Reinke Faces Life

http://www.vanguard.com/VGApp/hnw/VanguardViewsArticle?ArticleJSP=/freshness/News_and_Views/news_ALL_whosaves_06142006_ALL.jsp&SYND=RSS&Channel=AN

June 14, 2006
Who saves for retirement—and who doesn't?
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If you're saving for retirement in an employer-sponsored investment plan, you're in good company. According to How America Saves, an annual report published by the Vanguard Center for Retirement Research, about two-thirds of eligible employees join their workplace 401(k) plan.

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Our old friend / enemy is the time value of money! There's a numerical example that regularly kicks around Wall Street that demonstrates a few years of maximum saving early outdistances lots of years later. For the later boomers and all that come after them had best prepare for the "years of lean" coming soon to a country near you.

Carter style inflation, dramatically higher prices, a lot of bickering squabling and hard luck stories on the horizon. 

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B691283FD%2D6169%2D455E%2D8401%2D0BEE157D16BF%7D&siteid=mktw&dist=nwhpf

LIFE SAVINGS
Show me the employee-buyout money
How to determine if a one-time or annual payment is your best option
By Jonathan Burton, MarketWatch
Last Update: 8:03 PM ET Jun 11, 2006

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SAN FRANCISCO (MarketWatch) — It isn't easy to decide whether to accept an employer's offer of a job-buyout package. Forfeiting your livelihood often means downsizing your own lifestyle, and if you need to keep working, you may face a tight job market.

Moreover, accepting an early-retirement or severance package sometimes calls for a crucial but baffling choice: whether to collect one big payout or a stream of income over time — usually several years at most, to usher you into retirement. While the regular payments do offer security, people more often are drawn to the large lump sum. But be warned: If you choose the one-time payout, make sure you handle it wisely. 

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Having received each one of those, I agree it easy to:

(1) forget your silent partners Uncle Sam (Federal Income Tax), Father State (the People's Republics of New York and New Jersey — yes both got their hooks into one), Mommy Government (the Social Security "Insurance" ponzi scam), and the Nanny State (the Inflation makes savings worthless).

(2) that it really isn't a lot of money, if you have nothing coming in. When you're young, it's a "no brainer". When you're an old fogy, it's a hard decision.

(3) "they" are out to screw you. If it's severance, count your change and your fingers. (Don't be cheap; use a labor attorney to review the document, they want you to sign! It was drafted by THEIR lawyers.) If it's a buy out, make sure you don't leave a nickle behind. (Don't be cheap; use a CPA to explain it to you in small words. Remember their CPA planned it.) If it's a windfall, be smart about taking it. (Don't be cheap; have a lawyer AND an accountant advise you. You may be able to or need to shelter it.)

I can tell you FIRST hand that I paid tuition at these three "schools". Expensive lessons!

FROM AN EMAIL CONVERSATION 

>I also think that my pension is a perk, just like any perk you've received over the years.

No, not a perk. It was part of the value equation that you accepted to give them your time. The problem with a government pension is that they are defrauding you. Or at least fooling you too into believing how good it is or will be.

Compare the difference between a pension and an IRA / 401k.

Your time is worth say a dollar. Now you can take the dollar put it in an IRA, or have Uncle Sam put it in your “government pension”. I’d argue you’d be better off if you COULD put that dollar in your own IRA.

Thirty years down the road, you have to go hat in hand to Mommy Government and apply for your pension. Who knows what the rules will be, the payouts, or anything? You're depending upon the American people's sense of "fair play" and the honesty of politicians to uphold the bargain made by their predecessors.

That money in your IRA is real savings. It's yours. You want it. Go take it! All of it.

The money in the Government Pension is just an IOU based on the willingness of future taxpayers to make good on what you’ve been promised.

And, if, like the social security ponzi scheme, you are unfortunate not to live long enough to collect, then who gets your “pension”? An IRA would go to your heirs. Your accumulated Social Security taxes (i.e., "insurance" premiums) and / or accrued  pension just goes into the common pot.

(There’s a reason why accountants joke that social security is welfare for rich white women at the expense of men, especially poor minority men!)

A corporate pension also represent real savings. The company usually has bought a bet with an insurance company to pay the pensioners off. Baring the insurance company and the company going belly up, you'll get your benefit.

Defined benefit plans are being abandoned by companies thru bankruptcy. The Government winds up holding the bag via the PGC. So, to a certain extent, there is little difference between the the bankrupted corporate pension, a government pension, and Social Security! Ask the pilots at Delta about pensions versus IRA / 401ks.

At one time, unions held their members' pension plan assets because no one trusted the companies. Federal prosecutions of the union pension trustees demonstrates the worth of that approach. 

So, I think you have to think very carefully about promises versus bank balances. You need to think about the time value of money, discounted cash flow, the value of annuities, and a "bird in my hand is worth two of your promises".

imho! 

