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Why Do We Save So Little?

March 26th, 2014 | No Comments | Posted in Financial News

What’s good for the economy isn’t necessarily good for our future.

shutterstock_158167574Our parents & grandparents saved much more than we do. Most people who have read up on the economy for any length of time have heard of the personal saving rate (PSAVERT), which the Commerce Department calculates as the ratio of personal saving to disposable personal income. The January personal spending report released by the Commerce Department in early March showed the PSAVERT at 4.3%.1

As recently as January 2013, households were saving just 2.3% of their disposable incomes – so this can be labeled a short-term improvement. It still pales in comparison to the way Americans used to save.2

The “greatest generation” had a culture of saving. Its thrift was reinforced further by hard times and a call for personal sacrifices as the economy endured the Great Depression and stateside rationing during WWII. The Commerce Department began measuring household saving in 1959, and as unbelievable as it may seem today, households saved 10% or more of their disposable incomes through nearly all of the Sixties. In May 1975, the personal savings rate reached a historic peak of 14.60%.1,2

From 1959 to the present, the PSAVERT average has been 6.84 percent – but the 21st century shows evidence of a significant decline. The savings rate fell into the 1-3% range, dropping to a record low of 0.8% in April 2005.2

To some analysts, a declining personal savings rate signals a stronger economy. It implies more spending, and consumer spending has the biggest impact on GDP. You can’t have it all, however; more spending means less saving, and Americans are plagued by insufficient retirement reserves.

Are credit cards the problem? We borrow greatly, but there are other factors in play. You may have heard about America’s “shrinking middle class.” That is no exaggeration.

The most recent Census Bureau data shows the median U.S. household income for 2012 at $51,017. By comparison, median U.S. household income in 1989 – when adjusted for inflation – would work out to $51,681 today. From 1989-2012, annualized consumer inflation was mostly in the 2-4% range. All this illustrates a slow but notable erosion of purchasing power.3,4

During the same time frame, the cost of college went up dramatically, health care costs increased, and real estate values fluctuated. People saved less and borrowed more, and not simply on impulse; they wound up borrowing more to maintain a middle-class standard of living.

Real incomes aside, we are often lured into unnecessary spending. Advertising can convince us that we have unmet needs and desires, and that we must respond to them by buying goods and services. Urges, emotions, ennui, living without a budget – these can all lead us to spend more than we really should, especially given how much money we will need to adequately retire.

Our parents and grandparents really knew how to pay themselves first – and while economic pressures make it harder for many of us to do so today, that doesn’t make it any less of a priority.

It might be useful to think about future money when you think about making a discretionary purchase. Are those dollars you are spending at a mall or restaurant today better off saved or invested for tomorrow?

Think about your big dreams and goals, the ones you have looked forward to realizing for years. How many dollars are you putting toward them? Is your spending aligned with them, or in conflict with them? Could you spend less here and there and devote more money to those priorities?

Sometimes we have to borrow and spend more than we would like, but often we have a choice – and the choice we make may affect our ability to retire sooner or later.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – research.stlouisfed.org/fred2/series/PSAVERT/ [3/3/14]
2 – tradingeconomics.com/united-states/personal-savings [3/6/14]
3 – billmoyers.com/2013/09/20/by-the-numbers-the-incredibly-shrinking-american-middle-class/ [9/20/13]
4 – tradingeconomics.com/united-states/inflation-cpi [3/7/14]

Retire at 65 … Or Not?

March 26th, 2014 | No Comments | Posted in Financial News

Your assets matter more than your age.

shutterstock_136507919Isn’t 65 the traditional retirement age? Perhaps, but baby boomers are modifying the definition of a traditional retirement (if not redefining it altogether). The Social Security Administration has subtly revised its definition of the traditional retirement age as well.

