MONEY Retirement

Eco Disaster: Lessons from Greenpeace’s Currency Bet Gone Bad

The global peace and sustainability nonprofit lost a bundle betting on currencies. Here's what you can learn from the mistake.

Superstars from Tiger Woods to Warren Buffett tell us the secret to their success is keeping it simple. So why would a donor-dependent, globally recognized nonprofit take a macro-economic flyer on which way currencies will move?

More important: What can the disastrous Greenpeace International bet on the direction of the euro tell us about how we handle our own financial matters? Greenpeace, which is quite good at promoting peace and sustainability, is really bad at macro analysis. Sometime last year the organization lost $5.2 million—more than 6% of its annual budget—when it bet wrongly against a rising euro.

This large loss came to light only this week, and it’s too soon to know its full effect. The organization says a financial pro on its staff overstepped and has been fired, and that the loss will not lead to a penny being cut from its causes. Still, it’s hard to believe that at least some donors won’t bristle and hold back donations. The consequences promise to go beyond simple embarrassment.

One lesson here is that currency speculation is a tricky business and best left to hedge fund managers like George Soros. If you must engage in currency bets alone, do so with only a small fraction of your savings and through straightforward international government bond funds. These pay interest in local currency and thus represent a foreign exchange bet. You might also consider a currency ETF from leaders CurrencyShares and WisdomTree.

The bigger lesson, though, is that it really does pay to keep things simple when investing. As Buffett writes in this year’s annual letter to shareholders:

You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

Complexity is all around us. Exotic mortgages sunk millions of homeowners in the Great Recession. Unimaginably arcane financial derivatives contributed to the demise of Lehman Bros. and downfall of Bear Stearns, among other investment banks, during the financial collapse. Even bankers didn’t know quite what they were doing—not unlike the hapless, rogue finance staffer making a wrong-way bet on the euro for Greenpeace.

Individuals can make things as difficult or as easy as they want when they save and invest. Annuities are especially hot right now. Many people shy away from them because they believe all of them to be complex, and many others end up in the wrong type of annuity (and many other insurance products) because so many truly are complex. Yet for most people just looking to lock up guaranteed lifetime income, the venerable immediate or deferred immediate annuity are a sound and simple option.

Likewise, you can prospect for the hottest stock funds, only to be disappointed once you plunk down your dollars and see them eaten away by lackluster returns and high expenses—or you can choose low-fee diversified stock index funds, or maybe a target-date mutual fund, sleep well, and check back in just once a year to rebalance. Why layer chance on top of investment risk? You are good at something else, not macroeconomic analysis.

Reports suggest that the wayward Greenpeace employee was not nest feathering but trying to do the right thing for the future of the organization. Still, it went bad—even for someone in finance. As with many endeavors, when it comes to money, better to do as Buffett says and just keep it simple.

TIME Retirement

The 4 Words Terrifying Americans Right Now

Photo: Travis Rathbone

This post is in partnership with The Fiscal Times. The article below was originally published on The Fiscal Times.

Americans are freaking out about their personal savings – and for good reason. A recent Gallup poll found that 59 percent of those surveyed were very or moderately worried they won’t have enough money for retirement – by far their biggest concern.

Many people once counted on a triad of support for retirement – Social Security, personal savings, and employer-sponsored pensions. Yet in the wake of the Great Recession and a long stretch of high unemployment and stagnant wages, the once-dependable foundation has been crumbling.

Related: Rubio’s Retirement Savings Solution: Work Longer

Employers have phased out generous defined benefit pension programs in favor of 401(k)s and other workplace-based retirement accounts. Personal savings have taken a dive as many people have tapped retirement savings to pay the rent or help make ends meet. And many young people seriously question whether the Social Security trust fund will be able to pay them anything by the time they retire.

The latest National Retirement Risk Index from the Center for Retirement Research (CRR) at Boston College says that more than half (53 percent) of households risk falling more than 10 percent short of the retirement income they’ll need to maintain their standard of living. More than 40 percent of retirees are also at risk of running out of money for daily needs, out-of-pocket spending on health care or long-term care, according to the Employee Benefit Research Institute (EBRI).

