Monthly Archives: January 2012

Retirement in America Is ‘Endangered’


Why do I get the feeling that the government is trying to ‘ignore’ some issues that will spell a catastrophic doom to millions of Americans if nothing is done about it right now. Lets face it, the Social Security is in serious trouble, but no one seems to want to come near that topic, leave alone touch it. I understand that everyone is concentrating on how to get jobs to millions of Americans who are looking for a regular paycheck, but I thought we said that one lesson we have learnt from all this financial crisis, is that we should avoid another financial meltdown. Well, Social Security is a financial disaster waiting to happen. Robert Powell discusses in the following article, some other issues, apart from Social Security, that are plaguing Retirement in America.

President Barack Obama, in his State of the Union speech, didn’t really touch on the subject near and dear to the hearts of millions of Americans — the State of Retirement in the U.S.

No doubt he had other pressing matters to address. So allow us the pleasure of issuing — thanks in large part to a many experts on the topic — our State of Retirement column.

In short: Things are bad and, in the absence of action or in the presence of the ill-advised action, could get much worse.

“I think the state of retirement in America is endangered as the ‘Great Recession’ has taken a toll on the financial status of many and as retirement savings were not adequate for many prior to the ‘Great Recession,’” said Matthew Greenwald, the president of Matthew Greenwald & Associates, a leading retirement research firm. “There are several things that need to be fixed, including addressing Social Security and helping people feel confident in the viability of the system, more effective defined-contribution plans that do a better job of encouraging participants to defer more of their income and more effective advice to retirees that helps them use their financial assets most effectively when they retire.”

Others are in the same camp. “There are many challenges,” said Anna Rappaport, the president of Anna Rappaport Consulting and chair of the Society of Actuary’s Committee on Post-Retirement Needs and Risks. But Rappaport also said there’s a lot of opportunity to fix those challenges.

Here’s a look at the challenges and some ways to respond.

Social Security

The combined Social Security trust funds will be exhausted in 2036 and at that point there will only be enough income coming in to pay for 77% of scheduled benefits.

Now 24 years might seem like plenty of time to fix that problem but there doesn’t seem to be the political will to do so. Elected officials are seemingly afraid to tackle the issue; they would rather a greater fool put their bid to be re-elected at risk than address an issue that will affect some 78.1 million Americans a generation from now, which we should note is twice the number of Americans age 65 and older today.

But the truth of the matter is that it’s time that President Obama (or someone) take a page from President Ronald Reagan’s book when, in 1981, he established a commission led by Alan Greenspan to reform Social Security.

Some two years later, as a result of that commission’s work, amendments to Social Security included a provision for raising the full retirement age from age 65 to 67, phased in over time. At the time, the Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Given the current and predicted future state of Social Security, it’s time to once again raise the full retirement age, according to Bob Reynolds, the president and CEO of Putnam Investments. This time, Reynolds suggests, we might peg the full retirement age to life expectancy so as to adjust for improvements in the health of older people and increases in average life expectancy.

In 1940, for instance, the average 65-year-old male in the U.S. had a life expectancy of 77.7. In 1990, it was 80.3. And by 2006, it was 81.6. “You have to adjust for that,” Reynolds said. “It’s just too costly.”

FYI: Using 1940 as the benchmark ratio, the full retirement age could be raised, by my calculations, to 70¾.

Of course, you would phase the increase in over a period of time so that people have time to prepare for it, Reynolds said. And you might leave the full retirement age for people over age 55 as is, while adjusting it upward for those under age 55.

Reynolds also favors increasing the amount of earnings subject to taxation for a given year. For 2012, the annual limit, the contribution and benefit base for Social Security, is $110,100. He suggests that the contribution and benefit base be increased to “somewhere around” $150,000. “That would provide the base for a stable system long-term,” Reynolds said. He noted, for instance that there’s no limit on the amount one’s taxed to pay for Medicare.

What’s more, Reynolds is in favor of examining a needs-based system that would reduce one’s Social Security benefit one based on income or assets. “It’s something that should be looked at,” he said.

Others also see the need to shore up Social Security. For instance, Cynthia Egan, president of T. Rowe Price Retirement Plan Services, said: “Lower income earners, those who are not covered by a defined contribution plan, as well as ‘weak savers’ are going to be highly reliant on Social Security. It is what it is. So we must ensure the stability and reliability of the Social Security program for the future.”

Contribution rates

On average, workers — at least those who have such a plan — contribute about 7% of their compensation into their 401(k) plan and that, many experts say, is too low. According to Reynolds, one would need to save at least 10% to replace, when combined with Social Security benefits, 80% of one’s final pay in retirement. Others say contributions rates have to be even higher the longer one waits to save and the less one has socked away.

Maybe the time has come to put in place plans that would automatically escalate the amount one contributes to a 401(k) to a minimum of 10%, not just the 3% which is the norm. Others agreed. “People need to save more — and we need to figure out how to make that happen,” Rappaport said.

To be fair, not all experts are worried about contribution rates or the shortcomings of 401(k) plans.

For instance, Kevin Crain, head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, offered the following: “We believe that privately sponsored corporate retirement systems are structured to be successful, and can be even more successful with employer’s continued focus on enhancements to their financial benefit plans and services. More specifically, within 401(k)s, we continue to see significant increases in employee engagement and utilization of these plans through such tools as auto enrollment and advice services.”

