Category Archives: women and retirement

On the Radio with Lynnette Kalfhani-Cox

  By petillo | January 10, 2012 - 7:13 am | debt, financial impact factor radio, financial planning, Paul Petillo, personal finance, women and finances, women and retirement
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I believe it was Einstein who suggested that “we cannot solve our problems with the same thinking we used to create them”. And with us today, we have a very special guest who has done what many of us might think impossible, taking something as abstract as credit and money and turning it into a reality that we can all relate to.

Today on Financial Impact Factor Radio, Paul Petillo, Dave Kittredge and Dave Ng are joined by Lynnette Khalfani-Cox. Lynette is known as The Money Coach® and her efforts have done more than just expose the soft-underbelly of everything financial – she has performed surgery. Her efforts as a personal finance expert, television and radio personality, and the author of numerous books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom has created a wealth of information for those who face the incredible hurdle of mastering the income they earn. Lynnette once had $100,000 in credit card debt and in three years, did what many of us might consider impossible: paid it off.

Is Your Retirement Plan Really Different?

  By petillo | January 2, 2012 - 7:17 am | 401k, bonds, Boomers, debt, economics, mortgages, Paul Petillo, personal finance, Profitable Investments, Repercussions: A Retirement Review, risk, taxes, women and retirement
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The past several years have re-arranged how we think about retirement. The shift in the “dream” has been the subject of more than one news report on the state of where Boomers are and where their younger cohorts how to be one day. Yet, retirement is and always will be the same: a time when fixed income rules the budget.

In the pre-recession era, fixed income was not considered to be fixed. Rising stock markets, inflated home prices and the feeling that money would grow continuously no matter where it was put gave rise to a thinking that retirement would be better than the one our parents may have had. Few people surveyed the pre-Recession retiree about exactly what this world was like.

Retirement means relying on what you put away during your work life to support a time when you didn’t want to work – at least in the career you had been in. Some older Americans had pensions, which were built with an exchange of human capital (in the early years) and retirement capital (as they retired). The trade-off was lack of portability with that money, meaning that if you had a pension, you were likely to stay in the same job for twenty, possibly thirty years. The 401(k) changed that when it was introduced. Some of the older retirees were forced into making the shift as their pensions were dissolved or otherwise frozen.

And when they retired, this older group, many of whom didn’t feel as though working beyond age 65 was an option, felt the harsh realities of what living on a fixed income would be. They put up a good front in many instances. But this group, unlike many who want to retire in a post-Recession world, retired with far less financial baggage than their present day cohorts.

More soon-to-be-retired people are carrying far more debt than in years past. Much of it was tied up in the mortgages on their homes. It was common thinking just five years ago that calculating your home (more specifically the paper gains in equity) into your retirement assets was part of the plan. Many refinanced their homes in the years leading up to 2008 with the thinking that they could simply sell, bank the equity and live off of those profits.

This thinking had several flaws that became evident in that post-2008 world. One, you needed a place to live, and Two, the place where you are living, even if it was mortgage free, still costs money (in the form of inflation costs for upkeep, rising property taxes and insurance). They ignored the simple fact the homes are not investments. Unlike real investments, such as stocks or bonds, your home is illiquid: you could sell it at a whim.

So when the discussion about folks who want to retire but can’t, it is largely because of this flaw in their plan. Many Boomers are carrying mortgages into retirement and in far too many instances, there is additional debt as well. And you are being pulled in several directions when it comes to a solution to this single issue.

Paying down a mortgage can be a form of reverse savings. Even with mortgages rates at an all-time low, refinancing is not an option for many people. They find themselves “stuck” in higher rate mortgages. There is however, a way out. Pre-paying your mortgage, essentially making higher payments – directed at the principle – is one of the best forms of late-year retirement planning. The process is simple enough: divide you mortgage payments into twelve (i.e. $1200 a month mortgage divided by 12=$100). Then increase your mortgage payment each month by three times that amount. That $1200 a month mortgage payment would jump to $1500 a month. The upside of such a maneuver:  your 30-year mortgage will be paid in full in fifteen years

Increasing contribution to your retirement plan is always a prudent method of increasing retirement wealth. And working longer adds even more of the much needed savings to these accounts. Yet far too many of us who lament about the state of their retirement are not making a significant contribution to their plans. If have mentioned this before and I will do so again: a five percent (5%) contribution has almost no impact on your take-home pay. it may get the matching contribution, but it is still not enough.

An increase of 1% a month over the course of the year will give you a chance to re-adjust your monthly budget with each additional jump in contribution. It will also give you the most realistic portrayal of what a fixed income, impacted by inflation, is like. Except you will still be earning money, hopefully getting regular raises and perhaps bonuses (which should go directly into your plan) and embracing the budget you may have never constructed.

You may be close to retirement (which means you are at the peak of your earning career) or you may be just starting out on the journey. Either way, embracing the concept of a fixed income, aka budget, sooner rather than later will shift the thinking away from disappointment that you might not retire to the belief that you have trained yourself well for the days of no (or much less) work.

I Resolve: Six Resolutions for Retirement Planning in the New Year

  By petillo | December 31, 2011 - 7:49 am | 401k, Boomers, commentary, debt, ETFs, exchange traded funds, financial planning, index funds, IRA, Paul Petillo, Repercussions: A Retirement Review, Retirement Planning Target 2025, risk, women and finances, women and retirement
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Jimi Hendrix once wrote: “I used to live in a room full of mirrors; all I could see was me. I take my spirit and I crash my mirrors, now the whole world is here for me to see.” When it comes to the reflection staring back at us, our retirement, like those images, are a search for imperfection. We don’t look at ourselves to admire how good we look; we look for flaws. We don’t imagine a future; we see the relics of past decisions.

If you consider yourself a Baby Boomer, the reflection in the mirror is an image that polarizes: we are comfortable in the what the future holds or we are worried. There is good reasons for this feeling of either hope or dispair, with no real middle ground. This group has seen the demise of the defined benefit plan (pensions) and the introduction of the defined contribution plan (401(k)). You have seen the greatest bull market in investing history and witnessed two major crashes that have rattled your confidence in the decade following. You are the first generation to realize that your future is in your hands and you were not ready for the responsibility.

If you are younger than a Boomer, you are the first  generation to have never seen any other opportunity to finance your future than with a 401(k). And you have come to realize that this is not the plan it was intended to be. 401(k) plans were not designed to be the one and only vehicle for retirement. We were sold a notion that this was the end-all-to-be-all plan that would afford us a better retirement than our parents only to find out that it hinged on two extremely volatile concepts: your ability to consistently earn money and your level of contribution. Your 401(k) became your anchor and your wings.

I imagine that many of you will look back on the highlights of 2011 and find yourself in either one or two camps: you were able to hold onto your job, pay your bills and put some money away for retirement or you will be looking back at a year of indecision, regret and the promise to do better in 2012. You may be celebrating simply getting through it or wishing it never happened. To that, I offer some simple resolutions to embrace in 2012.

One: Revisit your idea of retirement. You can promise to save more money for your future, increasing your contribution to your plan or perhaps, in the absence of a plan, begin one of your own using IRAs. But you do this without really looking at that future. Retirement will not be the same of any two of us. For some it will be a life of struggle, an ongoing effort to make ends meet when they may never  met while they were working. For some it will be the realization that the balance between the now and the future relies on a level of personal sacrifice we were smart enough to embrace while we were working. For others, it will simply be a resignation of sorts, a belief that it will never happen.

Retirement is three things: A time when we find new opportunities outside the confines of what we called a career, a place of unimaginable risk and/or a chance to take a breather. It is not a place of no work and all play. It is not a time spent waiting for the end to come. It is not what we imagine because, if we looked closely at that image we see flaws. So we don’t look as closely at those who are retired, examine how they live and ask if this is what they had planned. In revisiting the idea of retirement, your concept of that future, consider looking closer. If you don’t like what you see, resolve to change it. But don’t look away.

Two: Don’t reflect on what you’ve done. You made mistakes; we all have. Some of us took too much risk, some not enough. Some contributed as much to their retirement as their budgets allowed, others did not. Some of us made poor mortgage or credit decisions, others did not. No matter what you did or didn’t do, looking back will not improve the look forward.

Looking forward doesn’t mean turning your back on on any of those events. It means focusing all of your energy on fixing them. This is a twofold effort, the first being getting the budget you may not have in line with your paycheck and focusing on paying down your mortgage (keep in mind that even if your home is underwater – meaning your mortgage is greater than the value of the house itself – the interest you pay on than loan is eating away at your future invest-able or save-able dollars). Does this mean you should not put money away in a 401(k) plan and redirect every dollar to the day-to-day? Not at all. Keep in mind that a 5% contribution will, in almost every instance, not impact your take home pay.

Three: Don’t over think the process. From every corner of the financial world you will hear: rebalance your 401(k). If you chose a minimum of four index funds spread across four sectors, or four ETFs that do the same thing, rebalancing is a waste of time. You diversify so you can capture ups in one market and downside moves in another and your contribution doesn’t allow you to buy more when one market moves up and allows you to buy more when it goes down.

We want to think we are in control when in fact, the only thing you actually control is how much money you want to put in. Markets will do what they do best: move. It might be up one day and down the next. It doesn’t really matter. What matters is that you do something and in 2012, it should be significantly more than you are doing now.

Four: Stop being selfless. One of the hurdles we are told, for women investors specifically, is their inability to put themselves before their family. This is a cause for concern of course but not  a disaster in the making. Take a good long and hard look at your family and ask yourself: could I spend my retirement years living with any of them? Do they want you to?

Five: Embrace the truth. Now there will be an increased amount of pressure from every financial professional to get advice on your investments. This educational effort will evolve in the next several years from long, drawn out seminars on how your 401(k) works to short, ADD friendly videos that last several minutes and offer key points on what to do. The truth still relies on your ability to put more money away. Five percent will net you 25% of your current take home in retirement. A ten percent contribution over the average working career will pay you about 50% of what you earn today in retirement. Fifteen percent contributed to a 401(k) plan with average (modest) historical returns will allow you to live on 75% of your current income. Can you handle that truth?

Six: Stop worrying about it. According to HealthGuidance.org, you are killing yourself with worry. Michael Thomas writes: “Worrying leads to stress and stress has been linked with a number of health problems. People who suffer from high levels of stress are much more prone to cardiovascular disease, gastrointestinal issues, weight problems and there has even been a link made between stress levels and certain cancers.” Instead resolve to do more saving than you have ever done, spend less than you did last year and embrace the reality of what fixed income is. Retirement is fixed income. Resolve to live like that now.