Even more alarming, the National Bureau of Economic Research recently concluded that nearly one-quarter of Americans could not come up with $2,000 in 30 days if necessary, and another 20 percent would have to pawn or sell possessions to do so. That would mean nearly half of all Americans are financially stressed.

“The graying of Americans, a growing retirement population, rapid changes in the private employer pension programs, projected insolvency in public pension funds, fiscal pressures at both the federal and state level – all this and more requires policymakers to renew their focus on ensuring existing programs support individuals and families in their twilight years,” said Bill Hoagland, a senior vice president of the Bipartisan Policy Center.

Related: Retirement Savings: Men and Women Do it Differently

The mounting crisis over retirement savings and investment underscores a key facet of the evolving national debate over income inequality: While many households are well prepared for retirement, only 17 percent of people in the lowest income quartile will have sufficient resources to avoid running short of money by the end of their lives, according to EBRI’s 2014 metric.

The Bipartisan Policy Center on Monday is launching a “personal savings initiative” to begin formulating a series of innovative proposals to try to increase national savings, improve income security in retirement, and guard against the potential costs of long-term care. While Congress is unlikely to take up any meaningful tax or financial services legislation before November, a new commission chaired by former senator Kent Conrad (D-ND) and former Social Security Administration official James B. Lockhart III hopes to outline an action agenda for the coming year.

The group will look for ways to beef up the defined contribution retirement system by increasing personal savings for retirement and improving the effectiveness of tax-advantaged savings vehicles, according to a sum of the initiative.

Related: Robust Stock Market Boosts Retirement Savings

The commission will also examine the impact of federal policies on private savings, the finances and operation of Social Security Disability Insurance, the interaction of Social Security with personal savings, the impact of long-term care needs on retirement security, and the role of homeownership and student debt.

The reasons for shortfalls in retirement savings are complicated, but three stand out, says the BPC:

  • A Sea Change in Workplace Retirement Plans

Over the past two decades, the workplace retirement landscape has dramatically shifted to defined contribution plans, in which a worker and in some cases the employer contribute to an account managed by the employee. These have largely replaced defined benefit plans, which specify a benefit – often a percentage of the average salary during the last few years of employment – once the worker retires.

Since 1998, the number of companies offering any sort of defined benefit plan plummeted from 71 to 30 – and an increasing number of those are hybrid plans, where workers accumulate an account balance rather than an annuity. When 401(k)s were created in 1978, they were meant to be a supplement to traditional defined benefit pensions, not a stand-alone retirement account. But over time, they have evolved to serve that purpose – although they typically provide far less in long-term benefits than the old plans.

  • Dismal Personal Savings

The reasons for the long decline in personal savings are difficult to pinpoint, but they likely include stagnant real incomes for many workers, rising standards of living and higher consumption, and a weaker dollar than in the past. The savings rate is the percentage of money that one deducts from his or her personal disposable income for retirement.

Related: The 401(k) Loan: America’s Pricey New Piggy Bank

America’s savings rate fell steadily from the early 1980s through the mid-2000s, ticking up only during or after recessions, according to a Washington Post analysis. It topped 11 percent during President Ronald Reagan’s first term. From 2005-2007, the annual rate averaged 3 percent. The savings rate essentially doubled during the Great Recession, and stayed there, averaging nearly 6 percent from 2009-2012. By early 2013, the rate had dipped to 2.6 percent, before rising again to 4 percent by mid-2014.

A Capital One ShareBuilder survey this year found that 72 percent of Americans are saving – while many more than that know they should be – and only one-fifth of them are saving 10 percent or more. On average, people are saving only 6.4 percent of their annual income, the survey found.

