Robert G. Yetman, Jr.

Do You Need $1,000,000 Set Aside to Safely Retire?

For years, the financial planning community recommended that you focus on having $1,000,000 saved by the time you retire.  That has always been a general target figure, of course, as the needs of people vary widely, but it has long served the purpose as a standardized number that’s neither insufficiently low nor needlessly high.  The historical idea has been that if you had $1,000,000, that principal sum would be enough to generate about $40,000 per year (assume 4% in annual interest) reliably in interest income, which, combined with another $20,000 per year in Social Security, would give you about $60,000 in income; your principal of $1,000,000 wouldn’t be touched with any regularity, but would be available to access if things got surprisingly bad, and would also be enough to cover end-term medical expenses and other final costs.  The important companion assumption that has been made on behalf of the idea that $1,000,000 is enough is that you’ve also paid off your mortgage and other consumer credit accounts by the time you retire. 

I think the answer is that most people can retire on a savings of $1,000,000, but perhaps the more important issue is having the ability to generate $60,000 per year for yourself over the course of your retirement years.  Looking at the question that way relieves you, perhaps, of having to fixate on saving $1,000,000. For example, if you continue working in a low-impact sort of way (from home, part-time, etc.) and can earn $20,000 per year like that, and can rely on another $20,000 in Social Security (I know what you’re thinking, but we have to make some assumptions here), your $1,000,000 savings requirement now drops to $500,000 (4% of $500,000 gives you $20,000 per year in interest income).  $500,000 in savings may still be a tall order, but it’s obviously more reachable than $1,000,000.

These days, when securities and real estate markets are performing in most uncertain fashions, we have to be creative when analyzing potential sources of retirement income.  The key to a successful retirement may lie less in actually having the requisite savings capitalization to generate all or most of your income, and more in determining your income requirement early on and then considering all the available means by which you can achieve it.  

 

Agree or disagree; please register your comments below.

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Robert G. Yetman, Jr.  Editor-At-Large www.ChristianMoney.com

Tags: retirement+planning,+christian+financial+advice,+robert+g.+yetman,+james+l.+paris

Beware the Real Unemployment Problem in America

There’s an unemployment problem in this country, but it’s not the one you think it is.  The unemployment rate, already over 10 percent in 14 states, is expected to reach that figure nationally in the U.S. later this year, and most blame it entirely on the Great Recession that presently plagues us.  While that blame is not ascribed entirely unfairly, focusing exclusively on the current, acute economic troubles so intently may obscure a bigger, more ominous threat to the long-employed: cultural change and technological progress.

From automobiles to newspapers, evolution in technologies, as well as changes in temperament and taste, are yielding significant and everlasting changes in whole industries, to include seeing to their outright elimination.  This condition will persist long after the current, shorter-term economic troubles have ended, and for many the remedy will be found with adaptation; the ability to recognize, with great foresight, the societal changes in direction and smartly react to them.

The adaptation about which I speak may take any of a variety of forms in its manifestation.  It may mean physically moving from your present location to one where jobs are more plentiful; it may mean returning to school, to earn advanced certifications or a new profession altogether; it may mean harnessing the power and opportunity presented by the Internet age to cultivate multiple streams of income from several of the mechanisms available therein.

Adaptation is not always pleasant, because adaptation means more work and sacrifice.  That said, the writing is on the wall, my friends, and those who choose not to see it may well find themselves represented in unemployment figures long after the current economic mess is a part of history.

 Agree or disagree; please register your comments below.

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Robert G. Yetman, Jr.  Editor-At-Large www.ChristianMoney.com

Tags: unemployment+rate,+unemployment,+robert+yetman,+christian+financial+advice,+james+l.+paris

Right and Wrong in the Midst of Financial Despair

In what has become an all-too-common occurrence in the middle of this global financial turmoil, an Orlando, Florida man has apparently killed his entire family, as well as himself, in a desperate attempt to free them all from the grip of severe financial troubles.  John Wood, 41, appears to have shot his wife Cynthia, 40, and their two children, ages 10 and 12, before turning the gun on himself.  Details are still emerging, but those that have seen the light of day thus far include things like bankruptcy troubles, $85,000 in credit card debt, lost jobs, and general financial calamity.

