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What is a “Reasonable” Retirement Savings Rate?

August 17th, 2012 | Comments Off on What is a “Reasonable” Retirement Savings Rate? | Posted in Financial News

The answer to that question varies per person.

How much salary should you defer into a retirement plan? Ultimately, the answer is “however much your budget allows you to contribute”. The big-picture question, however, is whether you need to contribute more to your retirement savings in order to maintain your lifestyle after your career is done.

An Aon Hewitt analysis (The Real Deal: 2012 Retirement Income Adequacy at Large Companies) finds that the average corporate employee makes a pre-tax contribution equal to 7.2% of his or her pay to an employer-sponsored retirement plan. Aon Hewett has found this level of contribution to be pretty consistent across the past few years. The Employee Benefit Research Institute puts the number at 7.5%.1,2

Hopefully, these employees are basing their contributions on math. Retirement savings calculators are everywhere online, and while often criticized for their simplicity, they can bring you a useful ballpark figure. If you try them out, you may decide to boost your retirement savings rate as a result.

As an example, using CNNMoney’s What You Need to Save calculator, a 34-year-old with $20,000 in retirement savings who makes $78,000 annually would need to save $11,544 a year to hope to retire at age 65 at 80% of pre-retirement income. That $11,544 represents 14.8% of his or her yearly salary.3

Our hypothetical 34-year-old is quite affluent and has gotten a decent start on retirement savings compared to many of his peers – yet according to this calculation, a 7.2% retirement savings rate won’t cut it. Of course, the calculator is ignorant of such factors as home equity, inherited wealth, profit from business enterprises and so forth – but even so, many people are not saving enough for their retirement target.

More to the point, many people are saving for retirement without a savings target.

One established approach. If you are approaching your retirement years, you may be asking “How much do I need to save?” In the eyes of financial services professionals, the answer is linked to the question, “How much do you plan to withdraw?”

In 1994, a financial advisor (and MIT grad) named Bill Bengen published a long and highly influential article in the Journal of Financial Planning advocating that retirees withdraw a little more than 4% of their retirement savings each year. Bengen’s suggestion was labeled the “4% rule”, and many financial services professionals paid attention to it when consulting their clients.4

First, they helped their clients project how much would be needed to pay for planned annual retirement costs beyond what Social Security and pension benefits could absorb. Next, they asked clients to decide on a retirement savings withdrawal rate (4% or something else) in light of historical data. Then, they helped the client set a retirement savings target, roughly expressed as annual planned retirement expenses divided by the annual planned withdrawal rate, i.e., 45,000/.04 = 1,125,000, with $1.125 million being the target retirement savings goal. Lastly, a retirement savings rate was determined for the remainder of a client’s working years to him or her reach that goal (though the financial target could certainly be attained by other means).5

There are even simpler approaches. Other financial services professionals simply suggest that you should estimate your planned retirement expenses and adopt a savings rate (taking historical data into account) that you feel comfortable with in order to reach them. After all, different people derive retirement savings from different sources beyond 401(k)s and IRAs, and make different asset allocation choices with their investments.

So what is that savings rate, and how then might it be reasonably figured? Some retirement planners suggest a simple rule of 12 – take your current salary, multiply it by 12, and what you get represents the minimum savings you need for retirement.

The simplest approach of all might work better than any other – just save as much as you can. The Center for Retirement Research at Boston College notes that the median U.S. income in the 2010 U.S. Census was $43,084. A 35-year-old with that income and $0 retirement savings would need to defer about 18% of his or her pay annually to have enough to retire at 80% of salary at age 68, with his or her portfolio returning a hypothetical 4% every year for 33 years.2

CRR director Alicia Munnell claimed to U.S. News & World Report that staying on the job (and waiting longer to claim Social Security) can have a bigger impact on retirement saving than portfolio performance. “If people could work until they’re 70, they would have a much higher chance of having a secure retirement. Social Security is higher if you wait until age 70, and it gives your 401(k) assets a longer chance to grow, and it reduces the number of years you have to support yourself.”2

Save now; save avidly; save consistently. As you do, remember that if you don’t yet have a huge IRA or 401(k), it isn’t the end of the world but the sooner you have a plan in place the better off you’ll be at retirement.

1 – [6/8/12]
2 – [2/1/12]
3 – [3/6/12]
4 – [5/6/11]
5 – [5/11]

Identity Theft…Keep An Eye Out For These Signs

August 17th, 2012 | Comments Off on Identity Theft…Keep An Eye Out For These Signs | Posted in Lifestyle

According to data compiled by Norton, cybercrime hits over 74 million Americans annually. You know you have been victimized when you get that courtesy call or email from a bank or credit card issuer – but is there a way you can tell prior to that moment?1

There are warning signs of cybercrime. Watching out for them just might save you money and headaches. If you notice any of the following conditions, pay attention.

Odd little charges appear on your credit card. Big charges are of course a giveaway, but criminals might first venture some little charges. This often happens when more sophisticated identity thieves buy or obtain credit or debit card numbers through syndicates or online forums (they do exist).

You stop getting credit or debit card statements. A thief may have changed the billing address. What time of the month do these bills arrive? Knowing when may alert you to something fishy.

Weird packages show up at your home or office. “I didn’t order a new PC,” you react when the truck pulls up at your door. Well, maybe a thief did and forgot to change the default shipping address on your online profile at a retailer.

Bizarre calls & emails enter your life. Your friends get spam in their inboxes; you get calls from debt collection agencies. At first, you may categorize the calls as simple mistakes and apologize for the spam. Instead, check it out – it may indicate crime.

Your loan apps get rejected. Your credit score can plunge as a result of a thief’s extravagance and detachment. If you can’t get a loan or your credit report shows a plunging score, something may be up.

Victimization can be quite subtle. Some identity thieves never progress to shopping sprees or draining bank balances. They have other goals in mind, just as ignoble.

Some people steal personal information so that they can hide from creditors. They would like to plug in your address or phone number on assorted financial, federal and state documents for purposes of evasion as well as future opportunity. If you suspect this may be happening, file an identity theft report with the U.S. Postal Service (or a police report, but some identity theft experts think notifying the USPS may be just as effective). You can also let bill collectors who mistakenly call know that you have done so, out of a belief that you have been victimized.2

Tax refund identity theft rose 97% last year. The Taxpayer Advocate Service (an independent agency within the Internal Revenue Service) looked into more than 34,000 cases of such theft in fiscal year 2011, nearly double the amount from fiscal year 2010. Certain taxpayers logged into the IRS website this year to see the status of their refunds only to be asked to verify essential information. Identity thieves had filed online income tax returns in their name and using their Social Security numbers, but the crooks had directed the tax refunds toward new addresses. The IRS is finding it hard to resolve such issues as speedily as it used to: its workload has increased in recent years, but its funding has not.3

1 – [7/12/12]
2 – [5/15/12]
3 – [3/8/12]

Monthly Economic Update for August

August 17th, 2012 | Comments Off on Monthly Economic Update for August | Posted in Monthly Economic Update

6 Good Deeds that Could Change Your Life

August 17th, 2012 | Comments Off on 6 Good Deeds that Could Change Your Life | Posted in Lifestyle

For her book One Good Deed (Abrams Image), Erin McHugh did one good thing every day for a year and found that those small generosities made her a happier person. “I used to get cranky, and then I’d get this ‘not nice’ hangover. Now, no hangover!” McHugh says. Try out these good deeds if you’re stuck in a rut – happiness is contagious! By Ashley Niedringhaus, REDBOOK

Help someone stay in the game: somebody’s got to win
“After combing through 53 pieces of paper included in a Publisher’s Clearing House Sweepstakes, I found the correct information to send in Aunt Tessie’s sweepstakes form.”
– October 24th

Enter someone you care about into a contest but don’t tell them you’ve submitted their information. If they win, they’ll be so touched that you thought of them, and if they don’t, they’ll be none the wiser

Make a big deal out of something little
“Geez, remember how big a deal it was to get your Halloween costume when you were little? How many times you tried it on (store-bought or handmade) beforehand? And then, the biggest worry of all: Would your parents make you wear a sweater over it?

So last Halloween I made a promise to myself: comment on the costume of every kid I saw.” – October 31st

This good deed doesn’t only apply to kids’ costumes. Celebrate when your hubby receives a compliment from his boss or when your girlfriend decides to go back to school. Everyone loves – and needs – to feel appreciated.

Join the crowd

“On a sunny Saturday in November, I joined 150 adults in New York City to help paint the auditorium in a local public school. I was about to enter a crowd alone. But this bunch of kids I was near – all in their twenties – were volunteer maniacs. They were talking about raising money, other volunteer gigs they had done, mentoring. And lucky, lucky me – they took me in for the day.” – November 13th

You can meet amazing people by putting yourself out there, especially in new and unfamiliar situations. And, in turn, you can always invite lone rangers to join your party to pay it forward.

Don’t let a minute pass you by

“Inspired by my friend Susan, I now keep a gratitude drawer – a space filled with memories of the nice things that have happened to you. Fill yours with party invites, birth announcements, tickets, report cards – anything that will remind you of the nice things that are happening to you.” – January 23rd

Feeling thankful and content is contagious, and reflecting on all the nice things in your life will make you more likely to do nice things in return for those around you. Remember when your sister-in-law offered to watch your kids so you and your husband could get away for the night? Time to return the favor!

Be a good scout

“When I bought Girl Scout cookies this year, the troop had also offered an option to donate a box or two to City Harvest, whose mission is help feed New York City’s homeless. When the donated cookies arrived at a shelter, an old man stared at the box and told the driver that he was a veteran who had been homeless for a very long time. He told them how much they reminded him of being a kid. ‘This is the first time in a long time,’ his voice broke, ‘that I feel like a person again.'” – March 18th

The easiest way to feel happy is to make someone else feel happy. If your daughter is getting a new coat for Christmas this year, donate her old one to the local homeless shelter. Still haven’t used those two stubborn cans of kidney beans in your cabinet? Donate them to a soup kitchen. When you pick up a new bottle of rosé, grab one for your friend and leave it in her milk box just because.

Give a kid a book

“After overhearing a neighbor of mine arguing with his six-year-old son about reading versus playing video games, I interjected with my two cents on the virtues of reading. Next thing I knew, I went into a local bookstore and grabbed a copy of a kids’ book of mine called 50 States. I said to the child, ‘How about I sign this as a present from me to you, and your dad could read you this?’ The book happens to have a states puzzle, a place for state quarters, and a billion illustrations. I’ll do plenty to get people to buy my books. But to get a kid to read instead of play video games? Then I will do anything.” – June 12th

A good place to start is by donating your family’s old books to your local library or community center. But even getting just your own children interested in reading is a good deed. Need help getting started? Check out 10 Tips To Get Kids Reading.

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Need Funds for Home Projects? Don’t Touch Your 401(k)

August 17th, 2012 | Comments Off on Need Funds for Home Projects? Don’t Touch Your 401(k) | Posted in Videos

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5 Ways to Take Control of Your Time

August 17th, 2012 | Comments Off on 5 Ways to Take Control of Your Time | Posted in Lifestyle

Do you feel like you can never, ever get to the bottom of your to-do list? Design your perfect day with these tips from a master planner. By Holly Corbett, REDBOOK.

Take control of your time.Think fast: If you could plan your perfect day, what would you have time to do? Maybe you’d take a yoga class, spend an extra hour in bed with your husband, or finally read that book you’ve been trying to finish. The key to making your dream day a regular reality is to change your mindset about time.