And Linda Wolohan, a spokeswoman for the Vanguard Group, said: “The U.S. retirement system, while rocked like any investment-based program during the severe market downturn of a few years ago, has shown great resilience.”

For instance, she noted that retirement wealth for the typical 401(k) plan participant grew over the past five years even in the face of the substantial market and economic shocks. What’s more, she said, while account balances have sometimes been cited as too low to be helpful in retirement, it’s important to note that the typical participant is a 46-year-old male who is saving 8.8%, with 20 to 25 more years to work and grow his account. “His retirement plan assets will be complemented by Social Security benefits and other savings, perhaps assets in other employer plans or a spouse’s plan, or personal savings,” she said. “Even though we always encourage people to save more — ideally at least 12% to 15% of their income — the reality is that more participants than you think may be on target for retirement.”


Another issue plaguing the U.S. today is this: Just half of the 150 million or so working Americans have an employer-sponsored retirement plan at work. And the 75 million workers who don’t have a retirement plan at work aren’t saving anything at all for their golden years. But studies suggest that those workers might save if they did have a plan at work. So, Reynolds is in favor of creating what’s been called a universal, or automatic, IRA.

According to the Heritage Foundation, universal or automatic IRAs would provide a relatively simple, cost-effective way to increase retirement security for the millions of workers without plan coverage. The universal or automatic IRA, said the Heritage Foundation, is a way that employees of smaller businesses can choose to save for retirement by allowing their employers regularly transfer an amount from their paycheck to an IRA.

For her part, Egan said there’s no need for another retirement plan, just incentives. “Small employers should be offered incentives to provide coverage,” she said. “We don’t need another vehicle. There are many, many providers who support small- and micro-plan services. We simply need to incent the smaller employer to make it happen and keep it simple for them.”

By the way, one big risk looming is the possibility that those folks who did the right thing and saved for retirement, might end up paying in one way or another for those who didn’t.

Literacy and confidence

Sometime in March, the Employee Benefit Research Institute will release the 22nd annual Retirement Confidence Survey and will likely show that only a few Americans are very confident about having enough money for retirement. In 2011, just 13% were very confident.

Reynolds suggests that there’s a correlation between financial literacy and confidence. To solve the confidence problem, we must solve the literacy problem. According to Reynolds, it’s time to provide the education and tools required to help people understand how much to save and how to invest, how much they will need to accumulate for retirement, and how to make their money last a lifetime once in retirement. Knowledge will lead to action, and action will lead to confidence.

Others agree. “Financial literacy and awareness are key components in helping Americans prepare for retirement,” said Suzanna de Baca, the vice president of wealth strategies at Ameriprise Financial. “Any American looking ahead to retirement can benefit from a written financial plan that will help them define their retirement goals and objectives, and guide them in creating a realistic plan to create a more confident financial future.”

Rachel McTague, a spokeswoman for the Investment Company Institute (ICI), also said education is needed. “ICI research finds that the system of saving for retirement in 401(k) plans and IRAs is a success, based on such survey data and modeling of potential savings over a full career with 401(k) plans,” she said. “Nonetheless, we believe there is room for improvement. Among other priorities, we support efforts to provide retirement savers with information and tools to help them use the system to accumulate assets and understand and navigate the distribution phase as well.”

In the absence of such education and planning, however, there are those who say policies that force people to save on their own for retirement hurt more than help. “Too much responsibility has been shifted to individuals, and they are not well prepared to handle them,” said Rappaport. “Financial literacy creates major challenges and we need systems that work without people having initiative.”

Outliving one’s assets

Right now, there’s much ado about outliving one’s assets. Experts are worried that average Americans don’t understand longevity risk and might draw down their assets too quickly during retirement. According to experts, many Americans should consider adding investments that insure against the risk of outliving one’s assets. But that’s unlikely to happen anytime soon. Most Americans are distrustful of such products. Nonetheless, it’s worth adding this opinion to the mix.

“Striking the right balance between growth and income to keep from outliving one’s retirement savings is an even more daunting task than it was before the current period of market volatility and low interest rates,” said Chris Winans, a spokesman for AXA Equitable. “The problem is that 401(k)s and plain-vanilla savings accounts without downside protection are exposed to the vagaries of the market. You wouldn’t think of not spending whatever it costs to insure from losing your house in a fire. Why wouldn’t you want protection on a portion of your retirement nest egg, too? Our challenge is to help people understand this value for themselves and their families. You hope your savings appreciate and nothing bad happens, but a lifetime income guarantee reduces some of the risk. That’s worth something.”

Tax breaks and retirement

Efforts to eliminate the so-called tax breaks Americans get for saving money in a 401(k) or other plans where they can to save on a pre-tax basis could affect adversely the state of retirement in the U.S.

According to Reynolds, 401(k) plans and the like are not tax breaks. Rather they are tax-deferred plans. At some point in the future, Americans will pay ordinary income taxes on the money distributed from those plans. Efforts to eliminate or reduce incentives to save might backfire and reduce further the poor state of retirement in the U.S., not improve it.

Egan is of the same opinion. “Tax incentives must be preserved for retirement savings,” she said. “Our defined contribution system reflects ‘the American way.’ There’s a balance among government endorsement and oversight, corporate and plan sponsor fiduciary responsibility, individual responsibility, and free market competition among service providers.”

