The New Savage Number E-Book

Terry Savage

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 404

Veröffentlichungsjahr: 2009

Beschreibung

Nationally known personal finance expert Terry Savage helps you answer the most important retirement questions During a time when looking to the future is more important than ever, author Terry Savage offers street smart advice for the many soon-to-be retirees wondering how much longer they will have to work to make up for the losses in their retirement accounts. The New Savage Number provides the strategic guidance and hands-on techniques necessary to plan a successful, satisfying retirement. Throughout the book, Savage helps you figure out how much money you need to retire-your savage number-and how to invest to reach that goal. Then, as retirement looms, she guides you through the process of planning withdrawals so the money lasts your entire lifetime. In between, Savage offers practical advice on everything from getting personal finances organized to insuring retirement plans against the disastrous need for long-term care. An informative, engaging book that future retirees of every age can utilize, The New Savage Number * Contains updated chapters reflect the current economy including changes to the mortgage market and stock market performance * Takes issues such as social security, long term insurance, and new investment risks into consideration * Offers guidance on continuing to earn income in retirement Written with every retirement bound individual in mind, The New Savage Number, Second Edition provides you with the tools needed to rescue your retirement.

Leseprobe

Table of Contents

Title Page

Copyright Page

Praise

PREFACE

Introduction

PART 1 - RETRO-RETIREMENT

CHAPTER 1 - THE SAVAGE NUMBER

SHAPING RETIREMENT REALITY

AVOIDING GENERATION WARFARE

HOPING FOR A MIRACLE?

YOU’RE NOT ALONE

THE LIKELY SOLUTION: RETRO-RETIREMENT

CHAPTER 2 - TIME IS MONEY

CONSUMING TIME AND MONEY

RUNNING OUT OF TIME

WHAT’S YOUR TIME WORTH?

THE TIME VALUE OF MONEY

CHAPTER 3 - THE 10 KEY QUESTIONS

HOW LONG WILL I LIVE?

WHAT WILL INFLATION DO TO THE VALUE OF MY SAVINGS?

HOW CAN I SAVE ENOUGH?

HOW SHOULD I INVEST THE MONEY I’VE SAVED FOR RETIREMENT?

HOW MUCH WILL I SPEND TO LIVE IN RETIREMENT?

HOW MUCH CAN I WITHDRAW EACH MONTH WITHOUT RUNNING OUT OF MONEY?

WHAT’S THE BIGGEST DANGER TO MY RETIREMENT PLANS?

HOW CAN I EARN MONEY DURING RETIREMENT?

HOW CAN I RETAIN CONTROL OF MY FINANCIAL LIFE?

WHAT IF I HAVE MONEY LEFT OVER WHEN I DIE?

GETTING THE ANSWERS

PART 2 - MONTE CARLO YOUR MONEY

CHAPTER 4 - THE SAVAGE ANSWER: MONTE CARLO MODELING

MONTE CARLO MODELING: HOW IT WORKS

BEWARE OF AVERAGES

MONTE CARLO MODELING AND RETIREMENT PLANNING

MONTE CARLO AND YOU

CHAPTER 5 - SAVING UP, DRAWING DOWN

ACCUMULATION PHASE

WITHDRAWAL PHASE

THE RIGHT BALANCE

CHAPTER 6 - GETTING IT ALL TOGETHER

ONLINE, ON PAPER, ON YOUR COMPUTER

FREE ONLINE MONEY MANAGEMENT

THE BASICS: PAYING BILLS ONLINE

ORGANIZING YOUR ONLINE FINANCIAL LIFE

A CREDIT CHECKUP

PORTFOLIO TRACKING

QUICKEN

MORNINGSTAR

MOVING BEYOND TRACKING—TO ADVICE

CHAPTER 7 - A ROAD MAP TO MONTE CARLO

THE BEST ROUTES

ARRIVING IN MONTE CARLO

PART 3 - INVESTING FOR RETIREMENT

CHAPTER 8 - STOCKS, BONDS, AND CHICKEN MONEY

REALISTIC STOCK MARKET EXPECTATIONS

UNDERSTANDING BONDS

KEEP YOUR NEST EGGS SAFE WITH CHICKEN MONEY

A MINUTE ON MUTUAL FUNDS

CHAPTER 9 - BEYOND THE BASICS

EXCHANGE-TRADED FUNDS

REAL ESTATE INVESTMENT TRUSTS

GOLD AND NATURAL RESOURCES

THE U.S. DOLLAR

OPTIONS

FUTURES

HEDGE FUNDS

CHAPTER 10 - ONE-STEP RETIREMENT INVESTING

BUYING THE WHOLE MARKET

RETIREMENT INVESTING MADE EASY: TARGETED RETIREMENT FUNDS

STARTING SMALL—NO EXCUSES!

