Posts Tagged retirement
Active money management or buy and hold?
Posted by Tetyana Matychak in Investing on May 10th, 2010
With so much volatility in the stock market, investors saving for retirement must decide what investment approach may work best over the long term. Some market players question the wisdom of a “buy and hold” investment strategy, embracing active management instead.
The debate is not new, but perhaps it’s become more heated after the roller coaster ride of the past decade.
Before making fundamental changes to your investment approach, here’s what you need to know about active money management versus buy and hold.
The argument for active management
Supporters of active money management say that buy and hold is not a good long-term investment strategy for the small investor. They note that the most recent decade was not the only period of time that stocks — the assets favored in buy-and-hold portfolios — underperformed other, less risky, assets.
For example, from 1966 to 1982, the S&P 500 produced no real return (meaning it did not keep up with inflation), underperforming one-month Treasury bills by 0.2 percent per year. From 1966 to 1988, U.S. large growth stocks consistently underperformed one-month CDs. Read the rest of this entry »
Eight do’s and don’ts for your 401(k)
Posted by Tetyana Matychak in Investing on April 12th, 2010
When it comes to saving for retirement and building a portfolio to last a lifetime, most Americans are way behind the eight-ball, the nine-ball and all the other balls on the pool table.
More than 54% of Americans report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined-benefit plans, is less than $25,000, according to the Employee Benefit Research Institute’s annual Retirement Confidence survey. What’s worse, 27% have less than $1,000 in assets. Just 11% have more than $250,000 set aside.
Yes, those figures include Americans young and old, those just starting in the work world as well as those about to check out, but in the main many Americans need to modify their savings and spending patterns to have any hope of enjoying a standard of living to which, rightly or wrongly, they’ve become accustomed.
And it’s not rocket science. At least, it’s not according to some experts. Here are some nest egg do’s and don’ts, according to Hewitt Associates and Merrill Lynch. Read the rest of this entry »
If You’re 50 and Haven’t Saved A Dime
Posted by Tetyana Matychak in Budget on February 9th, 2010
You’re 50, recently laid off, and now forced to figure out what work you’ll do for the next 15 years or more and how you’ll ever retire.
You’d dreamed of leaving your job at 65, vacationing in Tuscany, taking a trip around the world, or perhaps spending your afternoon on the golf course. But the reality is the economic downturn has tripled the number of unemployed wokers ages 55 to 64 over the past two years, compared with a doubling in the overall unemployment rate.
That means right now, for you, Job Number One is figuring out the next career you’ll embark on. This is the “new retirement” that many Baby Boomers (born between 1946-1964) must now envision.
The rise in job losses, grim prospects for Social Security benefits, and paltry personal savings has created a situation where many Boomers must put off retirement from the workforce because they simply cannot afford it. Even before the recession, the Congressional Budget Office predicted the Social Security Administration would be doling out more money than it took in by 2020, which would deplete the trust fund and cause a severe cut in benefits by 2043. Read the rest of this entry »
How much you’ll need in retirement
Posted by Tetyana Matychak in Budget, Favourites on January 8th, 2010
Conventional wisdom says you need 80% of your pre-retirement income. But ensuring a comfortable retirement will take more than just a rule of thumb.
Question: I always heard that you will need 80% or so of your working salary to live on in retirement. But is that a percentage of your gross income or your take-home pay? –Mary Taylor, Chalfont, Pennsylvania
Answer: This rule of thumb has long confused many people who are trying to get a handle on their retirement planning. But the question of how much income you’ll need to live comfortably after calling it a career has taken on a special urgency the last year or so as retirement account balances wilted during the market’s meltdown.
After all, if you earn roughly $100,000 a year and take home, say, $80,000 after taxes, the difference between requiring 80% of your gross income ($80,000) and 80% of your net income after taxes ($64,000) is substantial. Unless you’ve got a pretty sizeable nest egg, the difference between coming up with $80,000 a year (plus inflation increases to maintain purchasing power) and $64,000 can have a significant impact on whether your money can support you the rest of your life. Read the rest of this entry »
Is Paying for Your Kid’s Education Still a Top Priority?
Posted by Tetyana Matychak in Budget on June 2nd, 2009
In a perfect world, we wouldn’t have to rank one financial priority over another.