The good news — sort of

“As more and more baby boomers retire, the discussion on retirement, on retirement income, will become a national topic,” said Reynolds. “And I think it will spark the interest of retirement to all age groups.”

Let’s hope that’s the case because the problem is real. “America is facing an unprecedented retirement challenge as the U.S. population undergoes a radical demographic shift,” said Michael Falcon, head of retirement at J.P. Morgan Asset Management. “Twenty percent of the population will be over 65 years old by 2020 and, despite impressive aggregate asset growth, many Americans are still significantly short of the savings they will need for a dignified retirement and are unprepared for the complex financial choices they will need to make.”

Will Peer Pressure Make Americans Save More?


Be honest with yourself, are you the kind of person that does something because others are doing it ? A large percentage of the population will perform a task because everybody in their company is doing it or because the guy on TV said so. Take for example a sensitive issue like retirement, many people contribute to their retirement fund because it is a company requirement, but if people were given the choice, well I’m sure you have an idea of what would happen. Fine, peer pressure has a positive effect if it can lead people to make a worthwhile contribution in their lives, but my main concern is, where is the commitment? While on the issue of retirement, contributing to your retirement is not something that you are going to make in a few months to accumulate enough funds to sustain the lifestyle you desire in your sunset year, it might take half your life time before you achieve that goal. Te question is, How long can somebody sustain such kind of contribution if there is no commitment on their part? Jen Wieczner, in the following article,  tries to answer this question on whether peer pressure will make Americans save more.

Lose weight. Run a marathon. (Okay, a half-marathon.) And — oh, yeah — sock away a little more in the 401(k) plan. Improving one’s financial habits may not top everybody’s list of New Year’s resolutions, but recent studies suggest that some tactics people use to follow through on their intentions — especially relying on different types of peer pressure — can also help them with their money habits. The only problem: They can also backfire.

Whether practiced in group-support settings like Alcoholics Anonymous or in a more public forum (thanks, reality TV), peer pressure has long proved effective in getting people to modify their behavior. Now researchers are applying it more often to money issues, and not just in the U.S. In a 2010 study by American and Chilean researchers, a group of entrepreneurs began meeting regularly to set weekly savings targets, discuss their goals and confess their missteps. Over the course of a year, the group averaged a monthly savings of 11 percent of their income — putting away twice as much money as a control group that didn’t have the meetings. “It’s the concept of keeping up with the Joneses turned on its head,” says Frank Murtha, a psychologist and founder of the behavioral-finance consultancy MarketPsych.

Peer pressure on a larger scale is trickier, of course, but experts say applying what could be called The Biggest Loser effect may help. That’s when a combination of support and shame, and the desire to conform to social norms, persuades people to publicly set a goal and then achieve it. Applying similar principles, the British government recently altered some letters to delinquent taxpayers to include a message urging them to join the 94 percent of their fellow citizens who had paid their taxes. As a result, 70 percent more people either paid or renegotiated payment on their bill, yielding $400 million in recoupments.
But in the world of money, peer pressure can have an equally powerful negative impact — just ask anyone who’s spent too much on a fancy meal with friends or invested in the dot-com bubble. Even when pressure is applied in the right direction, there is often a boomerang effect, as people do the exact opposite of what is encouraged. When unionized employees in one study were told that most of their colleagues were contributing to a company 401(k) plan, they actually saved less than workers who didn’t get the same information. “These peer effects can backfire,” says Brigitte Madrian, an economist and Harvard professor who worked on the study. The effectiveness of pressure may also depend on whether the goals are realistically within reach, Madrian adds; while people can always afford to stop smoking, they aren’t always flush enough to put away a chunk for retirement. Says Ron Shevlin, a senior analyst at research firm Aite Group, “The jury is still out on whether or not this truly works.”

But some analysts and companies think using pressure effectively is just a matter of tinkering with the formula and that if you know what other people are doing, you’ll adjust accordingly. ING’s CompareMe tool, which has had more than a million visitors since it launched in 2009, allows people to plug-in factors like age, income and hobbies and see how they stack up in terms of retirement savings, credit card debt and student loans. When ING provided similar comparison data to a survey group of 28,000 people in several companies’ retirement plans, 16 percent of users increased their contribution rate., a personal finance website backed by Citigroup, uses anonymized data from Citi’s credit card transactions to show people similar benchmarks for expenditures. “If I find a good bunch of people who are spending a whole lot less than I am on groceries maybe I’m making a mistake,” says the site’s founder, Jaidev Shergill.

Technology may make these kinds of tactics more prevalent in the future, experts say, as apps allow people to compare themselves with their peers on the go and nudge them to think twice about a big-ticket purchase. Says Murtha, “Maybe we can get Matt Damon to record a PSA.”

6 Retirement Moves for the Young


Being young is one stage in life where you think that things will remain that way for eternity, only for you to get a wake up call when it’s too late. During this period, it is usually the best time to start getting your life on the right footing, especially financially. Most young people wait until it’s too late to start coming up with a financial plan, and most end up setting unrealistic goals just to achieve their financial goals. This is also the best time to start saving on your retirement, even though it seems like a million years away. The beauty of starting to save when you are young is that you can start with a small amount, and work your way up. As Mark Miller explains in the following article, there are six retirement moves for the young that will ensure that a young person saves enough for retirement.