PART 4 - STREAMS OF RETIREMENT INCOME

CHAPTER 11 - WHERE WILL THE MONEY COME FROM?

THE BALANCING ACT: INCOME VERSUS PRINCIPAL

GAINFUL EMPLOYMENT IN RETIREMENT

WITHDRAWALS FROM RETIREMENT ACCOUNTS

GENERATING INCOME FROM YOUR PORTFOLIO

CHAPTER 12 - ANNUITIES FOR INCOME AND TAX-DEFERRED GROWTH

IMMEDIATE ANNUITIES

TAX-DEFERRED ANNUITIES

THE LATEST ANNUITY PRODUCTS

TAX-DEFERRED ANNUITY WITHDRAWALS

TAX-DEFERRED ANNUITY EXCHANGES

YOUR IRA INSIDE AN ANNUITY?

ANNUITIES: THE REAL RISK FACTOR

CHAPTER 13 - SOCIAL SECURITY AND MEDICARE

SOCIAL IN-SECURITY

MEDICARE

A FINAL THOUGHT ABOUT SOCIAL SECURITY AND MEDICARE

CHAPTER 14 - HOW TO TURN YOUR HOME INTO YOUR PENSION

REVERSE MORTGAGES

MORE INCOME FROM YOUR HOUSE USING TRUSTS

PART 5 - LONG-TERM CARE: THE GREATEST RISK OF ALL

CHAPTER 15 - LONG-TERM CARE INSURANCE: WHO NEEDS IT?

THE GOVERNMENT’S ROLE IN LONG-TERM CARE

INSURANCE FOR YOUR RETIREMENT

OUR PARENTS, OURSELVES

LONG-TERM CARE INSURANCE: A WOMAN’S ISSUE

WHAT IF YOU DON’T USE IT?

WHY YOU SHOULDN’T PROCRASTINATE!

CHAPTER 16 - HOW TO UNDERSTAND LONG-TERM CARE COVERAGE

RISING DEMAND, SOARING COSTS

WHEN TO BUY? WHILE YOU CAN!

HOW DO I USE MY POLICY?

WHAT SHOULD MY LONG-TERM CARE POLICY COVER?

CHAPTER 17 - BUYING YOUR LONG-TERM CARE POLICY

WHICH INSURANCE COMPANY SHOULD YOU CHOOSE?

WHAT SHOULD IT COST?

10-PAY: CONTROLLING PRICE RISK

LONG-TERM CARE POLICIES AND INCOME TAXES

PAYING FOR LONG-TERM CARE WITH LIFE INSURANCE AND ANNUITIES

EMPLOYEE GROUP LONG-TERM CARE POLICIES

THE FEDERAL LONG-TERM CARE INSURANCE PROGRAM

LONG-TERM CARE INSURANCE FROM AFFINITY PROGRAMS

A FINAL ARGUMENT: THE COST OF NOT HAVING LONG-TERM CARE INSURANCE

PART 6 - ESTATE PLANNING: THE PRICE OF SUCCESS

CHAPTER 18 - WHAT’S LEFT?

WHAT COULD HAPPEN?

WHAT IS YOUR ESTATE?

WHAT ARE ESTATE TAXES?

WHAT IS PROBATE?

WHAT IS A REVOCABLE LIVING TRUST?

HEALTH-CARE POWER OF ATTORNEY

LIVING WILL

DURABLE POWER OF ATTORNEY

NAMING RETIREMENT PLAN BENEFICIARIES

WHAT ELSE SHOULD YOU CONSIDER?

MOVING ASSETS OUT OF YOUR ESTATE

LIFE INSURANCE AND YOUR ESTATE

SPOUSES AND ESTATE PLANNING

CHOOSING AN ESTATE PLANNER

CONCLUSION

Acknowledgements

INDEX

Copyright © 2009 by Terry Savage. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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eISBN : 978-0-470-58335-7

Grow old along with me! The best is yet to be, The last of life, for which the first was made . . .

—Robert Browning

PREFACE

Will we ever be able to retire? The answer remains the same as my message in the first edition of The Savage Number: Yes. You can and will retire—but you will have a different definition and time frame for that decision.

