Retirement mistakes to avoid

MANY of us dream of the day when we can finally retire.

However, not many of us actually prepare for it and by the time that fateful day arrives, we wish that we could turn back the clock, plan ahead or do things differently.

Here are five retirement mistakes to avoid:

Not planning for retirement

Excellentte Consultancy Sdn Bhd’s Jeremy Tan said many end up retiring without having a proper retirement plan.

“Many just end up ‘drifting’ into retirement. But even those that choose to plan, end up miscalculating and don’t save up enough to cover their retirement years,” he told StarBiz.

Tan said having a retirement plan is an important financial goal that everyone needs to have.

“It is never too early to start planning for retirement,” he said, adding that it was crucial to ensure that one’s savings could last longer than their lifespan.

“Taking the country’s life expectancy as the bench-mark, it would be wise to add at least another 10 years to the average life expectancy.

“Taking into consideration the availability of better healthcare and medical treatments available today, it is noteworthy that the average life expectancy has been increasing.”

Success Concepts chief executive officer Joyce Chuah said many individuals miscalculate the amount of money they need to save by the time they retire.

“One common error involves underestimating the amount required for post-retirement.

“The challenge for most people would usually be to have a decent understanding of financial concepts like discount, interest and inflation rates, so that they can predict the present value of lifelong earnings and consumptions.

“Moreover, unexpected circumstances such as changes in health status or the unclear financial burden related to health problems can affect insufficiency in retirement savings.”

Chuah said one should make time to comprehend basic financial literacy concepts.

“If personal finance is not your cup of tea, get guidance from a financial adviser to run your numbers when your financial, physical and economic situations change.”

Not having a diversified portfolio

If you are planning for retirement, it’s always best to have a diversified portfolio, said Tan.

“Having a portfolio with diversified risks can still be applied during the retirement years, rather than on just a conservatively-centric basis.”

Chuah said many are also too risk-averse when it comes to financial planning, especially for retirement.

“Humans are also made to avert risky situations that threaten our security, be it physical or financial. Putting money into fixed income that guarantees the capital at a low return is only good for short-term and emergency purposes.

“In the long run, any fixed income that does not hedge against inflation will mean that you are essentially experiencing a deterioration in your money’s ability to purchase future goods and services.”

Sadly, Chuah said the effect of inflation is not immediately felt, as many individuals often take refuge in the fact that their capital stays intact, compared to volatile investments.

“Comprehend the positive side of taking risks, which is to hedge against inflation and eventually grow your wealth.”

She added that one should make an effort to understand the levels of risks one can take as a new investor.

“Progress with risk management strategies so that you can deploy them, especially during declining markets.

“Differentiate the risks between being a short-term trader and a longer-term investor, with the latter being a preferred option for long-term wealth accumulation for retirement,” she said.

No healthcare planning

Healthcare tends to be one of the largest expenses an individual can incur during retirement.

By not planning for it, many end up burning their life’s savings on high medical bills well into their retirement years, said Tan.

“Many do not plan earlier to transfer any health cost to an insurer during their prime years, when health cost is still relatively cheap, compared to when they are in their old age.

“Many also end up taking their employer’s employee benefits coverage as a replacement for paying their own personal health costs.”

Tan said health cost planning is essential the moment one starts working.

“Transfer your health costs to an insurer as early as possible, to take advantage of the cost of insurance and ones’ prime years where the individual’s health is in the best state to receive coverage.

“As your income increases over time, upgrade the insurance plans and do it over the different stages of your life, from being single to married, to married with children and henceforth.”

Owning too many illiquid assets

Chuah noted that many individuals prefer to own physical assets.

“Being Malaysians, we love brick-and-mortar.

“However, some may have over-allocated their retirement funds into real estate which can be a strain on their retirement income should tenants leave or worse, stop paying their rent.

“An additional worry is when interest rates keep going up and monthly repayments increase.”

To avoid falling into this trap, Chuah said an individual should list all of their assets that are meant for retirement funding.

“This can start from your Employees Provident Fund, private retirement scheme, unit trusts and investment properties.

“Create a more balanced portfolio consisting of properties, bonds and equities with no more than 40% of it in real property, as you get closer to retirement age.”

Losing money to financial scams

Chuah noted that scams have befallen many individuals over the decades.

“Sadly, people are still being lured into the scam trap, normally via abnormally high guaranteed returns. As the saying goes, ‘if it’s too good to be true, then it’s too good to be true’.

“The unfortunate truth is that many people have been lured into these schemes because they have no patience to obtain returns from proven investment portfolios that work.”

Chuah pointed out that many cannot take the vagaries of the ups and downs of the stock market and merely want to accumulate wealth in the shortest time possible due to lack of planning.

“Plan and accumulate earlier so that you won’t be in a hurry to play catch-up and end up being more susceptible to schemes that promise you high returns.”

