Category Archives: IRA
A New Option for the Retirement Crowd
By Janet Whitman, Special to CNBC.com
NEW YORK (CNBC) –As a growing number of Americans worry about outliving their retirement savings, the government is encouraging employers to offer an old-school, pension-style option for 401(k) holders.
The proposed revamp of retirement fund rules would make it easier for workers to convert part of their 401(k) savings into an annuity that would pay guaranteed income checks for life — no matter the ups and downs in the markets.
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Protect Your Portfolio With High-Yield Bond Funds
NEW YORK (TheStreet) — Since the financial crisis, nervous investors have been pouring into bond funds. But the flight to fixed income could produce dismal results. The problem is that most bond funds drop when interest rates rise, and many economists expect that rates will climb in coming years.
Investors recently got a taste of how hazardous rising rates can be. During the past month, rates on 10-year Treasuries climbed 0.30 of a percentage point to 2.28%, and long government funds lost 2.8%, according to Morningstar.
For protection, investors should diversify portfolios. One strategy is to add high-yield funds, which invest in junk or corporate bonds that are rated below-investment grade.
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Is an ‘Encore Career’ an Option for You?
NEW YORK (MainStreet) — Middle-aged Americans who want to switch careers later in life have a problem: While they’d love to follow their passion, they don’t have the savings in the bank to pull the move off. In the end, it’s all about the “income gap.”
That’s a cultural problem, as data show millions of Americans are already in what social observers call “encore careers” and millions more want to join them. A November study from San Francisco-based Civic Ventures, a self-described baby boomer think tank funded by the MetLife Foundation, says 9 million Americans between ages 44 and 70 have second careers, up from 8.4 million in 2008.
Americans who want to switch careers have a problem: They don’t have the savings to pull off the move.
In addition, 31 million more Americans in the same age group are “interested” in second careers. Civic Ventures describes encore careers as careers “that combine personal meaning, continued income and social impact.” They’re also sometimes considered an alternative to retirement.
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Study: Most Employers Don’t Plan on Cutting Benefits
NEW YORK (MainStreet) — Here’s some good news for the U.S. workforce — a study by MetLife shows that nine out of 10 employers plan on keeping employee benefits and don’t plan on any cuts in this tepid economy. That should keep more savings in consumers’ pockets and provide more financial stability for workers and employers.
The study, released Monday, shows that — far and away — American employers are apparently digging in their heels and don’t plan on reducing benefits. Study participants included more than 1,500 decision makers and more than 1,400 employees at U.S. companies.
Nine out of 10 employers plan on keeping employee benefits with no cuts, a study shows.
The study also shows that younger workers are highly anxious about their financial futures (not exactly a shocker, given the economic hangover of the past five years).
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Investment Fees Are Something, but Not the Only Thing
HUNT VALLEY, Md. (TheStreet) — The big talk in the 401(k) world is fee transparency and lower fees. It seems as if everyone has concluded that, “If we can get fees down, the rate of return will improve.”
But the cheapest index funds cost 0.1% to 0.4%, and the most expensive active open-end funds cost between 1.2% and 2%. Assuming both have the same annual total return, the most you can increase your return is 1.9%.
Lower fees may mean a better rate of return, but they’re only a piece of a much bigger picture.
No doubt 1.9% compounded over 20 years or more is a significant increase, but that is an extreme example; the normal difference is maybe 0.5 to 1%. The lower the additional yield, the lower the long-term impact.
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How to Invest on Rising Bond Yields
NEW YORK (MainStreet) — Good news for some is bad for others. And when worries rise, cash is king.
That’s the takeaway from the Federal Reserve’s mildly upbeat comments Tuesday about the health of the U.S. economy. While growth is good, it could be costly to investors with money tied up in low-yielding bonds, including those near or in retirement.
Good news for the U.S. economy may make long-term bonds harder to dump.
By early Thursday, some bond yields had started to inch up. The yield on the 10-year U.S. Treasury note, while still a low 2.27%, was hitting highs investors hadn’t seen since November.
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Low Interest Rates Are the Curse of Retirees
HUNT VALLEY, Md. (TheStreet) — How often over the past years have you heard the Fed has decided to keep interest rates low — until 2010 or 2013, 2014 and possibly now until 2900? It’s normally hailed as a good thing — but is it? Low interest rates, while a blessing to some, can be a curse to others, meaning the Federal Reserve is favoring some while punishing others.
Banks and finance companies benefit from low interest rates. It allows them to borrow at lower rates and lend at higher rates. The normal spread for these lenders is 2% on any deal, but today the spread is 2% to 5%, which allows these companies to make a substantial profit.
Low interest rates benefit Merrill Lynch and other investment traders, but not the many seniors investing for interest income.
Low interest rates also benefit Merrill Lynch, Goldman Sachs and other investment traders. The key to profitable trading is the proper use of leverage. When you borrow with interest costs below 1% per year, it makes it much more likely that the cost of money will not make a trade unprofitable. Keep in mind: Most trades are trying to make only a very small percent over a short time. Too high a cost to borrow can easily consume profits.
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Top 10 Retirement To-Dos and Don’ts
HUNT VALLEY, Md. (TheStreet) — Retirement is hardly as easy as stopping work on Friday and breaking out the golf clubs on Saturday. Here are 10 things to think about before your co-workers take you out for a final, celebratory meal:
1. Plan at least 10 years before expected retirement to alleviate stress. It’s actually very stressful for the 12 months before and the 12 months after your actual retirement. If you have not planned, you are merely hoping it’ll be OK; seeing and knowing that the numbers work will alleviate a whole lot of stress.
Retirement is hardly as easy as stopping work on Friday and breaking out the golf clubs on Saturday.
2. Keep track of your monthly, yearly and decade-long expenses. The cash flow analysis is the most important retirement planning tool and yet it is probably only maintained by 10% of those over age 50. This invaluable tool will help you save, budget and moderate your spending to achieve your retirement goals.
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A Frugal Retirement: How to Live on Less
NEW YORK (MainStreet) — How much of your retirement savings can you withdraw each year — 7% or 1.8%? Or something in between?
The answer, of course, will make a huge difference in your lifestyle. Fortunately, if you need a smaller withdrawal to keep your nest egg going, it may not have to be permanent, and people in or near retirement can consider some attractive short-term lifestyle changes to keep life interesting on a reduced budget.
You could find yourself living large or living on little. Here’s how to be flexible and frugal with your funds.
The key: Keep flexible by avoiding big long-term commitments such as a second home, a large mortgage, oversized car payment or owing a pricey, unsalable condo with big association fees.
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