In the few short years since the first edition of The Savage Number, the question has changed from “How much do you need?” to “Is it possible?” The massive stock market crash, the swoon in real estate values, and a major recession have shaken Americans’ faith in their financial future.

But, just as Americans were too optimistic about their retirement prospects a few years ago, I believe we have become far too pessimistic about the future.

As I prepare this updated edition of The Savage Number, I am pleased that my message remains the same: You can reach financial security, if you make a plan and stick to it—and if you have realistic goals.

My original purpose in writing this book was to give a reality call to all those who had been planning to retire early—and live on their inflated house values and stock market profits. The recent economic and market activity haven’t changed my advice—but the world’s financial woes have made more people open to the message.

Some of the writing seems prescient, as in my warning chapter about stock market valuations, or the danger of relying on residential real estate to fund your retirement. I had even written about the dangers of mortgage-backed securities and their impact on real estate values!

But it’s not “game over” for America—or for your retirement plans.

I have not changed my fundamental belief in the future growth of the American economy, and with it the stock market. And the stock market is the one way you can have access to participate in all that growth, and build your own wealth.

I’m not a market timer, as you’ll see from this book. But when the extremes of either pessimism or optimism sway the greatest number of people, it’s time to stand back and rethink your position.

The pendulum always swings to extremes. In the past decade, we’ve moved from an extreme of optimism about having it all to an extreme of negativity about America’s potential to survive and prosper. Now you see why it’s so important to have a disciplined financial plan.

Let’s agree on one thing: If the pessimists are correct, then it really doesn’t matter how your investments are structured. If it’s the end for America, then you don’t need to worry about the value of your stock portfolio!

But before you give up on the future, take a closer look at history. America has been though tough times before—and we’ve always come back stronger and growing. It’s not just the lessons of the Depression in the 1930s. That sounds like ancient history. We don’t have to go back that far to learn that it’s never wise to bet against America.

Those under age 50, who are shocked by the current economic recession, don’t remember the recession of 1980-1982. That was an equally scary time—when the prime rate was 21 percent, mortgage rates were 15 percent, both unemployment and inflation had reached double digits, and the Dow Jones Industrial Average was under 800!

But America came through those tough times—and soared to a new era of economic growth based on productivity created by technology. In that dismal recession of 1981, few would have guessed that within 20 years the stock market would trade over 14,000 or that Internet technology would revolutionize the way we work, live, and learn.

History never repeats exactly—but it does teach us lessons. This has been a different kind of recession from any we’ve seen before—because it is fueled by an unprecedented level of debt. (That is something I have warned against in all my writings for the past 20 years!) So we’ll need a different sort of resolution.

Remember Newton’s law of physics that you learned in high school? For every action there is an equal and opposite reaction. Excesses of debt must unfortunately be wiped out, creating an excess of pain for those who overborrowed. If America can get through this process without losing the free markets that created such wealth throughout our history, then we will be setting the stage for the next period of real growth.

It is never possible to know the future. Forecasts, predictions, and prognostications are always impacted by current events. It is our job to plan for all of those eventualities—whether ongoing economic slowdown or the next boom that will be triggered by an invention yet unknown.

And we must also be prepared to survive mistakes made by well-meaning politicians and economists. No one political party or economic theory has a monopoly on good—or bad—ideas. But we know that economic growth requires a currency that retains its value, laws that protect the value of assets, and markets that can be trusted.

That’s what The New Savage Number is all about—creating your own financial security that will help you ride through the tough times, even in retirement. Now it’s more important than ever that you understand the risks—and potential rewards—of your investments, and your entire financial plan. So let’s get re -started!

INTRODUCTION

Can You Retire?

In spite of—or perhaps as a result of—stock market reversals, declining home values, and job insecurity, you’ve decided to give some serious thought to the possibilities of retirement. You may be approaching the traditional retirement age and seeing your dreams recede. Or you may be just starting your career, and wondering about whether you should invest your hard-earned money in a seemingly capricious stock market.

If you believe in your future—and the future of America—then you must plan, save, and invest for that future. That’s true no matter what your age or stage in life. Over the long run, that has always been a winning formula.

You’ve seen the scary headlines about the impact of the financial markets’ collapse upon boomer retirement plans. Dreams of early retirement have given way to the nagging worry that you’ll never be able to retire. Savings and retirement assets have melted away, before your eyes.

