I am on the other end of the spectrum. I don't have a clue about what we should be doing!
I am a new teacher this year (22 years old), and my husband (25 years old) just started his career in the fire service. So we will both be eligible for PERS in 6 months. I don't know what the numbers will look like for us when we get to retirement, but I want some advice.
I have student loans to pay off about 25,000 and we have a little credit card debt to pay off too. But we have a payment plan and we are following it. We own our home, my husband bought in July 2005, it has appreciated about 90,000 since then.
What should we be doing with our money right now? What should we do after we pay off our debt (besides the house)? We don't want to depend too much on PERS in case the bottom falls out of that plan.
Thanks for your time and advice. Anything will help us in a general direction.
Sara, I don't know if I can answer all of your questions, but you are obviously just getting started--sort of. You have, however, a good start. Stick to your payment plan. A lot of your investments are in your retirement accounts, but at your ages, you have a long time to reach your investment objectives and can weather these downturns. The key here is to keep contributing to your investments on a regular and routine basis; the more the market falls, the better and farther your investments will go for you. It is generally our policy to recommend, given strengths that we are seeing, to add to positions that we like that give us an even better opportunity. I hope this helps.
For about a year, I have been meaning to roll-over a small 403b account (from a previous employer) and a small Roth IRA into a no-load mutual fund. My main reasons are to lower my expense ratio and to get myself into a "target retirement" account (retirement is 35-40 years away).
Is now as good a time as any other to do so? Or, should I wait until things settle down? I also want to avoid any fees related to a transfer to a new company. Thank you--this is a great service!
Yes, now is a good time to consolidate different accounts like this. Even if you are not ready to get your investments lined up, you can still get things pulled together; this takes a little time, anyway.
Cynthia Thompson said:
I am 43 years old. Believe it or not, we have extra income. Should we buy more into the stock market or what should we do with this money?
We have no debt, our home mortgage is fixed 30 yr at 4.875%
No car payments. Would like to buy land for future investment.
Thanks and get some sleep! Cynthia
Cynthia, thanks for your question and comments. This fits right into our advice. If you know what you own and you see growing valuations and solid fundamentals, picking up more shares should benefit you during the recovery period. Markets tend to go down much faster than they generally return to the upside. It's really hard to time the market, but if you know the value of your investments, then you change your frame-of-mind into one that actually enjoys seeing stocks fall--you can see the opportunities. I hope this helps.
How do you find a "safe" bank. My wife and I are considering changing banks and would like some advice as to what to look for and what questions to ask. Thanks.
That's a tough one with all of the problems. There are a lot of regional banks that are having issues with developer problems and rising loan loss provisions. Having some of this issue during periods like this are not unusable, or disturbing, but you have to be careful. What to look for are banks that are not carrying a lot of mortgage assets that have become problems forcing them to take large write-downs on a routine basis. This is what you read about in the papers. A couple of banks, Wells Fargo and US Bancorp have been doing very well. I don't own either of these two for my clients and I'm not recommending banks or companies in the financial industry. But, I find these two banks in pretty good shape. If the bailout goes through, it will free up liquidity in a lot more banks giving you a better assortment of choices. I don't know if this helps you, but this is a tough area.
A lot of experts say to be patient with the markets and in 10 years your IRA and 401k's will probably be just fine. They say to put off your retirement.
Guess what, we have already retired and are expecting to have our nest egg last another 40 years. What advice do you have for folks who have already retired and are watching their savings disappear at a frightening rate?
We lost over $40,000 in the market TODAY! Year to date our accounts have lost 24%. Obviously, we can't postpone retirement since we already are there!
These have been turbulent times, similar to 1987 and 2002. However, two things happened in those periods: it didn't take ten years to recover and once the recovery period occurred, the markets actually grew higher. The $700 billion you keep hearing about, or $1 trillion if you add everything else in is a big number, but the U.S. has an annual $14 trillion GDP in a $60 trillion global GDP world. These GDP are annual; the bailout is perhaps a one-time charge most likely spread over several years. As you are already retired, one of the things you might consider is to reduce that amount you withdraw to give more opportunity to participate with the growth. Also, although down 25%, which is similar to most everyone, you need to take into consideration that much of the market has dropped, but most of the companies have continued to operate at above normal levels. This, of course, doesn't include the financial companies. Therefore, I feel you can live by this one thought: when we are in a trouble period of time or a downturn, everyone wants to get out of the troubled times-and everyone works to make this happen. After 32 years, I have seen recessions and market downturns; I have never experienced it taking 10 years to recover. On top of this, there is more of the globe that is growing, and will continue to grow, than there is in matured economies like the U.S., Euro and Japan. But the success for our country is that many of our companies in the U.S. are selling into those growth markets and doing very well do so.