One of the biggest awakenings I ever received was at ATT when I chatted with an actuary.

He disabused me of the notion that the ATT pension was a great benefit.

He pointed out that if they didn’t give me a pension and other benefits then they would have had to pay me more. At the time of the conversation, ATT put aside in the pension plan $8.43 per month per employee!

$8.43!!

They’d have had to pay a lot more in salary that that pittance. So, they weren’t doing me any BIG favor.

And, you wouldn’t want to guess how many people they fooled with the propaganda that the pension was an important benefit.

(01) Spend less than you earn! Save max in tax advantaged forms.

(02) Emergency fund equals a six month run rate.

(03) Save 10% for yourself; give 10% to charity.

(04) Insure the risks you can't afford to absorb.

(05) Separate your employment from your insurances, if possible.

(06) Understand your taxes that are deducted from your paycheck and the hidden ones like inflation.

(07) Value your benefits correctly. They may not be worth what you think

(08) If you have to ask the price, you can't afford it. Don't buy it!

(09) Pay off credit cards every month. If you can't, you can't afford what you bought. Take it back or sell it!

(10) Rent apartment if you have; buy a single family home as soon as you can.

(11) Buy your house to last a lifetime; pay it off in 20 years; no helocs; no refinance.

(12) Plan for your car to have at least a six year life; eight or ten is better.

(13) Finance that car if you have to for no more than three years; don't prepay it (rule of 78).

(14) Pay for six; first three to the credit union; after that to an earmarked savings account.

(15) That savings account is the maximum purchase price of the next one.

(16) Investments are not the emergency fund; not lotto tickets.

(17) Never invest in anything you can't explain to a child. Don't bet against the trend.

(18) No more than 5% in any one investment type, individual stock, or custodian.

(19) Special care if you buy your employer's stock; going belly up takes your paycheck and investment.

(20) When investing worry about roi first, taxes second, and risk third.

(21) Spend according to a lifetime plan; don't die too rich; don't enjoy life to save; you only go around once!

http://www.everbank.com/main.asp?idpage=pro_mscd&affid=eb&referID=11808

Ahhh, ain't gold wonderful. Bit not all that glitters is gold.

Take for example, the Everbank MarketSafeSM Gold Bullion CD

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A CD made of Gold. Invest by June 20, 2006.
Diversify, seek higher yields, and safely invest in Gold Bullion market returns. You can do it all with the new MarketSafeSM Gold Bullion CD from EverBank®.

This is the latest addition to EverBank's popular line of MarketSafe CDs. You'll enjoy many of the same great features and protections as the rest of the line, including 100% principal protection, market-driven upside potential, no account fees, and FDIC insurance.

A conservative investment with great reward potential, the MarketSafe Gold Bullion CD is a smart new way to invest in the Gold market. 
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It's really has no relation to a CD in the traditional banking sense.

Stodgy old traditional bank CDs pay a paltry amount of interest for locking up your money for some term. This, on the other hand, appears to be a straight gold play combined with a put at the current price at no cost with FDIC insurance?

So they get the use of your money for the price of a put and a call at the current price. Hmmm?

Thus, to the extent that whatever they earn with your money exceeds the cost of the put and call, they are a "winner".
Why wouldn't I just buy the put and the underlying coins myself?

Plus does the FDIC know they are insuring commodity trades?

AND, having worked on the Street, what about trading partner breaks, market discontinuities, and bankruptcies?

In short, all that glitters isn't, imho. 

http://www.lifehacker.com/software/credit-card/what-to-do-if-your-identity-is-stolen-172308.php

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Be smart, have copies of your CCs in a lockbox somewhere, track your credit report etc.

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"have copies"

This isn't too helpful if you are on a trip somewhere. My personal preference is to have a hidden directory on my website, password protected, with an encrypted file. That file contains my credit card information AND the 800 numbers for domestic or international to report stolen cards. In another file, encrypted and password protected, are scanned images of my birth certificate, passport, and drivers license. Ditto, for poa, hcp, advanced directive, and all important paper work that I might need in a pinch.

Recently when Mom was hospitalized, and the docs were giving me a hard time, I just gave them my website and two magic words, and they were able to see my Mom's designation of me as her Health Care Proxy. End of hard time.

The next day I changed the magic words.

I have an index card with all the words scrambled in my wallet. In case, I don't have my data fob with me. If I can get an inet connect, I can get to my info.

I think that's important.

http://www.boston.com/business/personalfinance/articles/2006/05/07/right_now_there_is_no_best_bet_on_the_market/?rss_id=Boston.com+%2F+Business+%2F+Personal+Finance+-+Money+Management+-+Financial+Management+-+Boston.com

Right now, there is no best bet on the market
By Scott Burns  |  May 7, 2006

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Viewed in terms of earnings yield (stock earnings per share divided by price), low-quality stocks at 18 times uncertain forward earnings have an earnings yield of 5.56 percent, slightly less than the earnings yield on five-year TIPS. High-quality stocks, meanwhile, have an earnings yield of 6.85 percent, only a small premium over no-risk Treasury obligations.

