Financial Planning In Uncertain Times
http://thedianerehmshow.org/shows/2012-12-17/financial-planning-uncertain-times
In recent years, it has become increasingly difficult for Americans to plan for their financial future. The decline of pensions, collapse in home prices and a volatile stock market have created a precarious economy. And this uncertainty has increased demand for financial planners who can make sense of it all. But advice to save more and spend less, and maximize individual retirement accounts has failed to take hold. Three-quarters of Americans have saved just $25,000 for retirement. And nearly half of us now live paycheck-to-paycheck, making it more difficult to save. Diane and a panel of experts discuss planning for your financial future in uncertain times.
Guests
Knight Kiplinger
editor and chief of the "Kiplinger Letter" and "Kiplinger's Personal Finance Magazine."
Tim Maurer
certified financial planner at Financial Consulate and co-author of "The Ultimate Financial Plan: Balancing Your Money and Life."
Helaine Olen
journalist and author of "Pound Foolish: Exposing the Dark Side of the Personal Finance Industry."
Comments
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A couple of points here:
If you don't have a job, and I've been there, of course you can't save. Also, of course my 401k tanked in early '09 - but it came back and then some later in the year. The lesson for me was to stay the course and I'm glad I did. Also, I saved when I was a young GI and only made a few hundren in salary each month (with a family). I also put myself through college with no debt and am amazed that anyone would take on a lot of debt for their college education. Of course you would have to go to a community college for your first two years, or horrors of horrors, join the military and use the GI Bill (In Illinois, where I live, there is no tuition at state schools for ex-military for a period that equals the time you served.) One other point; I know any number of people with good jobs who "can't save" but have large cable bills, SMART phones, and nice vacations. When you are working and have money you have to prioritize and think long term.
The panel member recommending partial privatization of Social Security must have taken a nap in 2007-2009.
The phony bogus "experts" in the investment industry lost plenty during that period.....INcluding "professional" managers of retirement funds, municipalities, and even some hedge funds. If the robber baron false "pros" lost money, what does this guy think the vast majority of amateurs and those forced to invest 401(k) money in employer stock did.......it was NOT just newcomers and neophytes who lost their retirement funds.
Moreover, those who were older and suddenly unemployed in that era found the cupboard bare and only Social Security offered any real stability.
P.S. I intentionally did NOT renew my subscription to the Kiplinger magazine.......Mr. K. lost all credibility during those years......my subscription went back to the 90s before that. Apparently K advice onky works in boom times.
It is not a secret that these anti depression drugs Zoloft, Paxil and Prozac cause symptoms of homicidal and suicidal behavior. Yet, I do not hear this possibility addressed in this subject matter of recent shootings. I have heard of several cases where these drugs were implicated in homicides and suicides. Would you please investigate this subject in relationship to past shootings and discuss this possibility with the country? Thank you. If you air such a show would you let me know please via email?
I want to thank Helaine for all of her advice. One really struck home: ask your financial consultant how they get paid. I did that two years ago (Edward Jones), and she looked at me like I was from Mars. I actually had to repeat the question. She answered it, and was very offended. I knew then that she was not the financial planner for me.
queenquig97 Diane's guests are thinking you should always live in a tiny trailer next to a parking spot. So I suggest you park your trailer in a flood zone in NJ so that FEMA will give you a fresh one after each superstorm.
Sewerage might be a problem with the 99% in tiny trailers on car parks.
Each box would also need a big dish antenna to keep the virtual economy going, which means a tipover service could make big money. But financial advising as a career died out with travel agents . Don't expect free advice from parasites.
Listening to the two oligarchs from the financial industry lecture us on how we need to do with less because they are taking more and more of the financial pie makes me literally sick to my stomach.
If everyone was as personally responsible as you and your new husband, we would not have had ANY of the current financial problems. Your wisdom is a breath of fresh air! Bless you!
I think what they (or at least one of them) was advocating was a "national" 401k that would sit on top of SS and that would be invested in a stock index fund that would track the overall return of the market. Over a lifetime, this should provide a nice chunk of change even for people of modest means. Current SS would remain the same. Singapore does something similar I believe.
The NRA has a responsibility to clarify their position on these shootings and the emerging radical gun culture. Are we to believe that the organization supports the emerging radical views or not? From my perspective, they need to engage in self-regulating the gun industry yet they appear to be happy to sit back and let evenets unfold on their own. I have a little girl in public school and I am not willing to pay this price for people's freedom to acquire and use these types of weapons.
Two people making minimum wage earn over 30,000 per year for working just 40 hours a week. If they save 15%, they can save $4500 a year. Without interest and without any increases, they will have $225,000 after the average working life of 50 years. With just a very modest 4% compounded interest, they would have over $750,000. Since they will be used to living on $25,500 per year, they will have enough money for over 40 years of self-funded retirement. Numbers don't lie. Frugality pays big dividends over time.
Basic financial planning should be mandated for high school graduation. It should be taught as a very standardized curriculum across the nation, similar to what Dave Ramsey includes in his Financial Peace University.
There are two generic lenses for looking at gun ownership:
(1) Is ownership or the ability to defend oneself with violence an inalienable right regardless of the results OR
(2) Do we regulate the extent and type of gun and ammunition ownership to achieve certain results
For those who view this through the "rights' lense, arguments about improved results from gun control are lirrelevant just as the Cuban success of limiting the spread of AIDS by imprisoning AIDS patients carries no weight here in the USA where high AIDS rates are willingly accepted as the price of freedom. There ARE those who would accept New Town and Columbine as the price of freedom. Not everyone agrees with Pres. Obama on this. They are not speaking up today, but they will in the eventual policy discussion.
But what about hoped for results of banning assault weapons? Can your guests discuss the evidence for the likely results of such a policy? Will rates of injury and death from helpless howeowners go up? Will crimes of passion and suicide and accidents go down? Will the good results balance the bad results? How infrequent will school assults become and how many fewer victims per assualt will there be? The Australians spent $500 million dolars to buy back assualt weapons. Are we willing to do the same?
While I agree that we all need to exercise some personal restraint for 'unnecessary purchases', I wonder if any economists are studying what would happen to our national economic system if we were all saving 10 - 25 percent (at 1 percent interest), and not purchasing non-essentials that we admit we can't really afford--electronics, eating out in restaurants, buying new clothes, etc---if 70 percent of our economy is based on consumption, how do we steer the ship toward some other model?
I am a gun owner but believe we need much stronger gun control, it is much too easy to buy a gun. Also since these shootings took place in CT can you discuss where most of the gun companies are located (CT), is the Ct governor a hypocrite to want more gun control but supporting the industry. It's all about money, not the 2nd Amendment or innocent lives.
In response to brighton, the guest erred only in not completing the message.
The young can afford the stock market's increased volatility and higher historical returns IF they are able to avoid tapping their retirement funds while young (i.e., not raid those accounts for a down payment on a home, college savings, or emergency funds), and IF they can and will keep their stock-market holdings very diversified.
But, they should also begin to diversify away from the stock market as they get older, and their retirement needs and goals clearer (around age 40), and be almost completely out of the highest risk category investments (i.e., highly variable, non-dividend paying stocks, and ALL derivatives, such as options, commodity futures, etc.) by the time they are 55.
I was appalled by the condescending reply your guest gave the final caller to your show today. The caller was a woman living very frugally as a truck driver after leaving the business world and had come to terms (quite admirably) with her reduced circumstances. The tone of your guest's reply was so insulting. The reality is that millions of Americans have had their membership in the middle class permanently revoked ,will never have a sense of security , much less get to retire. The caller's point about the practice of workers' pensions being classified and plundered as an asset of the companies , rather than rightfully belonging to the workers was not even addressed.
1. Over a twenty year period, the All-in Fees extracted from a 401K plan can be greater than the combined employee tax deduction and employer match.
2. There are two types of people; Those who pay interest and those who earn it. If you are paying more in interest on your debt than you are earning interest in your 401k, 403b, TSP, 457 or IRA plan, you lose.
3. What if you are in a higher tax bracket when you retire, would it have been smart to contribute to 401k plan?
4. If the average interest rate on your debt is higher than than the interest you are earning in your 401k, what rate of return do you need to earn on your investment to net an 8% 401k return rate?
5. From 1980 to 2010, a 30 year old person who has contributed the maximum amount allowed and received a 3% employer match, has average 401k account balance of $202K at age 60. During this time the employee contributed $112k of his or her own money, and the employer contributed $40K, and the remaining $50K came from market earnings. This works out to a 1.66% Return on Investment (ROI)
6. Know the difference between Saving and Investing. Savings means that you are depositing money in to an account where the money cannot be lost. Investment means that you are depositing money in to an account where the money can be lost. So, if you are depositing money in a 401k plan, you are "investing' and not saving for retirement.
7. From 1929 to 2011, the S&P 500 ended the year up 12% or more only 51% of the time.
8. Inside The Huddle - Don't Plan Your Future Without It, is must read book for anyone wanting to understand how to beat the financial advisors and insurance agents at their own game.
In a few years, America's corporations and state legislatures will have completed their demolition of unions, and with them all but one of what once were thousands of guaranteed, defined-benefit retirement accounts.
Those plans, and the unions that negotiated hard to fund them at levels sufficient to provide a reasonable retirement income for their members, reduced the need for ordinary workers to be savvy about retirement planning.
Subsequent generations, however, must understand the differences between various individual retirement account options, whether and how much of very small paychecks to contribute to employer-sponsored retirement plans, where to invest the contributions, and what the consequences may be of raiding those accounts before retirement. Most will not get the education or advice they need to make those choices wisely.
Meanwhile, the only defined-benefit retirement account that will remain, and provide a guaranteed, non-revocable benefit to those millions of naive and hoodwinked retirees (unless we privatize or otherwise disable it) will be Social Security. Thank God for those who conceived, managed, and now defend it.
Hi Dianne,
we have all been brainwashed that our homes are assets, and thus we depend on our homes to take care of us in our retirement years.
Nothing could be further from the truth because assets put money into our pockets and our homes with mortgages take money out of our pockets so they are not assets.
The panelist who commented that living paycheck to paycheck is a "peculiar situation" is way off. I earn the median income for my state and city, and pay the average rent on my apartment. I am a 35 year old professional with a masters degree, and I live paycheck to paycheck. My monthly take home pay just covers rent, student loan payments, utility bills, transportation, and a modest amount of groceries. My rent is 52% of my take home pay, which again is the median on both sides of the equation. My student loan payments--for graduate school alone, I was lucky to have parents who paid for college-- are another 22%. I graduated from college in 2000 and started off right with a very good job and good spending habits. Unfortunately, I finished my graduate degree just as the economy was tanking. I was laid off twice in the 5 years since, and have take pay cuts up to $25,000 just to have a job. I now make $10,000 less than I did five years ago, and about the same that I made 10 years ago, when I was just out of college. I haven't been on a vacation since 2004, and I never buy anything frivolous. I log every penny I spend into a spreadsheet when I get home at night, and I save change to cover unexpected emergencies. I have tried downsizing my living situation several times, the only option to do so being moving further out into the suburbs, but the minimal savings in rent (about $200) are easily outweighed by additional transportation costs, and I don't have enough cash available to pay first and last month's rent at once. Living paycheck to paycheck is the norm now, not a "perculiar situation." I am dying to save, but every time I have $25 extra, I eventually have to use it to pay a bill on time. I used to save $50 automatically from each paycheck, but it became impossible. It is very hard to sit here and listen to a panelist comment that people in my situation are doing something wrong.
Helaine Olen totally blames the financial industry without any responsibility on individuals. I do not like our financial industries and "sales" of products, but we are missing financial education in high school and college, this was never discussed. Like the caller that was 22 years old, we need to start early so she will know where to look for good financial advice. We also need to teach our children about delayed gratification this will help them defer spending that they can not afford. Teaching living within your means and saving 15% or more.
Well said!
Well said!
I don't think the financial industry is necessarily to blame. Nobody needs a financial planner to open a savings account, or even to put money in a 401K. People do not have savings because 1) salaries have not only stagnated but declined in many fields and geographic areas 2) at the same time, the cost of higher education has become out of the reach of most middle class people, and the interest on student loans is too high 3) at the same time rents in major cities have sky rocketed as people are pushed out of the home ownership market and landlords are not at all regulated 4) you cannot save while receiving unemployment benefits of half your previous salary, and what you manage to put away you need to use to pay income tax on your benefits.
I have a small 401K, but other than that I have no savings, and it stresses me out at every turn. I haven't used a credit card in over five years. The most expensive thing I have purchased in as long as I can remember is a $150 suit for job interviews. "Living within one's means" no longer allows one to save. And I very much agree with Ms. Olen that sometimes the modern American needs a small pleasure. If one never ever goes to a movie or stops for a latte, they might save an $20 per month, but they live that month alone, bored, and unhappy.
One of the guests, Kiplinger, said that Americans could learn a lot from the woman who cleans his house once a week. She makes "very modest earnings," and yet she has managed to save "an extraordinary amount of money," send money back to her family in another country, own and drive a nice car, own her own "modest" house and also own a second house that she rents. She does not use credit, so apparently she has done all this with cash. Let me emphasize something: A woman who cleans houses and has very modest earnings has purchased two homes and a nice car with cash. Wow! What percentage of Americans who make GOOD earnings manage to purchase their first and second homes with cash? In a somewhat condescending manner, Kiplinger also said that Americans "don't want to hear this message."
Yes, Mr. Kiplinger, I'm an American and I would LOVE to hear that message. The only problem is, you didn't bother to tell us what the message is. How does the woman who cleans your house, indeed, how can anyone who makes a meager income, manage to do all that? The devil is in the details.
Now, if part of the "secret" is that this woman is super frugal, then is Kiplinger suggesting that the majority of Americans should also be super frugal? What effect would that have on the economy and jobs? What would happen if a majority of Americans never used credit?
Samcot, excellent points. Whenever people cite anecdotes of individuals who somehow have a lot of money but the story doesn't sound plausible and they don't provide details, I have learned that they don't know the whole story themselves. With my 30-something college-educated friends, I have realized that the detail is usually either that they are married to someone with money (or just married-- 2 incomes + shared costs) and/or there is a major parental subsidy involved, such as the downpayment on a house. With this cleaning woman, I suspect some of the details that are left out were 1) she may not have gone to college and therefore has no student loans 2) I don't remember if it was mentioned where, geographically, this woman lives, but obviously a dollar in rural Nebraska goes a lot further than a dollar in New York, Massachusetts, California, or DC. 3) Who knows, maybe this woman has a sugar daddy on the side? Point being you never know where other people are getting their money, and if it sounds too good to be true it usually is.
LL, thanks for your thoughtful comments. Kiplinger said he lives in DC, so if the woman cleans his house she must live in (or near) DC, too. I had to laugh about "the whole story," because I clearly remember way back when I was in college my shock when a fellow 20-year-old student told me he was getting married and buying a house. Up until then he seemed to be as "poor" as me. We were fairly close, so I felt I could ask him directly: "How are you going to buy a house?" He was a religious fellow, and he just smiled and said that God will provide. I asked again but he refused to give me any details. I was burning with curiosity because at the time, and under the circumstances, buying a home seemed so impossible. Years later I learned that his in-laws bought the house for them. And I thought to myself: It wasn't very nice of him to give all the credit to God and none to his generous in-laws. In-laws can sometimes work in mysterious ways, too, but not that time.
Likewise, notwithstanding Kiplinger's condescending remark, I am very open to "learning some lessons" from the woman who cleans his house. Indeed, once again I am burning with curiosity. I'm sorry that Diane didn't think to ask him about it. :-)