Now you can respond in one of two ways: (1) you can refuse to think about it, or (2) you can take time to figure out your options and get help. Plans may have to be revised, but that can’t happen until you take an honest look at your situation—and get some disciplined, professional help. Believe me, getting good help with retirement planning is easier and less expensive than you think. The whole point of this book is to show you the way.

When it comes to retirement planning, you need both a goal and a plan to reach that goal. You want a simple answer to your most important financial question: How much money do I need to retire? And then as you enter retirement, you have one more question: How much money can I spend every month and not run out of money before I run out of time?

Well, let me ask you a few questions:

• At what age do you want to retire?

• How much money have you saved already?

• How much money do you think you’ll need every month for living expenses?

• What’s your estimate for the inflation rate during your retirement years?

• What’s your risk tolerance for investments?

• And by the way, how long do you think you’ll live?

If you knew those answers for sure, retirement planning would be easy. But life is filled with uncertainty. That’s no excuse for avoiding the issue.

A quick search of the Internet on the subject of retirement calculators offers nearly one hundred web sites, mostly from financial services companies and financial planning firms. They will instantly calculate how much money you need to retire based on your answers to those basic questions. The amounts may be intimidating.

One of the best online calculators is the “Ballpark Estimate” work-sheet at www.choosetosave.org. It will show you how much you should be saving every month. But you’ll need more than these calculators to plan for a successful retirement. You need personalized advice about how to invest your money along the way. And you’ll need a withdrawal plan that ensures you won’t run out of money before you run out of time.

Now that kind of personalized advice is within reach of the average American, in a format that is not only understandable and practical, but individual. It’s called Monte Carlo modeling, but it has nothing to do with gambling. Quite the contrary. It’s a very exacting analysis of probabilities. And it’s the basis for making informed decisions about our retirement finances.

The Savage Number—how much money you really need to retire—is a personal and unique number, but it is knowable. It comes with advice on getting to the number, as well as getting through your retirement years with enough money to cover foreseeable expenses. In fact, the Savage Number is readily available to you, at no cost but your willingness to think about it and accept help. It will take more than a few minutes and a few mouse clicks, but it will be well worth your time.

You may not have a lot of money saved. In fact, you may not have saved anything. You may be living with credit card debt. Time marches on, even if your investments don’t. And at some point in the future, you’re going to want to retire, or your job will retire from you.

What does the word retire mean? Each of us will have our own definition. You may have been thinking of retirement as a full-time vacation in a sunny spot near a golf course. For others retirement will mean a part-time job to maintain a reasonable standard of living. And for some, it will be dependence on programs like Social Security and Medicare.

Odds are we’ll live longer than our parents will. And odds are they’ll use up all their money living longer than they planned. So we won’t have an inheritance to rescue us. And odds are our children—for those who have them—won’t want to spend their scarce dollars taking care of us.

Should we be scared? Absolutely not. We’re the generation that grew up in the shadow of the Cold War and the Soviet Union; nuclear fears and the Doomsday Clock; unprecedented inflation that spawned a 21 percent prime interest rate and 15 percent mortgage rates; the worst recession since the Great Depression; the biggest bear market since the crash of 1929; and the worst terrorist attack on our country since Pearl Harbor.

We’ve survived all that. Certainly we can survive retirement! And we can do it in style, if we start thinking about it now—thinking about the balance between living our lives to the fullest today and giving ourselves a chance at the lifestyle we want in the future.

Baby boomers have always changed America, and we’re about to do it again as we age. Younger workers are learning from our mistakes—and starting earlier to save and invest—and plan for their retirement. Given wise leadership and sensible tax policies, America will grow into a new future, with new technologies. And that economic growth will support retirees and bring investment opportunities to the next generations. It will also provide the resources for you to reach your own Savage Number, and your own secure retirement.

PART 1

RETRO-RETIREMENT

CHAPTER 1

THE SAVAGE NUMBER

The subject of retirement both beckons and repels. If you didn’t want to think about retirement before the recent stock market crash and the recession, is it any easier now?

The answer is a resounding yes. That’s because now everyone is aware that retirement is going to be a problem—if we define it in the traditional way. But it’s also easier because now there are more resources dedicated to helping you rethink the possibilities for your retirement—whether it’s on the near horizon or many years down the road.

Today my original comments about redefining retirement make even more sense. I called this section “Retro-Retirement” to explain that the retirement in your future might look a lot more like your grandparents’ situation than the one you were dreaming about. Generations before us worked longer, had fewer years of leisure, and cut back their lifestyles in retirement.