Young investors spooked by market volatility are continuing to shun equities. But is that any reason not to be thinking about saving for a secure retirement at a young age? Absolutely not. A survey by Reuters of several dozen top retirement experts reinforces the importance of starting early for this simple reason: Time is on your side. Workers in their twenties and thirties have plenty of time to benefit from the magic of compound returns and to allow the market to bounce through its usual ups and downs.

Here are the six most important steps young savers can take to build retirement security:


If you read no further in this article, absorb this point: Above all else, get an early start. Nothing will have a greater impact on your success, due to the effects of compound returns over time. This will be true if historical market returns continue – even if you start small and even if there are bumps in the road. “A retirement account contribution of $5,000 today at age 23 will be worth nearly $300,000 when you retire at age 70, assuming a 9 percent return,” notes Bob Morrison, a financial planner in Denver.

The early start also is a very effective strategy if you’re worried about how much you can set aside.

Vanguard Investments tested scenarios and investment strategies for investors age 25, 35 and 45, aiming for a retirement age of 65. The investor who starts at age 25 with a moderate investment allocation and contributes 6 percent of salary will finish with 34 percent more in her account than the same investor who starts at 35 – and 64 percent more than an investor who starts at 45.

Put another way, the 35-year-old would need to boost her contribution rate to 9 percent to achieve the same result as the 25-year-old starter who was saving 6 percent.


Starting early may permit a lower rate of saving – but that doesn’t mean you shouldn’t sock away as much as you can handle comfortably. Vanguard found that the contribution rate – along with the early start – has a much larger impact on retirement success than market returns.

“It’s a matter of controlling what you can control,” says Maria Bruno, a senior investment analyst at Vanguard. “Your timing and investment rate both have a much larger effect over time than what the market does.”

Higher contribution rates also are useful if you’re scared by stock market risk and prefer a less aggressive portfolio. Vanguard found that a retirement saver starting at 25 saving 9 percent of salary annually with a moderate allocation finished with 13 percent more than by contributing 6 percent in an aggressively invested account.


Don’t cash out your 401(k) when changing jobs, no matter how small the balance. This interrupts the flow of compound returns and it’s very difficult to make up lost ground over time. Instead, roll over the account to your new employer or a low-cost stand-alone IRA, or leave it in place if it’s a good plan.


Make sure to contribute enough to max out any matching contribution from your employer; otherwise you’re leaving free money on the table. Research by Aon Hewitt found that 43 percent of workers in their 20s contribute to 401(k)s at rates too low to capture the full match, compared with 29 percent of all workplace savers.

“At a time when we’re struggling to get 1 percent returns on CDs, young people are foregoing a 100 percent rate of return here,” Morrison says. It’s a huge mistake.”


The total cost of workplace plans vary widely – anywhere from well below 1 percentage point to a whopping 5 percent. Over time, fees can take a big bite out of returns. Wherever possible, seek out low-cost index funds within your workplace plan; if no low-cost options exist, your plan may offer the option of a “brokerage window” that allows you to buy and trade whatever stocks, mutual funds or ETFs are offered by your plan’s vendor.

Likewise, if your employer’s plan offers a target date fund option (TDF), don’t assume this is your best option. TDFs can help by allocating your investments in an age-appropriate way, but many carry higher costs.


Your workplace plan may not offer a Roth option, so consider contributing to a stand-alone Roth IRA with funds over and above your employer match. You an contribute up to $5,000 annually, no matter what you’re doing in your workplace plan so long as your income is below $110,00 (single) or $173,000 (married). “Roth contributions grow tax-free forever, which is a great thing for young people,” says Kathleen Campbell, a planner in Ft. Myers, Florida.

Mary Brooks, a planner in Colorado Springs, Colorado, suggests shoveling annual raises into your retirement account – but I especially liked her caveat: “Of course, the very first extra money received should be used for an immediate pleasure – dinner out, or a treat at a coffee shop. It’s as important to reward yourself in a tangible way as it is to implement the retirement plan.”

How to Strengthen Your Retirement End Game


It would be sad to watch someone who saved all his life, only for that person to end in poverty because of mismanagement during their retirement. To live a comfortable in retirement does not only depend on having an adequate nest egg, but also managing the nest egg to ensure that it last your entire retirement. Making your retirement funds sustain your current lifestyle will require that you are always on top of your game, and ensuring that your retirement income can be able to afford you the current lifestyle without causing any damage to your principal amount in your retirement account. Strengthening your retirement end- game is one of the financial pillars to ensuring a stress-free retirement, and as Emily Brandon explains in the following article, there are several ways of ensuring that this does take place.

We spend much of our career saving and investing for retirement. And the challenges don’t end on the day we retire. We must then manage our nest eggs to make sure our retirement savings lasts for the rest of our lives. Here are some ways to improve your retirement end game.

Plan how you will draw down your savings.

Develop a plan to draw down your retirement savings at an annual rate, such as 4 percent of the initial balance each year, with adjustments for inflation. “You can withdraw between 4 and 6 percent of your portfolio each year and still protect the principal,” says Stephen Overstreet, a certified financial planner in Winter Springs, Fla. The Congressional Research Service estimates that a 4 percent annual withdrawal rate for an investment portfolio with 35 percent in U.S. stocks and 65 percent in corporate bonds would be 89 percent likely to last 35 years or more. You can further prevent yourself from outliving you savings by withdrawing less in years when your investments perform poorly. “When there is a recession, clients should start spending less,” says Overstreet.

Retain an emergency fund.

