How Much Diversification is Enough? My Retirement Fund Question

Given the spate of investment fraud, mismanagement and tanking market values, the issue of asset diversification has caught my attention. Basically, how much diversification is enough? I don't think that there is an easy answer to that question.

Currently, 100 percent of my retirement funds are in a well-known hybrid fund with built-in diversity. But I think I should call the investment adviser and re-allocate my small pool of assets. So far I've been lucky: My fund of choice outperformed the Dow Jones Industrial Average in 2008. The fund was down about 31 percent, versus a decline of about 42 percent in the Blue Chip index.

But in addition to the hybrid fund, I think that I should also consider a fixed-income fund and a cash-equivalent account. Here are my questions:

• How much diversity is enough?
• Should all funds be housed with a single investment firm?
• If one investment firm offers funds from a broad mix of third-party mutual funds, is it best to select different providers for each asset class?
• What about global diversification?

Those are a few of the questions, I plan to ask market professionals over the next few weeks. I don't plan to retire for years. In fact, I'll be happier if I keep working, but it's good to keep planning.

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7 Tips for Retirement Planning in a Down Economy: CNBC Expert

Our retirement and investment accounts were hammered this week. This piece has 7 quick tips for handling your retirement/investment accounts in a down economy:

"Every 7.5 seconds an American turns 62 – that’s over ten thousand people every day. By 2015 it’s estimated that baby boomer’s age 50 and older will represent 45% of the country’s population. And each one of them is counting down the seconds until they can say goodbye to that 9 to 5 job, kick back, and retire!

While planning for retirement can appear to be a stressful, daunting task, it doesn’t have to be that way. You don’t need to be up to your elbows in social security, pension, and savings.

In fact, according to Bill Losey, author, retirement guru and strategist, all it takes is 7 simple steps, which include:

1. Controlling your emotions
2. Increasing your annual savings and retirement contributions
3. Reallocating your 401k/403b to higher yielding investments
4. Retiring later
5. Lowering your investment costs
6. Hiring a retirement coach
7. Reducing your retirement income needs

Losey is author of Retire In A Weekend! The Baby Boomer’s Guide to Making Work Optional and cable network CNBC’s resident retirement planning expert."

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Don't Raid Retirement Funds to Pay Everyday Expenses: Kiplinger's

The folks at Kiplinger's sent me this information about "6 Surefire Ways to Boost Your Nest Egg."

"In a recent AARP survey of workers 45 and older, one-third said they had stopped contributing to their retirement plans and another 23% had tapped their retirement funds prematurely. But the long-term impact of doing either of these things can be devastating.

So, keep your retirement planning on track, according to the September issue of Kiplinger’s Personal Finance.

1. Contribute at least enough to your 401(k) plan to capture your employer’s match, and bump up future contributions automatically.

2. If you are 50 or older, make additional “catch-up” contributions of up to $5,000 a year.

3. If you own a business, take advantage of tax breaks and shift the additional money to savings.

4. Don’t raid your retirement accounts early. You’ll lose the benefits of compounding.

5. Plan to work a few years longer to fatten your kitty and your Social Security check.

6. If you are already retired, reduce your annual withdrawals until the stock market bounces back."

Here's the link to the full retirement article
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Kiplinger’s: Tips for Retiring Rich: A Guest Post

This guest post about retiring rich arrived from Kiplinger's. Check out the bottom which has a link to free financial planning services. Here's the guest post:

"The February issue of Kiplinger’s Personal Finance magazine outlines six simple ways to make it happen—whether you’re starting your career or planning your exit. With automatic enrollment in 401(k) plans and one-stop investment options, saving for retirement is a cinch. Kiplinger’s offers Six Tips to Retire Rich, including:

§ Sign up. More than one-third of large companies now offer an automatic 401(k)—up from just 19% in 2005. While you can back out of your company’s auto enrollment plan within the first 90 days, consider this: Nearly 95% of surveyed adults found that auto 401(k) plans make saving for retirement easier.

§ Check your progress. About 40% of employers offer investment-advisory services to 401(k) plan participants. If available, take advantage of professional one-on-one financial counseling to make sure you’re financial goals are on track.

