Getting Ready to Retire? Do These 5 Things Now

Retiring in 2012? Read this today

BY Tom Lauricella,
The Wall Street Journal

Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.
The Wall Street Journal — 01/01/12

For some, 2012 will be much more than just another year. It will be the year that, after decades of punching the clock, they'll join the ranks of the retired.

Before making that final commute to work, however, those retiring this year should make a to-do list.

There are important aspects of retirement to prepare for and steps that can make the transition smoother both financially and emotionally. Here are five things to do now.

1. Start keeping close track of your spending
During the planning phase for retirement finances, much of the math was based on guesswork. Now is the time to get real.

Start by going back over the past few months of bills and expenses to get a detailed picture of your spending and expenses. Plan on keeping close tabs on a continuing basis, remembering that some spending may be seasonal — such as holiday presents or greens fees for golf.

Budgeting tools, such as Mint.com, will enable you to highlight certain spending that won't continue after retirement, such as commuting costs.

Keep in mind this will be a work in progress even once you stop working. For many people "it's going to take a year or so before you really get the hang of it, knowing what you are spending your time doing, how you are spending your money," says Jonathan Guyton of Cornerstone Wealth Advisors in Minneapolis.

2. Fine-tune your income expectations
Recent years haven't been kind to savers. A lousy decade for stocks has been compounded by interest rates that are at historically low levels and seem likely to remain low for years.

Unfortunately, 401(k) calculators typically don't rely on current yields when projecting your income during retirement. Instead, they usually rely on historical patterns.

That means some people nearing retirement may be in denial about how much money they can earn from safe investments such as bonds or certificates of deposit, says Lawrence Glazer, a managing partner at Mayflower Advisors in Boston. "You have to be realistic about today's income environment," he says.

3. Start thinking about Social Security
Central to your income planning will be Social Security benefits. You won't know the exact size of the check until the first one arrives, but the Social Security Administration can provide an estimate that should be relatively close. You can get an estimate at SocialSecurity.gov, on the phone or in person at your local office. Be sure to check if you're due additional benefits if you are widowed or divorced.

All this leads to one of the most important decisions regarding retirement planning: when to start taking Social Security benefits. Delaying benefits means larger checks in the future, but it may require eating into your savings upfront. Sit down with an adviser to do the math.

4. Build a cash reserve
One thing you want to avoid in retirement: being forced to sell during a steep selloff in the stock or bond markets in order to raise cash to pay bills.

The solution is to keep enough cash on hand that you can sell investments when you are comfortable. Many advisers recommend at least a year's worth of money.

Advisers have long recommended that retirees hold two years of money in a separate account. A retiree then cuts himself a "paycheck" once a month which goes into a checking account for day-to-day living. "In a perfect world, an investor would begin developing the reserve prior to retirement," says Harold Evensky, president of Evensky & Katz.

A dedicated cash reserve is especially important if you are delaying taking Social Security. "The idea is that this is a bridge account that will deplete itself by the time Social Security kicks in," says Mr. Guyton.

5. Get emotionally ready
Amid the focus on financial planning, don't lose sight of the fact that for most people, retirement is a completely new and different experience that can be challenging on an emotional level.

While many people can't wait to get out of the 9-to-5 grind, there are those for whom a career was more than a job. It was an identity.

"You've got the executive who has worked 24-7…and has always identified his self worth with that paycheck," says Mayflower's Mr. Glazer. "Without that paycheck, he feels a little empty."

Cornerstone's Mr. Guyton urges those approaching retirement to think in terms of "retiring to something" and not "retiring from something."

"If your definition of retirement is framed in terms of what you are leaving, you are setting yourself up for a much more difficult transition emotionally," he says. "Even if it's just some relatively small thing that you are energized about and this is something you get to do right now…you generally do much better."


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Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.

Beware the Wealth Killers (from Ken and Daria Dolan)

Dolans.com
Beware These 9 Wealth Killers
by Ken Dolan October 22, 2008 10:13 AM
Posted in: Family & Money

These are scary times, indeed. Even the talking heads on TV tell us that we're in uncharted territory. And based on our 20+ years of experience in the financial business, this is one of the few times that we actually agree with them!

Between economic (and natural) catastrophes...banking disasters...more and more scams…and bad news upon more bad news, it's no wonder that people are tempted to stuff their cash under their mattress!

