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10 Steps for Boomers Approaching Retirement

August 11, 2011 By

Baby boomers are used to shaking things up. Due to their large numbers and political activism, boomers have transformed America at every stage of their lives.

Born between 1946 and 1964 and numbering more than 76 million, boomers are the largest generation born in America so far.

Doing well in the prosperity that followed World War II, Baby boomers have a reputation of being big spenders and poor savers.

Now the Great Recession has hit many baby boomers hard. They’re dealing with decreased value in their retirement funds and homes and job layoffs. As a result, the number of baby boomers who are ill-prepared for retirement is increasing.

If you’re a baby boomer who wants to retire, here are 10 tips to help you figure out today’s retirement challenges:

1. Estimate your Retirement Income and Expenses.

It’s important to have a realistic plan for retirement. If you don’t have a budget now, keep track of your expenses for several months to see where your money goes. Based on the figures, make a budget. Be sure to include money to set aside for an emergency fund of at least three to six months of living expenses. Use the pre-retirement numbers to develop your retirement budget. Remember to include things that will change with retirement such as no commuting costs, less money spent for clothes and shoes, and fewer meals out. Estimate your income in retirement as well. See Mint’s Create a Budget for information on how to set up a budget.

2. Decide When to Retire.

After you’ve looked at your projected retirement income and expenses, you’ll have a better idea about when you can retire. Part of this decision is estimating what you think the rate of inflation will be and taking a guess at how long you’ll live. Figuring out what percentage of your pre-retirement you want to live on also is important. You can find online calculators to help you or you may want to hire a certified financial planner to advise you. See the Certified Financial Planner Board of Standard’s website to locate a planner near you.

3. Keep Working or Start a Second Career

If you’ve planned to retire at age 62 or 65 but find your estimated retirement income isn’t adequate to provide the lifestyle you want, continuing to work or finding a new career are two options. In a recent study, workers in their 50s said they are likely to have to delay their retirement due to the recession, a Pew study reports.

4. Decide When You’ll Start Taking Social Security Payments.

If you decide to take your Social Security benefits at age 62 or 65, you’ll receive lower monthly payments than if you work longer. The date to receive full Social Security benefits increases annually. For example, if you’re a baby boomer born between 1946 and 1954, your full retirement age will be 66 years. If you’re a boomer born in 1960 or later, your full retirement age will be 67. Baby boomers should work until their full Social Security retirement age, or better yet until age 70, Eleanor Blayney, CFP, spokeswoman for the Certified Financial Planner Board of Standards, said in an email. If married, the higher paid spouse should delay retirement until age 70, Blayney said. See the Social Security Administration’s Benefits Calculators to estimate your potential benefit amounts using different retirement dates and levels of future earnings.

5. Decide Where You Want to Live.

If you’re like most baby boomers, you want to age in place. A new trend that could help you achieve this goal is the emergence of Neighborhood Villages. In these membership organization, older citizens are assisted by their neighbors so they can stay in the homes as they grow older. See the Village to Village website for information on where the villages are located or how to set one up. Another positive development for boomers who don’t want to move is the inclusion of provisions in the recent health care reform law to help older adults stay in their homes longer. While staying put is desired by most boomers, some may want to move to be near their children or to enjoy warmer weather. If you plan to relocate, do thorough research to find out the cost of living in the area, what medical facilities are available, and what the amenities are. If you need to make significant savings for your retirement, Blayney suggests taking a look at where you live and how much house you really need.

6. Pay off Credit Cards and Mortgage.

Since your income will be lower in retirement, it’s a good idea to get rid of much debt as you can before you leave your job. This will give you more flexibility with your cash flow and tax planning. While many Americans are challenged by credit card debt, it hits seniors particularly hard. Bankruptcies among seniors are rising sharply, driven largely by credit card debt, a study by the University of Michigan Law School shows.

7. Get to Know Medicare.

Begin gathering information about Medicare before you’re ready to retire. You’ll also need to buy Medigap insurance because Medicare only covers basic services. Be prepared to do research on Medicare and Medigap insurance. Both are complicated.

8. Learn About Long-Term Care Insurance.

Medicare and private insurances don’t pay for the majority of long-term care costs, the costs for nursing home care. You need to evaluate many factors when considering whether to buy this insurance: your health; whether the elders in your family went to nursing homes or died suddenly; whether you can afford the insurance; and if you want to leave money for your children. See this AARP fact sheet for details.

9. Plan for Out-of-Pocket Medical Costs.

Set money aside for medical costs not covered by Medicare or private insurance in short-term bonds or money markets. You could incur as much as $200,000 to $300,000. If you still have several years until retirement and are reasonably healthy, consider a high-deductible health insurance policy and set up a Health Savings Account for accumulating funds for these out-of-pocket costs in retirement, Blayney suggests.