§ Sell company stock. Many employers use their stock to match 401(k) contributions, but individual stocks can be much more volatile than mutual funds. Under federal law, businesses must allow workers to cash out their company stock within three years—so sell off those shares to diversify your 401(k).

§ Roll it over. When you switch jobs, you’re best off consolidating your savings in a rollover IRA. Skip cashing out your 401(k), which could cost you as much as half of your account balance with tax and penalties.

So are your retirement plans on track? Consumers will have two golden opportunities to find out this month. For the seventh time, Kiplinger’s is teaming up with the National Association of Personal Financial Advisors (NAPFA) to sponsor Jump-Start Your Retirement Planning Days. On Tuesday, January 15th and Friday, January 25th from 9 a.m. to 6 p.m. Eastern Time, NAPFA advisors, who normally charge clients $150 to $300 an hour, will be standing by to answer retirement planning questions—free of charge. Consumers can dial toll-free 888-919-2345 or log on to to participate in an online discussion with an advisor."

Source: Kiplinger’s Personal Finance

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Kiplinger's: Top Retirement Scams

Retirement rip-off schemes are out there, according to Kiplinger's Personal Finance. Here's a great post about current scams in the retirement saving biz from Kiplinger's:

"With $16 trillion in savings accounts, baby-boomers nearing retirement, and their parents, are being lured by various retirement scams—the three most common being over-hyped investment returns, unsuitable annuities, and Ponzi schemes. The January issue of Kiplinger’s Personal Finance examines these retirement rip-offs and provides tips to avoid them:

§ Ignore the hype. Be suspicious of any sales pitch that promises unrealistic returns.

§ Do background checks. Before doing business with a broker, check his or her background using Financial Industry Regulatory Authority's BrokerCheck tool at http://www.finra.org/.

§ Get it in writing. Maintain notes of conversations with salespeople and keep copies of broker mailings and sales presentation handouts. After speaking with a broker about your investment goals, ask him or her to summarize your discussion in writing.

§ Set up an account. Open an account with an independent financial institution. Never write a check directly to an individual.

§ Don’t feel pressured. Consult with your adult children or another financial advisor.
Here is the the article in its entirety."

Source: Kiplinger’s Personal Finance

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5 Reasons Why I Have a Crush on My Parents' Retirement Magazines

Postcard from my parents' home: I love the hot spa. I love the affordable movie theater and I love how they love us so much. And I love all of the retirement magazines my mom and dad share with me when I go to visit. Here are my:

5 Reasons to Love Retirement Magazines

1. They're all about thrift. Retirement publications are geared toward those who are trying to get the most out of a pension fund, investment securities or other retirement accounts. They want to conserve capital and preserve their resources. And even though I am a mother with three school-age kids, I have the same goals: conserve and preserve. Therefore, I like the nuggets of info in retirement publications, which are loaded with tips about thrifty living. For instance, I read a great how-to article about refurbished electronics in a retirement magazine. From organic food clubs to cheap drugs, I've learned plenty from retirement publications.

2. Conservative and meaningful investment strategies: The articles about stocks, bonds, real estate investment trusts (REITs) and other securities are usually in language that I can easily understand. The text is written in plain English and without hype.

3. Great advice from Depression Era savers: Confession: A large portion of the material for my blogs and my newspaper columns has come straight from my folks and their friends. They were all children during the Depression Era and during the early 1940s. They know how to save. My mother has told me amazing stories about how she and her brother (My Uncle Frankie) walked miles to attend free art classes at the Philadelphia Museum of Art when they were children. My father has shared stories about earning money by washing marble steps for a nickel when he was a kid. I've learned to listen and read when Depression Era babies speak.

4.The Ads are uplifting. I really, really enjoy fashion magazines. I love Vogue, Harper's Bazaar and other high-gloss publications. But after I read them, I always feel that I need more lip gloss and stuff in my life. Sometimes, I even feel vaguely dissatisfied with my life after I close the pages. I feel struck by a bad case of the gimmees: I want a face peel and super-sized lips. I want to be 10 inches taller and 10 pounds lighter. I want my Jimmy Choo shoes and my Prada fashions. Basically, I don't want to be me anymore. But when I read a retirement magazine, I feel wonderful and I want to look like one of the silver hair models. Very glossy!