She added that there are many scams disguised as real investments that prey on investors’ emotions (such as greed and desperation).

“Even if you want to give it a shot, use only a small allocation of your ‘play money’ that you can afford to lose.

“Check with a friend or adviser who can give you an objective evaluation of the scheme before you do,” Chuah said.

By EUGENE MAHALINGAM

https://www.thestar.com.my/business/business-news/2023/05/22/retirementmistakes-to-avoid

Cyclical losses from economic cycles, time horizon and retirement planning

The value of assets such as stocks and real estate increases on average over the long run.

It also tends to fluctuate in waves - it will go up for a while, then down a little, then up some more and down again.

If you are not careful these waves can make you seasick, metaphorically speaking, of course.

If you watch these cycles happen but aren't aware of how to manage your response, you could find yourself making poor financial decisions as a result or even attempting to retire shortly after a devastating economic collapse, as happened to many people after the 2008 financial collapse.

What are the ways to prevent this from happening?




YOUR TIME HORIZON AND ECONOMIC CYCLES

The main thing to consider is your time horizon - the number of years you have remaining before your planned retirement date.

When you are young and first begin saving for retirement, it is easy to take a lot of risk without worrying about CYCLICAL LOSSES, because you think you will have more than enough time to regain that value.

This is a mistake a lot of people make, as they sell all their investments when the economy crashes, forgetting that economies eventually recover.

A recession is the worst time to sell your investments because you will get the worst possible price for them, for the reason of a national economic cycle rather than anything inherent to the investments themselves.



DON'T CONFUSE ECONOMIC CYCLES WITH TROUBLED INVESTMENTS

It is important, however, that you don't confuse economic cycles with troubled investments.

If your investments are doing poorly in a strong economy, consistently underperform or otherwise give you a reason to believe that the price won't recover, then don't stay on a sinking ship - sell those investments and buy something better.

Losses resulting from economic cycles, such as recessions, will recover; so remain persistent.

After you get some practice and become familiar with these cycles, you can even sell your investments just as they begin and then rebuy them when they lose a lot of their value, maximizing your wealth.

Another approach is then to sell them again slowly as their price recovers.

This reduces some of the risk associated with the economy's uncertain movements - something which so many people struggle to predict, even experts.

If you know how to ride these cyclical waves in the economy, you can actually use them to your advantage, but even if you just hold onto your investments and wait out the recession, you will regain the value eventually.



FINANCIAL PLANNING NEARING RETIREMENT

These cycles only really pose a risk to people who are getting ready to retire in the middle of one.

This is why you should absolutely manage a shift in the types of investment you hold as you get closer to your retirement.

When you are young, more volatile investments like equity index funds will give you the highest growth rates, even though the price roller coaster may make you dizzy.

As you get closer to your retirement date, the timing of these cycles can be very unfortunate, leaving you with little money to fund your retirement; so over the years you should gradually switch from high-risk to low-risk investments.

This means that you should regularly increase the percentage of your total investments that are allocated to things like low-risk bonds, fixed-rate annuities or even high-yield bank accounts.

That way, by the time you are ready to retire, the fluctuations in the economy will have little influence on the value of your investments.

This process of gradual risk reduction will help to give you the highest returns on your investments, while carefully managing the amount of risk to which you are exposed.

Saved $1 million and living my dream retirement

Roy Nash long dreamed of retiring at the age of 55.

A self-taught investor, he diligently stashed all the savings he could in stocks and mutual funds. So by 2009, when he did turn 55, he says he had more than $800,000 saved -- enough to step away from his nearly three decade long career at a natural gas distributor in St. Louis.  

Now Nash is 61 and his smart investment choices have helped him grow his retirement savings to more than $1 million.

This sizable nest egg allows him to live the lifestyle he wants. He takes four trips a year to places like Chile and Jamaica and, during the rest of the time, he's volunteering around town, driving the elderly to doctor's appointments or helping poor families file their income taxes.  Now Nash is 61 and his smart investment choices have helped him grow his retirement savings to more than $1 million.

How did he do it?

Nash said he learned about the importance of saving from his mother, who raised him in Marianna, Ark.

"My mom told me when I was real small I should learn how to save some money, because my father was a spendthrift," said Nash. "I took it to heart and went beyond saving. I became an investor."

At the age of 22, he moved to St. Louis and eventually went to work as a controller for the largest natural gas distributor there.

During his free time, he taught himself to invest by reading Money and SmartMoney magazines. That's how he learned to love dividend stocks, high-yield, closed-end funds and mutual funds. He also invests in open-end funds and index funds.

Every year, he socked away between 10% and 15% of his income into his 401(k) plan. Additionally, he also saved another $300 a month in investing accounts with Fidelity.

"I wouldn't consider my savings a sacrifice. I had a good paying job and a budget," Nash said. "I disciplined myself."

And he was mindful about looking after his money and reinvesting gains back into funds and stocks.