  • Taking the Money Out

For those with defined contribution retirement accounts, carefully managing withdrawals is part of the challenge. Many people are shocked to discover that their account balances, when they need them, are smaller than they anticipated because of cash-outs during job changes, hardship withdrawals, or expensive 401(k) loans. Moreover, those who do not use their savings to purchase lifetime annuities face the risk of outliving their savings.

Individuals without long-term care insurance face impoverishment, having to spend almost all of their financial assets and income on care before they can qualify for long-term support benefits through Medicaid, the federal-state safety net program.

Read more from The Fiscal Times:

Your Tax Dollars Pay for Walmart Execs’ Bonuses

10 Affordable Housing Markets—On the Beach!

How Hookers and Drug Dealers Could Boost US GDP

MONEY Health Care

The Retirement Decision That Could Cost You $51,000

An early retirement may be good for reducing stress but it will also shrink your nest egg.

If you’re worried that health care costs will take a big bite out of your retirement income, don’t retire early.

Couples retiring at age 65 will spend an average $220,000 on health care expenditures, according to the 2014 Retiree Health Care Cost Estimate by Fidelity Investments.

But if you leave the job before 65, you’ll face even higher costs. A couple retiring at 62 would pay $17,000 a year in insurance premiums and out-of-pocket expenses—a total of $51,000—before reaching Medicare eligibility at 65, Fidelity calculated. That would push your total retirement health care costs to $271,000.

“If you have to buy health insurance when you’re older and you’re not on Medicare yet, it’s going to be a lot more expensive,” says Carolyn McClanahan, a doctor and a certified financial planner in Jacksonville, Florida. Even under the Affordable Care Act, older people spend $500 to $1,000 more a month than younger people do in premiums, she points out.

All the more reason to delay your retirement as long as you can. If you wait till age 67, you could save $10,000 a year on your medical expenses. That’s assuming you stay employed and your company pays the majority of your health care costs, which allows you to delay taking Medicare. “On average, Medicare picks up much less than the typical employer plan,” says Sunit Patel, senior vice president of Fidelity Benefits Consulting.

There is some good news in Fidelity’s latest analysis. Health care expenses have moderated in recent years, so this year’s $220,000 lifetime expense is unchanged from 2013. That slowdown is the result of reduced costs for long-term prescription drugs covered by Medicare Part D, as well as lower per-enrollee Medicare expenditures.

Still, whether you retire at 62 or 67, health care is a big-ticket item—and you need to plan for more than just the medical bills. Fidelity’s estimates don’t include the cost of paying for long-term care services, such as a home health aide or a nursing home, in the event you become disabled.

Of course, the timing of your retirement isn’t always something you can control. About half of retirees report that they left the workforce earlier than planned because of health issues, a layoff, or to care for an elderly relative, according the Employee Benefit Research Institute.

If you want to retire early, or think you’ll be forced to leave the workforce, be sure to estimate your health care costs and budget that into your retirement spending. If you’re in ill health or have a chronic condition such as diabetes, you may need to set aside more money for doctor visits and prescription drugs. And take whatever steps you can to improve and maintain your health. “If you’re in your 50s, this is the time to take good care of yourself,” says McClanahan.

TIME Retirement

Millennials Are Leading Boomers to a Smarter Retirement

In retirement jobs, boomers embrace many of the same work values as Millennials.

Most boomers couldn’t name a song by Imagine Dragons or find much use for the news on Policymic.com. But give it time. Both are popular with Millennials, and in some ways we are turning into our children.

Four decades may separate the two generations, which have had vastly different life experiences. Boomers came of age during a time when jobs were plentiful and pensions were secure. Millennials have reached adulthood amid broad underemployment and a crumbling social safety net. These would seem to suggest opposite economic views. But that isn’t necessarily the case.