To put it another way, and I hope this helps, in 2001 we finished a period of years during the explosive dot.com and technology growth with total after tax earnings for Corporate America at approximately $450-$500 billion annually. We are declining a bit from a level of total after tax corporate profits for Corporate America right now at $1.3 trillion--annually. This number has been dropping as of late just a little thanks to the financial industry earnings numbers. However, this is an astounding level of earnings power for this country--almost 2.5 to 3 fold. Most companies outside the financial community are still enjoying a solid growth period. We may see some weakness, but it won't be of depression period. Keep the faith. Being down 25% feels terrible, but for much of your investments, fundamentals and valuations have continued to rise; this is what makes up an eventual recovery.
I'm looking at a home equity loan to partially finance a second property. The interest rate on the loan is based on Prime which is currently 5%. In view of current financial turmoil, do you think the Prime lending rate will go up or down? I believe the Federal Reserve will lower rates before they raise them but the banks set the prime rate and if anything, credit seems to be tightening. Do you think taking the hoem equity loan on my home , which is currently free of debt, is a safe bet at this time? 5% plus a small premium is very manageable but I would hate to see the prime rate go up to 8 or 9%
Charles, for information purposes, the prime lending rate is actually tied to the Fed Fund rate and they generally move in tandem; the Fed Fund rate is, of course, set by the Fed. Rates have been kept higher because of the "risk" to the financial institutions from borrowers, such as the risk of home values falling and not having enough equity behind the mortgage paper if this happens. So, this is why mortgage rates haven't fallen very much until recently just after the government took over Fannie Mae and Freddie Mac--this showed the market that the Fed and government was getting aggressive and you saw 30-year mortgages drop from 6.5% to 5.5%. Given the amount of the bailout, you might find rates rise a bit as the Treasury raises capital, but I agree that I think rates will then fall as the financial institutions will need to entice borrowers and this is generally done with lower--not higher--rates. As to the house question, it's like the stock market, you want to make the investment when stocks, and real estate, is cheaper. Since you don't have a mortgage now and you can handle the payments, I would assume that this would be a wise investment over time. It's a buyers market and you are a buyer. As always, do your homework. Also, if this is a full or partial rental property, all the better. I hope this helps.
I am 50 years old and hope to retire in about 15 years. I have both a Fidelity 401K and Roth IRA. I have lowered the amount that I was having taken out for my 401K and instead am actively trying to pay off my home mortgage (rate 6.125%). Your feedback? Also what about any exposure in gold like an ETF?
Vern, you would appear to be in pretty good shape. You know enough during this period of time to reduce the amount you are taking out of your nest-egg to allow it to grown move during this period. I'm not sure about gold; the fundamentals and valuation of the overall market is such that there is a lot of opportunities. Be careful, but be wise about were your funds are invested. But it seems that you have done your homework. You might want to take advantage of the major fall in emerging markets, in case you haven't done this already.
Husband is major wage earner in our family and is a police officer due to retire in 3 years. Retirement is PERS ($250,000), IAP(PERS replacement, $25,000) and Deferred Compensation ($25,000). He is 51 and can't stay a cop forever. He was hoping to retire completely from the workforce. What is our next move? What may we need to be thinking about?
Sandy, what I don't know is if you work and if your husband is going to find another job or career since he is only 51 years old. I'll take a shot at it. Assuming your husband will find another career, and that you work to a smaller degree (since he is the "major" wage earner), then I believe you are in great shape. I also assume that your husbands next job will pay as much or more (I'm hoping as such), and that he will also have another retirement plan with ancillary benefits. Therefore, you will be able to keep your savings/retirement working for quite sometime; longer than it will take to experience the recovery. If I'm wrong and your husband will be retiring for good and not working, then you need to reallocate your funds to allow for income-this will be alright in the short-term, but not enough to sustain retirement for the long-term given your ages.
I hope this helps. I wouldn't worry about the hype you are hearing about at this point.
I am 73 years old
I have a small US Bancorp retirement payment and social security.
My IRA is 60% bond funds and 40% stock funds managed by US Bancorp.
Should I change the percentage of stocks?