What's the bottom line?

This year is developing a really creepy resemblance to 1987. That's when both interest rates and stocks rose — until October, when stocks plunged 20 percent in two days.

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One has to learn the lessons of the past before they put you on your butt. A 20% drop in the market would certainly be typical of the secular bear market. A further market run up might break us out of the secular bear pattern. BUT, the economic factors around the current environment don't seem to favor that outcome. But what do I know.

http://www.boston.com/business/personalfinance/articles/2006/05/07/longer_loans_defy_common_sense/?rss_id=Boston.com+%2F+Business+%2F+Personal+Finance+-+Money+Management+-+Financial+Management+-+Boston.com

THE COLOR OF MONEY
Longer loans defy common sense
By Michelle Singletary | May 7, 2006

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It appears we’ve hit another consumer milestone, and it’s not one we should be proud of either.

Last year, it was our savings rate. In 2005, for the first time since the Great Depression, the personal savings rate fell into negative territory.

This year, consumers have hit another landmark. The majority of auto loans are now five years or longer.

New vehicle loans over 60 months accounted for nearly 55 percent of loan originations, according to the Consumer Bankers Association’s 2006 Automobile Finance Study. Used vehicle loans over 60 months accounted for 40 percent of originations.

In 2000, five-year-or-longer car loans comprised just 22 percent of all such lending.

Have people lost their financial minds?

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Clearly so.

If one projects the “life” of a car at 100k miles, then one can calculate the accumulated depreciation. Ahh, but only businesses do that.

In the early 70’s I found Frau and I on that treadmill. Between us, we came up with an idea how to get out of that rat race. We figured the life of a car at 6 years. We’d go to the credit union for a 36 month car loan and plan to keep the car for a minimum of 6 years. We’d save for three years “painlessly” for the next car.

The credit union was the best place for a car loan since they didn’t use the rule of 78 in computing interest payments. The rule of 78 is a little know gem the auto loan people use to have you pay all the interest up front and the principal later. So if you pay off a loan early, you don’t save any interest. Credit Unions don’t use this fraud. You make your payment and your interest expense goes down. Have a windfall or a few extra bucks? You can pay it down faster and save interest expense at the credit union.

So we’d repay the car loan in 3 years and then continue making the same payment to the credit union for the next three. Our credit union encouraged this by keeping those payments separate from our checking, saving, or other loans.

Then, at the end of six years, we had a substantial downpayment for a new car. Don’t forget that for three of those years we were earning a nice interest rate. We even took CDs for the anniversary date and made a few bucks more. As we got better at it, we “settled” for cheaper cars (i.e., we didn’t get sucked into fancy accessories or “dealer incentives” or expensive options). As we got to the end of that road where we needed to borrow to buy a car, the saved downpayment often equaled the price of the car.

When we finally got out of that necessity to borrow to buy a car, in retrospect, we probably could have adopted a strategy that lowered our overall interest cost. That is take a holistic look at debt and rates and repayment terms. Saving in the car account may not have been the “best” use of credit when one, from time to time, might have had a credit card balance over a month.

But I would assert it was good “education”. It also would allow us to develop the concept of “financial silos”.

Like the early envelope system Frau used, it compartmented our thinking. Closed the water tight doors between compartments in our “financial” ship.

When the entertainment “envelope” was empty, we stayed home. We never raided the new car “envelope” for movie tickets. Not that I wouldn’t have, but she woudln’t let me. ;-)

Financial management was never taught in school, and it’s tough to learn.

(1) Cause it does NOT lend itself to trading and commissions?

(2) Buy the "right" bond and you get your prinicple and interest back. That's not exciting. No capital gains! No doubles, triples, or better.

(3) It ain't sexy. It's for the old folks and the poor.

For example, many many moons ago, I had some tax deferred money to roll over. When I did, I made what was in retrospect a very smart decision. I bought a bunch of those new fangled zero coupon bonds. Treasuries minus the coupons. Toxic waste they were called at the time. I bought all the broker's inventory for the year I turn 66 (don't ask). And when I still had money left, I bought some more for the following year. I remember the broker shaking his head at my insistence. They carried a high coupon. Treasuries meant little risk; as little risk as one could buy. I put them in the old brokerage account and virtually forgot about them. With treasuries now paying less than 5%, it turned out to be a dream. When I do retire, they will be worth over 200k for a 35k investment. Zero risk. No worry. Moral of the story, the broker, like your government, ain't your friend. He's a used car dealer without a good product. So bonds have an important place in a well-diversified portfolio. And, that doesn't mean bond fund. It means real bonds! Date certain maturity is the key phrase.