Yes, according to money man Jim Cramer. That is if you need your money within the next 5 years. That’s because of the market volatility. The New York Times reported that today “the Dow Jones industrials finished more than 360 points lower, dropping below the 10,000 mark for the first time in five years.”
If you’re not planning to retire before then, you’re better off leaving it in the market.
Retirement funds typically invested in real estate, stocks and mutual funds have been in freefall, causing those who are facing retirement or those who have already retired to take a huge hit. To complicate matters, like other adults, seniors have racked up huge credit card debt and tapped into their home equity.
A recent NYT Times article found that some of the reasons for seniors financial distress and resulting financial vulnerability are:
- Shrinking medical safety net makes retirees vulnerable to the rising costs of healthcare. Even those covered by Medicare often have huge prescription drugs costs.
- Many middle aged and seniors are caring for aging parents, which ratchet up their expenses and need for additional money.
- They often need money for home repair.
- They have often been hounded by aggressive brokers persuading them to take on more debt than they could handle or need.
In addition, many seniors faced the same temptations as other adults, and pulled money out of their homes for vacations, cars, and luxury items. Others saw an opportunity to buy investment property as a once in a lifetime opportunity. What they didn’t count on was the collapse in the home market, and so are now saddled with debut and unable to sell. Even those who didn’t gamble are victims of falling home prices and the stock market downturn.
–kyle–
Leading economist, Nouriel Roubini believes our bank deposits may not be as secure as we assume. According to Roubini, there is a nationwide slow run on banks. This run could accelerate if people realize that the FDIC has only about $50 billion to ensure the $1 trillion in assets held in the nation’s financial institutions . This means that unless Congress votes to recapitalize the FDIC, the FDIC will not have enough money to ensure all of the open accounts.
While there is no reason to panic (if nothing else, we probably can count on Congress to vote to maintain faith in the retail banking system), it is a good idea to only keep the maximum amount the FDIC ensures – 100,000 in one account.
The online version of the New York Times has a series on the impact the current economic downturn is having on ordinary Americans. Interviewed for the series are a young couple, a middle age woman, and an elderly woman, all of whom are at risk of losing their homes because of debt.The villains in the piece are the banks and other financial institutions, which make obscene profits off the misery of ordinary people.
According to the article, unlike in the past, banks don’t hold loans on their books. They package the loans and sell them to investors generating large fees. In the past it was critical to lenders to be repaid. Now getting paid is less important than the fees the loans produce.
Home buyers are charged 50 percent more in junk fees. To buy a home, mortgage lenders charge junk fees such as $75 for emails and $100 for document preparation, and $70 for courier services, inflating the cost to homebuyers an average of $700.
Fees also play an especially strong role in the credit card market. Although interest rates may have fallen to the single digits, credit card companies charge even those with good credit around 19 percent in interest. Average late fees have almost tripled since 1994 and charges for exceeding credit limits has more than doubled.
These changes net the financial institutions billions. This unchecked greed on the part of the financial institutions coupled with weak job growth is causing untold misery for millions of Americans.
The government plans to offer Social Security benefits via a debit card. This is intended to make it easier for the 4 million Social Security recipients who don’t have bank accounts. The government believes a deibt card is safer, more reliable and cheaper than paper checks.
It saves the government 88 cents per recipient, and saves recipients the average of $6 they pay to cash a check. It also reduces inconveniences associated with lost, delayed and stolen checks.
The card can be used in the same way regular debit cards are used. There is no annual balance, and account balances can be checked online or by phone. Those who are intimidated by this type of technology can elect to continue to receive paper checks.
We may be in a bear market. If that’s true, aging baby boomers may end up with less retirement income than they anticipated. That’s because unlike in earlier times when we could expect to retire with company provided pensions, since the 1980s, we have increasingly come to expect our 401(k)s to take care of our retirement needs.
Your 401(k) is a portion of your salary that is deducted from your paycheck and placed into a special acount. That money is invested in mutual funds. Mutual funds are a collection of stocks and bonds. In other words, your retirement income is invested in the stock market. If the market is headed for a prolonged decline then expect that income to take a nosedive. That’s what has happened to retirement income during earlier bear markets.
In “What to do if this goes on … and on,” by the L.A. Times, by Wall Street’s definition, the period between 1966 and 1982 was a secular bear market. During that period the Dow made no net progress, although there were huge rallies and steep declines, typical of a secular bear market. Many of the people who had invested in stocks for their retirement ended up with far less than they expected.
By 1982 Americans had sworn off stocks. But in the ‘80s and ‘90s there were big increases in stock prices. Prices reached their height during the dot com bubble. The bubble burst in 2000 and stock prices plummeted. Some experts believe that we’ve been in a secular bear market since that time. The first phase was when overvalued tech and blue chip stocks crashed. The new phase is the credit crunch stemming from the housing crash. There are some who expect this to slow economic growth for years. It doesn’t help that we are now facing record oil and commodity prices, driving inflation up.
Given the precarious nature of the economic times, if you are close to retirement, it might make sense to invest in cash and short term bonds.
The science, engineering, technology professions also referred to as SET are disproportionately male. This despite the fact that 46 percent of the Ph.D.s in the biological sciences are awarded to women; 31 percent in chemistry are awarded to women; and 21 percent in engineering are awarded to women. It’s not that women are not doing well in the SET professions: 41 percent of entry level workers in the SET professions are women. Its not that they don‘t perform well: 75 percent of women compared to 61 percent of males age 25 to 29 receive positive evaluations.The reason is that around the age of 40, women leave the science, engineering, and technology fields in droves.
The reason is culture. According to a recent survey that is expected to be published in the Harvard Business Review in June, men in these professions are often hostile to women in the profession; (63 percent of women say they experienced harassment on the job); and have dismissive attitudes toward female colleagues (53 percent said in order to succeed in their careers they had to “act like a man”). Women lack of mentors (51 percent of engineers say they lack one). Finally, the report shows that the hours are ones that suit men with wives at home but not working mothers (41 percent of technology workers says they need to be available “24/7”).
Women are in fact being driven out of the professions by a machismo culture that is hostile to women. This is a liability for the US economy. The Bureau of Labor Statistics predicts that jobs in these industries will grow 5 times faster than in other industries. It is also a liability for women. In the new workplace, most new jobs created are expected to be in the low wage sector. If women leave the field to men, they run the risk of consigning themselves to lower wage jobs that offer few opportunities.
There’s quite a bit of info out there on baby boomers and retirement. One site I found was CNBC’s BoomerAngst. One of the problems it highlights is boomers lack of preparedness for retirement. It is an established fact that boomers are not saving nearly enough, that employer provided pension plans have pretty much gone the way of the dinosaurs, and that social security won’t be enough to compensate for those shortfalls. Sixty percent of boomers have less than $100,000 in savings, 40% less than $25,000, and 30% less than $10,000. To make matters worse 50% don’t know how much they need for retirement. Click here to view the clip of CNBC’s interview with Charles Schwab.
Ron Lieber with the New York Times offers 5 basic guidelines on how to manage our personal finance. Briefly, these are:
To understand the reasons behind these suggestions, read his New York Times article.
The U.S. Supreme Court recently ruled that workers can sue employers over 401(k) losses. 50 million workers have more than $3 trillion invested in 401(k) and other retirement plans. The ruling allows workers to sue employers over fees they are charged in connection with these plans and potentially hold employers liable for losses.
In the past most pensions guaranteed benefits for life. Workers were faced with few decisions on how to handle the money. Today 401(k)s and programs known as defined contribution plans are affected by investment decisions, movements in financial markets and fees charged by fund managers. Fees are often hidden and can significantly limit the growth of retirement funds over time. For example, blue-chip companies such as Lockheed Martin Corp. and the Bechtel Group charge excessive fees for managing retirement accounts, fees that are unjustified and that hurt workers long-term profits. Money managers may also choose to invest your funds in high risk stocks, even if you expressly tell them not to do so. The ruling provides employees and retirees with the right to seek financial redress when these types of conflicts occur.
Although, it makes sense to offer workers some redress from decisions made by money managers whose sole motivation seems to be their own pocketbook, a possible downside is that it could lead small employers to abandon pension plans. This is because it’s unlikely that they have the resources to withstand costly litigation. For them it may be in their best interest to simply not offer the benefit. Even so I wholeheartedly agree with the Supreme Court’s decision.
I found this info in an L.A. Times article, dated 2/21/2008.
Powered by WordPress