Keep an emergency fund of immediately available cash so that an unexpected expense doesn’t disrupt your retirement draw down strategy. “You always need to have an emergency fund in another account that is not part of the investment portfolio, but in a bank or mutual fund,” says Overstreet. “If you are heavily dependent on a portfolio, you’re going to need two or three years worth of income sitting in some very safe place.”

Minimize taxes.

If the bulk of your retirement savings is in tax deferred retirement accounts including 401(k)s and IRAs, your timing of withdrawals could impact how much you pay in taxes. “If you take too much in one year your tax bracket could go up because you have a big chuck of money boosting your income,” says Overstreet. “I believe in trying to stretch things out so you don’t have too much income in any one particular year.” Withdrawals from traditional retirement accounts generally become required after age 70½. Those who fail to withdraw the correct amount must pay a 50 percent tax penalty on the amount that should have been withdrawn.

Maximize Social Security.

The monthly payment you are eligible for from the Social Security Administration increases for each month you delay claiming between ages 62 and 70. “If you retire later you will have more money coming in from Social Security,” says Gerald Cannizzaro, a certified financial planner for Retirement Planning Services in Oakton, Va. “If you don’t take your Social Security at 62, you make about 8 percent more per year for every year you don’t take it.” There is no additional benefit for delaying claiming beyond age 70.

Pay off your mortgage.

You will be able to get by on a much smaller income in retirement if you can eliminate your mortgage. “When you retire and have no mortgage to pay it greatly improves your retirement income,” says Cannizzaro. Consider a mortgage payment of $2,000 per month. “Without that payment going out that’s $24,000 a year less you need to spend,” says Cannizzaro.

Sign up for Medicare on time.

You can sign up for Medicare beginning three months before the month you turn 65. Sign up right away to avoid a premium hike for late starters. If you don’t sign up for Medicare Part B during the seven-month window around your 65th birthday, your premiums may increase by 10 percent for each 12-month period that you delay enrollment. Those who are still working and covered by a group health plan at work must sign up within eight months of leaving the insurance plan to avoid the premium increase.

Minimize fees.

Pay attention to the costs and fees you are paying to invest and take steps to minimize them whenever possible. “It’s very common for retail investors who are managing their own money to have multiple layers of underlying expenses that they don’t even know about,” says Bryan Hancock, a certified financial planner for Timberchase Financial in Birmingham, Ala. “The average expense ratio is about 1.5 percent, but there are very low-cost options that can do the same thing for a tenth of that cost, such as low-cost ETFs.” Hancock recommends shopping around for expense ratios of less than 1 percent on your investments.

Combat inflation.

Most people have only one source of inflation-protected retirement income: Social Security. Social Security payments increase each year to keep up with inflation as measured by the Consumer Price Index. Consider adding some additional inflation-fighting investments to your portfolio, such as Treasury Inflation-Protected Securities (TIPS), or some exposure to commodities, real estate, or the stock market.

Consider part-time or seasonal employment.

A part-time job, even if you only make a few thousand dollars per year, allows you to spend your savings more slowly. You can also use part-time income to pay for gifts and trips and other non-necessities that you don’t want to use your nest egg to finance. Spending less in the early years of your retirement allows you to preserve assets for the latter part of your retirement when continued employment may no longer be an option.

Invest in Yourself to Retire Well


We are always looking for ways to improve our life during the sunset years, for example, cutting down on expenses, or finding ways of increasing the amount of money. But sometimes the best way to achieve the goal of living the kind of life you want in retirement is  by investing in yourself. Most times, we sometimes focus too much on other people and other external activities, and ignore that we can considerably reduce the cost of retirement by simply investing in simple activities that can make a big impact on our total cost. In a tough economic environment, like the one we are experiencing at the moment, cutting the retirement expenses any further may reverse the benefits that we are trying so hard to achieve. As Linda Stern explains in the following article, investing in yourself involves taking simple steps that can save funds that can be used to improve your retirement life.

I have a particularly resourceful friend who lives a pretty good life, despite never having quite enough money. She is hardworking and popular with her wide circle of friends, neighbors and colleagues. She networks, barters and works for what she really wants.

A former chef turned teacher, she finessed enough grant money to pay for a two-week trip to cooking school in Italy. She knows where all the good used furniture stores are, has bartered home cleaning for a two-week stay in a vacation home in Vermont, and is working on an arrangement now that will get her free housing in France for several weeks this summer. Tres bien!

I’m pretty sure my friend will do really well in retirement, though I strongly suspect she has nowhere near the $1-million plus that you would think her lifestyle would require. She has a different kind of capital: skills, smarts, and a great social network.

“Everyone is focused on the money, but when somebody retires, they usually manage,” said Larry Cohen, director of Consumer Financial Decisions, a consulting group that studies consumer behavior. “If they don’t have the money, they have human capital like skills and education, and social capital in terms of friends, neighbors or a church. All these things help.”

Cohen predicts that “The (retirement) solutions for the future are going to involve more of these other forms of capital.”

Experts are increasingly focusing on the non-financial assets that workers can bring into retirement to help them manage on fewer dollars than might be optimal.

The Retirement Income Industry Association, a group that represents a cross-section of insurance, investment and research firms, has its own program for training and certifying “retirement management analysts.” The training handbook used in that program includes items such as membership in religious and civic organizations, and the ability to earn money as forms of “capital” that are foundational in the new retirement world.