Of course, the generations have differing views in many areas, and a Pew survey found extreme gaps in technology, politics, music, religion and parts of the workplace. Yes, Millennials prefer to wear flip-flops to the office and text, not talk. Yet in key ways, boomers and Millennials are, like, so similar:

  • Work/Life balance Boomers once thrived on 60-hour workweeks, getting their social life in at the water cooler, and logging the face time needed to get a promotion or more pay. Now that retirement years loom, they have embraced flexible schedules even if it means no promotion. Many boomers must keep working but they want to live a little too. Millennials have felt that way from the start, in part because they’ve had fewer career opportunities but also because many have seen parents toil away for 40 years and never get ahead. They want a different path; they want to enjoy the process because it may not end with financial dreams fulfilled. “The similarities in attitudes across generations are striking,” the global consulting firm PwC found in a 2013 study. For many boomers, work used to be their personal life. Now more than 60% in both generations agree that work interferes with their personal life.
  • Meaning Boomers have long sought a higher purpose, be it ending a war or fighting for civil rights. But their job was about getting ahead, not changing the world. Millennials link work with doing good and having a rewarding experience. That is partly how they expect to be paid—through job satisfaction. They want to work for green companies, have responsibilities that interest them, be part of a team, travel and feel like they are making a difference. Again, with retirement looming, boomers are hopping on board. Some 57% of working retirees are either volunteers or working at a job that provides a community service, or working as a way to maintain connections, according to a report from Bank of America Merrill Lynch and Age Wave, which notes that through work members of this generation “seek greater purpose, stimulation, social engagement, and fulfillment.”
  • Saving Now past 50, many boomers have begun to ramp up saving in a last-minute blitz to reach retirement security. Many won’t make it, which is the main reason that 28% in the Merrill Lynch survey work in retirement. But others are taking advantage of catch-up savings plans and setting aside more pay. The Insured Retirement Institute estimates that 80% of boomers have retirement savings; about half of them have at least $250,000. Perhaps they have taken a cue from Millennials. Eight in 10 in the younger generation say the recession convinced them they must save more now, according to the 2014 Wells Fargo Millennial Study. More than half are putting away money regularly. An almost identical share of boomers (56%) and Millennials (55%) would like to see a mandatory retirement savings policy in the U.S.

The generations may never agree on what makes a good band or where to find the most pertinent news. But we seem to be discovering common ground in areas that matter.

 

 

 

MONEY 401(k)

The Three 401(k) Moves Boomers Should Make Now

140606_INV_Boomer401K_1
Make sure your investment plan still fits your life. John Rensten—Getty Images

You're starting to get a handle on what your retirement will look like. Adjust your portfolio to protect it.

By now you should have the basics of your retirement strategy in effect. You’ve salted away a decent chunk of change and invested in a diversified group of funds. Hopefully, you’ve even gotten the hang of dealing with some market ups and downs, and settled on a mix of stocks and bonds you feel comfortable with. But as you close in on your retirement date, there are some new complications to consider. And some opportunities, too. Let’s start with the good stuff:

1. Look for savings boosters

As you’ve no doubt learned over the years, neither saving nor spending runs along a smooth path. Expenses spike when you need that new minivan or you’re paying tuition bills, and may then tail off once the offspring strike out on their own. Whenever money frees up, you can plow that money into extra savings.

You’d be surprised how you can make up for lost ground. For example, say you’re 50 with $350,000 socked away, make $70,000 a year, save at a 10% annual clip, and earn 5% annual investment returns. Let’s say for a brief window of time, when junior is at college racking up tuition bills, you have to drop that savings rate down to 5%.

It’s not the end of the world, as long as you commit to boosting your savings when cash frees up. For instance, if you were to drop your savings rate to 5% during those college years, but then boost it to 15% starting at 55 (when junior has graduated), and then to 25% starting at age 60 (perhaps when the mortgage is paid off), you’d wind up with $980,000 by age 65. That’s actually slightly more than the $916,500 you would have amassed by simply sticking to that 10% annual savings rate all along.

Remember too that starting at age 50, both you and your spouse can make extra catch-up 401(k)s contributions of up to $5,500, on top of the normal $17,500.