5. Great health tips. I value health and well-being tips from senior citizens and older experts who have actually survived a few health scares. They know a bit about getting the most out of the U.S. health care system. What's more, some of the magazines have great tips about new age medicine and longevity. And I have read great pieces about mindful living in publications written for an older audience.

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10 Signs of Secret Debt: Borrowing Money, But Denying Reality

Debt can hide like a chameleon. That's because Secret Debt is like Secret Sadness, a term I first encountered in a women's magazine. The concept works like this: Sometimes we fall deep into a pit (about money or emotions), but still believe we are walking on clouds.

I've done that routine. I've walked around feeling as if my accounts are all balanced, when in fact I've secretly mourned a major (emotional or monetary) loss. That disconnect can throw me into a deeper pit of debt over the long run. And I have friends and peers who have done the same. We all have moments of blindness, either willful or partial blindness.


But here are 10 signs I now use as flags to let me know that I need a reality check or a financial tune-up. These debt flags indicate if we're either over-spending or under-earning. I've put together the list after reading Why Women Earn Less by Mikelann R. Valterra and The Weekend Millionaire Mindset by Mike Summey and Roger Dawson.

10 Forms of Secret Debt

• Tapping Retirement Plans: If you are borrowing money from your 401k Plan, IRA or any other investment accounts, there's a glitch in your financial matrix. "When you borrow from your investments, you do not have to face up to the truth that you are not making enough money." --Why Women Earn Less by Mikelann R. Valterra
• Credit Card Balances: Carrying a month-to-month balance pulls us deeper into debt. What's more using, credit cards to pay basic bills is a form of "destructive debt" if the balance is not paid in full each month. It's destructive to carry balances on credit cards for stuff that depreciates quickly, according to Weekend Millionaire Mindset
• Family & Friends: If you're always tapping that network, it's time to get plugged into reality. When I have to rely on my parents, siblings or friends for a financial fix, I know that it's time take new action.
• Big-Ticket Debt: If you're not borrowing to make money, the new debt could slide you into a bigger hole, according to Weekend Millionaire Mindset : "Debt to acquire cars, boats, campers, motorcycles, furniture or other large ticket items that are not used to generate income are additional examples of destructive debt."-- Weekend Millionaire Mindset
• Long-term Savings Accounts: When I have to tap long-term savings accounts to fix day-to-day budget gaps that's a warning flag. As a safety net, I like the idea of having special accounts for large purchases, vacations and emergencies. But I really believe that long-term savings, investment accounts and retirement funds should not be tapped for trinkets and basics.
• Home-equity loans: To borrow against the home to pay for creature comforts and vacations seems shady to me. However, borrowing against a home to pay for education or to finance a business is a good investment, according to financial planners that I have interviewed.
• Children's Savings Accounts: Borrowing from the kids is another red flag.
• Bounced Check Overdraft Protection: An expensive red flag.
• Salary Advances: A lot of company's are flexible about advancing paychecks. It's a convenient move, but another red flag. The salary borrowed today, is gone by payday.
• Borrowing Time: When I feel pressed to work around the clock to pay off bills or other obligations, that's a major warning sign. Sure, I'm not borrowing money from an institution or a person, but I'm borrowing time from my life. There's major evidence linking financial stress, long hours and sleep deprivation to major illnesses. Here's a piece linking the graveyard shift to cancer.
  

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Be a Gypsy in an RV: Late Bloomers Guide to Savings: Pt. 4

Why own a house? Why live in a market-crashing condo? Why rent an apartment when you can own an RV and travel around for the best employment opportunities? That's one money-saving, income-generating strategy used by 71-year-old Dottie Soracco of Oregon, according to an article by Julie Connelly for AARP magazine .



With only $750 a month in Social Security and $165,000 in an IRA, Dottie has to work, according to the AARP story. Her previous work schedule represented another of my nightmares: namely, that as a senior citizen, I would have to work around the clock in a series of low-paying, under-performing jobs that would make me feel like a hamster on a wheel: Spinning for a small stipend and getting nowhere fast!