If you are not pulling any funds from this account and it is for safety purposes, you're fine in the long-term. If you are pulling income from this account and it is more than enough, you are also alright. If you need more than what you can pull, you might want to adjust a little for more bonds, say 50%/50%. But if you need the income and can cut back, do that so that you will have more working during the turnaround and recovery period.
I am a fed employee w/ $220,000 in the TSP.
i want to retire @ 30 years @ 60 yrs old in fall/autumn 2015.
my spread is 60 %or 70% amongst foreign stock,small company and "regular" american stock (the most is in american stocks.) with the remainder in fixed and gov securites. i am 53 now. i am on the "fers" fed retirement,also.
am i ok?
thanks for your time,i appreciate it.my guts are in a turmoil over this market environment.
You are alright. The foreign stocks have probably handed you a tough time this year, assuming some of them are in emerging markets, but they should recover and do well over the long-term as the true future growth of the world. You have plenty of time. Keep making contributions, especially during these periods of time. Don't try to time the market or a turnaround; most people miss the turn until after about 30% of the move. Also, as we have already seen, the market can turn around fast and your never know if this is it--for real--or another false start. Key: make investments when things are cheap. With the amount of time you have left, you're in great shape. I hope this helps.
I'm 65 years old, retired for 18 years. Received a lump sum of $300,000 at retirement in lieu of monthly pensions and have been comfortably living on this investment in mutual funds for the last 18 years without dipping into the original investment. Loan on my home has a fixed rate of 5.990% with a balance of $200,000, final payment due 2025. Estimate current home value is $350,000. I'm single with no dependents, own some rental property worth approximately $300,000, no mortgage. My monthly income is $1,200 from Social Security, $1,400 rent and $3,000 withdrawal from Money Markets in my mutual fund accounts. I'm considering a reverse mortgage to eliminate my monthly house payment of $1,500. Is this a good idea?
Sarah, you are very well diversified. The main question in here is whether you really need the extra funds for keeping up on any of your payments. If not, I almost think I would skip the reverse mortgage. The interest is tax deductible and given the ability to take funds out of your retirement accounts, this is a nice offset. I also believe, not as robustly as the past 11-year growth period, but real estate will recover also with both the bailout and a return of buyers in the marketplace. Also, assuming your real estate is in the local area and Pacific Northwest, you should see a recovery as people move to this part of the country. We have faith. As for the market conditions, I don't see anything that would make me change anything in your situation.
I have a PERS (Public Employee Retirement System) retirement check coming in every month. It is a fixed amount with a COLA adjustment added on each year. Should I be concerned?
Chris, No, you should be alright. You are part of the State of Oregon system and should be insulated from problems, unless your fixed payment can be affected by a change in the market.
I recently refinanced my mortgage. I took out enough money to pay off my a $7800. credit card debt. Should I pay it off entirely or keep some of the money in a savings account for emergencies?
Margaret, I don't know your overall situation, but if you have enough income to make the payment on your debt, you are probably alright if you will eventually use your savings for something else. But if it is just going to stay in savings, you might go ahead and pay off the debt, which is probably costing you more in interest than what you are making on your savings.
irma Penwell said:
My CD"S are over the $100,000. insured limit with FDIC in one institution.
They are not in a bank, but in a credit union.
Isn't a credit union more safe because they do not loan as much
money in risky loans?
Irma, you need to get your CD's below the $100,000 limit. Also, I'm not sure what the protection is with credit unions; I don't believe they are FDIC insured, but I'm sure they have some level or form of protection. The main point is that even credit union have potentially investments on their books that may be subject to problems. The key here is to be safe, and this is a no-brainer. If you have a certain level to stay under, you should do that. Diversification is an easy thing to do. If you like credit unions, then find another one or two if that helps you.
Although I do not buy into all the hype about our current economical concerns, I am taking this as an opportunity to question. I am currently working toward a Pers retirement. I am vested in this plan and plan to retire in 2 years at the age of 58. In general, good to wait or better to cash in early? Cash settlement or payments? Your on the spot now!
Randy, you seem to be on top of it. I'd hate to tell you to wait and have it go down, but two years should be far more than we are expecting it to take to see recovery. I agree with you that there is a lot of hype; we're expecting a recovery sooner than the market analysts are looking for. If we look at 1987, 2002, even after the 2001 9/11 event, reality will generally set in and overtake the hype. I hope this helps. I would wait it out.
I retired May 1st, I rolled my money in the company retirement program over to an IRA, I then invested about half of it in an annuity program with Prudential, and about 90 % of the rest into the money market. My concern is with the annuity, it was to provide me with an monthly income, enough to supplement SS and maintain modest life style. How will what is happening affect my annuity?
If it is a fixed annuity, you should be alright as it will receive a constant percentage, similar to a CD. However, if you are in a variable annuity, which most people seem to be investing in now days, look to see if you have a guaranty limiting a decline in your annuity value. If it doesn't have any kind of guaranty, you may see the value of your contract decline with the markets, similar to any mutual fund. If you can still pull out the amount you need, then you might weather this period. If you can use funds from your money market fund, you might either add funds to your annuity contract during this downturn, or make your necessary payment from the money market fund and let the annuity you already own recover. I hope this helps.
My husband and I are 5-6 years from retiring. Do we leave $$ in the market and ride this out? We are in moderate stocks....none too risky. Shall we move some of it into cash accounts?
Carol, good question with a little bit longer to go. You obviously own individual stocks, which is different, but easier to see what you own and where you are at. Look at the companies and make sure that the companies, not the stocks, are still doing well and growing even during this period. Don't speculate; a lot of companies, if not most, are doing very well during this period of time, especially if they are global-oriented in the business. This probably doesn't include financial stocks right now. If this is the case, weather through this period of time. If you feel that these companies are truly doing well, you might consider adding to your positions. Down market periods like this are best for taking advantage of. We will come out of it and you only get the opportunity every so often. But do your homework on the companies.
Now on top!!!!
Will this affect my social security payments as I am already retired.
Sandra, this shouldn't affect your social security payment in the short-term, and I don't think it will in the long-term, unless something with the bailout doesn't work out. But we are very optimistic that it will have a positive long-term effect.
I'm 15 years from retirement. Should I reallocate away from my 80-2o stock-bond mix to more liquid assets??
Leonard, you have a lot of time to work through this period. We've seen these times before and we have probably just about seen the worst. Outside of financial stocks, most companies continue to do well and valuations are rising.
Lourdes asked: My husband retires next year. I want to drop his contribution to a 401K and put the money elsewhere. I don't want to lose his contributions but not touch what is in there. Am I right?
What you are saying is that you believe that in the long-term, you are comfortable with what you have invested. I don't know your allocation, but in terms of downturn, these have historically been the times to invest; take advantage of a recovery. Usually you will be well served to take advantage of a downturn like this.
Martha asked: We are set to retire in one year - what should we do to protect the retirement funds we've saved??
You should have already put some funds to the side, but if you haven't, put maybe enough to pull on for a 12-18-24 period, whatever is comfortable. You want to be able to retire, but you also need to think of the long-term and take advantage of an eventual recovery in the financial markets.
Is the stock market overreacting...or is the public underreacting?? How serious is the threat to our economy if some bailout isn't passed? I've heard people compare it to the Great Depression - is that an exaggeration??
Bob, it appears to our firm that this is definitely an overreaction, similar to 1987, 2002, 9/11, etc. $700 billion is a lot, but probably won't be taken all at once; spread over a longer period of time. GDP for the US is roughly $14 trillion annually, and for the world, approx. $60 trillion. The funds are also going to be placed into banks to be borrowed out and put to work into the economy. We feel comfortable that this will be a positive for the economy.
I am in the Oregon Saving Growth Plan. I have lost approx 25,000.00 in the last 3 months. I am 46 years old. I am in only one agressive portfolio within the Oregon Savings Growth. Shoud I weather the storm? I am so nervous
Gina, I assume you have roughly 20 years to go before you retire. You may be alright weathering this period, but it is also a good idea to diversify a little, too. I don't think you need to get too conservative, but one fund isn't enough. You should consider possibly emerging markets, which are down, too, but represent strong growth areas over the future. Also, you might want to pick another one or two additional investment styles, too, such as telecom and/or new venture type ideas (with track-records). Above all, continue to add contributions to your accounts on a regular basis.
Hugh Kalani said:
We currently have a 30 year fixed mortgage at 4.378% and a balance of approximately $62,000. We have enough in savings to pay off the balance.
We've been retired over 15 years, I'm 74 and my wife is 70.
Our question is - should we pay off the mortgage? Interest on our CDs is less than the 4.378.
Hugh, no, do not pay off your mortgage. You have a very appealing interest rate which is tax deductible. Continue to keep money in savings or other investments, even at your age, as long as you can afford to comfortably make your mortgage payments. Great mortgage, by the way.
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He'll answer your questions on what today's market plunge and bailout defeat means for your retirement and your money.