"I always reinvested my capital gains," Nash said.

In the beginning, he worked with a brokerage to invest his money. But now he manages his own portfolio.

Nash said he's in an informal retirement club, mostly other retired friends from the office, who he loves teasing about their money managers.

Roy Nash on vacation with his family

"They're paying these guys 1.2% to 2% in fees!" Nash said.

Nash said he collects a healthy sum each year in dividend payouts from his investments in high-yield closed-end mutual funds and preferred stocks.

But still he keeps things simple, living on around $50,000 a year.

Too young for Medicare, Nash gets health insurance through Obamacare, "which has been fantastic," he said.

His retirement income is also enough to satisfy his lust for travel. He takes several trips each year. Often it's just visiting family and friends in Arkansas. But this year, he went to Mardi Gras in New Orleans. He's going to Jamaica in the spring and Santiago, Chile later in the year.

Most days, Nash fills his time by offering his services to the community. During the tax season, he helps the poor prepare their tax forms. And he volunteers for the county, driving housebound elderly residents on much-needed medical errands to doctor's appointments and the pharmacy.

He also plays golf and likes to go fishing, hunting and boating. And he works out at least five days a week, either on a treadmill or a bicycle for between 20 and 30 minutes a day.

"The most important thing I do, is live an active lifestyle," Nash said. "That keeps my doctor bills down."

He has two kids and six grandchildren, ages 3 to 15. Lately, he's become his family's go-to, back-up childcare for sick grandkids.

"If the kids are sick, I go and pick them up, so it doesn't disrupt their parents' work," he said.

And he takes pride in telling his story throughout the community, to help young people learn the importance of saving regularly and early.

"If your income is equal to your expenses, you're not going to save anything," Nash said. "I think anyone making $40,000 a year should be able to save money in St. Louis." 

http://money.cnn.com/2015/03/09/retirement/dream-retirement-million-dollar-saving/index.html?iid=SF_PF_River

A luxury that few people can afford.

If you are lucky to have been rewarded in life , there comes a point at which you have to decide:

- whether to become a slave to your net worth by devoting the rest of your life to increasing it

- or to let what you have accumulated begin to serve you.

Taking small steps out of cash

Generating the returns required for a longer retirement needn't mean a wholesale change of strategy, says Alex Hoctor-Duncan.

05 Jul 2013

There are three reasons why investors stay in cash: 
1.  they like the income, 
2.  they like the idea of their money being protected and 
3.  they worry about volatility. 
Investors also like the capital preservation that cash offers.

But there is inherent risk. Returns are low, so investors run the risk of seeing their purchasing power ravaged by inflation over the long term.

I sense that people are starting to recognise the limitations of cash. They feel they should look to make their money work harder, particularly as they are likely to be living longer.

However, what they want to achieve with their savings – a secure retirement with a good income – and what they are doing to achieve it, are not properly aligned. Simply saving in cash is not necessarily going to generate the returns required for a longer retirement.

This needn’t mean a wholesale change of strategy; it could be more about taking small steps out of cash, about consulting an IFA and revisiting their financial goals. It could mean looking again at how and where they invest – in the UK or internationally – and working with the adviser to set new objectives and plot the path towards those goals.

Related Articles

• Identify investment goals 
  05 Jul 2013
• Where best to put my money? 
  05 Jul 2013
• Financing the future: live long and prosper 
  05 Jul 2013

If taking small steps is the path an investor chooses, the smart option is not to take all the money out of traditional cash or bond investments. Taking a portion of that money and looking for investments which provide an element of more flexible income could be one step that less risk-averse investors could take towards achieving their goals.

The earlier they take action the better, but it is never too late. However, wait 10 years and contribution levels might need to be double what they would have been.

Moving out of cash and safe haven investments in search of higher returns will involve accepting a greater risk of capital loss. You may get back less than you originally invested. Past performance is not necessarily a guide to future performance.

http://www.telegraph.co.uk/sponsored/finance/blackrock/10121192/blackrock-investment-strategy.html

Financing the future: live long and prosper. Plan for an extended future.

With the economic crisis leaving interest rates sitting below the level of inflation, independent financial advisers can help us change the way we look at savings.

For decades in the run-up to the financial crisis, most people took a safety-first approach to saving and investing for the long term.

And for good reason. Putting their savings into a deposit account or long-term savings bond offered the safest of traditional safe havens – they could relax, confident that their money would be secure and would grow.

But piling up cash in these once-safe havens is no longer the one-way bet that it used to be. The places we have long thought of as havens are rather less safe today than they used to be, for two main reasons.

The first is that as the financial world has shifted, so have the risks that we face. In the past, you could put your money on deposit at a bank or building society, or use it to buy super-safe government bonds, and be confident of earning a rate of interest that would allow your capital to grow faster than prices were rising. That enabled you to preserve the purchasing power of your money over the years while keeping it safe.