So what are the best non-financial forms of capital that pre-retirees can invest in now to ensure a good retirement? Here are a few.

Investing knowledge.

Even (or especially) in this era of auto-enrollment in 401(k)s and the proliferation of financial advisers and products, nothing good can come of being uninformed about investing. The more you know, the more you can grow small contributions into a retirement kitty you can live off of. Break it into small bits and learn a little every month. Learning about mutual funds, stocks, taxes, portfolio management and the like will help you, at the very least, choose the right adviser. And it will also help you stretch your income after retirement.

A money-earning skill.

The baby boom may well have psychological problems adjusting to the “withdrawal” era of their lives. It could be harder than you think to pull money out of a treasured 401(k) plan to go see a movie or make a car payment. So develop something now that can earn money in the future. Some popular money-earning side business include eBay sales, handyman work, cooking, babysitting and driving.

Practical money-saving skills.

Gardening, appliance repair, lawn mowing, scratch cooking, vacuuming… got it? If you’re the kind of person who currently pays others to do all of these things for you remember this: In retirement you’ll have more time and less money. For every $100 a month you want to pull out of your tax-deferred retirement account, you need to have roughly $37,500 in assets in that account. So, save $200 a month in do it yourself activities and that’s $75,000 you won’t need to have saved.

Good friends and neighbors.

Can you drive each other to the airport? Share big bargain packages of toilet paper and tomatoes? Check in on each other when you haven’t surfaced for a while? Does someone in the crowd make their own tomato sauce and another fix cars? Or own a beach house or a garden tiller? There’s no end to the savings that a supportive collective like that can generate. And, of course, people who are connected to others enjoy life more and may be able to entertain themselves more cheaply.

The best body possible.

Healthcare costs for retirees will top $350,000 for their lifetimes, the Insured Retirement Institute, an industry group, reported yesterday. And that’s for the healthiest folk. The better shape you are in going into retirement, the less you’ll spend on pain pills, back braces and more. Of course, you can’t control everything that befalls you, but moving into retirement with strong bones and muscles, a good sense of balance, and cardiovascular fitness will improve your retirement fun and cut your retirement expenses.

That hard-to-define craftiness.

Retirement can be like a second chance; the rules come off and you can do things you might not have considered while you were in your main buttoned-down job. Practice creativity now, just like my friend, and you’ll be ahead of the game when your new job is making that smaller-than-you’d-hoped retirement fund last a long and happy time.

6 Ways to Retire Without a Mortgage


In these times of financial hardship, the only way to keep your head afloat is to find ways that can help you minimize your expenses. One of the expenses that account for a huge percentage of one’s total cost is Mortgage payments. The monthly payments you make to your mortgage company is one area where an individual should try and find ways of reducing the impact these contributions make to your bottom line. This is especially the case for anyone who is or has already retired. There are several ways one can minimize the monthly mortgage payments, and the following article by Michael Desenne demonstrates some of the ways a person can retire free of monthly mortgage contributions.

Admit it: Whether you’re 35 or 65, the prospect of retiring without a mortgage is an attractive one. No more monthly checks to your lender means extra money to spend on having fun once you exit the workforce. After years of punctual principal-and-interest payments, it’s the least you deserve, right?

There are several smart ways to retire without a mortgage. We’ve come up with six that fit a variety of retirement scenarios. Some approaches benefit from an early start — so if you are able, try to plan ahead. Other mortgage-free-retirement options can be put into effect even if you’re close to collecting Social Security.

Some retirees don’t mind a mortgage, be it for the tax write-off or to prevent too much money being tied up in home equity. But if your goal is the peace of mind that comes with paying off your loan before you reach retirement, check out these six ways to retire without a mortgage.

Make Extra Mortgage Payments

Over time, a few bucks here and there tacked on to your mortgage payment can translate into thousands of dollars saved on interest and years shaved off the repayment period. The trick is to find small ways to cut corners on other household expenses so that you can apply those modest savings toward your mortgage. Simply swapping out traditional incandescent light bulbs for CFLs, for example, can save you $50 a year in energy costs. A programmable thermostat can save you up to $180 annually.

A little extra goes a long way. A $200,000 mortgage at 6% over 30 years works out to a monthly payment of about $1,200 (excluding taxes and insurance). You’ll pay just over $231,000 in interest alone. But put an extra $100 a month toward the same mortgage and you’ll save nearly $50,000 in interest and retire the loan five and a half years early.

Refinance Your Mortgage

A surefire way to trim the bill for your home loan is to refinance your mortgage to a lower rate for an equal or greater period of time. You’ll enjoy reduced payments and less strain on your bank account. Not a bad idea if money is tight. What you won’t enjoy is a mortgage-free retirement.

To pay off your mortgage early via refinancing, you’ll need to switch to a shorter-term loan. In 2011, a popular refi option for homeowners who weren’t underwater was going from a 30-year mortgage to a 15-year loan. Let’s say you have 25 years left on a 30-year mortgage at 6% and still owe $175,000. You’d pay about $163,000 in interest over the remaining quarter century. For just $167 more per month, plus one-time closing costs, you could refinance to a 15-year mortgage at 4% and save $105,000 in interest. And, of course, you’d be mortgage-free a decade earlier.

Downsize Your Home

Think about it: At a time when you’re supposed to be enjoying the simple life, do you really need a formal living room, separate dining room and two spare bedrooms that you never set foot in? If your answer is no, think about downsizing your home.

