downs first?
Courtesy of Yi
This is a contribution from Bud Hebeler who runs Analyzenow.com
Last night I went to the movie I.O.U.S.A. followed by live commentary from
The commentary that followed was handled by Becky Quick from CNBC’s Squawk Box show who fielded questions from the audience. The movie was loosely based on the book, Empire of Debt, and was actually exciting—quite a surprise for a financial show. It even got our local movie audience clapping and laughing. The show was financed by the Peterson Foundation and starts out with a lot of material from the Concord Coalition. It was non partisan.
The more I think about the conclusions of the experts (Buffett, Walker, Peterson, et.al.) at the conclusion of the movie I.O.U.S.A., the more I wonder about their almost universal opinion that the main solution would be to increase the federal tax rates and moderate Social Security and Medicare payments to solve the $53 trillion government obligation problem. Nowhere did they mention the other main debt problems: personal debts, business and financial firm’s loans, State obligations including unfunded public employee pensions, and the sorry state of our transportation infrastructure. These have to be satisfied as well. As bad as the national condition was portrayed, our share of the total obligations was far understated.
One position that was mentioned was a mandatory savings program although the small percent cited would do little to solve our huge savings problem. After all, Social Security costs us 6.2% plus another 6.2% from our employer—and that isn’t enough to keep the program solvent. Further, as I have cited in Getting Started in a Financially Secure Retirement, the savings rate (not including Social Security) has to be well over 20% for the next two decades just to make up for the lack of savings in the past two decades of consumerism.
There are those that would only tax the rich, but as much as I dislike the extreme over-compensation of the top executives in major companies, those people eventually have to spend their money, and in so doing enrich the rest of us. They and their children may live what we consider (or wish we could achieve) obscenely ostentatious lives, but their incomes (less taxes) eventually come into the economy.
On the other hand, government spending and wealth redistribution do little to increase productivity. In fact all of the paperwork, additional government employees, even more private sector employees to respond to government regulations, and the imposition on our personal time all hurt productivity. That’s not to say that some innovation doesn’t come from government sponsored research in medicine, military and space activities, but there is lots more that comes from the private sector where competition and necessity are the stimulus for invention. This is well illustrated by the modern examples of nations that have converted from pure welfare states.
Higher taxes and increased savings have to reduce economic activity. Some other alternative solutions are particularly unappealing: Government bankruptcy, revolution, and hyperinflation. Bankruptcy destroys much of the world’s economy with it. Revolution ends the way of life we and few others know. Hyperinflation puts those on fixed incomes into poverty. Yet, in my view, a little of each of these horrible extremes is the medicine that might be necessary to at least end up in some reasonable equilibrium.
How about some real government changes to same money? The Congress should start by setting the example and cutting its overgrown and bloated staffs by 50%. Then it should act to change all federal pensions, including their own, to fixed pensions like all of those in the private sector. (Only one in five private sector employment earns a pension, and they don’t have cost-of-living-adjusted pensions like federal and most state pensions.) Stand up to your unions. Let them strike. That would reduce cash outflows too. Then deny state largess from the federal coffers unless the states do likewise. Don’t stop there. Demand IRS 1040 simplification so that the IRS can cut its work force in half and we don’t have to use accountants and computer programs to do our taxes. Simultaneously, get Medicare to do the same thing so that both government employees and the private medical facilities can cut their own staffs with less paper to handle. Then sell off the excess office buildings. Give up your perks. These are the kind of things we have to do in the private sector in order for a business to survive. You’ve got to save a country—that’s even more important!
This is not “change” as envisioned by current political parties. Current political “change” is aimed at things that increase government spending and control. In my view, change should be moderately more inflation than now considered acceptable, reduced bailouts of industry and financial firms, meat-ax reductions in government personnel, and much increased foresightedness in Congress and personal financial planning –together with some tax increases and entitlement reductions. We all have to consider much longer horizons than hours or days in financial markets or a few years as in elected office terms. We even have to think in terms longer than decades as we did in our Boeing planning. We have to think in terms of generations and life-expectancies, just as in the insurance business.
Everyone is going to get hurt, but we all have to understand that a little pain now is a lot better than a lot of pain if we wait longer to take our medicine. Perhaps the only Congress and Administration people willing to take such long range positions might be those nearing retirement, but certainly not the others and especially their supporting staffs which provide all of the advice and “smarts” on which government officials depend. These all need their jobs to feed their families, and most are terrified of leaving their jobs to seek private sector employment and much lower benefits than the government provides. Further, they have demonstrated that they have no interest in solving the additional problems of personal savings to replace debt, business debt, State obligations including public pensions and the sorry state of our transportation infrastructure.
That said, here are my notes from the movie, I.O.U.S.A., and the comments from some of the more powerful people in financial circles and former government executives. I feel all citizens should hear this message—and consider some of the points I have made above.
Of course, the movie is mostly about debts this country has incurred to date as well as the history leading up to our current situation. Before the movie began, they had a digital display showing the current national debt as it was actually changing. It was increasing by millions as we watched. The only time this country was out of debt was 1830. At the time the movie was made the total unfunded obligations of the country were $53 trillion or $175,000 for every man, woman and child in the
$10 trillion of this will be the national debt at the end of the year. 44.5% of our debt is owned by foreigners, principally
One of the few periods in modern times when the government was not outspending its income was in the
All commentators agreed that the current problem was largely due to excessive consumption. Our national savings rate is now -2.9%. The graphics showed the highest savings, about 23%, occurred during WWII. Most of the time savings rates in the past have been about 9% to 10% through good times and bad.
There was a considerable amount of material on inflation with laudatory comments about Paul Volker raising the interest rate to 20% to combat what had occurred in the Carter years. There were also clips of Ron Paul railing the government for printing money.
Social Security was highlighted in the movie as well as the commentary. Various solutions were suggested such as raising the full retirement age from 66 to 70 or doubling the Social Security tax on the work force. After 2017, without action, the Social Security Trust Fund will no longer be able to support cash flows for things other than Social Security as it does now because the trust funds won’t be there. As most of us already know, the trust fund is a fiction. It’s full of IOUs from the federal government. One person said that the trust fund is neither a fund, nor can it be trusted.
The movie showed street interviews with ordinary people. It was shocking how little they knew not just about the country’s financial conditions, but even simple financial terms like deficit. The movie and all commentators (except Warren Buffett) felt it was grossly unfair to have our children and grandchildren and following generations have to pay for our current excesses. Buffett felt that the ingenuity of our people would come up with things to solve the problems so that our children would actually have better lives than us. The movie and commentators showed how poor our schools were compared to all other developed countries. We are particularly deficient in math and science. After seeing the movie, I’d add that they are even worse in teaching basic finance and money management.
The movie also made some dramatic points about the trade deficit. It showed a
Foreigners that hold our debt hold it in dollars, so if they sell it to another foreigner, the other foreigner will have the same debt in dollars. It’s like a tar baby. The risk is not the foreigners dumping the debt; the risk is the interest rate and being able to get them to take on more of our debt.
Walker pointed out that one of the things that made the debt problem so intractable is that 68% of the national budget is on autopilot (e.g., automatically adjusted for inflation) and only 32% is for the things originally intended by our founding fathers to be what the federal government was supposed to do—like defend us. Also, Congress was supposed to be a part-time job where the congressmen went back home to their regular jobs the rest of the year. Now, congressmen work to preserve their congressional jobs and have a very short term perspective directed at whatever it takes to get reelected.
Most of the commentators agreed that the solution to our problem relies on national leadership—and it just isn’t there. Politicians are campaigning with programs advocating more government spending, not less. Medicare is currently the largest single unfunded liability—and it looks like the finance problem not only will not get solved—it will get worse with all of the add-ons.
The $53 trillion debt and unfunded liabilities is made up (as I recall the numbers) with $10 trillion national debt, 7 trillion Social Security, $26 trillion Medicare parts A and B, 8 trillion Medicare part D and some miscellaneous items. I don’t remember how they accounted for the trade deficit, and there was no mention of State debts or industrial debts which must exacerbate the problems.
If you get a chance to see a replay, I’d urge you to see it yourself. It has a very compelling message that should be understood by all citizens including those in high-school. We need better government leadership and we must greatly increase personal savings.