Consider the evidence: Prior to adopting a gypsy life, Dottie earned $12,000 working these part-time gigs:

• flu clinic administrator


• tv commercial actress (Hey, she was even in movie Prince of Tides from 1991)


• Kelly Service Temp

She slaved away at those jobs and owned a condo in Atlanta. Then she purchased an RV and became a gypsy...just traveling and driving to where the best jobs were anywhere in the country. In 2006, for instance, while she was temping, a company offered her a staff position. The catch: The job was in the state of Washington. No problem! With an RV, financed for $323 a month, she's very mobile.

"I guess I am just a gypsy at heart," she told AARP.

I have my own version of the retired gypsy fantasy. Here's my version:

• Writers Colonies. There are assorted writers colonies around the country where you can live free, cheap or even receive a paid stipend or a grant. It's like applying for college and if your application is accepted, you receive a room, an apartment or a studio. Poets & Writers magazine, a great source for writers, features these programs. Many of the colonies are year-round and I've read about a few writers who just travel from colony to colony, living almost rent-free. Here's a link to grants, conference and other resources for writers.


• Speakers Tour: With friends and family all over the country and even abroad, I could travel around, give speeches and collect stipends. I'd shill myself for a gypsy life like that.


• Writer-in-Residence/Expert-in-Residence: Disney World, colleges, community centers all have various adult learning programs. These programs work with a staff of specialists in many fields. The Disney Institute and the Disney cruises seek out experts in different fields. Likewise, I have friends who have traded their areas of expertise for hotel stays and cruise ship trips.

• Live on a Cruise Ship: That's another fantasy of mine: Every Monday in Nassau, Tuesdays in St. Bart or some other island. I could work in a casino, the coffee bar or teach some kind of craft program. I could really live on Paradise Island.
  
• Craft shows: One of my best, best friends from childhood makes a comfortable living selling hand-made art at craft shows around the country.

Meanwhile, it's never to late to save, but there are a few helpful tips for those of us playing catch-up. While visiting my parents, I found a copy of AARP magazine which had some great tips for late-starters in the savings game. Basically, the article (from the Sept./Oct 2007 edition) featured several individuals (ages 50-60) who had not saved too much in the past. I'm writing a series of posts based on the strategies featured in the magazine.

Here's Part 1 of this series.Top Tip: No more recreational shopping at the mall!

Part 2: Tapping a Side Business for Savings: Late Bloomers... Top Tip: Develop a small business for extra income.

Part 3: 10 Reasons Why I'll Work at Starbucks: Late Bloome...

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10 Reasons Why I'll Work at Starbucks: Late Bloomers Guide to Saving: Pt. 3

My latest fantasy: I wish I had 20 hours of week to work at Starbucks. (I would gladly grind coffee beans for health coverage.) My 10 Reasons for Working at Starbucks are below.

Part-time employment is one way to catch-up with savings for slackers like me. Others use a part-time job or a second job to deal with a recurring Retirement Nightmare, namely the threat of running out of money after only 10 years into retirement. That’s a reality faced by James Barajas of California, according to an article by Julie Connelly for AARP magazine .

Barajas, age 57, worked at Verizon and earned a salary of over $50,000. His division was eliminated in 2006, but his retirement savings were not enough to cover his expenses, especially not health care insurance. The solution: he found a $27,000 a year job working as a school custodian. The new salary fills the gap and provides additional benefits.


My secret fantasy involves working at Starbucks. I'm quite serious and in the last few months, I have even walked into a Starbucks in South Beach and requested a job application. The deal-breaker: I don't really have an extra 20 hours a week, especially since I have enrolled in graduate school.

But here's why I would like to work in Starbucks:

"Partners that work full time or part time (20 hours or more per week) may participate in a variety of programs, and make choices based on individual needs and interests."--Starbucks employee benefits

1)Health Plan: Employees that work only 20 hours a week qualify for health insurance. Forget earning a minimum wage. I would actually pay Starbucks a minimum wage if they would let me into their health plan. The health care package includes:

"Healthcare Benefits: (Medical, Prescription Drugs, Dental and Vision)"-- Starbucks employee benefits

2) Access to interesting people: A shot of java-drinking people would really jump start my fiction career. It would be fun just to watch, observe and take notes on the different people and conversations that I would encounter at Starbucks. Great people watching!