It might not grow as fast as it would if you had chosen other, riskier sorts of investment – but at least inflation wouldn’t erode the value of your nest egg.

Related Articles

• Small steps out of cash 
  05 Jul 2013
• Identify investment goals 
  05 Jul 2013
• Where best to put my money? 
  05 Jul 2013

But you can no longer rely on that old certainty. Savings rates on virtually all deposit accounts and yields on government bonds are stuck well below the rate of inflation, which changes the picture enormously. Prices are now rising faster than your savings can grow, which means that year by year your money can buy less – and therefore one of the main attractions of these traditional safe-haven investments has vanished.

The second big issue is that, for most of us, the long term is getting a lot longer than was the case for previous generations, with life expectancy rising rapidly. According to the Office for National Statistics, in 1981 a man of 65 could expect to live another 13.1 years. By 2009, this life expectancy had risen to 18 years. For women, the equivalent figures were 17 years in 1981 and 20.6 years by 2009.

The conclusion is obvious: longer life is nothing if not a blessing, but the money we salt away is going to have to work harder and support us through old age.

In a world where savings earn less than the rate of inflation and will have stretch further, sitting on cash looks a less viable option. By the same token, buying government bonds, even though they are backed by the Treasury’s promise to repay your capital in full, looks increasingly risky given that the yields they offer are also well below inflation.

For people who know they need to plan for an extended future – and one in which the easy answers do not work as well – this is a challenging time.

So over the coming weeks, the Telegraph will offer ways to reconsider long-term financial plans, bearing in mind the risks that inflation and miserly interest rates now pose to savings.

Many will want to take financial advice to help decide how to approach these issues, but will also want to feel confident that they know enough to have a proper conversation with their adviser.

This series will equip them to ask the right questions – what investments should they be considering to balance their need for growth with their appetite for risk? What are the merits of passive investing versus active management of their money? Should they be looking to international markets to help improve their returns? Where do they invest for the additional income they need?

For most people who are trying to build a fund for the long term but at the same time do not want to take on excessive risks, the answer to these problems is going to involve some combination of working longer, saving more and investing their money in different ways.

Inevitably, that means we are all going to have to accept rather more risk when investing for the long term. Therefore, a key element of the series will be to help people to dig deeper when they talk to their adviser and make sure that they understand the kinds of risk that go with the various investment options that are open to them.

The financial crisis and its after-effects have changed the rules of investing for many years to come. The old ways of doing things no longer represent a risk-free option – we need to take a different approach.

http://www.telegraph.co.uk/sponsored/finance/blackrock/10121155/future-finance-investments.html

Do you understand your retirement money management?

http://www.howtofinancemoney.com/2012/03/how-to-define-wealth.html

Income Investing: How do you plan to pay for your retirement?

Imagine that you're 65 years old and you're looking to retire.

If you have $500,000 in savings, how long will that money last?

If you spend $50,000 a year and your saving grows at 7% a year, you'll be broke by age 80.

The savings and investments can only support you for 15 years from the age of 65!!!


What is Income Investing?

Income investing is purchasing stable stocks and bonds that pay dividends and coupons.  If enough stocks and bonds are acquired, the dividends and coupons will provide income for the owner during retirement.

If the income is enough to meet spending requirements, then the equity and par value of the investments will remain or grow with time as income payments continue to grow as well.

How can you invest in companies that will provide benefits now and into retirement?  

Invest in stable companies with low debt/equity ratio that pay dividends.

Always purchase assets that will increase your cash flow next month.  Income investing has a compounding effect in increasing your cash flow.  Using this approach will provide increasing liquidity (dividends) each month, so you can invest in the most undervalued security (either stocks, bonds, or preferred shares).

Conclusion

Income investing provides quarterly payments during retirement.

Income investing provides a constant stream of cash so you can continually take advantage of changing market conditions.

As a rule of thumb, I like to find companies that pay 1/3 of their earnings through a dividend and the other 2/3 into the book value growth of the business (this is growth I don't pay taxes on).


Earnings 
----->  Option 1  ----->  Retained or Pay down debts ---->  Increase in Book Value or Equity
----->  Option 2 ------>  Dividends

Most companies retain some earnings (e.g. 2/3)  and also distribute some as dividends  (e.g. 1/3).



How can I employ Income Investing Techniques

Summary of this lesson

By employing the techniques of income investing, one can prepare themselves properly for retirement. Since income investing is the process of picking stable stocks and bonds that pay decent dividends and coupons, the investor can benefit from the cash flow that’s produced by these securities.

The first way income investing provides benefits to the investor is through liquidity. Since the investor will continually receive dividends or coupons, they then have the opportunity to reinvest that cash flow into the most undervalued asset each month. This compounding cash flow is truly the essence of investing like Warren Buffett. With an ever increasing cash flow, investors can take advantage of market conditions during spikes and valleys.