Unfortunately, we’re also learning that in the face of these difficulties, mom and dad seemed disinclined to apply any brakes.  The bodies were discovered by a housekeeper, begging the question why someone in such a dreadful bind still had a housekeeper.  There’s more, including well-known weekly shopping trips to the mall, and even a recent trip to Las Vegas wherein John and Cynthia allegedly lost $2500 while gambling. 

We don’t know precisely what brought about this horrible tragedy, and we may never know…but the speculation about financial problems seems fair, given what has been uncovered so far.  What is disturbing is that it seems, by all accounts, that John and Cynthia were unwilling to rein in their lust for consumption, even in the face of trouble that began years before.  They lived in a beautiful home, in a gated community, and owned cars, a boat, a motorcycle, etc.; how awful to think that an insistence on living that life, for as long as they lived at all, was more important than life itself.      

 

Agree or disagree; please register your comments below.

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Robert G, Yetman, Jr.  Editor-At-Large www.ChristianMoney.com

 

 

Tags: suicide+due+to+recession,+robert+g.+yetman,+james+l.+paris,+christian+financial+advice

Does Your Mutual Fund Own General Motors?

When a big-name company falls on significantly hard times, or even goes belly-up the way GM has done, I will get calls and letters from mutual fund investors wondering what that unfortunate condition means to them.  Happily, the usual answer is, “not much,” and that answer applies here to GM, as well.

Most mutual funds are actively managed, which means the fund management team can buy and sell the stocks in the underlying portfolio as it sees fit.  Unfortunately, popular index funds (unmanaged mutual funds that are constructed to mirror the stocks that make up a given index) have been stuck owning GM because the associated indexes…like the S&P 500…have the stock as a component security.  Nevertheless, even in such cases, the impact of GM has proven to be minimal.  For example, the S&P 500’s pricing is based largely on the market capitalization (# of outstanding shares X share price) of its stocks, and GM’s market cap has been small, so its effect on an associated index fund will also be quite small (it should be noted that GM is no longer a component of the S&P 500, effective COB June 2).

The minimal impact of GM even on mutual funds that are required to hold it shows, once again, the wisdom of engaging the stock market with a diversified portfolio.  For those who do their investing through funds, they can rest assured that while they may not be spared the large-scale negative movements of equities markets, even the total collapse of a storied company within their portfolio will be of little consequence to them.      

Robert G. Yetman, Jr. Editor-At-Large www.ChristianMoney.com

Tags: general+motors+stock,+mutual+funds+that+own+general+motors,+robert+g.+yetman,+christian+financial+advice,+james+l.+paris

New Credit Card Legislation is Fine, But…

You may have heard that we’re on the verge of seeing what, to many, represents substantial overhaul in the consumer credit card industry.  There has developed a virtual avalanche of complaints against credit card companies, and lawmakers have been eager to do what they can to beat back the public outcry against the industry, and, by association, against lawmakers who are perceived to be enablers of the industry in their unsavory actions.

As for the specific reforms, most seem perfectly reasonable.  One of the biggest changes involves the matter of hiking rates on existing balances.  On the heels of the new legislation, card issuers are prohibited from raising rates on existing balances unless the cardholder is at least 60 days behind, and even then, the rate would have to go back to its previous level if the cardholder makes on-time payments for the next six months.  There are other new terms, as well.  Issuers can no longer assess specific fees based on how a payment is made (for example, by phone), rates on new accounts can’t be increased in the first year, issuers have to announce rate increases at least 45 days in advance, and there are other changes, as well.