3) Retirement benefits: In addition to saving my Starbucks part-time paychecks in a retirement account. I would also qualify for some retirement benefits at Starbucks.

4) Additional, non-compete income: As a freelance writer, I work a zillion different jobs: I have taught, tutored, written articles, hammered out news releases, fine tuned radio copy, reviewed books and even stood on my head.

It would be great to have an additional source of income that did not fry my brain and serving coffee fits that bill. I speak from experience. I have been a waitress and I have worked at Rizzoli bookstore in Manhattan and I loved it. Smile, take money, smile. Okay: it's not always easy, but it's way easier than other brain-draining employment efforts.

5) Free bag of coffee: All Starbucks employees get a free bag of coffee each week. That would save me at least $8 a week. We buy Eight O'Clock Coffee beans, which are great and cheap. But for free, I would drink Starbucks.

6) Coffee training program. Listen to this: "Coffee Education – A course focusing on the Starbucks passion for coffee and understanding our core product." Starbucks employee benefits There are other training programs available through the company. Here's a sample:

Business and Communication – The Starbucks Support Center (SSC) offers a variety of classes ranging from basic computer skills to conflict resolution, to management training.

7) Future Career Path: One of my former neighbors began working at Starbucks as a teenager. She even made a coffee for me at a Starbucks in downtown Miami. Ten years later, she has an important Starbucks management post in South Florida and raves about the company. Maybe if I don't get to be a college professor when I grow up, I can be a Starbucks Manager. Here's the company's description of its leadership training program:

Learning to Lead – A three level program for baristas to develop leadership skills. The program also includes store operational and effective management practice training.

8) Interesting Staff: The paid cast is pretty diverse at Starbucks. With my wild, long and graying braids, I would fit right in. The company obviously does more than pay lip service to diversity in hiring and training.


9.Free New York Times: I always see copies of the NYT (and other newspapers) at Starbucks. My fantasy: during cleanup after the shop closes each day, I could recycle a NYT copy and read it at my home.

10) Starbucks has a book club: With a book due to be published in May, I could hope and pray that Starbucks would put me on their book club menu. My book is called The Frugal Duchess of South Beach and it should be out in May. Publisher: DPL Press. I'll have more details later.

Here's a quick summary of Starbucks menu of employee benefits:

Depending on job and personal situation, a partner’s
total pay package may include:

Progressive Compensation Package
Healthcare Benefits (Medical, Prescription Drugs, Dental and Vision)
Retirement Savings Plan
Stock Options and Discount Stock Purchase Plan
Income Protection Plan
(Life and Disability Coverage)
Management Bonus Plan
Adoption Assistance Plan
Domestic partner benefits
Referral programs and support resources for child and eldercare
Discounted Starbucks merchandise
And of course, all
partners get a pound of coffee each week.

Meanwhile, it's never to late to save, but there are a few helpful tips for those of us playing catch-up. While visiting my parents, I found a copy of AARP magazine which had some great tips for late-starters in the savings game. Basically, the article (from the Sept./Oct 2007 edition) featured several individuals (ages 50-60) who had not saved too much in the past. I'm writing a series of posts based on the strategies featured in the magazine.

Here's Part 1 of this series.Top Tip: No more recreational shopping at the mall!
Part 2: Tapping a Side Business for Savings: Late Bloomers... Top Tip: Develop a small business for extra income.

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Boxing with Rocky for Creative Retirement Income

Rocky Balboa -- that aged boxer-- is a fantasy role model for finding income in retirement years.

That's the word from BusinessWeek, which has this thoughtful piece about finding creative income during our senior years.

"This holiday season's massively hyped Sylvester Stallone movie, Rocky Balboa, finds the aging boxer -- and the actor who plays him -- beefing up their retirement accounts with one last return to the ring (wife Adrian, alas, isn't around to share the popular pugilist's golden years). Right now, many of the 77 million Americans nearing their golden years may be hoping for a similar yuletide miracle." --BusinessWeek

My retirement plan includes this menu of options:

1) Continue to Write, but taking only select assignments.