10. Examine your Emotional Portfolio as well as your Investment Portfolio.

Baby boomers are a diverse group and their task during retirement is to find their path, Nancy K. Schlossberg, professor emerita at the University of Maryland and author of the book Revitalizing Retirement, said in an interview. The transitions of retirement aren’t easy. “It takes a while to get a new life.” Retirement is a challenge for many baby boomers. With these 10 steps boomers can begin to look at their spending and set goals for retirement.

Rita R. Robison is a consumer journalist who blogs at The Survive and Thrive Boomer Guide. Rita blogs via Contently.com.

Filed Under: Blog, Economy

The Case-Shiller Index. Is it worth watching?

August 10, 2011 By

I am not a fan of the U.S. housing index created by Karl Case and Bob Shiller (in the early 1990s). That said, it is a highly watched gauge and worthy of commentary.

It is worthwhile discussing briefly exactly what is tracked and how it is put together. The indices are calculated from data on repeat sales of single-family homes; that is the sale of the same house over time (it therefore ignores the new construction market completely). The Case-Shiller index family includes 20 metropolitan area indices and two composite indices as aggregates of the metropolitan areas. These indices are three month moving averages and data is published with a two-month lag.

My biggest concern with the Case-Shiller report is really a local one. Since I am based in the greater Seattle area, which is one of the “cities” within the index. My issue is that Case-Shiller defines Seattle as the tri-county area – encompassing King, Snohomish, and Pierce Counties. In most people’s opinions, this is far too large a geography to have any real relevance. The markets in these three counties vary significantly from each other, so to define what is taking place in Seattle using sales activity in Tacoma and Everett seems ridiculous to me.

So, what’s happening today?  Well, as the explanation above states, there is a two month delay by the time the report is released, so the question really isn’t what is happening today, but rather what was happening for the three months between March and May of this year.

Overall, prices rose by one percent from April which is a positive sign. Prices rose in 16 of the cities; they fell in Detroit, Las Vegas, and Tampa, Fla., and were unchanged in Phoenix. The rise in May for Case-Shiller came after the index edged up a fractional 0.6 percent in April, which was the first time prices were higher in eight months. In Portland the index increased by 1.2% and, in Seattle, by 1.1%.  We saw increases in all of the Californian markets, with San Francisco rising by 1.8%, Los Angeles by 0.5% and San Diego rounding out the three with a 0.2% increase.

More than ever, drilling down to the hyper-local market is imperative to making sound decisions. Everyone wants to know when we’ve hit the bottom of the market. I don’t believe that should be our quest. Timing any market is almost impossible, just look at what happened to the Dow over the past few days. Choices in real estate must not be made in a vacuum, as needs change, a property that best suits that change, should be considered. There is no such thing as a “sure” thing. Doing what’s best, with the best intent, with eyes open, is how we should move forward.

Filed Under: Blog, Economy, Real Estate

How Moody’s, S&P and Fitch Rate Each Country’s Credit Rating

August 8, 2011 By


via chartsbin.com

This map shows Moody’s credit rating for each country. Moody’s Analytics and Moody’s Investors Service, is a credit rating agency which performs international financial research and analysis on commercial and government entities.

Filed Under: Blog, Economy

The Tiny House – Save Big By Living Small

August 5, 2011 By

Everywhere you look, there are signs – people are re-evaluating their lifestyle choices and choosing to live more frugally. Our latest world-wide recession has transformed people who once lived at the edge of their budgets into born-again savvy savers. And the trend can be seen in housing as well…

Until recently, Americans have been in the habit of steadily increasing their square footage, year after year. The average single-family home grew from 1,780 square feet in 1978 to 2,479 square feet in 2007. But this upward climb came to an abrupt halt when the  National Association of Home Builders announced in 2009 that the median size of new homes fell for the first time in 30 years, with new housing starts averaging 2,094 square feet.

And while new construction is still at lower levels than in years past, builders who specialize in smaller, greener homes have seen an uptick in business. Take, for instance, Jay Schafer, author of The Small House Book. Schafer has received attention from Oprah, CNN and the New York Times for the success of his Tumbleweed Tiny House Company, which specializes in small house plans, as well as ready-made tiny houses that can be delivered to your door.

Indeed, it appears that the small house trend is truly gaining momentum, and for good reason. Having a smaller living space can send ripples of savings throughout your lifestyle. Here are some ways a small house can equal big savings:

Building or purchase cost reductions

It’s a no-brainer that big houses have big price tags. The most obvious financial advantage of a small house is that it’s less expensive to build (or purchase, for existing homes). Less materials, less space to cover, less square footage – all result in a smaller mortgage payment.

Energy efficiency

Naturally, less space to heat and cool means smaller energy bills. And when you have a smaller abode, efficiency upgrades – like new insulation or windows – also costs less.

Less hoarding

When you have less storage space, you tend to collect less clutter. When we have big rooms, we feel the need to fill them with things we don’t really need. Having smaller areas encourages more thoughtful and purposeful purchases – equaling less frivolous spending.

Maintenance economy

All homes require ongoing maintenance – from painting to cleaning to re-roofing. When there’s less area to cover, there’s less expense involved in these inevitable tasks.

Simply put, scaling down your living space means spending less. And more people are discovering that small and charming is more desirable than grand and showy when it comes to saving money for other goals (like paying off debt or taking vacations).

But beyond pure economics, the movement to smaller living spaces also reflects a shift to a simpler lifestyle – one that encourages spending one’s personal energies on more than just material gain. Find out more about the movement to live large through living small by checking out the Small House Society, whose motto is, “Better living through simplicity.”

Filed Under: Blog, Economy, Real Estate

How to Rebuild Your Credit After a Foreclosure or Short Sale

August 4, 2011 By

If you’re one of the millions of Americans who experienced either a foreclosure or short sales due the housing downturn, you might be left wondering where to go from here, when it comes to rebuilding your credit score.

Here is the information you must know about your credit, to best recover from a foreclosure or short sale.

Know How Things Ended

Though you may be relieved to have finally resolved your housing situation, don’t put it out of your mind just yet. Keith Gumbinger, mortgage expert forHSH.com says that knowing the final terms of the arrangement made with your lender plays a role in rebuilding credit. That’s because different defaulted home loan terms come with different ramifications to your credit score. Know whether you had a short sale (the lender allows you to sell the house for less than the balance on the mortgage, and may or may not require you to make up the deficiency), an involuntary foreclosure (you stopped making payments and the property, and potentially your assets, were seized), or you negotiated a deed-in-lieu of foreclosure (a voluntary process in which you “hand over” the deed to the lender, shortening the process and accompanying expenses), as well as the specific terms were agreed upon. When it comes to foreclosures and short sales, no two agreements are alike; the terms and conditions have different impacts on credit scores, how they are reported to the credit bureaus, and how long they take to “fall off.”

Confirm Where You Are Now

While short sales are often perceived as more “favorable” when it comes to defaulting on a home loan, FICO conducted a study simulating the aftermath of a foreclosure and a short sale, and revealed that in regards to credit score impact, there isn’t much difference between the two events. The real gauge, it seems, is in the starting credit score before the default took place.

FICO examined three hypothetical consumers with starting credit scores of 680 (customer A) 720 (customer B), and 780 (customer C). It found that despite whether the loan default was a short sale or foreclosure, customer C’s credit score was most impacted, indicating that the higher the credit score, the longer it takes to restore. Further, time is critical in rebuilding credit worthiness: a short sale with no deficiency balance will generally require at least three years before the credit score will increase. In the case of a foreclosure, the borrower must wait for at least seven years, and in some cases, up to ten, if a bankruptcy filing was involved.

Keep Credit Cards Under Control

After you have completed the foreclosure or short sale, request your credit report fromAnnualcreditreport.com, which allows you one free credit report each year. Confirm that the report does not contain any errors, or reflect old debts that were paid off, and report any disputes to Experian, TransUnion and Equifax immediately. Ornella Grosz, author of Moneylicious: A Financial Clue For Generation Y says that one way to add points to your credit score is by paying off or lowering your existing credit card balances, and that  “about 30 percent of your credit score is made up from keeping balances low. The lower your debt-to-income ratio, the better.” John Ulzheimer, Mint’s credit columnist, also addresses this the post What Kind of Debt Pay-Off Boosts Your Fico Score Most.

Set up automatic bill pay on all of your existing credit accounts to make certain that creditors are always paid on or before the due date (don’t play with grace periods when you’re trying to rebuild credit). Or use the “Bill Reminders” feature on your Mint.com account. If you have missed payments in the past, commit to starting good habits now. You can rebuild a score by paying every bill on time. On the contrary, skipped or late payments will reduce your credit score further.  Don’t attempt to raise your credit score by closing open credit lines, and know that removing the credit availability might actually hurt your score more after a short-sale or foreclosure, when access to new credit will be limited. (To potential lenders, closing the credit, even it you haven’t used it in years, makes it appear as though you are closer to being “maxed out” than you really are).