2. Prep your portfolio for the spend-down phase

As you get nearer to your retirement date, you have to start thinking about your investments differently. Earlier in your career, market losses hurt, but they were buffered by the fact that you still had many years of earnings ahead. You were replenishing your portfolio even as it fell.

Once you enter retirement, the rules are different. You’ll have to spend out of your nest egg whether your portfolio is up or down. That means that even if stocks do well on average during the time you are retired, a bad run early on can deplete your portfolio quickly. In that case, a later market rebound may not help much. Consider this (partly) hypothetical example. The “bad years early” example is what actually would have happened to someone with the bad luck to retire in 1971. The portfolio taps out in less than 25 years.

NOTE: Assumes initial withdrawal adjusted for inflation. Based on a 60% stock portfolio. SOURCE: Morningstar

The happier result, “bad years late,” is the same set of returns, just reversed so that more bull years come first. The moral of the story: Your retirement outcome will depend a lot on whether you have good luck or bad luck in the years just before and just after your retirement.

You can’t control what the markets will look like when you retire. But before you get there, you can prepare your portfolio by making sure a decent chunk of your nest egg is in safer assets such as bonds or cash.

3. Make sure your investments and your career are in sync

When you set your retirement plan in motion, you may have had certain expectations about when you’d retire. According to polls by Gallup, Americans expect to retire around age 66, reflecting a general trend toward later retirement. Here’s the thing: The actual age of retirement is only about 62. (That’s up from 59 in 2004.) Things happen: You may run into health issues, or find yourself forced into early retirement as your company downsizes. In your late 50s or early 60s, you probably will start to get a good sense of whether you’ll have to reset your planned retirement date. Don’t forget to reevaluate your plan accordingly. An earlier retirement means you’ll want to shift into safer assets more quickly.

Many 401(k) savers these days use target-date funds, premixed portfolios of stocks and bonds which lower their equity exposure as you approach a retirement date. If you’ve reset your retirement expectations, you should switch target date funds too. It can make a difference:

image(22)
SOURCE: T. Rowe Price

The popular T. Rowe Price Retirment fund meant for people aiming at a 2020 quit date has almost 10% more of its assets in stocks than the one for those retiring just five years sooner. Other target retirement funds in 401(k) plans have similar features. Even if you prefer to keep your investments on autopilot, sometimes you have to step in to correct course.

MONEY 401(k)s

The Three 401(k) Moves Millennials Should Make Now

Millenials sitting on the floor discussing 401k investing
Roberto Westbrook—Getty Images/Image Source

A few smart—and easy—choices in your 401(k) can go a long way toward getting off to a good start.

For the so-called Millennial generation, born after 1981 (yes, that includes you, 30-year-olds!), retirement might seem far off.

But if you’re lucky enough to have a job with an employer-sponsored 401(k), you ought to take advantage right now. Assuming you—like many of your peers—feel too perplexed by your options (or too busy multi-tasking) to put in much effort, here are the best bare-minimum moves:

1. Contribute even if you don’t get a match. Although the vast majority of large employers offer some matching 401(k) contributions, smaller companies don’t always do the same. But your account is still worthwhile. A 401(k) lets you set aside a chunk of your paycheck before it gets taxed and shields that cash from Uncle Sam as it grows. Yes, you’ll pay income tax on the money you take out when you retire. But because you got to stash more to begin with—and that money will have had many years to build—you’ll do better than you would have in a taxable (e.g., savings or brokerage) account.

For example, imagine you put away $4,000 annually starting at age 25. Here’s how much more you’d have saved by 65 if you kept that money in a 401(k) instead of an unsheltered account:

401k mill
NOTES: Assumes 6% investment returns and a 25% tax bracket. SOURCE: Paul Herman, CPA

In addition to being hit with income taxes, money in a non-retirement account is subject to taxes on earnings—whether from dividends, capital gains, or just simple interest. Not so with a 401(k). And therein lies another big advantage. “The less money coming out because of taxes, the more available for compounding, which is the real wind at your back,” says Brooks Herman, head of data and research at BrightScope, which rates 401(k) plans.