The beauty of downsizing to a smaller home in the same area is that you don’t need to say goodbye to your friends, family and community. Of course, beauty can also be found in the fact that you might be able to pay cash for your new abode. That means no mortgage.

And don’t limit your notion of downsizing. Just because you spent the past 30 years in a traditional ranch doesn’t mean you need to purchase another ranch with less square footage. Check out conventional alternatives (condos, townhouses) as well as unconventional options (houseboats, RVs and even tiny homes).

Relocate to a Cheaper City

Can’t find the right place at the right price to retire in your hometown? Move somewhere cheaper. Sure, there will be sacrifices, but what you’ll give up in familiarity you’ll make up for financially. The best places to retire combine ample activities with affordable real estate. And moving to an affordable locale will boost the odds that you won’t have to take out a new mortgage.

Home prices aren’t the only factor. Consider property taxes and homeowners insurance premiums as well. Both affect the overall affordability of a home. In New Jersey, for example, property taxes and insurance premiums combined average $7,270. You’d pay just $1,444 in, say, Kentucky, one of the ten most tax-friendly states for retirees. Some state and local governments reduce or even waive property taxes for residents 65 and older.

Feeling adventurous? You might be able to pay even less for a home and enjoy lower living expenses if you retire overseas. Look into bargain-priced and retiree-welcoming countries such as Belize, Mexico, Panama and Vietnam.

Get a Roommate

Don’t discount the financial advantages of taking on a roommate. By letting out a spare bedroom and applying the rent you collect to your mortgage, you can knock years off the time it’ll take to repay the loan. An extra $250 a month toward a $150,000, 30-year mortgage at 6% will erase the debt more than 13 years early. An extra $100 a month retires the mortgage seven years early.

The benefits to your bottom line extend beyond the mortgage. Rental income can help defray the cost of utilities — gas, electricity, phone, cable, Internet — and maintenance. Annual upkeep on a typical three-bedroom, two-bath detached home runs $7,910, on average, according to, a homeownership Web site. As a bonus, a roommate can help with chores, providing a welcome respite for any homeowner weary of doing dishes and dusting bookshelves alone.

Rent Instead of Owning

A guaranteed way to retire without a mortgage is to sell your current home, pay off the loan in full, pocket the profits, and use the proceeds to rent a place to live instead. Although it might seem as if you’d just be writing a check to a landlord instead of a lender, the differences between renting and owning are considerable.

Among the advantages of renting in retirement: no lawn to mow; no leaky roof to replace; no property taxes to pay; no assets tied up in illiquid real estate; and no residential albatross around your neck preventing you from moving around as you wish. You can even save on little things, such as insurance. The average annual premium for renters insurance is $176, compared with $791 for homeowners insurance. As for losing the ability to deduct the interest you pay on your mortgage — a popular argument in favor of homeownership — keep in mind that the amount of interest due declines over time, so later in the life of a mortgage there is less and less interest to write off.

The single biggest risk of renting in retirement instead of owning is that you might run out of money to pay the rent. If you own a home, by contrast, you could probably resort to a reverse mortgage when savings dry up. This is a legitimate concern, and one that you should address with your financial adviser. A well-structured portfolio can provide a reliable income stream deep into retirement. A part-time job can also stretch your nest egg.

Laid Off, With Retirement Almost in Sight


Unemployment is one of the biggest headaches of this administration, and by the way things are going in the global arena, it will take a while before we can witness the employment levels before the financial crisis began. Millions of people are struggling to make ends meet, but it is harder for anyone who was about to retire and had this plan on how to manage their funds once they retire. Then all over a sudden, millions of would-be retirees were without employment and were forced to go back to the drawing board. We all have been forced to go back to our financial plans and reorganize those plans to reflect the current economic conditions, but this is not easy for someone who was about to retire. Making adjustments to your financial plan in your 50’s or 60’s is not easy, and your may forced to undertake  moves that are supposed to keep you afloat in this tough economic environment. The following article by Tara Siegel Bernard gives examples of how to go about achieving this goal even after being laid off from your job that will keep your head afloat.

Achieving financial security in retirement is hard enough for most working Americans. But for those who lost their jobs just as the finish line was within sight, the whole notion may now seem out of reach.

Older unemployed people face the double whammy of declining home values and an investment portfolio that has been treading water, at best. But they have also lost the one stabilizing factor that was supposed to see them through: a paycheck.

That has forced many of these people — and there are nearly two million of them over age 55 — to make tough decisions about how to make up for the lost income, especially since it is taking them substantially longer than their younger peers to find work. In December, the average time someone 55 or older was unemployed was 52.2 weeks, according to the Labor Department; more than 210,000 others have simply quit looking.

Being unemployed for a year is enough to burn through even the richest of emergency savings funds. So if you have lost your job, the first step, as one financial planner put it, is to do financial triage. You need to look at your cash flow, figure out how much you have been spending and decide the minimum you absolutely need to get by.

“You cut as much as you can, and if you still come up short $500 a month, then you have to figure out the best place to get that money,” said Dan Danford, a financial planner in St. Joseph, Mo.

It may mean that you need to consider taking your pension a bit early, or finding a part-time job. But there are several other little-known tricks that will help you create a bridge of sorts until you either find work or manage to eke your way to retirement.