2) Tapping into teaching income as an adjunct professor.

3) Earning income from investments in real estate and the capital markets.

4) Working at an upscale bookstore that offers health care benefits, discounts on books and access to great parties in the publishing industry.

5) Become a Yoga teacher for senior citizens.


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Don't Quit Your Day Job & Other Advice from Retirees

I laugh when I think about retirement. Why? a) I love working, especially writing and reporting, which is good because b) I'll be working for a long time as I fatten up my anorexic retirement account.

But keeping your day job is a bit of advice offered by some retirees in this piece about happy retirements from the Wall Street Journal.

"First, no matter how much you hate your job, it is likely providing you with far more than just a paycheck. Work gives a structure to your day, lets you exert influence and garner praise, offers friendships with colleagues, and provides a sense of purpose and identity." --WSJ

I also received this email with advice from retirees. Some of it made me laugh, but all-in-all here are a few valuable comments from a book How to Love Your Retirement.

PREPARE FOR IT AHEAD OF TIME. Use your vacations to try out
retirement ideas. Visit communities you think you might like
to live in. Meet happily retired people, find out how they put
their lives together in new ways, and learn from them. I took
a sabbatical in my 50s and rode my bike in New Zealand,
England, and Ireland and led bike tours for Vermont Cycling.
I loved the tours so much I knew that I had to do more of
them in retirement. My sabbatical helped me figure out
things I wanted to do and didn't want to do in retirement. It
also influenced me to retire while I was young enough to do
these ambitious things (60) and to save every penny so I
could have enough money to do them.
-EMILY KIMBALL
RICHMOND, VIRGINIA
52

THE MOST IMPORTANT THING I DID BEFORE RETIREMENT was
pay off my condominium. I have no mortgage payment,
which means that my housing costs are only the condo fee
plus property taxes. I also was frugal, tracking my expenditures
and cutting back in creative ways. This enabled me to
retire with sufficient savings to travel and have adventures. I
know how to live solely on my pension. I am spending my
first year trying to figure out what I can do when I grow up!
-DALE SUSAN BROWN
WASHINGTON, D.C. ........

YOU ARE ALLOWED TO USE THE MONEY you're saving in an IRA
to pay for certain expenses that your kids might be running
up. But if the grandkids need money, they should talk to their
parents.
-PEGGY WEHR
WOODWORTH, OHIO
YEARS RETIRED: 7

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Diva without Dollars: 10 Goofs from my 20s

An article about retirement and savings strategies for the 20-something crowd in the Wall Street Journal has made me think about mistakes I made when I was younger.

Here's my list of errors

1. Too many restaurant meals on credit

2. Waited too long to join my company's stock sharing plan. (The public shares had already spiked dramatically before I came on board.)

3. Too careless with credit cards and other debt.

4. Too many weekly hair and nail appointments.

5. Loans against my 401K account.

6. Not putting enough money in the 401k plan

7. Going to Paris & Florence when I was unemployed. (HA!)

8. Spending a book advance that never arrived. (I was a Dim Light in the Big City)

9. Too many hours in the Ann Taylor Loft.

10. Buying holiday presents for big bucks at the last minute.

This snippet of advice from the Wall Street Journal is excellent:

401(K) BASICS

• Max out: Contribute enough to capture your employer's maximum matching contribution.
• Allocate: People in their 20s should generally have at least 70% of their account in stocks. You have a long time to save; don't fret about market volatility.
• Don't default: Avoid your plan's default option if it's a money-market or stable-value fund. The low returns won't serve you well over time. source: WSJ

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401k Loans and 9 Other Costly Mistakes

Are you thinking about borrowing from your 401k plan to help you ride through a rough patch? I've done it and it was not a good idea.

Sure, you pay yourself back, plus interest, but the loan interest rarely matches the investment performance of the 401k plan. And there are other arguments: administrative loan fees and the double-dipping repayment schedule: OUCH!

Borrowing from a 401K plan is just one of the 10 mistakes listed by Bankrate.com from this feature on MSN.

The list of don'ts includes: home equity loans, saving money in your kid's name and falling for store-branded credit card gimmicks, such as shopping discounts for opening new accounts.