The second way income investing provides benefits to the investor is during retirement. Since most retirees may need to sell their investments in order to pay their monthly lifestyle expenses, income investing offers an alternative approach. Since the retiree will receive quarterly and semi annual payments from these types of investments, they will continue to have a steady cash flow to meet their lifestyle expenses. Although some retirees may need to pull from the principal, income investing will minimize that withdrawal.

In the end, Income Investing creates more cash flow for the individual employing the technique. It’s Warren Buffett’s opinion that purchasing dividend paying stocks is a very wise decision because of the continued and consistent cash flow that provides liquidity to reinvest your earnings.

Do You Invest Like a Grasshopper or an Ant?

When it comes to retirement planning, are you Aesop’s grasshopper or ant?

Like the ant in the fable, should you hoard and invest as much money as you can now, depriving yourself of little luxuries and gambling that you’ll live to a grand old age? Or should you have a bit of fun, like the grasshopper, spend that cash and then end up in your 90s living on Ramen noodles?

Jim Miller’s article posted earlier on this blog— “How Much Should You Save?” — underlines the challenge everyone working without the backup of a pension faces.

A recent Bloomberg.com article (see article posted below) suggests that more of us may be grasshoppers, but caving into immediate gratification may give our finances as much as a six-figure hit. The article notes that a “unique challenge for retirement planning is that the end goal is so far away that it’s hard to see how actions we take or don’t take today will have a huge impact on our older selves.”

Bloomberg further references a contract created by the Allianz Global Investors Center for Behavioral Finance. The contract, written to help financial advisers hold their clients to the investing course, includes this passage: “Should the portfolio value decline by 25 percent, we commit to avoid the urge to panic and sell the portfolio. Similarly, should the portfolio value increase by 25 percent, we commit to avoid the urge to chase the hottest investments.”

If you really want a look at how your savings will pile up if invested in a retirement plan, it’s worthwhile to play around with the 401(k) savings calculator at Bankrate.com. Then tinker with the retirement income calculator at the same website — a fascinating, but also scary, numbers game that may have you joining the ant farm.

http://blog.betterinvesting.org/?p=2836&utm_source=MailingList&utm_medium=email&utm_campaign=BI+Weekly_10-15-12

Retrain Your Brain for Financial Success
By Carla Fried - Oct 9, 2012

Dismal market returns haven’t exactly created a tailwind for 401(k) and IRA portfolios over the last decade or so, but an equally pernicious -- and more entrenched -- problem is that our brains are messing with our retirement plans.

“We are wired for financial defeat,” says Rapid City, South Dakota, certified financial planner Rick Kahler. “Whatever has the most emotional juice right now is what gets our attention. Invest $5,000 in your IRA for a retirement that is 10, 20, 30 years away? Or spend the $5,000 for a vacation to the Bahamas?” All too often, the Bahamas wins out.

William Meyer, founder of Social Security Solutions, notes that our thirst for immediate gratification can easily take a six-figure toll. More than two-thirds of folks opt to claim a lower Social Security benefit starting as early as age 62. For a married couple, than can mean leaving as much as $100,000 on the table. “If you wait to claim until age 70, you’re locking in a benefit that is 76 percent larger," says Meyer.

More productive planning

Forever tweaking your asset allocation probably won’t get you near the retirement payoff that tweaking your brain will achieve. Consider these strategies for engaging your brain in more productive retirement planning:

Get Thee to a Calculator, Pronto: OK, you know you probably should be saving more for retirement. And when life keeps intervening -- that Bahamas vacation you and yours really really need, or the realization that the kid’s orthodontia isn’t covered by insurance -- you tell yourself that next year, you’ll ramp up your savings rate. You’ve got plenty of time, right?

What you may not realize is how expensive that time is. Research conducted by Craig McKenzie, a psychology professor at the University of California, San Diego, shows that we have a tendency to “massively underestimate the cost of waiting to save. It’s difficult to appreciate the difference between giving yourself 20 years to save and 40 years.”

For example, a 30-year-old who is saving $10,000 a year and earning an annualized 6 percent will have $1.2 million at age 65. Care to guess what someone starting at 45 will have? About $390,000. The younger saver invests $150,000 more than the 45-year-old does, and in return has an ending balance that's $800,000 larger. Even if you’re already past your 20s and 30s, you might find it eye-opening to see how extending your investment timeline by delaying retirement on the back end of the calculation can help matters. Your company retirement plan probably has an online calculator you can play with; or try this one.

Make it Personal: How you frame retirement savings decisions can help boost your ability to delay gratification. When individuals were asked if they'd prefer to have $3,400 in one month or $3,800 in two months, 57 percent chose the latter. When the same scenario was framed in terms of one’s personal age -- “when you are 2 months older” -- 83 percent chose to wait for the bigger payoff.

How does that translate to better retirement planning? Yale School of Management marketing professor Shane Frederick, one of the study’s authors, says a 50-year-old who frames a savings goal as “when I am 65” will likely be more patient to focus on that delayed gratification, than someone who frames it as a more generic “in 15 years.”