But now, more than ever, Americans are faced with many tough financial trade-offs. Paying off debt or saving for retirement? Raiding the 401(k) to pay the bills or putting them on a credit card? Trying to slog it out with a tough mortgage or walking away from a home?
New survey data from Country Financial highlights some of the tension parents are face when it comes to juggling their stressed retirement accounts and the ballooning cost of higher education for their kids.
Forty-seven percent of the 1,241 surveyed said that their children’s college plans are a higher priority than retirement savings, whereas 41% said that retirement savings came first. A majority (61%) said that the recession was not going to impact their plans for their children’s college education. Considering all of the belt-tightening — both from families and financial-aid offices strained by anemic endowments — we’ve heard about in the last few months, this is particularly astonishing. In spite of one of the worst economies in generations, parents say they’re still willing to shell out a lot for college education. Read the rest of this entry »
Market myths
Posted by Tetyana Matychak in Fund Markets on May 12th, 2009
What have we learned from the crash? Nothing lasts forever. Even bear markets.
Numbers can talk. And one of the key indicators of this year’s Fortune 500 – the companies’ stock market value – is absolutely shouting. It’s telling us that nothing is forever, and that people, businesses, and governments can no longer depend on rising financial markets to bail them out.
The talking number is $4.1 trillion – the amount by which the market value of the Fortune 500 companies with publicly traded shares fell this year compared with 2008′s list. The decline, 37%, is by far the biggest in both dollars and percentage since we started tracking the market values of America’s biggest companies 22 years ago. The two-year decrease, $5.3 trillion and 43%, is a record as well.
Since the 500′s peak valuation in spring 2007 – our stock market years end in late March – the global boom has been replaced by global doom, and economies throughout the world have gone south. And get this: The 500′s valuation is down 13% from 11 years ago. Thus, big-company U.S. stocks have been dead money for more than a decade. Had they risen at their historical rate after 1998, they’d be worth more than twice as much as they are now. So much for the myth that stocks as a group are a fundamentally reliable investment over the long term. Read the rest of this entry »
Merging portfolios after marriage
Posted by Tetyana Matychak in Investing on May 6th, 2009
This young couple have a simple goal: repair their portfolio and save to buy a new home within the next three years.
Like most investors, Wendy and Doug Kirk were worried about how the stock market was doing last fall. But it was hardly at the forefront of their thoughts: After knowing each other for more than 25 years – they both grew up in Ocean Township, N.J. – and dating for more than three, the couple tied the knot in September.
Now, with the wedding behind them, the pair, who live in Oakland, Calif., have begun to look at their collective finances. And they’re starting to wonder whether they were investing properly to begin with.
Wendy, for instance, says some of her mutual funds fell more than 50% in 2008. “I never thought I was that aggressive,” she says. Having lost more than $60,000 in the bear market around the time they hoped to start saving for a home, Wendy, 38, and Doug, 41, want a fresh start.
As they combine their portfolios, they want to make sure that they are properly diversified. They also want to know whether they’re still on track to buy their dream home. Says Wendy: “Now that we’ve joined our finances, we want to make sure we’re on the right path.” Read the rest of this entry »
Are You Saving Too Much for Retirement?
Posted by Tetyana Matychak in Investing on April 24th, 2009
A new free online tool performs some extremely complex calculations to make financial planning simpler for small investors.
ESPlannerBasic, set to be officially launched later this week, takes a different approach than many competing online tools. Rather than calculating your odds of meeting your spending goals in retirement, the tool is intended to help you maintain a stable standard of living throughout your life. It’s available at www.esplanner.com/basic.
Many retirement-planning calculators ask people to estimate their own spending needs in retirement, a feat that Laurence Kotlikoff, the Boston University economics professor who developed the tool, says is nearly impossible. “It’s like asking them to make their own penicillin,” he says, “when we have the antibiotics that work.”
Instead of pulling spending goals out of thin air, ESPlannerBasic asks users to enter information about their age, earnings, assets, housing costs, special expenses and other factors. The program then offers advice on how much to spend and save each year, and even how much life insurance to buy, so that the user and his or her spouse can maintain a steady living standard through their retirement years. Read the rest of this entry »
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