If you’re fortunate enough to get a match, maximize it. Say your employer matches up to 6% of contributions (the most common match), but you save only 3% of your salary each year? You’re leaving free money on the table.

2. Take the cheap and lazy option. If you feel clueless about the funds offered in your 401(k) plan, you’re not alone: A TIAA-CREF survey recently found that more than 40% of millennials who participate in retirement plans are not familiar with their investment options.

Assuming you’d like to do as little work as possible, go with a target-date fund. These funds—which automatically adjust your relative holdings in bonds and stocks (your “asset allocation”) to be less risky as you get older—are particularly attractive if they charge less than 0.5% in annual fees, or $5 for every $1,000 invested.

3. Don’t touch that money, unless you need it for a medical emergency. Millennials have it tough, financially, with higher debt and unemployment (and lower income) than Gen Xers and Boomers had when they were young, according to a recent Pew study. So it might be tempting to view your retirement account as a good rainy-day fund. But money in a 401(k) is meant for retirement, and if you try to pull it out early (before you are 59 ½) you will have to pay an extra 10% tax on top of standard income tax. That penalty could wipe out all the benefits of the account, and then some. The only real exception to the penalty is if you are using the money because you’ve been disabled, or for certain qualified medical expenses. Likewise, borrowing against your 401(k) should be only a last resort.

If there’s a serious chance you’ll need to use your savings for future educational expenses or for buying your first home, an individual retirement account (IRA) not sponsored by your employer might be a better vehicle for your cash, because those come with slightly more flexible rules for early withdrawals. But in general, retirement accounts—whether 401(k)s or IRAs—should be left untouched until you actually retire.

MONEY 401(k)s

The Three Things Gen X’ers Should Be Doing In Their 401(k)s

Generation X woman in coffee shop on laptop
Make that a double-shot latte. Now's the time to focus. Tim Robberts—Getty Images

It's too early to give up and too late to delay. If ever there was a time to get your 401(k) in order, it's now.

The big things you have to get right in your 401(k) don’t vary by age: Pick a diversified mix of stock and bond funds. Keep costs as low as you can, using index funds if that’s an option. Don’t chase hot performance. But there is some advice that will matter more to you if you instantly know who’s a brain, an athlete, a basketcase, a princess, or a criminal.

1. It’s go time

Yes, you should ideally save a lot over your entire career. The truth is a lot people aren’t great about this in their 20s and early 30s. Young people have school debts to pay off and households to set up. And, let’s be honest, they have lots of free time to do fun stuff, but not such big paychecks to fund it. Maybe that sounds like you. (It certainly sounds like me.) The feeling that you are already behind can be paralyzing.

But here’s the thing: You still have time to make up lost ground. And you’ve entered your peak earning years. If you save a given percentage of your income today, that may be a bigger chunk of money than it was when your career was just getting going.

image(8)
Source: Bureau of Labor Statistics

Let this be a spur to you as well. As you can see above, at your age, you likely don’t have any lifestyle-changing raises in your future. (Sorry.) There’s not going to be a better time than now to save money.

2. Think 17%

How much you really need to save for retirement at this point depends on how much you already have. But about 17% is a good mental anchor if you want to get your savings at least roughly right now and do the math later. The amount is far more than the average 401(k) contribution of around 6% or 7%. But take a deep breath. That number includes the contributions from your employer.

Where’s the number come from? Wade Pfau of the American College of Financial Services calculated the savings rate required to safely fund a typical retirement goal. About 17% is the number he came up with for people who start from scratch with no savings at age 35, with a 60% stock/40% bond portfolio. You might do okay saving less than that if stock and bond markets go your way, but Pfau’s number is what it takes to get there even with poor returns.

Don’t delay. Wait until 45 to start, and the from-scratch required safe savings rate goes to 36%.

3. Review your risk

For young savers, market risk can be a bit of an abstraction. The amount you saved by your early 30s is probably on the low side, so even a steep market slide means losing fairly modest pile of actual dollars.