Time Travel: Another unique challenge for retirement planning is that the end goal is so far away that it’s hard to see how actions we take or don’t take today will have a huge impact on our older selves. When researchers showed individuals doctored photos of their future selves, the human guinea pigs said they would save more than twice as much for retirement, compared to a control group that wasn’t given a glimpse of their older self.

Work is afoot to bring this visual exercise to a 401(k) plan near you. In the meantime, Hal Hershfield, who led the research, says he wouldn’t recommending using apps that age your face. “They're just not accurate enough, and I think seeing a strange-looking version of your future self may actually have the perverse effect of causing you to identify less.”

Hershfield, an assistant professor of marketing at New York University’s Stern School of Business, says new research that has yet to be published shows that simply writing a letter to your future self can help you become more invested in the welfare of that older person. “In a way, this task is a very low-tech version of the age-progression [photo morphing] techniques: Both have the same goal of creating a more vivid image of the future self.” Hershfield says hanging out with older folks -- parents, grandparents, volunteering with an organization for the elderly -- can also have a beneficial impact on your resolve to save more today.

Channel Ulysses. Most of us suffer from a bad case of recency bias, the tendency to extrapolate that whatever is happening today will keep happening. That’s why it’s so hard to buy low and sell high. If your recent experience is a falling market and bad returns, it’s not exactly easy to belly up to the bar and buy stocks, or simply stay committed to what you already own.

A Ulysses Contract -- a one-page statement that lays out your long-term strategy and the fact that you’re committed to staying the course -- can be a line of defense against over-reacting to current events. Like the Greek warrior, you are pre-planning for how you will circumvent alluring emotional sirens that can thwart your retirement plan.

For example, a sample Ulysses contract -- created by the Allianz Global Investors Center for Behavioral Finance for financial advisers to use with clients -- includes this passage: “Should the portfolio value decline by 25 percent, we commit to avoid the urge to panic and sell the portfolio. Similarly, should the portfolio value increase by 25 percent, we commit to avoid the urge to chase the hottest investments.”

Another useful step is to include a clause in your contract saying that before you ever deviate from your plan, you will write down your rationale. As Nobel Laureate Daniel Kahnemann explained in his book, "Thinking, Fast and Slow," you don’t want to cede all power to the quick-twitch intuitive part of your brain. Slowing down and simply writing down why you want to change course triggers more deliberate rational thinking. That’s the key to getting ahead and staying ahead.

(Carla Fried is a freelance writer based in California.)

http://www.bloomberg.com/news/2012-10-05/retirement-planning-2-0-retrain-your-brain-for-financial-success.html

How to Retire Rich: 3 Smart Steps at Ages 40-55

Maneuver to stay on track. It's a balancing act to pay for college and keep saving.
By Sandy Block and Jane Bennett Clark | Kiplinger

By now, you've probably amassed a decent sum in your retirement accounts and another hefty sum in the college fund. You haven't? Join the club. A survey conducted in 2009 by Edward Jones, the financial services firm, showed that 20% of respondents ages 45 to 54 had saved nothing at all for either retirement or college. A recent survey showed that 62% of respondents had never heard of a 529 savings plan, much less contributed to one.

[More from Kiplinger: 5 Costly Retirement Surprises]

Here's the penalty for procrastinating on both those fronts: If you had started saving for retirement in your twenties, you would have had to carve out 13% of your salary every year to replace your income in retirement, according to an analysis by T. Rowe Price. Now, at 45, you'll need to sock away 29% of your salary to catch up. (And if you put it off until age 55, you'll need to save 43%, which won't leave you much for groceries or gas.) Uncle Sam gives the procrastinators of the world a powerful incentive to save: Once you're over 50, you can contribute significantly more to your 401(k) plan than your younger colleagues.

Adjust the college plan. The same time-and-money crunch applies to college savings. Compare the difference between starting a college fund when your child is a toddler and when he or she is 13. Fifteen years out, you would have had to save $345 a month to cover 75% of the cost of a public college education, according to Savingforcollege.com. At this stage -- say, five years out -- you'll have to save $646 a month, almost twice as much.

Rather than regret the past, recalibrate. If you're on track for retirement but short of your college goal, for instance, you can always redirect 1% or 2% of your gross income from one pot to the other for a few years, says Greg Dosmann, a principal at Edward Jones. Recognize that you might have to work a year or two longer before retirement or boost the retirement allocation after you're done paying the college bills. "It's a trade-off," he says.

[More from Kiplinger: 10 Things You Must Know About Social Security]

Or consider borrowing -- judiciously. Parent PLUS loans, sponsored by the federal government, carry a fixed 7.9% rate. PLUS loans let you borrow up to the cost of attendance, minus any financial aid. Thanks to their fixed rate and consumer protections, such as forgiving the loan if the student dies or becomes disabled, PLUS loans are generally a better bet than private student loans.

Remember, however, that borrowing on behalf of your student can jeopardize your own financial security in retirement. If the gap is a chasm, not a crevice, find a cheaper school. Another way to get cash for college is to borrow against the equity in your home. With a home-equity loan, you pay a fixed rate (recent average: 6.4%) but borrow the entire amount upfront. With a line of credit, you pay a variable rate (recent average: 5.1%) and borrow as needed. With both, you can generally deduct the interest on amounts up to $100,000, no matter how you use the money.

A lower rate and tax-deductible interest may beat student loans. The downside to this strategy is that it pushes off a key goal for many people, which is to enter retirement mortgage-free. "After the kids are finished with college, you are going to have to save like heck to pay off the mortgage or, if you can't do that, sell the house and downsize when you retire," says Yrizarry. Downsizing doesn't have to be a bad thing, but it's a decision you should make before you borrow, not after.

[More from Kiplinger: 10 Most Tax-Friendly States for Retirees]

Talk turkey with your kids. No matter how you plan to pay for college, let your kids know what you're prepared to do before you make up a college wish list. Be clear that "if the net price after financial aid doesn't end up at your number, it has to go off the list,” says Fox. Without that conversation, you'll be hard-pressed to say no when the acceptance letter from Vassar comes. "College is not just a financial decision," says Fox. "There's a whole emotional side. You have to have the guidelines established before you get to that point."

Invest what's left. If you're among those who have college covered (or don't have college costs to contend with) and you save the max in your retirement accounts each year, you may be looking for ways to invest excess income. One option is to add tax-free municipal bonds to your fixed-income allocation, says Yrizarry. Despite recent reports, most state and local governments have shown resilience in the face of budget cuts.

Or take advantage of low interest rates and bottoming housing values to invest in real estate, Yrizarry suggests. If your student is heading off to college, you can accomplish multiple goals (and take advantage of a strong rental market) by buying a condo near campus and letting your kid and a few roommates live in it. Later, you can rent the property to other students or to alums during big sports weekends, generating income before and into your retirement.

MORE FROM 

• QUIZ: Are You Saving Enough for Retirement?
• How to Retire Rich: 6 Smart Steps to Take at Ages 50-66
• 10 Least Tax-Friendly States for Retirees

http://finance.yahoo.com/news/how-to-retire-rich--3-smart-steps-at-ages-40-55.html

Best Time to Start Saving and Investing

Now is as a good time as any. The earlier you start, the bigger the nest egg you’ll have on retirement. But as we know, it is difficult to start in our twenties, as at that age we save for a car and then a house. And soon after, there will be educational expenses for kids.

But you cannot afford to keep postponing your financial planning for retirement. In order to have sufficient income to cover all those non-working years, you cannot leave the plan to the very last moment. If you decide to retire at 55, you need a nest egg that can generate an income for another 25 to 35 years.

http://www.stock-investment-made-easy.com/retirement-planning.html

A retirement horror story

By Barbara Whelehan · Bankrate.com

Friday, October 14, 2011

Posted: 2 pm ET

More than half (54 percent) of full-time workers from ages 21 to 64 participated in their employer's retirement plan last year, according to a report released earlier this week by the Employee Benefit Research Institute. Among all workers, including part-timers, the participation level was 40 percent.

That means a lot of people slip through the cracks.

The phenomenon extends overseas in England. More than a third of nonretired adults no longer pay into their plans, according to a Prudential survey. Nearly one out of three who don't participate (27 percent) say they just can't afford the contributions.

The fact is, they can't afford not to make them.

Frightening true story

What happens if you don't do any retirement planning and you have little savings to fall back on?

Let me tell you a story about my eccentric friend Jeanette, who many years ago received a Master of Fine Arts degree from the Hoffberger Graduate School of Painting at the Maryland Institute in Baltimore. During most of her career she worked part time as an art teacher. She's also a talented artist in her own right whose works are being sold by an art gallery in Naples, Fla., though she hasn't seen any proceeds from recent sales. She doesn't want to press charges against the gallery owner because if she does, she says, her name would be mud in the art community. "No, you don't understand the art world," she says each time the subject comes up.

Between her pension and Social Security, Jeanette's income amounts to $900 a month. When her mother passed away some 20 years ago, she left Jeanette her condo and a small portfolio of stocks, about $50,000 worth. Over the years, Jeanette slowly liquidated the stocks, spending the money on necessities. Six years ago, she sold her condo at the height of the real estate boom and bought another cheaper one outright for $85,600 in a different area. The reason for the move? She thought her neighbors were trying to gas her. Jeanette is plagued by delusional thoughts.

Three weeks ago she was evicted from her condo. While movers hauled her furniture and all her possessions to the parking lot, two police officers seized her, put her in a "cage" and brought her to the psych ward of a local hospital. She had been "Baker Acted," involuntarily committed for detention so that psychiatrists could evaluate her mental health. I received a call from her that evening. "Barbara, you've got to come pick me up. I have to get out of here," she said urgently.

It wasn't that easy. They wouldn't let me take her anywhere, not even to look for alternative housing. The hospital's case manager wouldn't talk to me until Jeanette signed a form, which Jeanette was reluctant to do. It took me a week to convince her to sign it. Her stubbornness is exasperating.

When we finally talked, I told the case manager that Jeanette didn't belong in a locked ward, and she didn't belong in an assisted living facility either. That was where the case manager was trying to place her. Jeanette didn't go along with the idea. She said she didn't want to eat prepared food in a dining hall; she wanted to cook her own food. And she didn't want to give up her Social Security check to live in a facility. That would mean she'd have no way to make car payments. And if she gave up her car, it would be like giving up everything.

A couple of days after I talked to the case manager, Jeanette was released. Our mutual friend Louise picked her up and took her to a nice, but inexpensive, hotel.

Why was Jeanette evicted? It turned out she had ignored a $6,000 plumbing bill, which over time, due to fines and penalties, escalated to $15,000. She paid her bills, but that one she had dismissed, telling herself she had been singled out by the condo board. There was no proof the leak came from her apartment, she'd told herself. She ignored the bills, and then years later, the eviction notices. In her mind, it was all a big scam.

Now she feels she's really been scammed. She lost her paid-for condo to the condo board in a foreclosure for a judgment of $11,337.20. Prices for comparable units are on the market for around $35,500.

Getting back on track

Over the past couple of weeks, Louise and I have been trying to help her straighten out her finances and find housing. Her stuff had been put into storage, paid for by her brother in New Jersey. Jeanette can't go back and live at the condo; the board won't let her back in. Apartment rentals seemed out of the question, at a minimum of $665 a month. Luckily, a friend of a friend found a one-bedroom apartment for $410 a month.

On Monday, Louise and I accompanied Jeanette to visit her broker, and she sold the last of her stock -- 461 shares of Merck, 12 shares of Comcast, and three shares each of AT&T and Verizon. She got roughly $15,000 from the sale.

Jeanette is living on the edge and it's only a matter of time before she runs out of resources. This is what retirement looks like without retirement planning, but who's to blame for this? She's always lived a frugal existence. She was lucky to get an inheritance. But one big unexpected bill -- and her inability to take it seriously -- were all it took to throw her life off kilter.

Read more: A retirement horror story | Bankrate.com http://www.bankrate.com/financing/retirement/a-retirement-horror-story/#ixzz1hOmvKUww

Volatile stock markets, low contribution rates and increasing annuity prices will result in a longer working life or less money in retirement in UK.

Your pension will be £1,750 a year less


Private sector workers without gold-plated final salary pensions can expect to receive £145 less a month in retirement than was projected just two years ago.

Annuity prices - which dictate your pension income - have increased by an average of 20pc since 2009 Photo: GETTY

By Paul Farrow

12:37PM GMT 12 Dec 2011

Volatile stock markets, low contribution rates and increasing annuity prices will result in a longer working life or less money in retirement.

According to Mercers, the actuarial consultancy, a 50 year-old can currently expect to receive £145 less a month, or £1,740 a year, in retirement income than was projected in 2009. A person in their thirties will be around £100 a month worse off.

The calculations showed that annuity prices – which dictate your pension income – have increased by an average of 20pc since 2009, hampering members' chances of obtaining a good retirement income.

This dramatic increase has meant that someone with a defined contribution pension pot of £200,000 at age 65 can now expect to get an annuity income of around only £5,800 a year, compared with £7,000 a year in 2009. Mercer said that a person nearing retirement might need to work for over three years longer in order to retire on the same income that they expected based on conditions back in 2009.

The decline in prospective pension values has been accentuated by a drop in contribution levels – employees are paying less in than they used to (an average of 4.2pc), while employers have frozen contribution rates, at an average of 7.2pc of a worker's salary, over the past year.

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Tony Pugh of Mercer said: "When considering the financial and regulatory pressures pension schemes are facing, the stagnation in employer contributions doesn't come as a big surprise. With a double-dip recession looming things are likely to get worse before they get better.

"We expect, however, that rates will trend upwards again over the long term, as employers start to recognise that lowering contributions to defined contribution schemes will change the workforce profile as a result of older employees having to work longer. Equally, employee pressure to increase contributions is likely to have an impact.

He added: "The impact on individual members is significant, especially for those about to retire. Members should keep a close eye on how their pension pot is invested and make sure to shop around for annuities to get the best out of their retirement savings.

"Those eligible are likely to increasingly use drawdown options, but these are not without risk as investment values could fall."

http://www.telegraph.co.uk/finance/personalfinance/pensions/8950888/Your-pension-will-be-1750-a-year-less.html