In the end, all of this “reform” is fine, and I’m sure there are some who will directly benefit from these adjustments in industry terms.  However, I’m not at all convinced that much will change in terms of real burden on those inclined to regularly use credit cards…precisely because it’s that regular use that’s the real problem.  While the behavior of some card issuers has been egregious at times, I’ve just never been passionate about the plight of credit card customers, because cards are used largely to finance a lifestyle the consumer cannot otherwise afford.  It’s much easier to become righteously indignant about excesses in the home lending industry, for example, as well as in the area of auto finance; houses and cars represent much of what we need to survive in the modern world, and so any sneaky behavior on the part of those who finance these goods is much less tolerable.

You want to make modest changes in credit card issuer behavior?  Fine…but let’s not kid ourselves; the recent legislation was missing the most important reform…and that would be reform of the consumer.  Until they pass a law that regulates the stupid decisions made by so many to get themselves mercilessly burdened with unnecessary debt in the first place, these other reforms won’t really help much.

Robert G. Yetman, Jr.
Editor-At-Large www.christianmoney.com

 

 

Tags: new+credit+card+rules,+credit+card+legislation, robert+yetman,+james+l.+paris,+christian+financial+advice

Mortgage Payments and Common Sense

The recently-unveiled government Homeowner Affordability and Stability Plan favorably addresses, in part, the issue of loan modifications…those “middle ground” mechanisms to which both lenders and borrowers are increasingly turning to save homes and keep the crush of foreclosures from becoming, well, more crushing.  In its discussion of modifications, the plan identifies the figure of 31 percent as the ideal percentage to represent the maximum amount of gross monthly income that should be dedicated to a mortgage payment.  This figure, and others in close proximity, represents a general, time-honored maximum to which, we now see, all should have adhered.

As a part of my long history in the financial services industry, I ran a mortgage company some years back.  Disturbingly, every customer with whom we did business always insisted on borrowing at the outer edge of their qualification range; no one ever wanted less house than that for which they qualified.  This borrowing confidence was fueled by many factors, including simple gluttony, but it was also largely energized by a disbelief in the idea that the price of houses would ever go anywhere but up, up, and away.  Riding on that assumption, borrowing like there was no tomorrow became basically a riskless transaction, did it not?  After all, if you buy all you can and get overextended, just sell; you’ll still come out way ahead with your appreciated asset, right?  Umm…  

According to a 2007 survey (the most recent that’s available) by the Census Bureau, 38 percent of homeowners with mortgages dedicate more than 30 percent of their gross monthly income to housing costs, while about 12 percent of homeowners with mortgages spend more than 50 percent of their gross monthly income on housing costs.  The first number is worrisome; the second is just plain ridiculous.  The first step to re-connecting with Planet Earth is to rid yourself of the idea of the “dream home.”  Focus on something decent, comfortable, but manageable, remembering that a big house will ultimately bring you about as much spiritual contentedness as the big-screen TV sitting inside of it.  30% is not a bad figure as a target maximum, but you would do well to keep it as low as you can.  If you make $5,000 per month, 20% of that is $1,000.  That’s a great number.  That percentage may not ensure you have the snazziest house of all your friends, but, to the extent that there are any assurances at all anymore, it will ensure you still have the house many years from now.     

Robert G. Yetman, Jr.  – Editor-At-Large www.ChristianMoney.com

Tags: subprime+mortgages,+adjustable+rate+mortgages,+foreclosure+crisis,+robert+g.+yetman,

Wealth Gurus and Their Financial “Wisdom”

Do you know what a wealth guru is?  A wealth guru is a guy who is usually quite wealthy himself, but whose money principally comes from the sales of books, CDs, and other programs that dispense the unconventional advice that supposedly makes him unique and which is certain to make you wealthy, too.

Robert Kiyosaki, he of the Rich Dad, Poor Dad brand, is one of these gurus.  His own success as a business owner, before fashioning himself as a financial “educator,” was mediocre, at best.  He is supposedly a highly successful real estate investor, but there are few publicly-known details on that.  In short, Kiyosaki appears to be a wealth guru on the basis that so many others are – he has managed to successfully market himself as such.

Kiyosaki recently wrote an article entitled Why the Cheap Will Never Get Rich (find it here: http://finance.yahoo.com/expert/article/richricher/153515), and it’s horrible.  The article is disorganized and rambling, but that’s not the worst part.  The worst part is that when it does dispense advice, it tells people to do all of the wrong things, or rather, tells them to refrain from doing any of the right things.  Here’s a disturbing passage:

“Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.”

A key component to the oftentimes non-specific, rah-rah advice these guys dole out is the insulting of people who engage in the standard practices associated with living prudently and building net worth over the long term.  It’s about suggesting that the way to wealth is to be “bold,” to leverage yourself to ridiculous levels in order to buy real estate, stocks, businesses, etc., and if it all doesn’t work out, go bankrupt and try it all over again.  Haven’t you heard that real winners are ten-time losers before they become mega-rich?  Well, haven’t you??  Get out there and be a winner!!

When you think about it, the passage quoted above is tantamount to saying that the best way to ensure that you’ll flunk out of college is to never miss a class, study hard every single night, do extra work, and stay after each class to speak with your instructors; the advice simply makes no sense.    

Just the sort of “wisdom” we need right now, don’t you think? 

Hardly.  Not only is it wrong-headed to publicly criticize ideas that have been proven to be the only reliable and time-honored methods of accumulating lasting wealth, but when you also consider that Kiyosaki’s wildly popular Rich Dad, Poor Dad book contains a lot of shaky advice, to include embracing big leverage in order to buy equities (how’s THAT been working for you lately?), and even advice to do that which is illegal, like using your well-connected friends to engage in insider stock trading, his credibility becomes almost completely compromised.  What is occurring right now in the economy is highly significant, and it will hopefully cause all of us to be even more aware than we were previously about how to forge through choppy financial waters, but nothing I’ve seen has prompted me (or any other prudent financial manager I know) to unilaterally discard solid financial life-lessons and instead embrace the risky ideas for which Kiyosaki and other wealth gurus are famous.        

It’s hard to believe that such nonsense still sells at all these days.  If you want to read a good book about how to substantially increase your net worth, pick up a copy of The Millionaire Next Door by Thomas Stanley and William Danko.  The book profiles not the “celebrity wealthy,” but rather the “Johnny Lunchbucket wealthy;” those folks who may live on your same street, who always live well below their means, invest their positive cash flow in quality investment vehicles that have proven to perform well over time, and now have a net worth in the seven-figure range.

Contrary to the assertion made in Kiyosaki’s article, wealth and frugality are not mortal enemies, but actually close allies.

People who love wealth gurus don’t tend to appreciate advice like that which is handed out in The Millionaire Next Door.  Why?  Simple; the vast majority of real millionaires don’t earn it quickly, which is the promise of the wealth guru.  Living honorably, dedicating yourself to your labors, paying off your debts, and existing well within your means so that you have more to invest in quality investment vehicles is by no means exciting, but it does work.  The approach of the guru?  Take a bunch of big chances with the financial security of you and your family, and pray you’re one of the few for whom it all comes together. 

Why didn’t I think of that?  I could be RICH now…from selling all of that sexy advice.   

I could be a wealth guru.

Robert G. Yetman, Jr.  Editor-At-Large www.ChristianMoney.com

Tags: Robert+Kiyosaki,+rich+dad+poor+dad,+robert+g.+yetman,+james+l.+paris

The Woes of the “Wealthy”

A recent article in The Wall Street Journal highlighted the difficulties faced by some six-figure-per-year earners as they consider the ramifications of Obama-led tax increases on their income bracket.  Several families were profiled in the article, and each had their own sad story with respect to how, despite public perception, they are hardly “rich,” and in no position to withstand taxes much higher than those which they already pay.  A link to the article follows here:

http://online.wsj.com/article/SB123983744241222865.html

The public response to the article has been substantial, and the debate that’s ensued has centered on the matter of class warfare; some reviewers sympathize completely with the $200,000 to $400,000-per-year families profiled in the article and rail against any prospective tax increases on a bracket that already pays the lion’s share of U.S. income taxes, while others feel that these folks are indeed “rich” and should be happy to pay more to buttress the government dole.

As for me, I think the article highlights two separate issues, which are in no way mutually exclusive: the inherent unfairness of the war against anyone who actually aspires to do something professionally meaningful with his life, and the importance of sound financial management.   

First, I have long stood against the class warfare that’s regularly incited by Democrats in order to reap votes on election day.  Taxes on higher-earning Americans need to be cut, and no, I don’t think the lower brackets in this country pay their fair share.  Raise taxes on them (or better still, lower them for everyone).

All of that said, one can be completely against everything Obama and his merry band of socialists stand for and still wonder how a family earning hundreds of thousands of dollars per year is “just getting by,” as it was put by one article interviewee.   A belief in the inappropriateness of high taxes…as well as a belief in sound personal financial management…are two ideas that can live together perfectly well.  Taxes should be cut across the board, and people should do a better job of tracking what they’re doing with their money.  I in no way think that those who make six figures a year are automatically rich, nor do I even feel that discussions about what defines rich for the basis of assessing taxes are even appropriate, but I will admit that from a personal financial planning standpoint, if someone is “just getting by” on nearly a half-million dollars a year, you have to at least consider that there’s something else going on here that has little to do with being sucked dry by our favorite, leeching, deadbeat Uncle…a guy named Sam.

Agree or disagree; please register your comments below.

Robert G. Yetman, Jr.  Editor-At-Large www.ChristianMoney.com

Tags: class+warfare, robert+g.+yetman,+james+l.+paris,+christian+financial+advice

Retention Bonus Payout Policies Should Not Discriminate Against Execs

We’re all familiar with the “travesty” of AIG executives receiving retention bonuses at a time when the failing insurance giant is receiving an enormous lifeline, courtesy of the U.S. taxpayers.  During the wildly overdone uproar last month, vile hypocrite Bawney Fwank was all-too-happy to grill embattled AIG CEO Edward Liddy over the payment of the bonuses, and Sen. Charles Grassley of Iowa went as far as suggesting that AIG execs should do the honorable thing and kill themselves.  That’s great.  It’s so nice to see all of this indignation from a body (the U.S. Congress) that is embarrassingly replete with tax cheats, liars, and all-around dirtbags; chutzpah can be a wonderful thing, I suppose, if you’re arrogant enough to express it and those around you haven’t enough spine to call you out.  As for me, I'm waiting to see if any of these esteemed members of congress will be tossing themselves from a tall building in the wake of the lynching given the American taxpayer atop Mount Porkulus. 

Now comes the news that retention bonuses far in excess of those paid out to AIG execs are scheduled to be paid to employees of Fannie Mae and Freddie Mac, the two stockholder-owned government sponsored enterprises (GSEs) that are every bit as responsible for this depression as AIG or any other entity.  To review, the relaxing of underwriting standards at Fannie and Freddie, powered chiefly by liberal social engineering policies developed in both major parties over the last ten years, contributed substantially to both the cause and subsequent effects of the implosion.  Many of those who were inclined to spit on AIG for handing out bonuses to execs seem comfortable in the hypocrisy that results from giving a thumbs-up to Fannie and Freddie bonuses by pointing out that even the small fry will share in the booty (although to be fair, Grassley, in an apparent attempt at appearing consistent, has gone on the record in recent days to express his outrage over the Fannie/Freddie bonuses).  GSE regulator James Lockhart has said that it’s all OK because “many hard-working lower-level employees which are important to the mission of providing stability, liquidity, and affordability to the housing market” will get the money, too; it’s not just going to evil rich guys.

This is garbage.  First, the bonuses scheduled to be paid to these GSEs over the next 18 months are substantially more than those paid to AIG ($210 million vs. $165 million).  More importantly, there should be one standard here, regardless of what size these bonuses are or what level of employee may benefit.  Any company that has seen its shareholder equity destroyed and is now largely dependent on government help for survival should expect to have its bonuses highly scrutinized and curtailed.  I don’t care who suffers as a result; the fair application of the policy should remain paramount.  In the end, if you decide that retention bonuses paid to Fannie and Freddie are fine because lots of “lower-level” people will share in them, but retention bonuses paid to AIG are wrong because they’re being paid to “higher-level” people, then you’re complicit in another of the many unfortunate cases of class warfare-cum-communism that we’re seeing now and which are important tools in the Obama-led assault on capitalism and the traditional American way of life.  You know better than that.

Robert G. Yetman, Jr. Editor-At-Large www.ChristianMoney.com

Tags: aig+bonuses,+executive+bonuses,+robert+g.+yetman,+james+l.+paris,+christian+financial+advice

Financial Independence Through Debt-Free Living

For a couple of decades now, we’ve been told that the best (and really only) way to achieve a functional level of wealth is to invest.  Makes sense; after all, how else do you make money grow over the long term?  Putting money into 401ks, IRAs, and real property have long been touted as the magical keys to the wealth kingdom.  And when we talk about achieving wealth, of what really are we speaking?  We are speaking of attaining financial independence – the ability to live unencumbered by the demands of work and creditors.  To that end, I would suggest that you spend as much (or even more) energy on eliminating debt as in contributing to investments.

Take a home mortgage, for example.  It is astounding how many people are comfortable nowadays with a monthly mortgage obligation in their 60s, 70s, and beyond.  An analysis of available data tells us that through the early 1980s, it was unusual that retirees carried mortgage debt.  Now, it’s much more prevalent.  The result is that couples who otherwise might need to account for no more than $500 to $1,000 per month in regular monthly living expenses are instead looking at needing over three times that amount just to survive, thanks to mortgage debt, car payments, and other credit obligations.  From a financial planning standpoint, the ramifications are significant.  $500 to $1,000 per month is quite manageable for a couple that has between $150,000 and $250,000 in savings, to go along with Social Security benefits…and if things get really bad, the equity in a 100% wholly-owned house can be tapped for more income in the form of a reverse mortgage.  However, if the burdens of current debt are such that monthly obligations total $3,000 or more, the amount required to have set aside, even with an anticipated Social Security benefit, shoots to somewhere in the range of $750,000 to $1.5 million. 

Those who are familiar with my philosophy on retirement know that I don’t really believe in it, as a general rule.  Accordingly, some of you might read this column and say, “Then what’s the big deal?  You’re against people retiring anyway, so what does it matter if they have a lot in the way of monthly expenses?”  Allow me to clarify.  I AM against retirement, because I think it’s an unnecessary and even harmful waste of both human and financial resources.  However, I don’t propose that the financial reason you’re still earning an income at 75 should be to help pay your mortgage and other consumer debt obligations; rather, I’m suggesting that it’s to help bolster your savings and therefore put even more distance between you and the street; added insurance, as it were.  As I have always said, there is a very good chance that even if you’re inclined to embrace my strategy to keep working well into your advanced years, there will be a period of time that sits in between that which signals the point at which you cannot work any longer, and the event of your death.  It is that period of time, of undetermined length, for which you should be principally preparing.

Unfortunately, the “debt is good because having stuff is great” mentality that has come into vogue over the recent decades has found many retirement-age people burdened with crushing debt, and it’s a shame.  Whatever perceived reward lies therein is still a mystery to me, because I can imagine no greater reward than the financial freedom that comes with carrying absolutely zero consumer debt.  Focus on achieving that end every bit as much as growing your retirement accounts – it is often the most important component to realizing ultimate financial independence. 

Robert G. Yetman, Jr.  Editor-At-Large www.ChristianMoney.com

Tags: debt+free+living,+living+debt+free,+christian+financial+advice,+james+l.+paris, robert+g.+yetman,+robert+yetman