The Retirement Mindgame: Your Outlook May Influence your Financial Outcome

Posted by on Jul 29, 2014 in Uncategorized | 0 comments

Provided by Frederick Saide, Ph.D.      What kind of retirement do you think you’ll have? An outstanding one? A depressing one? What if it all starts with your outlook? Qualitatively speaking, what if the success or failure of your retirement begins with your perception of retirement?  A whole field of study has emerged on the psychology of saving, spending and investing: behavioral finance.  Since retirement saving is a behavior (and since other behaviors influence it), it is worth considering ways to adjust behavior and presumptions to encourage a better retirement.  Delayed gratification or instant gratification? Many people close to retirement age would take the latter over the former. Is that a good choice? Often, it isn’t. Financially speaking, retiring earlier has its drawbacks and may lead you into the next phase of your life with less income and savings.  If you don’t love what you do for a living, you may see only the downside of working longer rather than the potential boost it could provide to your retirement planning (i.e., claiming Social Security later, tapping retirement account balances later and letting them compound more). If you see work as a daily set of unfulfilling tasks and retirement as an endless Saturday, Saturday will win out and your mindset will lead you to retire earlier with less money.  On the other hand, if you change your outlook to associate working longer with retiring more comfortably, you may leave work later with a bigger retirement nest egg – and who wouldn’t want that? If you don’t earmark 66 or 70 as your retirement year, you can become that much more susceptible to retiring as soon as possible. You’re 62, you can get Social Security; who cares if you get less money than you get at 66 or 70, and it’s available now!  Resist that temptation if you can. While some retirees claim Social Security at age 62 out of necessity, others do out of inclination, perhaps not realizing that inflation pressures and long term care costs may render that a poor decision in the long run.  The good news is that Americans are waiting longer to claim Social Security than they once did.    Increased longevity may be a factor in that trend, but the findings are encouraging nonetheless. The number of men claiming Social Security at age 62 increased 2.3% from 2007-09 to 35.8%, and the number of women claiming Social Security at age 62 increased 2.6% in that span to 38.9%. Still, these percentages fell short of those a generation before.  From 1986-97, roughly half of all women claimed Social Security when they turned 62 and nearly half the men did; since 1997, the percentages have never approached...

Read More

How to Select a 401k Plan Provider

Posted by on Jul 11, 2014 in Uncategorized | 0 comments

How Things Stand Provided by Frederick (Fred) Saide Occasionally I write about 401k plans. In meeting with small business clients I see few low cost 401(k) plans, which are exception, and not the norm for small businesses. It appears as the result of too many small-business owners who are unsophisticated about how to shop in the 401k plan market.     Here is how to shop. Let’s begin with conflicts of interest. Conflicts of interest The people you turn to for advice may have hidden undisclosed conflicts of interest.  If you were starting a new plan or asking for advice about an existing one whom would you ask for advice? What many business owners do not know or under-appreciate is that many of the mutual fund and insurance companies pay intermediaries to distribute their 401(k) products. If you use one of these intermediaries to help you shop for a plan, the recommendations you receive may be biased. In addition to financial advisers and brokers, these intermediaries may be banks, CPAs, pension consultants, pension administrators, and payroll processors. The play list or lineup card. A 401(k) plan is much more than an investment lineup. A successful plan requires a team of service providers performing specialized functions. You will need to engage a record-keeper to handle the plan transactions and accounting functions. You will also need a consultant to customize plan provisions to fit your company’s needs. Often, these services are performed by a single firm, called a third-party administrator. Choose carefully, you and your employees will be interacting on a regular basis. If you do not choose the administrator, you will likely be assigned one by the mutual fund company. This role is too important to delegate to someone else. Skipping this part of the process usually finds the winner is the firm with the best marketing department. What’s the risk? Potentially higher fees and inferior service. Many small firms end in this situation which makes the plan an aggravation. Let’s reverse the process. Step one: Have a Process Instituting a new plan or overhauling an existing plan requires a process. Without a map you will wind up wherever you end up and the result may be a lot of effort and no better place than where you began. If you have a process you will come to understand what you are buying are professional services, and not a product a bunch of products. In my experience, most 401k plans are expensive and have questionable investment choices. Together that creates a witches brew of poor results and frustrated employees to say nothing of disappointed ownership. To best shop for 401(k) services, business owners need to reverse the marketing process. In today’s market,...

Read More

Monthly Economic Update

Posted by on Jul 8, 2014 in Uncategorized | 0 comments

Frederick (Fred) Saide, Ph.D. Presents:   MONTHLY ECONOMIC UPDATE     MONTHLY QUOTE   “If we are to learn to improve the quality of the decisions we make, we need to accept the mysterious nature of our snap judgments.” – Malcolm Gladwell     MONTHLY TIP   As you plan to pay for your child’s college education, think about breaking the effort into thirds. A third of projected college costs could come from your savings, another third from family or student loans, and the last third from your current income plus financial aid.     MONTHLY RIDDLE   A farmer feeds a total of ten goats and dogs with 56 biscuits. The dogs each eat six biscuits and the goats each eat five biscuits. So how many goats and how many dogs does he have? Last month’s riddle: An ancient invention (still used the world over) permits people to see right through walls. What is it?   Last month’s answer: A window. July 2014 THE MONTH IN BRIEF A geopolitical crisis in the Middle East didn’t halt the advance of U.S. stocks in June. Indicators did much to bolster investor confidence – the housing market seemed to have pulled out of its winter slump, manufacturing PMIs for the U.S. and China were reassuring, and consumer confidence improved even as consumer prices increased. Gold and oil futures pushed north during the month while mortgage rates more or less stayed put. Again, the bull market found some fresh legs. DOMESTIC ECONOMIC HEALTH Households felt better about the economy in June. The month saw a 3-point rise in the Conference Board’s consumer confidence index (to a mark of 85.2) and also an advance for the University of Michigan’s consumer sentiment index (a final reading of 82.5).1   Consumer spending held up as inflation pressure increased. The Federal Reserve’s PCE index showed yearly inflation hitting 1.8% in May, a 19-month peak; the May Consumer Price Index recorded a 1-month advance of 0.4% and a 12-month increase of 2.1%. The Commerce Department measured a 0.2% gain in personal spending for May (along with 0.4% wage growth). Retail sales improved 0.3% for May, and the Commerce Department revised the April increase to 0.5%.2,3,4 On the factory front, the Institute for Supply Management’s June manufacturing PMI came in at a solid 55.3 (it was at 55.4 for May), indicating continued sector expansion. ISM’s service sector PMI had displayed a 56.3 May reading. Headline durable goods orders slipped 1.0% for May (but just 0.1% with transportation orders removed). Wholesale inflation actually declined 0.2% in May (the biggest dip since October), even as the Producer Price Index showed a 2.0% yearly advance.1,5,6 Further evidence emerged of the U.S. economic recovery. Labor Department data showed...

Read More