Around age 40, though, the numbers involved change. The average retirement account, according to a survey by Fidelity, crosses over the psychologically important six-figure line. Big losses feel real.

image(9)
Source: Fidelity Investments

So if you haven’t thought much about your portfolio lately, try this exercise. Figure out how much, in dollar terms, of your retirement accounts are in invested stocks. (If you have a fund, such as a target date fund, that combines stocks and bonds, be sure to include the stock portion of that fund in your total.) So imagine losing half those dollars. The S&P 500 fell by roughly 50% from top to bottom during the 2007-2009 crash, before rebounding. It could happen again. If you count up the possible losses and they feel like too much for you to stomach, meaning not just that you’d hate it but that you’d be tempted to sell, then trim back now.

That having been said, don’t be too afraid of market volatility. You have a lot of good earnings years ahead of you, and can likely bear some risk to get a better return.

TIME Financial Planning

This Reality TV Show Can Save Your Retirement

Getty Images

Can a reality TV show fix your troubled family finances?

What does it mean that a reality TV show is in the works, aiming to help couples sort through their money woes? Yes, a major cable station is working up a “family finance” pilot that amounts to a Biggest Loser for folks who have never seen a credit offer they didn’t like.

Have producers of this popular genre simply run out of material? I mean after Here Comes Honey Boo Boo, what’s left? Or is it that Americans’ inability to manage money has become so big and obvious, and economically debilitating, that there is now an appetite for a tough-love TV program that puts struggling families on a debt diet?

Think Real Housewives, only everyone is broke. Or maybe Hell’s Kitchen, only the host has a heart. No one will get voted off this island, or hear the words “you’re fired.” But there might be some Jersey Shore sniping when couples confront their ridiculous spending and credit practices.

The show in development may never get to air. I only know about it because I played a small role in casting. From what I could see anecdotally, young families in the U.S. have issues that appear far worse than any data points or averages suggest.

One young Texas couple took a big hit when the husband lost his job and found work at half the pay. The wife went to work. She hates her job and not being a full-time mother. The arrangement is causing all kinds of stress in the relationship. Yet they haven’t taken the time to do some simple math: They are spending more on childcare than she makes each month. Quitting her job would solve a few big problems right away.

A Chicago couple in their early 40s has household income of $200,000 and zero savings. They have a big mortgage that’s killing them, some unusual ongoing healthcare expenses that will be with them for years, and they are sending two kids to costly private elementary and high schools. Again, stress is driving them apart. But doing a little math, it seems clear they could fix it all just by choosing the decent public schools in their affluent neighborhood and putting the savings toward retirement, mortgage payments and healthcare. Even they wonder about the private school sacrifice. But they haven’t made the tough decision because of appearances.

These are the kinds of choices that undermine the financial security of millions of families all the time. I’m rooting for this show to get to air, and if it does I hope it won’t devolve into tears, arguments and an ornery host with a whip. A lot of troubled family finances really are easily fixed through simple math and not-so-simple discipline. If a reality TV show can illustrate that, it will have been worth more than all the silly Kardashian episodes ever aired.

 

 

MONEY working in retirement

It’s Never Too Late For A Second Act

Baby boomer entrepreneurs in bakery
Small business owners working in bakery together. John Lund/Marc Romanelli—Getty Images/Blend Images

Do you have what it takes to be a boomer entrepreneur? Get ready: you're likely to change gears in unexpected ways.

Heading toward retirement, but you want to keep working? The best move is to find another job in your field, perhaps part-time or or as a consultant—right?

Maybe not. Sure, you’ve amassed tons of expertise in your industry after working in it for the past decade or two. But there’s a wider world out there. Many older Americans are opting for a completely different career after they leave their former jobs, according to a new Merrill Lynch survey on work and retirement.