Yes, it's been a tough year to grow your money. But to make matters even worse, there are also serious threats that can eat away at your hard-earned dollars.

As they say, "Forewarned is forearmed." If you know what threats are out there, you can take steps now to protect your money.

To that end, we've pulled together these top 9 threats to guard against AND what you must do about them. Read on...

Money Threat #1: Inflation.
Dare we say the dreaded "I" word? (May as well since we're in the thick of inflation now!)

Inflation affects more than just the cost of the products you buy – it can also affect the price of your loans since inflation generally pushes interest rates up…not to mention that it can negatively influence your investments because many companies grow more slowly during inflationary times.

Sit tight. Prices will eventually drop again – they always do. In the meantime, cut corners where you can. Save more. You should also start a "rainy day" fund, if you don't have one already. You can quickly calculate how much you need to set aside for emergencies here. (/calculators/How_Much_Do_I_Need_For_Emergencies.html)



Money Threat #2: Stock market losses.
In the midst of the banking crisis and the tumbling real estate and mortgage markets, woe is Wall Street. This turmoil in the stock market affects your retirement, your savings and your financial health as a whole.

Whatever you do, don't spend one more day invested in stocks if you're uncomfortable doing so. Rule #1 in our 10 Simple Rules of Investing (/invest_wisely/dolans_10_rules_of_investing.html) is to "Know thy sleep quotient." In a nutshell, that means reduce your risk if you're staying awake at night worrying about your investments.

Remember: There are always safer places to put your money. Just don't lose your shirt in THESE investments.

Money Threat #3: Bank problems
Many of us who never worried about the safety of our assets in a bank are now very concerned…with good reason. This whole financial crisis is FAR from over.

You can never be too cautious, so first check the safety of your bank through Veribanc (http://www.veribanc.com/ConsumerReports.php) (800/44-BANKS). They provide ratings on all U.S. federally-insured financial institutions. Another source is Weiss Ratings (http://www.weissratings.com/) , which includes a free list of the strongest- and weakest-rated banks in the nation. (You should also be aware of our 5 Warning Signs Your Bank Could Be In Trouble. (/banking/bank-failure-warning-signs.html) )

Also, make sure that your bank is FDIC insured. But don't be hasty – you need to know specifically what's covered and what's not. Find out in How to Protect Your Bank Deposits (/banking/fdic-insurance.html)

Money Threat #4: Weak dollar.
You may think that our weak dollar only affects us if we travel overseas. Not true.

It actually poses a lot of problems for our personal wealth as well. Since we don't manufacture much in the U.S. anymore, a lot of the products we purchase – from cars and wines to toys and clothes – are imported from foreign markets. A weak dollar makes them more expensive.

Also, since we're so dependent on foreign oil, a weak dollar keeps fuel costs high AND, as interest rates remain low, we don't earn as much on investments like CDs and bonds.

One solution, if you can stand the volatility and risk, is to consider a small investment in gold. (Click here for 4 ways to profit from a weak dollar. (/invest_wisely/investing_with_a_weak_dollar.html) )

Money Threat #5: The Presidential election.
We're not about to tell you who to vote for, but you need to know how Wall Street reacts when it comes to electing our highest public official.

Typically, if a Democrat is winning in the weeks leading up to an election, the stock market goes crazy and sells off in advance. It then usually rallies sometime after the new president takes his oath.

On the other hand, if a Republican is winning, the market usually rallies beforehand, then typically sells off not long after he takes office.

No matter what happens, if you plan to stay in the market (and we think it's treacherous to be there at the moment), be prepared for some short-term losses at the very least.

[Money Threat #6: Fluctuating energy prices.
Sure, gas prices are dropping...but for how long? (As long as we're importing oil, the risk of skyrocketing prices will always be there!)

Higher energy prices affect more than just the prices at the pump. They often lead to higher prices not only for essential goods such as food, but for just about anything that needs to be transported by truck or air.

They have a profound impact on your everyday products, not to mention the economy at large. And historically speaking, recessions often follow oil price surges.

What to do? The key is conservation. Slow down the demand. Carpool to work or take public transportation (or work from home a few days a week if your company allows it). You can find four other ways to save gas here (/save_more/gallery/high-gas-prices.html) .

Money Threat #7: Excessive household debt.
In The Millionaire Next Door, authors Thomas Stanley and William Danko noted that most self-made millionaires save or invest 15 to 20 percent of their income. The other side of the coin is that average Americans spend 18% of their disposable income paying off their debts. What a nightmare!

The obvious lesson learned is you'll never become a millionaire when you have a desk full of loans and credit card bills to pay each month. Find out how to become completely debt-free in 10 simple steps. (/debt_management/gallery/living-debt-free.html)

Money Threat #8: Being under-insured.
It's estimated that two out of three homes nationwide are under-insured. That's a scary statistic – especially in light of all of the natural disasters over the last few months.

Here's another frightening fact: Many homeowners with older insurance policies don't know that since the late 1990s they've had to specifically request a "guaranteed replacement" policy. Meaning if they don't, their policy may set pay-out limits that may not be enough to cover the cost to repair or rebuild their home. In the unlikely event of a disaster, the potential financial loss is staggering.

Eliminate your risk. Check your homeowner's policy. Then get our checklist to be sure you're prepared, just in case: What to Do When Disaster Strikes (/family_money/gallery/what-to-do-when-disaster-strikes.html) .

Money Threat #9: Money scams
If you receive an offer in the mail (or from a telemarketer) that sounds too good to be true, either look at it more closely…or, even better, pitch it.

One piece of mail you're much better off ignoring is a letter promising "mortgage rescue assistance." It has 'scam' written all over it. Remember, you do not and should not pay money to ANYONE to stay out of foreclosure. If you need help, consult a real estate attorney or call HOPE NOW at 1-800-995-HOPE

And…if you have a child applying to colleges this year, beware the scholarship scams, which "guarantee" a scholarship for a $50 to $1,500 fee. Ha!

Don't forget to forward this information to a friend who may need it!



Copyright © 2011 Dolans.com. All Rights Reserved.

When the Sky Falls - Ben Stein in the NY Times

October 26, 2008
Everybody’s Business
You Don’t Always Know When the Sky Will Fall

By BEN STEIN
NOW, as the great Phil Rizzuto used to say, for “some high hops and short stops” — only not in sports, but in finance and life.

First, I get a certain amount of mail asking why I was unable to spot the stock market crash in advance, sell short and become rich. And why was I unable to foretell the future, so my readers could avoid losses and make money?

Well, I am just a person. I don’t have any magical powers to foresee the future. In this case, I did not foresee the catastrophic mistake, as I view it, by Treasury Secretary Henry M. Paulson Jr. to allow Lehman Brothers to fail. That failure left a gaping hole in the financial services industry, and blew away confidence that the Feds knew what they were doing.

Months ago, one of the greatest of American economists, Anna Jacobson Schwartz, who was co-author with the late Milton Friedman of “A Monetary History of the United States,” accurately said that American banks did not face a liquidity crisis, but that they might soon urgently face a solvency crisis. In other words, banks would have ample reserves to lend but might lack assurances that they could meet all their financial obligations if those loans went bad. She was right. In fact, bankers have had so many losses and faced so much uncertainty that they dared not lend, for fear of killing their banks with bad loans — so we have actually had a solvency crisis.

(By the way, it’s a disgrace that Mrs. Schwartz, a mainstay of economic insight since before World War II — as well as my late mother’s college roommate at Barnard — has not been a Nobel laureate. That hints at a dismal sexism in the dismal science.)

The solvency crisis exploded when, in mid-September, Mr. Paulson allowed Lehman Brothers to die a sudden death. I would never have believed that it could happen, which shows one of my many limitations as an economist and a human being. I assume that the future will be much like the past, but sometimes it isn’t.

After Lehman, I felt sure that the government would realize its mistake and issue blanket solvency guarantees to banks. But that didn’t happen, the stock market fell apart, credit went icy cold and the wheels started to come off the economy. This also took me by surprise.

The failure of government to limit the loss possibilities from credit-default swaps has also been a mystery to me. And credit-default swaps themselves are something of a mystery. They are derivative instruments that supposedly insure a bond or similar entity against default. In fact, they are a wager about the possibility of default of anything, and the potential payouts for the wagers that have been made are many times larger than the value of all the subprime mortgage bonds that ever were.

The need for the government to take action seemed so clear — and still seems so clear that I cannot believe a day passes without its happening. But the days pass, nothing happens, and I am proved wrong again. And I lose some of my life savings and it hurts.