If you glance at the SSA website, the “full” retirement age for Americans born from 1943-1954 is 66, and it is 67 for those born in 1960 and later. (The “full” retirement age increases gradually from 66 to 67 for those born during the years 1955-1959.)1

When Social Security started, the national retirement age was set at 65. In 1940, a 21-year-old American man had a 54% chance of living another 44 years (according to the federal government’s actuarial estimates). By 1990, that chance had improved to 72%. For 21-year-old women, the probability of reaching age 65 increased from 61% to 84% in that same time frame. Americans also began living longer after 65. Increased longevity led to financial dilemmas for Social Security and the necessary redefinition of “traditional” retirement age.2

What do you lose by retiring at 65? The financial opportunity cost is considerable, and maybe greater than some baby boomers realize. If your full retirement age is 67, you’ll reduce your monthly Social Security income by around 13.3% if you start taking benefits at age 65. Moreover, for every year that you refrain from claiming Social Security until age 70, your Social Security benefits will rise by 8%.1,3

In addition to trimming your long-term retirement benefits, you may also forfeit some salary. If you are still working at age 65, you might be at or near your peak earnings level, and if that is the case, Social Security income may pale in comparison.

Think of life after 65 as your “third act” that needs funding. Do you think of 65 as late middle age? It may be. As the SSA website notes, about 25% of today’s 65-year-olds should live to age 90. About 10% of them should reach age 95. Even if that doesn’t happen for you, you should know that the average 65-year-old today can expect to live into his or her mid-eighties.4

Let those statistics serve as a flashing red light, illuminating two new truths of seniority. The first truth: for many Americans, “retirement” will represent 10, 20 or even 30 years of activity and opportunities. The second truth: to stay active and pursue those opportunities, retirees will need 10, 20 or 30 years of financial stability.

Most Americans haven’t amassed the equivalent 10, 20 or 30 years of retirement savings. Many want to “stay in the game” a little longer: a 2013 Gallup poll found that 37% of Americans expect to retire after age 65, compared with 14% in 1995.5

How many Americans can work full-time until age 65? The bad news is that according to the same Gallup poll, the average retirement age in America is 61. The good news is that it was 57 in 1991. Assuming we keep living longer and healthier, it seems plausible that the average age of retirement might hit 65 – if not for the boomers, then for Gen Xers.5

Regardless of when baby boomers retire, growth investing will continue to have merit. Even moderate inflation erodes purchasing power over time, and its effects can be felt in less than a decade. Who knows: the portfolios held by 65- and 70-year-olds in 2035 might look more like the ones they hold now instead of those held by their parents generations before.

When should you retire? If that question is on your mind to any degree, consider an evaluation of your retirement readiness – a review of what you have, an estimation of what you need and a clear look at the possibilities before you. It should be time well spent.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – ssa.gov/retire2/retirechart.htm [2/20/14]
2 – ssa.gov/history/lifeexpect.html tml [2/20/14]
3 – money.usnews.com/money/blogs/on-retirement/2013/10/18/why-65-is-too-young-to-retire [10/18/13]
4 – ssa.gov/planners/lifeexpectancy.htm [2/20/14]
5 – money.usnews.com/money/retirement/articles/2013/06/10/the-ideal-retirement-age [6/10/13]

March Monthly Economic Update

March 26th, 2014 | No Comments | Posted in Monthly Economic Update

March Monthly Economic Update

The Basics of Estate Planning (Even If You Don’t Think You Have an “Estate”)

March 26th, 2014 | No Comments | Posted in Lifestyle

Death is inevitable and, regardless of how you feel about that, there will be family left behind who will have to manage “your estate.” Now the word estate may conjure up images of Downton Abbey or an oil baron’s fortune, but if you are leaving anything behind, that is your “estate.”

The key is to ensure that those who depend on you financially aren’t left with more grief and hardship than 3-gen-familynecessary. With this estate-planning checklist, you will learn how to prepare so your loved ones don’t have to.

1. Decide who the recipients will be. If you died today, who would be your beneficiaries of what you leave behind? If you’ve recently gotten married or divorced, you need to make changes to your bank accounts, will, life insurance policy, 401Ks, IRAs, corporate benefits programs, and any other account that lists a recipient. This assures that your financial dependents, current spouse, next of kin or whomever you wish to be your beneficiary is properly listed.

2. Decide on an estate plan. Having an estate plan can help your loved ones avoid unnecessary legal and financial hassles and expenses, while guaranteeing that your final wishes are carried out as intended. When it comes to an estate plan, here are some factors to think about:

  • Have you created a will? A will specifies who takes possession of your belongings/assets when you die. You don’t have to hire an attorney to create a will; you can do it yourself. There are professional sites online that can help you create one together.
  • Do you have a living will or proxy? An advanced directive, or living will, details your wishes for end of life care. For example, if you are in a car accident resulting in a vegetative state requiring life support, a living will determines whether or not your appointed proxy can “pull the plug.”
  • Who has power of attorney? A person who has power of attorney makes decisions for you should you be in a position where you are unable or unavailable to do so. This includes signing any legal documents and dealing with all of your financial and legal affairs. This can be an actual attorney or a friend or family member you’ve deemed appropriate.
  • Who will care for your children? If you are a parent, you will need to think about guardianship and decide who will look after your children in case you and your spouse die.
  • Do you have a revocable trust? Also known as a living trust, a revocable trust details who your heirs are; however, unlike a will, it cannot be challenged in court. While a living trust determines who will receive your assets upon your death, until then, the owner retains full control of the assets.
  • Or should you have an irrevocable trust? Irrevocable trusts are their own legal entities. Should you need to remove some assets from your estate for tax purposes, you can put them in an irrevocable trust, which in essence becomes the owner of those assets.

Because life is in a constant state of flux, estate plans should be reviewed every five to seven years. If you don’t already have one, you can meet with an estate-planning professional for a free consultation.

3. Purchase life insurance.

You absolutely need life insurance when someone else depends on you financially. With the proceeds from a life insurance policy, your spouse and/or children can continue to meet their everyday expenses and plan for the future, such as college or retirement. Term life insurance is an inexpensive safety net. Here are some questions you should ask yourself before buying a policy:

  • How much and what type of insurance do I need?
  • How long of a term is necessary? Should it be permanent?
  • Can I keep my life insurance through my employer if I lose my job, resign or retire?
  • How much can I afford to pay and how do I get affordable rates?

In addition, you’ll want to consider disability insurance in case you become ill or injured and unable to work.

4. Organize yourself and your finances.

Create a spreadsheet of all of your accounts, their numbers and locations. Print out a copy and keep it with your will, insurance policies and any other financial documents. Keep a copy in a safe deposit box, your attorney’s office and/or a safe at home. If you ever need to update your information, revise all existing versions.

Whether you hire a lawyer, financial advisor or take care of the documents yourself, basic estate planning will ensure that your finances and their allocation are dealt with properly.

Have you gone through the estate planning process—written a will, purchased life insurance or established a trust? If so, what tips do you have for other financially responsible families?

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Safety Tips for Motorcycles: Share the Road

March 26th, 2014 | No Comments | Posted in Lifestyle

shutterstock_154574588Motorcycles are the most vulnerable of all vehicles on the road because they do not have seat belts and riders can be thrown in the event of a crash, which can result in serious injury and death. Your chance for survival significantly increases if you wear a helmet and follow the safety tips below when riding.

WATCH THE NO-ZONES

Never hang out in a truck’s blind spot or “No-Zone.” Trucks have large No-Zones on both sides, the front and behind the truck. Truck drivers cannot see you when you ride in these blind spots, which allows for a greater chance of a crash. The front blind spot is particularly dangerous if you need to stop quickly. Because of their light weight and braking system, motorcycles can stop much faster than trucks. A truck may not be able to stop as quickly as you do, so you need to take special precautions to avoid crashes before they happen.

ALWAYS WEAR A HELMET

Make sure to always wear a helmet. Beware of helmets that do not meet U.S. Department of Transportation (DOT) standards. Check for the DOT label inside your helmet. Helmets are the most important piece of equipment you can wear when riding your motorcycle. A helmet could be your only source of protection in a serious crash.

DRIVE TO SURVIVE

Motorcycles are the smallest vehicles on the road. Unfortunately they provide virtually no protection in a crash. Other drivers may not see you on your motorcycle so you must be aware of everything on the road. Be extra cautious, paying attention to the signals and brake lights of other vehicles, especially trucks. However, you still need to be prepared in the event their signals or lights don’t work. Ride with caution and drive defensively. Even though your motorcycle may be small, you must adhere to the laws of the road. Never ride in between lanes in traffic or share a lane with another vehicle. Don’t instigate aggressive driving with other motorists; you will only increase your chance of a crash.

CHECK YOURSELF AND YOUR BIKE

Conduct a safety inspection of your motorcycle before each ride, and wear protective clothing including gloves, boots and a jacket. Proper maintenance and protective clothing will help reduce your chance of a crash or the severity of injury if you are involved in a crash, especially with a large truck or bus.

WATCH YOUR SPEED

Of all vehicles, motorcycles accelerate the fastest, while trucks and buses are the slowest. Please watch your speed around trucks, especially in bad weather or at night. Colliding with the back of a truck may end your riding days.

CHECK YOUR SKILL SET

Riding a motorcycle is a physical and a learned skill and your riding skills can diminish if you don’t ride regularly. If you’ve been off your bike for an extended period of time, take some time to re-acclimate yourself to your bike. If you are a new rider, be sure you have the proper classification to ride and consider taking a cycle rider safety training program.

HAZARD AWARENESS

Your nice relaxing ride through the country should be fun but do not relax too much. When riding, you have to maintain a constant state of awareness. If you ride anticipating hazards – there will be fewer surprises. Calling out hazards helps you scan beyond your normal boundaries. Call out everything: driveway, intersection, children, dogs, parked cars, oncoming line of cars behind a slow moving vehicle, blind curve, hill crest, deer, gravel, construction, potholes, railroad crossing, etc. This exercise will make you prepared for the unexpected.

WET WEATHER

If you ride your motorcycle frequently, your chances of getting wet are good. Riding in the rain can be done safely if you follow a few simple rules. Keep rain gear with you, if you have room. Riding while dry will keep you more comfortable and is less distracting. Keep a pair of clear glasses or wear a helmet shield. Keeping the rain out of your eyes is imperative. Adjust your riding speed for the conditions. Keep in mind, when it rains for the first time after an extended dry period, there will be excessive amounts of oil on the road, making conditions extremely slick.

WATCH FOR STANDING WATER

Motorcycle tires by design are efficient at displacing water, but are not exempt from hydroplaning. Remember water will pool in the normal vehicle’s tracks on the road and most roadways are crowned causing water to be deeper on the right side of the road.

Gear up, slow down, keep a safe distance and stay focused.

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How to Avoid Bankruptcy

March 26th, 2014 | No Comments | Posted in Lifestyle

Think filing for bankruptcy is the easy way out? Plan to say goodbye to your cell phone, the internet, and anything else the IRS deems a luxury—and suffer a black mark on your credit report for ten years. Get smart and get out of debt the old-fashioned way.

You ruined my wedding – and you’re suing me?

March 26th, 2014 | No Comments | Posted in Business

More dentists and wedding singers insist on non-disparagement clauses

By signing on the dotted line, or agreeing to those endless terms of service, some customers are unwittingly giving away their right to free speech. Specifically, the right to write negative online reviews.

Experts say that more companies from wedding photographers to dentists are slipping non-disparagement clauses (and other language that prevents consumers from writing negative reviews) into the fine print almost no one bothers to read. Consumers who violate these policies may be sued and fined — even if the complaints are 100% true.

Anja Winikka, the site director for TheKnot.com, heard about two cases like this among brides in just the past couple of months. In one of the instance, a photographer threatened a bride with a $350,000 lawsuit over a bad review the bride wrote, after the bride says she had unknowingly signed a contract that included a so-called non-disparagement clause in it, she says. And Scott Michelman, an attorney with Public Citizen, a nonprofit consumer advocacy firm, says he thinks these kinds of cases are new in the past few years — and that recently “we’ve been hearing about them more.”

Part of the impetus behind companies adding in these clauses is the fact that an increasing number of people both write online reviews of companies and turn to online reviews to figure out what companies to do business with, says Michelman. As of the fourth quarter of 2013, there were more than 53 million reviews on Yelp (the number of reviews on the site grew 47% from the year prior) and currently the site has more than 120 million monthly visitors. But a bad review can hurt business, so companies are trying to prevent consumers from “trash-talking” them — even when said trash talk is true. (Some employers have long required employees to sign these kinds of non-disparagement contracts when they leave a company.) Typically, a person has the right to give their opinion or to make true statements of fact about a business; making false statements, on the other hand, is often libel, and plenty of people making such comments online already get sued for that.

Faced with such restrictions, some consumers, of course, simply remove the offensive post or pay the fine demanded by the company. Others fight back. New York resident Robert Allen Lee claims his dentist threatened him with more than $110,000 in fines after he alleged on Yelp and DoctorBase that she overcharged him and failed to submit his paperwork to the insurance company; in the packet that new patients like Lee sign, the dentist had included a privacy clause that prohibits clients from making public statements about her and that assigns her the copyright in anything they write about her, according to court documents. Lee is now suing the dentist, claiming that he doesn’t owe her that money (he also asserts that his statements about her are true). The dentist could not be reached for comment, but she did file a motion to dismiss Lee’s case (the motion was rejected by a judge last year); the company that created the contract the dentist used has since removed that language from its contracts.

And Lee isn’t the only angry customer taking a company to court over this issue. In December of 2008, Utah resident John Palmer claims he tried to make a purchase from online retailer KlearGear.com, but never got the goods he ordered. Angry at the company, his wife Jennifer Kulas posted a negative review of them on RipoffReport.com in February 2009, hoping that it would inform others of the alleged actions of the company. But the result wasn’t at all what the couple expected: KlearGear allegedly fired back at the couple, demanding that the review be removed or the couple pay $3,500 in damages, saying that by buying items on its site, the couple had agreed to its terms of service, which it said included a non-disparagement clause, according to court papers filed in December 2013. The couple’s attorney says that KlearGear then reported the $3,500 as unpaid debt to the credit agencies, which harmed Palmer’s credit. “KlearGear attempted to punish a dissatisfied customer for his wife’s criticism of KlearGear, then abused the credit-reporting system in an attempt to extort money that the customer did not owe and could not possibly have owed,” the lawsuit filed by the couple against KlearGear claims. KlearGear failed to show up in court this month for a hearing on this case, Palmer’s attorney says; KlearGear could not be reached for comment.

The question many consumers have is whether a business can get away with this in court. The answer: It depends. UCLA constitutional law professor Eugene Volokh says that as a general legal rule, items agreed to in a contract are enforceable, but with respect to issues like these, the gotcha factor is critical. Volokh says that if a reasonable consumer would be very surprised by a clause, like a non-disparagement clause, in a vendor contract or a terms-of-service agreement, that provision of the contract might be deemed unenforceable. “You could see some of these invalidated,” he says. “This will be decided on a state-by-state level.”

How each state will decide cases like these remains to be seen, but for now, consumers should be wary. Read the fine print (we know, it’s annoying, but better than ending up in court) and look for terms like “a no-review policy,” “non-disparagement” and “agree not to disparage” — basically anything that implies that communicating something negative about the company comes with a punishment, says Winnika. And if you aren’t sure about something, ask about the company’s review policy, she adds, and know that contracts are negotiable.

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