Prioritize Basic Needs

Dr. Steven Sass, Program Director of the newly established Center for Financial Literacy at Boston College’s Center for Retirement Research, spoke at our December meeting about the importance of a basic needs assessment in planning for retirement. 

Sass, the co-author of  Social Security Fix-it book:  a citizen’s guide and the new Social Security Claiming Guide advised that the best way to achieve higher retirement income is to work longer and retire later.  Being patient and waiting till the age of 70 to collect Social Security will result in a  monthly benefit of 75% more than the amount due at 62.

Sass estimates that  in order to maintain the same standard of living that was enjoyed during the working years,  about 75% of pre-retirement income is required.  We need less because: 1) we pay less tax (payroll and income), 2) have no need to save for retirement, 3) the mortgage  is or soon will be paid off, and 4) children are on their own (or will be soon).

Sass presented a 5 step plan for retirement.  The first step is assessing your basic needs (housing, transporation, income taxes, medical care, food and clothing).  Sass estimated that the target figure for meeting one’s basic needs is equivalent to 60% of  pre-retirement earnings.  Social Security will cover 40%-45%.  The shortfall can be covered through 3 possible sources: savings, accessing home equity, or continuing to work. 

Inflation proof (indexed) annuities, issued by the U.S. Government or private insurers were suggested as an option for savings income.  Downsizing or reverse mortgages are ways to access home equity.

Sass concluded with the advice that in planning for retirement, we should think in utility terms rather than in money terms.  Focus on what is most important to your lifestyle, and whether the pleasure it provides is worth the cost  of maintenance.

The complete 5 step plan will be outlined in Stay Afloat  in Retirement, Sass’s latest  publication currently in the draft stage.  Check the Center for Retirement Research website for completion and release information.

December 16th Morningstar Webinar

Please join us for this informative webinar session on Rebalancing Your Portfolio for 2010 in Just 3o Minutes presented by Christine Benz, Director of Personal Finance at Morningstar.  Ms. Benz will offer investing ideas and show us how to use the Morningstar Investment Research Center to manage portfolios and keep investments in order.

When:
Wednesday, December 16 at 4pm

Where:
Anywhere with telephone and internet access.

How to Register:
Send an email to librarytraining@morningstar.com and mention Newton Free Library.

Photo of computer monitor (cc) by Flower Vectors and republished here under creative common license.  Some rights reserved.

Divorce and Social Security

A good review of spousal (or ex-spousal) benefits and survivor benefits due from Social Security is included in  How divorce affects your social security (or not) by Kelly Greene  on page B2 of  the November 28-29 Weekend Edition of the Wall Street Journal.  Greene offers a clearly written and straightforward description of  the general requirements for collecting retirement benefits  based on an ex-spouse’s earnings. A distinction is made between retirement benefits and survivor benefits.  Anecdotal examples are used to illustrate possible scenarios.

Reference is made to two government publications that offer a good explanation  of  issues.  See  Social Security publication No. 05-10127, What Every Woman Should Know.  Another  helpful resource about eligibility requirements for a spouse’s benefits is available at  www.socialsecurity.gov/OP_Home/handbook/handbook.03/handbook-0305.html.

WSJ Encore Report

The November 14-15, 2009 Weekend Edition of the Wall Street Journal featured a supplemental Encore report, Guide to Retirement Planning & Living.  The cover story, Have you learned your lessons yet,  tests our knowledge on what we should have all learned about money management from the recent financial crisis.

The Best In… offers a list of the current best print and online resources to consult on topics such as Money, Lifestyles, Travel and Health. One suggestion is a Department of Labor publication,  Women and Retirement Savings, which asks eight questions to help you think about retirement and take charge of your financial future.

Profiles in Later Life shares the stories of five individuals who are winners of the Purpose Prize, awarded by Civic Ventures, a San Fransisco nonprofit, to older adults who are “using their experiences to transform our nation”.

View this special Journal Report in its entirety online or read the print edition here in the Library.

Photo of Wall Street sign (cc) by Acampada and republished here under a creative commons license.  Some rights reserved.

AARP Special Report

The January/February 2010 issue of AARP magazine contains a special report by Ron Burley on consumer credit protection.  Beat the Cheats focuses on three areas (credit, home loans and investments) of potentially deceptive or fraudulent practices  employed  by dishonest financial professionals.  With tips on what to look out for and how to protect yourself, Burley tells the story using the experiences of three individuals whose assets became the target of criminals and unscrupulous brokers.

Identity theft remains an ongoing issue.  The twist is that banks have been extending new credit such as credit cards, car loans and home loans to the usurpers.  Even when the bank is at fault for lax lending practices, it is the identity theft victim that suffers the consequences which may mean frozen accounts and calls from debt collectors.  Burley suggests instituting a security freeze on your credit reports to prevent any new credit being extended in your name.  For further advice, contact the Identity Theft Resource Center victim assistance at 888-400-5530 or the Consumers Union website.

Mortgage brokers may prey on unsuspecting homeowners offering refinancing deals with steep fees, points and prepayment penalties that benefit the broker far more than the borrower. Legal recourse is often limited by the lack of a fiduciary responsibility to the borrower on the part of the broker.  Burley recommends hiring a real estate attorney to represent you in the transaction.  Visit Freddie Mac and NeighborWorks America for more advice.

Financial planners may be more interested in selling you their own investment products rather than ones that best suit your individual situation and needs.  Broker-dealers working on commission can be tempted to act in a way to boost their own income, not their client’s.  AARP has posted a list of questions one should always ask a financial professional before investing.  For warnings and background checks on brokers, visit FINRA’s investors page or call 800-289-9999.  Further articles and guides on safe and responsible retirement planning can be found on the AARP website.

The January/February 2010 issue of  AARP magazine is available in the periodicals section of the library.  This article is currently not accessible on the website, but keep checking  here for its online release.

The Card Game

The Card Game , a journalistic investigation into the massive consumer loan industry, aired last night on PBS.  A follow-up to the Secret History of the Credit Card and a joint production of  Frontline and the New York Times, the program takes a look at credit card companies and the upcoming changes in government regulations. 

If you missed the program, it will be re-broadcast on Thanksgiving Day at 4 pm on Channel 44 and on later dates.  For highlights of the new consumer protection legislation along with worthwhile  bits of consumer wisdom, see Seven Things To Know About The Card Game.

Photo of credit cards (cc) by pfreviews and republished here under a creative commons license. Some rights reserved.

Cohousing Communities

Diane Margolis, founder and resident of Cambridge Cohousing and Board Member of the Cohousing Association of the United States spoke at our November meeting on the subject of Multigenerational and Senior Cohousing.   Margolis referenced the changes in society towards more single-person households and fewer multi-generational families along with the desire to recapture a  lost sense of community as  important factors in the growth of the American cohousing movement. With roots in the Danish model of the 1960’s, cohousing developments in the U.S. now number 120 communities in 24 states.  In Massachusetts, there are 13 completed communities  and 3 more currently being formed.

Margolis described the Six Defining Characteristics of Cohousing which include a participatory process of decision making, common facilities and resident management.   Cohousing is neither a commune nor a gated community.  Each unit is an independently-owned condominium and can be an apartment, townhouse or single family detached structure.  Community size ranges from 10-50 units with 30 most often considered the ideal number. Margolis suggested that cohousing is a more than a place to live; it offers opportunities for friendship, is a great place to raise kids and to grow old and one can usually find a helping hand when in need.

Interested in finding out more?  See the state by state cohousing directory and take a tour.  Ready to give it a try? Consider a short term rental or home exchange.

Keeping up with Washington

Are you one of the many confused citizens trying to keep up with the latest developments on the health care bill?  Visit www.themiddleclass.org, a website authored by the non-partisan Drum Major Institute for Public Policy (DMI).   Through a self-described toolkit of congressional accountability, DMI presents detailed analyses on pending legislation along with a report card on how a particular bill may affect middle-class  America.   One can search by issue of interest, such as retirement security.  Find out how your Representative in Washington is performing by looking up the rating on your Legislator.  The site also allows for RSS feeds.

Photo of  the U.S. Capitol (cc) by Laura Padgett and republished here under a creative commons license.  Some rights reserved.

New York Times Special Section

The October 15, 2009  issue of the New York Times featured a special  section (F) of eight articles on retirement issues.

Can you make the transition to living on reduced retirement savings?   In The Magic Word is ‘Focus’ , a 4 step holistic approach is recommended:  1)  ENVISION  – before making the transition, people should envision their lives in retirement.  2) TRACK SPENDING -  improve flexibility through meticulous record-keeping of all incoming and outgoing monies. 3)  CUTTING BACK -  evaluate whether your resources can accommodate your retirement goals.  4) DIVIDE YOUR MONEY – separate your savings  into ”buckets” that are designated for different tasks.

In Target-Date Funds, Hidden Homework  challenges the assumptions and benefits underlying target-date funds in light of the 2008 market collapse.    Ways to Ease the Pressure of a Cash Crunch  takes on liquidity issues during retirement.

Retirement savings accounts are the topic in  Deciding whether a Roth is right and Rethinking the 401 (k) if there is no company match. 

Use the links above to access the online version of the above articles, or visit the library and ask for assistance in locating the print issue.

Managing Your Finances in Uncertain Times

Discovering What’s Next® is presenting a forum on November 9th in the Druker Auditorium at the Newton Free Library:  “Managing Your Finances in Uncertain Times.”  For more information go to:

http://www.discoveringwhatsnext.com/whatwedo_forums.html

“Discovering What’s Next® is a network of people and community organizations that connects individuals 50+ with information, inspires them and supports development of their ideas, and fosters involvement leading to action that benefits both individuals and the community.”