Though easier in theory than practice, you may consider a second career in an area that you enjoy, perhaps on a part-time basis, through much of your retirement. “It is not very often that we are forced to evaluate our career and to determine if we really want our old job back,” said Alan Moore, a financial planner in Racine, Wis.

He suggests thinking about it this way: Even if you earn only $500 a month working part time in retirement, it’s equivalent to having another $150,000 in the bank, assuming that you pull out 4 percent of that money annually, an industry standard. “Plus, it is much easier to earn $500 a month than save an additional $150,000,” he said, adding that he advises his clients to work with a career coach.

Joshua Gottfried, a financial planner in Glastonbury, Conn., worked with a client who had lost his job as a plant manager. Without his income, Mr. Gottfried calculated, his savings would need to earn an unrealistic 8 or 9 percent return to meet his retirement goals. So he and his wife decided to take 15 percent of their savings to start a construction company. “If he can make 15 to 20 percent on the money he put in the business, and he can make 5 or 6 percent on his passive investments, then it will net out,” Mr. Gottfried said.


For many healthy people, it is almost always worth waiting until your “full retirement age,” at the very least, to begin collecting Social Security. But for those with few or no resources, collecting sooner may be the only option. There are a couple of workarounds, however, that may allow you to collect benefits on a spouse’s record, while your own benefits continue to accrue.

That is what Barbara Saltsman, 64, learned after she lost her job as a legal secretary in June. She had planned to work until she was 66, and while she has continued to scour the Web for new jobs, she hasn’t been able to find anything that pays close to her old salary.

“I have 40-something years of experience, and companies don’t want to pay for it,” said Ms. Saltsman, who lives in Chittenango, in upstate New York.

Unemployment benefits were not enough to keep her finances afloat. So she thought she would have to take Social Security two years before her full retirement age, which would have substantially reduced her benefits. But when she visited her local Social Security office, the representative suggested collecting benefits on her deceased husband’s record until she turned 70, when she could switch to her own benefits and collect more.

Some individuals may also benefit from the “file and suspend” strategy, which allows one spouse to file for benefits and then immediately suspend them. Then, the unemployed spouse can collect spousal benefits on the working spouse’s record while his or her own benefits continue to accrue. But this works only if both spouses have reached full retirement age.


You typically cannot pull money out of a company plan like a 401(k), or a traditional I.R.A., until six months after your 59th birthday. Otherwise, you will face a 10 percent penalty on the amount withdrawn.

You obviously want to avoid withdrawing money prematurely. Several financial planners suggest pulling from emergency savings if you have it or other taxable accounts before resorting to retirement accounts. But if you absolutely must tap these funds, some of these methods will help reduce the damage.


If you were laid off the year you turned 55 or older, you should think twice about rolling over your 401(k) or 403(b) into an I.R.A. You can withdraw money from the account penalty-free (though you will have to pay income taxes), whereas you would have to wait until you turned 59 1/2 to use those funds in an I.R.A. This rule does not apply to people who left their employer, say, at age 54, and who want to pull money out at 55.


You can pull out all of your Roth contributions — but not the earnings — at any time and for any reason, free of tax and penalty. (If you converted a traditional I.R.A. to a Roth, that money could be pulled out, too, as long as it had been in the account for at least five years; each batch of money converted starts a new five-year period.)


If you are out of work, you can also take an early, penalty-free distribution from your company plan, like a 401(k) or I.R.A., to pay your health insurance premiums. To qualify, you need to have received, or be receiving, state or federal unemployment benefits for 12 consecutive weeks, according to Ed Slott, an I.R.A. expert and the author of “The Retirement Savings Time Bomb … and How to Defuse It” (Penguin, 2003), though self-employed people are also eligible. Another caveat: You need to pay for your insurance during the year you received unemployment benefits or the year after.

In fact, paying for health insurance before you are eligible for Medicare is probably one of the biggest challenges of joblessness. Mr. Gottfried suggested looking at high-deductible plans used in conjunction with a health savings account, which allows you to set aside money tax-free that can then be used for medical expenses and premiums.

“That might tide you over, especially when most of those H.S.A.’s will allow a transfer from a traditional I.R.A.,” he added. “Or, if you put money into an H.S.A., you receive a deduction.”


A tax break known as the 72(t) rule will also allow you to withdraw money without penalty from a 401(k) or traditional I.R.A. Using this method, you must withdraw a “series of substantially equal periodic payments” over a five-year period or until you reach age 59 1/2, whichever is longer. The payout is determined by your life expectancy or the joint life expectancy of you and your beneficiary. But you cannot change the payment schedule — otherwise, you will have to pay the 10 percent penalty.

Do not, I repeat do not, rush into this decision without professional guidance. Not only do you run the risk of seriously depleting your I.R.A., but if you find a job and no longer need the money, there is no turning back.

“Once you take the payments, you can’t roll them over back into your I.R.A.,” Mr. Slott said. Nor can you convert that money to a Roth account. “You are stuck with it.”

Financial planners offered many more ideas, from borrowing money from a spouse’s 401(k) to refinancing a home and taking some cash out (if you have the equity), as well as bartering or taking over day care duties for the grandchildren. And several planners suggested that they expected to see more families moving in together.

Whatever you decide, think long and hard about the consequences and how the decision may affect your long-term savings.

“At 55, there are 15 to 20 more years left to get back into work,” said Joseph R. Birkofer, a financial planner in Houston. “It may take a while, but there really isn’t another choice.”

%d bloggers like this: