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Wednesday, April 27, 2011

Every once in a while, you get to see a market train wreck coming. It should have been obvious in 2006, for example, that real estate was about to be slaughtered, or in 2000 that tech stocks had it coming. Determined not to be fooled again, a lot of smart people are calling for a comparable Armageddon in bonds. Newsletter writer and bond manager Marilyn Cohen calls it “bondland’s nuclear winter,” which gets my vote for best alarmist rhetoric.

You have to admit, the case against bonds is pretty strong:

Today the Federal Reserve said it would continue to hold short-term interest rates near zero percent “for an extended period,” a policy that has no doubt contributed to the decline in dollar and inflation in commodity prices. A lot of economists, including some on the Fed itself, believe the policy can’t help but spread inflation.

Retirement planning is no slam-dunk. To make sure you retire in comfort, you have to start saving early and often. You need to pay attention to your money and not be distracted by the stresses and strains -- or the joys -- of day-to-day life. In the long run, you'll thank yourself for keeping one eye focused on the future.

To help you reach your retirement goals, here's a road map for navigating the decades as you move closer toward retirement age.

In your 20s

If you save $6,000 every year starting at age 20 and earn just 5% in interest each, by the time you're 65, you'll have more than $1 million saved for retirement. While that sounds like a lot, considering inflation, it's not a fortune -- but it can be enough.

Are you one of the many baby boomers who doesn’t think they’ll have enough money to retire? The reality is that some people just won’t have enough money saved to completely stop working. So what do you do?

To get some perspective, let’s take a quick look back at how we came to the idea of retirement:

Retirement is a pretty modern idea. Before we created Social Security in the 1930s, the vast majority of people never retired or thought about retiring. They simply worked until they couldn’t anymore and then often went to live with family.

Social Security, however, introduced the idea that everyone should have some basic level of income as they age. Then after World War II, American companies started to adopt retirement plans as a part of their wage packages for employees.


Tuesday, April 26, 2011

More US employers provide 401(k) plans as the only retirement benefit pan for their employees. Employees with these plans will have the full responsibility for saving and investing wisely for retirement. Many workers find out too late that their 401(k) plans come up short of meeting their needs at retirement.

How well you handle this “do-it-yourself” retirement saving system and avoid the common pitfalls will mean the difference to being prepared for retirement or not. But the good advice for saving and investing for retirement isn’t universal to everyone. What you should be doing can vary based on your age and the number of years to save that are ahead of you.

Boomers face significant challenges to make ends meet in their retirement years, and they'll need to make every dollar count -- there isn't much margin for making mistakes. Here are four big mistakes that roughly half of all Americans are making -- and a few tips for avoiding them.

According to Social Security's Annual 2010 Statistical Supplement, 47 percent of Americans who retired in 2009 -- almost half -- started their Social Security income at age 62, the earliest possible age with the lowest possible benefit. Almost three-quarters -- 74 percent -- of Americans started benefits before their full retirement age.

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Planning Is Key

Planning ahead can make all the difference in how you spend your retirement years. It is best to have your home completely paid off by the time you retire, since your largest expense is most likely the mortgage on a home. Having a place to live that no longer requires a monthly payment can make a huge difference. The sooner you can get your home paid off the better, since you’ll be able to save more money. It’s also very important to pay off all debts such as credit cards, auto loans, school loans and any other type of debt that you still owe. You shouldn’t owe anyone anything when you retire and the sooner you can pay off everyone you do owe the sooner you can be financially free of burdens.


Wednesday, April 6, 2011

As tax laws change, college investment planning becomes increasingly complex. The most beneficial strategies for creating a college fund are quite similar to other investment tactics. Investment products that are tax deferred, tax exempt, or transferable without tax consequences can be especially advantageous.

This could be even more effective if you do your planning early.

One important aspect of an investment is its balance of yield and risk. Determine the amount of risk you can tolerate, given the amount of time you have to recover from any potential losses.

Take the time to familiarize yourself with the financial aid formulas. This could help you determine whether assets and income should be in your name or your child’s name. Structuring your investments ahead of time can have a significant effect on the net amount of funds available for your child’s education.

Step 1. Acquire the company’s financial statements for several years. These may be found in your assigned case study; in a recent annual report; in the company’s 10K filing on the SEC’s EDGAR database; or from other sources found at my LINKS website. As a minimum, get the following statements, for at least 3 to 5 years: Balance sheets, Income statements, Shareholders equity statements, Cash flow statements Step 2. Quickly scan all of the statements to look for large movements in specific items from one year to the next. For example, did revenues have a big jump, or a big fall, from one particular year to the next? Did total or fixed assets grow or fall? If you find anything that looks very suspicious, research the information you have about the company to find out why. For example, did the company purchase a new division, or sell off part of its operations, that year?

I appreciate the mention from Time: The 25 Best Financial Blogs. Professor Hamilton's introduction to my blog was much too kind. Thanks!

The editors at asked if I'd write a review of one of the other blogs on their list, although they wouldn't tell me who was on the list. They asked me to send them a short list of blogs I'd like to write a review for, and then they'd pick one.

The top two blogs on my short list were Hamilton's Econbrowser (with Menzie Chinn), and Mark Thoma's EconomistsView(with Tim Duy who writes FedWatch) - two of my favorite economic blogs. I'm shocked that EconomistsView is not on the list.

I wish I'd written a better review of Econbrowser - I was under the weather last week, and they edited my piece extensively (it needed editing).

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