If you are left with no credit lines after the foreclosure or short sale and cannot find unsecured lines of credit, apply for a secured credit card, which are offered by many financial institutions and credit unions. Secured cards will require you to deposit funds with the creditor, in exchange for a credit card with a credit line of the same amount. (For example, if you put $500 down, that will be the amount of your secured credit line). If you use secured cards responsibly, they will help to slowly increase your credit score. Over time, the lender may raise your line of credit for “good behavior,” and eventually, you’ll be a candidate for unsecured credit again. However, Grosz cautions to read the fine print in the agreement for all secured cards, and confirm that you will not be charged additional fees for use.

Be Patient

Rebuilding credit after a short sale or foreclosure can be frustrating, but it is a process most impacted by being patient. Amber Stubbs, senior managing editor at Cardratings.com says “the more time passes, the less a black mark affects your credit, and you won’t be able to make a full recovery until the derogatory item is off your credit report. Most derogatory items, including foreclosures, fall off seven years after the last activity on the account. If you manage other accounts responsibly while you wait, you should be in good shape by the time the foreclosure disappears from your credit report.”

Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.

Filed Under: Blog, Economy, Real Estate Tagged With: , ,

Just How Much Do We Need Our Credit Cards?

August 1, 2011 By

need-our-credit-cards

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The Rise of Consumer Confidence

July 19, 2011 By

According to the Conference Board, the Consumer Confidence Index climbed to 70.4 in February of this year, hitting its highest level since February 2008. Americans seem to be getting their spending swagger back, which is good news for both American retailers and the worldwide economy.

Take a look at who’s benefitting most from the increase in spending and where exactly that money is going. (Infographic designed for Milo)

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click image to enlarge.

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What is the American Dream?!

July 18, 2011 By

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click image for larger view.

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King County Most ‘Resilient’ On West Coast

July 11, 2011 By

 

Using a new online tool, researchers have measured more than 360 U.S. metros for their capacity to handle stresses ranging from economic recession to natural disasters.

Overall, Northeastern and Midwestern regions tend to be more resilient than those in the South or West, largely because these regions earn high scores for affordability, the size of their health-insured population, rates of homeownership, and metropolitan stability, as measured by recent population change.

The Resilience Capacity Index (RCI), developed by Kathryn Foster, a professor of urban and regional planning at the University at Buffalo, produces a single statistic for each region based on the region’s performance across 12 economic, socio-demographic, and community connectivity indicators.

As a gauge for how well a region is positioned to adapt to stress, the index can help regional leaders identify strengths and weaknesses and target related policy changes toward building their resilience capacity.

“Conceiving of regions as capable of adapting and transforming in response to challenges allows researchers and practitioners to understand the conditions and interventions that may make one place more or less resilient and why,” says Foster.

Foster developed the index as part of Building Resilient Regions, a national network of experts on metropolitan regions funded by the John D. and Catherine T. MacArthur Foundation and administered by the University of California, Berkeley. The index features maps revealing geographic patterns in resilience capacity, detailed data profiles for each metro and a “compare metros” tool.

The top-scoring metros are geographically diverse. Raleigh, N.C., with leading technology firms, medical centers and universities, heads the economic category. Ames, Iowa, ranks first for socio-demographic capacity due to its exceptionally high level of educational attainment (Iowa State University is located there). For community connectivity, Bismarck, N.D., scores highest given its critical mass of civic institutions as the state capital.

Metropolitan areas with populations over 1 million vary widely in their resilience capacity. The top-ranking large metropolitan area, Minneapolis-St. Paul, achieves its status with very high socio-demographic capacity and levels of community connection, the latter reflecting the region’s No. 1 rank for voter participation.

The lowest-ranking large metropolitan area is Miami, Fla., a region with very low regional affordability and income equality.

Foster points out that a region’s RCI score is not necessarily a sentence for success or failure in the face of the next population boom, economic recession, or industry shutdown.

“What it does tell us is that some regions are structurally more prepared than others, and thus have greater capacity to bounce back in the wake of stress,” she says. “Still, regions with a high capacity for resilience can squander their strengths just as those ranked low can rise to the occasion and perform above expectations.”

Additional research efforts, a number of which are highlighted on the Building Resilient Regions site, are under way to measure how regions actually respond to stress. Future studies will explore which resilience capacity measures matter most for different kinds of stresses as well as the significance of key governance and environmental factors not captured by the RCI.

Looks like King County is one of only two (both in Washington) areas resilient on the West Coast.

Filed Under: Blog, Economy, Real Estate Tagged With: ,
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