Now let me move to another point: all of the recent misery, including the stock market’s plunge, the disasters at Fannie Mae and Freddie Mac, the loss of retirement savings. These did not happen out of the blue. The catastrophe of giving bonds ratings far higher than they deserved did not happen by chance. And endlessly rosy reports from banks and investment banks about their health did not result from a butterfly flapping its wings in China.

Human beings did these things. The harm to the American people and to the world has been substantial. There has been real pain here. Why is it taking so long to find out who did what and whether laws were broken? That’s what prosecutors are for.

And, closer to home, a talented makeup artist who works with me almost daily in my TV appearances asked what happened to people in a recession. (She is young.) I said that fear and insomnia happened to most people but that a few million would actually lose their jobs and millions more would lose income.

“What do they do?” she asked, looking worried.

“They find other work or live off their savings,” I said. “They certainly cut back on their spending.”

“What if they don’t have any savings?” she asked. “I don’t have any savings,” she said. “No one I know except you has any savings.” She looked extremely worried.

This is perhaps the main lesson of this whole experience. It is basic but still unlearned: human beings must have savings. This is not just a good idea. It’s the difference between life and death, terror and calm. So start saving right now, and don’t stop until you die.

FINALLY, I’ll turn to the oil companies. When crude was skyrocketing, the beautiful people wanted to beat Exxon Mobil, Chevron and BP into a pulp. Many people assumed that oil barons controlled prices, made “obscene” profits and made life difficult for ordinary citizens. But the price of oil has fallen by more than half from just a few months ago. Gasoline prices are at levels no one thought we would ever see again. Very expensive projects that the oil companies commenced, like extracting oil from tar sands in Canada, may now be major money losers.

What do you say, folks? Let’s acknowledge that we were a bit hasty. The oil companies are just corks bobbing up and down on the ocean of worldwide demand and supply, exactly as the oil companies said they were. They are not going to be starving, but they are clearly not the invincible demons that their enemies said they were. Now that we see how vulnerable they are, is there any reason to hit them with a surtax?

Will we ever learn that they are just dust in the wind, like the rest of us? Probably not.

Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.

Preparing for a Layoff (or other Cash Squeeze) from the WSJ

Take Seven Steps So You Survive A Cash Crunch

By BRETT ARENDSApril 12, 2008; Page B1

No one wants to get caught in a cash crunch. Look at what happened to Bear Stearns.
Investors can't go running to the Fed.
Sometimes all it can take is a surprise bill, or a sudden loss of a job, to put your family's liquidity in peril. And these are treacherous times. The economy is rocky. Employers are cutting jobs. And some investments -- including home values -- are turning wobbly just when you may need them most.
The Federal Reserve, alas, isn't going to bail you out if you get hit by a liquidity crisis.
So where can you turn? If you're worried, check out your emergency lines of credit now, before there's a crisis.
Here are the seven habits of highly liquid people.

1. Refinance your mortgage over 30 years. Just switching your remaining debt from, say, a 20-year schedule will slash your monthly outflows by nearly a fifth. Borrowing against your home is the cheapest form of consumer debt.

2. Set up a home-equity line of credit. They're usually cheap to arrange, and you can draw on it when you need it. Right now, rates are as low as 5.25%.

3. Get a free float from a new credit card. Some still offer zero-percent interest on balances transferred from your current card. As always with the credit-card sharks: Watch out or they'll find a way to sock you with fees anyway.

4. Get your money back early from the IRS. Most Americans prepay too much tax, and the average refund is nearly $2,500. File a new W-4 with your employer to cut your monthly withholding. You have to estimate your likely bill in good faith. If you end up prepaying too little, you can make it up by Dec. 31. If you don't, you will have to pay 7% or so in penalties. The rate fluctuates, but it's a lot cheaper than an unsecured loan.

5. Set up unsecured financing sources now, while you don't need them. Ask your bank for an overdraft facility, of course. And apply for some emergency credit cards. Yes, the rates are usurious, so don't use them unless you have to. But someday you may have to.

6. Check out how to borrow from your 401(k) retirement plan. Most plans allow this, though the rules vary. The limits are often 50% of your balance, up to $50,000. It can take anywhere from a few days to a few weeks to get the money. Note: You may end up paying taxes, plus a 10% penalty, if you don't repay the money when you leave your employer, or within a specified period. It is usually five years. Check the rules ahead of time.

7. And, most obvious: Start saving. Most middle-class families can save thousands a year just by paring back on discretionary bills. This is a good time to slash those bills to the bone.
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