Nearly 50% of retirees say they either have, or intend to, stay employed during their retirement, according to the survey. Not a surprise, given today’s meager 401(k) balances. But what’s striking is how many people ended up with brand new careers.Nearly 60% of working retirees are in jobs that are completely different from their pre-retirement work, with many in education and white-collar jobs, according to demographers Age Wave, who contributed to the study.

Working retirees also tend to be entrepreneurs. They are three times more likely than other workers age 50 and older to own their own business or be self-employed, according to the study, which gathered data on nearly 7,000 pre-retirees and retirees, both working and non-working. “Retirees often make for the best entrepreneurs. Many have decades of experience, business contacts and the financial means to start a successful business,” says Bill Hunter, director of personal retirement strategy at Bank of America Merrill Lynch.

While some retirees are working primarily for the income, more report doing it to stay busy and involved: 62% of working retirees say they work to stay mentally active, compared with 31% who say money is the top reason.

Busting another myth, most older entrepreneurs say age discrimination didn’t drive them to work for themselves: 82% of these “retire-preneurs” as Merrill Lynch is branding them, say they started their own business because they wanted to work on their own terms. Only 14% reported that they had to start their own company because they otherwise couldn’t find work.

“Working in retirement is often a chance to try something new or pursue a dream,” says Mary Beth Izard, a start-up consultant and author of BoomerPreneurs. If a brand-new second act appeals to you, start developing your plans now. Taking on a new career challenge in your retirement years isn’t easy, and a start-up venture can drain your nest egg fast.

Lay the groundwork in the five years before you plan to retire, says Izard. If you want to go into a new career, begin by taking classes, as well as working part-time or or as a volunteer for an organization involved in the field you are interested in. And if you go the entrepreneur route, starting researching the costs and income potential of that new business well before you start sinking money into it.

For more tips on embarking on an entreprenurial second act, click here.

 

MONEY Investing

If You Live in Vegas, You Might Want to Buy More Bonds

140527_REA_LasVegas_1
Las Vegas' more volatile home prices suggest residents should invest their portfolios more conservatively, a new report says. Glenn Pinkerton—Las Vegas News Bureau

Where you live, and how much home equity you have, should impact how you invest for retirement, argue Morningstar experts.

The collapse of housing prices five years ago made a lot of people question whether owning a home was a good investment. But you probably never connected where you live with how you invest.

That’s a mistake, says David Blanchett, head of retirement research at Morningstar. Blanchett argues in a recent paper that investors’ strategy for building retirement wealth should look beyond typical portfolio considerations — stocks versus bonds, growth versus value — and take into account the health of your real estate market.

“Real estate is the largest physical asset most households have,” Blanchett says. And it can be an important financial asset: Home equity could be tapped to help fund retirement, or a paid-off home passed along to heirs.

But, as the housing bust taught us the hard way, a downturn in home prices can wipe out equity in a flash. Especially if you own a home in a market where prices are volatile, such as Las Vegas, Miami, or Washington D.C.

In that case, you might want to adjust your investment strategy, according to Morningstar. Here are some ways your housing situation could impact your investing style:

If you live in a one-company town: Invest more conservatively. A city dominated by one industry or one company leaves you vulnerable. “If that company went out of business, or had a significant layoff, lots of people might all want to move at the same time,” Blanchett says. Even if you don’t work for the company, you’re still exposed.

If you have a lot of equity in your home: Invest more aggressively. The more equity you have in your home, the less affected you are by pricing changes. For example, if you’ve just purchased your home with 10% down, a 10% decline in home prices would completely erase the value of your investment. That same decline for someone who has paid off the mortgage would represent a much less significant loss. “You can afford to take on more risk in other parts of your portfolio,” Blanchett says.

If you rent: Increase your allocation to REITs. Stashing a 5%-10% chunk of your portfolio in real estate investment trusts is a common diversification tactic. But owning a home also exposes you to real estate. If you have a lot of home equity, or live in a riskier market, you want to stay at the low end of that allocation. If you rent, on the other hand, you could put closer to 10% of your nest egg in REITs, Blanchett says.

 

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser