A few of my posts from Orlando may be of interest to readers here. Here are the links if you want to check them out:

Write Your Own Retirement Paycheck

The Psychology of Career Change

The Hard Truth About Shifting into New 50+ Career

I’ll return to regular programming this coming week.

No related posts yet.

Stop groaning. You should be so lucky as to be entertained by the likes of Gladys Knight, B.B. King, Gloria Gaynor, Richie Havens, Los Lobos, Judy Collins, and Crosby Stills & Nash, all in one weekend. Staying awake for all of it will be tough, but that’s why they call me Mr. ToughMoneyLove. Hopefully none of these entertainers will be performing in a wheelchair. That would be hard to handle.

There will be many educational sessions to attend but I will be concentrating and blogging on the financial stuff. These sessions include:

• Retirement Surprises That Can Impact Your Plans
• Working for Yourself – What it means and How to Get Started
• The Financial Freedom Tour
• Straight Talk About Families and Money
• The New Affluence: Achieving Financial Security in a Changed Economy
• Write Your Own Retirement Paycheck

You can check out the complete schedule here, learn more and sign up to attend here, or sign up to participate remotely here.

This should be fun and interesting. As I told the AARP when I entered the competition, I may not agree with everything I hear and see at the event, but I will be happy to write about it either way.

Love or hate the AARP, they do provide tons of financial and retirement planning information that is useful to folks of all ages. So participate if you can or stay tuned and read my commentary if you can’t.

No related posts yet.

Back next week. Thanks for reading.

No related posts yet.

Well, a couple of things went wrong. First, many investors missed the entire point of owning a target retirement date fund and misused them as an investment. Then 2008 happened. Folks who expected that their retirement portfolio would be relatively safe under any market conditions (probably a naive expectation) were surprised to discover that their target date fund valuations dropped substantially. Even the most conservative target date funds (those designed primarily for income) fell 17% on average. Those funds with a longer time horizon dropped by almost 40%.  None of them showed a positive return.

And the saddest news of all was for investors who bought funds designed for a target retirement date of 2010. Those funds (there were 31 of them) produced results that were all over the place. The best 2010 target date fund dropped 3.5%. The worst fell 41.3%. Ouch. Happy Retirement 2010!

I don’t care how young or old you are but if you put money in an investment that is specifically designed for your retirement golden years, you never want to experience declines like that. It is emotionally upsetting to say the least and counter-intuitive to the understood purpose of the fund.

So what happened next?

First, many retirement investors pulled their money out and either went to cash or chose another asset class to invest in. (Sadly those folks who pulled out missed the 2009 mini-rally). This happened just when many mutual fund companies were jumping on the bandwagon and joining the parade of new target date funds.

Second, the domino effect caused some of the newcomer target date funds to surrender to the marketplace and simply liquidate.  (A fund liquidates when it stops accepting new investments, sells its current investment assets, returns the remaining funds pro rata to investors, and then closes down.) According to this report, seven target date funds liquidated in 2008. So far in 2009, fifteen have liquidated. There are probably more on the way, as investors remain wary and disinterested based on the 2008 debacle. There are 246 retirement date funds with fewer than $100 million in assets, which is probably below the sustainable level.

This leaves 80% of target date fund assets concentrated in just three companies: Vanguard, Fidelity, and T. Rowe Price.

So what should you do about investing in target date funds? I would go elsewhere with your retirement money, as I did in 2008. I believe that retirement date funds were an experiment gone bad.

If you like the “set and forget” retirement investing strategy, there are a variety of different “lazy man” and “couch potato” portfolios available to you. Investigate them and pick one that matches two important personal characteristics. The first is your risk tolerance. The second is your retirement trajectory.

Note that a retirement trajectory is different from a target retirement “date” because it takes into account how your employment income may phase out over time instead of perhaps suddenly ending. You may be planning for a phased retirement. If so, your “target date” may not be a fixed date at all.

Finally, remember that when you are investing for retirement, your primary objective is to establish and preserve a stream of essential retirement income. Building wealth is secondary.

No related posts yet.

Here are some key NRRI findings and metrics and further commentary by Nationwide Insurance, the NRRI underwriter:

• Fifty-one percent of Americans would be unable to maintain their standard of living if they retired at age 65, compared with 44 percent in 2007. This estimate is actually conservative because it doesn’t include medical or long-term care costs.
• Americans are facing a decline in home equity at the same time that the government is increasing the age at which retirees qualify for full Social Security benefits. The average 401(k) retirement savings account fell by almost one-third in 2008, and people aren’t saving enough to make up the difference.
• The U.S. personal savings rate fell to 3 percent of disposable income in August from 4 percent in July. (It was 8.9 percent at the end of 1992!) The saving rates needs to increase to at least 8 percent  to compensate for the drop in retirement assets.

It gets worse. It seems that our friends and neighbors are so discouraged by what has happened to their home equity and retirement accounts that they are disengaging from the retirement planning process.

This is from Nationwide:

Along with the new NRRI data, Nationwide’s senior vice president of Customer Insights and Analytics, Paul Ballew, says the company’s own research is showing that a significant number of consumers who were actively planning for retirement before the recession are disengaging from the process. Those insights are confirmed by existing market conditions.

“We’re really looking at a one-two punch right now,” Ballew said. “We’re seeing the number of disengaged households increasing by more than a third. Many of these individuals felt the brunt of the economic downturn to a greater degree than others and have moderated their expectations toward retirement. It’s clear that many of these people who were planning before the downturn are now pulling away from the table. That’s exactly the opposite of what they should be doing.”

And the scariest data of all? According to Nationwide, compared to 2007, there has been a 60% drop in agreement with this statement: Creating a retirement income source is important.

Are you kidding me? Do you want to live in a van down by the river when you retire? Or do you plan on dropping dead in your Walmart greeter’s vest?

That tells me that too many folks have transitioned from being merely negligent about their financial planning to being recklessly or willfully foolish. It also tells me that they are likely counting on the government (us) to bail them out. They have thrown up their hands in disgust and are now ignoring the retirement crisis in their future. They want their crisis to become my crisis.  They hope that Obamacare expands beyond health care to solving their retirement problems. That’s not gonna happen to Mr. ToughMoneyLove. I intend to tax-plan my way out of that obligation. (Yet another reason to pay off that mortgage.)

I’m not trying to sell Nationwide products here (particularly variable annuities) but I have to give it credit for supporting the National Retirement Readiness Index and for having one of the better sites  for retirement assessment. In that regard, if you want to get some feedback on your retirement readiness, try Nationwide’s “RetirAbility Check” interactive tool. Get your “R-Score” and let me know in the comments how you did.

Whatever you do, keep your head out of the sand and face your retirement problems head on – now.

No related posts yet.

Readers may also recall that I have been studying the work of Zvi Bodie, a professor of finance at Boston University.   I first mentioned Prof. Bodie in my post on How Long Can this Bear Market Last and later read his book on Worry Free Investing.  I’ve used Prof. Bodie’s ideas in our retirement income plan and now I’ve developed a system to help others do the same.

Reconsidering Equity Investing for Retirement Income

Prof. Bodie is an investing contrarian. The retail investment industry doesn’t like him. Why? First, because his research proves that equity investing does not get less risky over the long term. According to Bodie, that’s a myth perpetuated by the investment community as a matter of self-preservation.

Second, Bodie believes that equities are not where you should put money that you will need to live on when you retire. The investments that Bodie recommends you can buy yourself – without a broker – with no transaction costs. That also makes the investment community unhappy. You might enjoy reading this recent interview of Bodie in Money Magazine, titled “You Can’t Handle the Truth About Stocks.”

There have been serious debates about Bodie’s conclusions. Perhaps you are a doubter of his theories of retirement investing compared to conventional buy-and-hold strategies. If so, I encourage you to read this in-depth article about a Retirement Portfolio Showdown between Bodie and Prof. Jeremy Siegel of the Wharton School. Siegel is a well known buy-and-hold proponent.

Also check out an article about the risks of equity investing for retirement and the possible development of a new government “R” bond. If the government is really moving in this direction, it signals official recognition of the untenable risks of using equities for retirement income security.

When I finished re-designing our new retirement income plan, I thought that others might be interested in doing what I did but with greater efficiency. Therefore, I expanded the worksheets I used into a system for retirement income planning. I call it the FAILSAFE RETIREMENT™ System. I even started a new blog dealing with retirement income planning called Failsafe Retirement.

If your are interested in learning more about the system and why it was created, read my post over at Go To Retirement called Creating a Plan for Guaranteed Retirement Income. There is even more information at the Failsafe Retirement site.

Reader Giveaway

I want to thank all of my readers for their support of Tough Money Love. If you will leave a comment on my Go To Retirement post prior to September 23 saying that you would like to own a copy of the FAILSAFE RETIREMENT™ System, you will be automatically entered in a random drawing for a free download. (Other comments will be deleted before the drawing.) Six random numbers will be generated by random.org on September 23. If your comment number is one of the six random numbers generated, I will email you a coupon code for a free download. (Be sure your comment uses a working email address.) The decision of Mr. ToughMoneyLove as to the winners will be final.

I also want to thank Mike at Four Pillars, John at the Mighty Bargain Hunter, Evan of My Journey to Millions, and Pinyo at Moolanomy for evaluating a beta version of the System and for sending me some helpful feedback.

If you have any suggestions for improvements to the FAILSAFE RETIREMENT™ System or site, please let me know.

No related posts yet.

This is what the President said about the first retirement planning initiative:

First, we’re going to make it easier for small businesses to do what large businesses do: allow workers to automatically enroll in a 401(k) or an individual retirement account. We know that automatic enrollment has made a big difference in participation rates by making it simpler for workers to save – and that’s why we’re going to expand it to more people.

The IRS has made further announcements about this, including pre-approved automatic enrollment language that employers can use to amend their retirement plans. According to the new rules, plan administrators can automatically increase the default amount that employees contribute to their 401(k) plan each year. The employer must provide at least 30 days notice to affected employees. The notice must specify the percentage of salary that will be withheld from the employee’s paycheck and state how that money will be invested.

As intrusive as it seems, I like this. Too many employees are heard whining about never being able to retire.  Whether due to inertia, ignorance, benign neglect, or pure stubbornness, many of these same employees are simply not contributing enough to their own retirement. This gives those folks a real nudge in the right direction.

This is the White House statement of the second retirement planning initiative:

Second, we’ll make it easier for people to save their federal tax refunds, which 100 million families receive. Today, if you have a retirement account, you can have your refund deposited directly into your account. With this change, we’ll make it easier for those without retirement plans to save their refunds as well. You’ll be able to check a box on your tax return to receive your refund as a savings bond.

This is a fantastic idea. One of the most efficient ways to save for retirement is to keep your money out of harms way, meaning away from you. Let’s dump the notion that a tax refund is found money, destined to be wasted at the mall.

For the same reason, I also like the option of getting a tax refund in the form of bonds, specifically I-Bonds. The IRS has said that beginning in 2010, individual tax refunds can be used to purchase I-Bonds. All the taxpayer does is check a box on the return. Savings bonds will then be mailed to taxpayers in denominations of $50, $100, $200, $500, and $1,000.  I-Bonds are not a good deal right now (paying 0% fixed interest) but that can change.

The third initiative announced to boost retirement savings was described this way:

Third, we’ll make it possible for employees to put payments for unused vacation and sick days into their retirement plan if they wish. Right now, most workers don’t have that option.

What this means that if your employer pays employees with cash for not going on vacation or getting sick, that cash can now be diverted directly into your retirement account. This is also a good idea. Pay for unused vacation or sick leave also falls into that dangerous “found money” category. Thus, making it a “never see it, never spend it” payment is a wise move.

These new retirement saving initiatives were well thought out. I hope they find success among the masses.

No related posts yet.