“We treat time like it is the problem rather than us – like there’s just not enough of it and it goes too fast,” says Samantha Sutton, Ph.D.; vice president and director of courses and seminars at The Handel Group, a coaching group that helps people learn how to design their lives. “Time is simply a medium we live in, and we need to treat it responsibly in order to get the most from it.” Dr. Sutton says we tend to underestimate how long it will really take us to complete a task. Or we lie about time, like when telling our friends we’ll be able to meet them at happy hour at five o’clock when we never leave the office until five. And often we say “we don’t have time,” when really we mean we’re dreading the task at hand and have no other way to get out of it. In order to fit in all of the things that are truly important to you, you have to reassess your relationship with those precious minutes that are passing you by. The secret, explains Dr. Sutton, is owning up.

1. Start by telling the truth. If you feel like you can’t get a handle on time, it’s likely that you’re not being honest with yourself and others about how long tasks take and how much you can actually accomplish. “You may know in your heart that you can’t finish a report for your boss in an hour, but you tell her that you’ll have it on her desk by then. We’re so used to lying about time that we actually start to lose touch with it.”

The first step is to start giving yourself more time than you estimate it will actually take to complete a task. For instance, if you think that your drive home will take an hour, give yourself an hour and twenty minutes. Giving yourself a “time padding” helps retrain your brain so that estimating time correctly will eventually become natural.

2. Stick to the schedule. It sounds simple, but literally mapping out your time helps you get it under control. It doesn’t matter whether you create an online calendar or use an old-fashioned day planner, but practice crisp boundaries. Give yourself from 8 a.m. to 9 a.m. to answer emails, and then stop exactly at 9 and move on to the next thing on your list.

Start small, such as scheduling a three-hour window twice a week. For a few hours, practice what it feels like to go exactly according to plan. “Planning out a week and sticking to it is actually really hard because we don’t practice it all. Just like you have to train for a marathon, you also have to take baby steps when mapping out your time so you don’t set yourself up for failure,” says Dr. Sutton.

3. Introduce consequences. You’re perpetually late for picking up your kids from daycare, but somehow you always make it to the airport an hour early to catch a flight. Why? Because there’s a concrete consequence for being late: You’ll miss the plane.

In situations where catastrophic penalties for lateness don’t exist, give yourself an incentive to be on-time, such as putting a quarter in a jar every minute that you run over your schedule and donating the funds to charity at the end of each month. “It’s amazing how you’ll start to be on time because you’ll actually feel the direct impact of your action when you don’t,” says Dr. Sutton.

4. Have a catch-all hour. Let’s say you overspent on your credit card, so you put off paying your bill because you don’t want to think about it. However, you end up worrying about it when you’re shopping or cooking dinner. “The longer you hold on to a to-do, the more energy that gets sucked away by that task,” says Dr. Sutton. “That’s because our brains only have a finite capacity as to what we can focus on, so you walk around all day with that bill worry in your head, when instead you could be spending your energy on something like playing with your kids.”

To free up brain space so you can better focus on the tasks at hand, schedule two catch-all hours a week to tackle those lingering to-dos. When it pops into your head that you have to make a vet appointment for your cat or sell that dress on eBay, send a text reminder to yourself to check it off during one of your catch-all hours. “It saves a lot of stress not having to carry around all those to-dos in your head because you know that you can address them later. This helps you be more productive and enjoy the moment,” says Dr. Sutton.

5. Make it public. If you tell your neighbor you’ll be over at 9 a.m. as opposed to “sometime in the morning” to help her with her garage sale, odds are that you’ll be on-time. “The people around you can be the biggest support system for helping you master time even if they don’t do a thing,” says Dr. Sutton. “Telling others about when or how long you’ll do something makes you more likely to stick to it simply because you’re now being held accountable.” Sometimes a little adult peer pressure is actually a good thing.

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