What You and Monica Lewinsky Might Have in Common

By Dennis Miller

Collateral damage can assume many forms—and though some may be more newsworthy than others, the latter are no less real, nor any less frightening.


On Tuesday, controversial radio talk show host Rush Limbaugh called Monica Lewinsky “collateral damage in Hillary Clinton’s war on women,” saying that President Bill Clinton and his wife destroyed the former White House intern “after he got his jollies, after he got his consensual whatevers.”

Last month, Jeremy Grantham, cofounder of GMO, a Boston based asset management firm that oversees $112 billion in client funds, dubbed savers “collateral damage” of quantitative easing and the Federal Reserve’s continued commitment to low interest rates.

Would it be worse to be known as the “president’s mistress” for more than a decade and, as Lewinsky claims, to be unable to find a normal job? Maybe. But it’s no laughing matter either to find yourself penniless in your “golden years.”

Signs of Monetary Collateral Damage Among Seniors

 

The 55-plus crowd accounts for 22% of all bankruptcy filings in the U.S.—up 12% from just 13 years ago—and seniors age 65 and up are the fastest growing population segment seeking bankruptcy protection. Given the wounds bankruptcy inflicts on your credit, reputation, and pride, it’s safe to assume those filing have exhausted all feasible alternatives.

But even seniors in less dire straits are finding it difficult to navigate low interest rate waters. Thirty seven percent of 65 to 74 year olds still had a mortgage or home equity line of credit in 2010, up from 21% in 1989. For those 75 and older, that number jumped from 2% to 21% during the same timeframe—another mark of a debt filled retirement becoming the norm. With an average balance of $9,300 as of 2012, the 65 plus cohort is also carrying more credit card debt than any other age group.

While climbing out of a $9,300 hole isn’t impossible, the national average credit card APR of 15% sure makes it difficult. For those with bad credit, that rate jumps to 22.73%—not quite the same as debtor’s prison, but close.

None of this points to an aging population adjusting its money habits to thrive under the Fed’s low interest rate regime.

Minimize Your Part of Comparative Negligence

 

A quick side note on tort law. Most states have some breed of the comparative negligence rule on the books. This means a jury can reduce the monetary award it awards a tort plaintiff by the percentage of the plaintiff’s fault. Bob’s Pontiac hits Mildred’s Honda, causing Mildred to break her leg. Mildred sues Bob and the jury awards her $100,000, but also finds she was 7% at fault for the accident. Mildred walks with $93,000. (Actually, Mildred walks with $62,000 and her lawyer with $31,000, but I digress.)

Comparative-negligence rules exist because when a bad thing happens, the injured party may be partly responsible. For someone planning for retirement, the bad thing at issue is too much debt and too little savings. Through low interest rates, the Federal Reserve is responsible for X% of the problem.

Though ex-Fed chief Bernanke doesn’t seem to see it that way—in a dinner conversation with hedge fund manager David Einhorn, he asserted that raising interest rates to benefit savers wouldn’t be the right move for the economy because it would require borrowers to pay more for capital. Well, there you have it. And there’s nothing you can do about that X%. You can, however, reduce or eliminate your contribution.
In other words, you don’t have to be collateral damage; you can affect how your life plays out.

Money Lessons from Zen Buddhism

 

This might sound like a “duh” statement, but it bears repeating from time to time. Inheritance windfall from that great-aunt in Des Moines you’d forgotten about aside, there are two ways to eliminate debt and retire well: spend less or make more.

Rising healthcare costs, emergency car repairs, and the like are real impediments to reducing your bills. Costs rooted in attempts to “keep up with the Joneses,” however, are avoidable. Those attempts are also futile. A new, even richer Mr. Jones is always around the bend.

Instead of overspending for show, make like a Buddhist and let go of your attachment to things and your ego about owning them. Spring for that Zen rock garden if you must and start raking.

One of the wealthier men I know drove around for years with a gardening glove as a makeshift cover for his Peugeot’s worn out, stick shift knob. It looked shabby, but this man wasn’t a car guy and had no need to impress. As far as I know, the gardening glove worked just fine until he finally donated the car to charity and happily took his tax deduction. Maintaining your car isn’t overspending, but you catch my drift. Dropping efforts to show off can benefit us all.

That said, keeping up isn’t always about show. You may feel pressure to overspend just to be able to enjoy time with your friends and family. Maybe you can no longer afford the annual Vail ski week with your in laws or the flight to Hawaii for your nephew’s bar mitzvah. Maybe your friends are hosting caviar dinners, but you’re now on a McDonald’s budget and can no longer participate.

Spending less in order to stay within your budget can mean missing out on experiences, not just stuff. If you’re in this camp, there’s no reason to hang your head. As I mentioned above, you can spend less or you can make more. The latter is far more fun.

An Investment Strategy to Prevent You from Becoming Collateral Damage

 

While it’s tempting to start speculating with your retirement money, resist. If you have non-retirement dollars to play with and the constitution to handle it, carefully curated speculative investments can give you a welcome boost. However, if all of your savings is allocated for retirement, just don’t do it.

Unless you’re still working, how, then, can you make more money in a low-interest-rate world? At present, my team of analysts and I recommend investing your retirement dollars via the 50-20-30 approach:

• 50%: Sector diversified equities providing growth and income and a high margin of safety.
• 20%: Investments made for higher yield coupled with appropriate stop losses.
• 30%: Conservative, stable income vehicles.

No single investment should make up more than 5% of your retirement portfolio.

Whether you’re designing your retirement blueprint from scratch or want to apply our 50-20-30 strategy to your existing plan, the Miller’s Money team can help. Each Thursday enjoy exclusive updates on unique investing and retirement topics by signing up for my free weekly newsletter.

Don’t let the Fed’s anti-senior and anti-saver policies unravel your retirement.  

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The article Collateral Damage: What You and Monica Lewinsky Have in Common was originally published at Millers Money

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10 Ways to Screw up Your Retirement

By Dennis Miller

There are many creative ways to screw up your retirement. Let me show you how it’s done.


Supporting adult children. My wife Jo and I have friends with an unmarried, unemployed daughter who had a child. Our friends adopted their grandchild and are now in their late sixties raising a kid in grade school. The same daughter had a second child, and they adopted that one too. When she announced she was pregnant a third time, they finally said, “Enough! It’s time for a third party adoption.”

Last time I spoke with them, their unemployed daughter and her boyfriend were living in their basement, neither contributing financially nor lifting a finger around the house. What began as a temporary bandage had become a permanent crutch. Our friends love their grandchildren; however, they’ve become bitter.

Jo and I also know of retirees who make their adult children’s car payments. I’m not talking about college-age kids; some of these “children” are close to 50. What’s their justification? “If we don’t make the payments, they won’t be able to go to work.” What I can’t grasp is how these adult children have iPads and iPhones, go on vacations, and do other cool things, but can’t seem to make their car payments.

You are not the family bank. There is generally a brief window of opportunity between children leaving the nest and retirement. Use it to stash away enough money to retire comfortably!

Ignore your health. I served on the reunion committee for my 50^th high school class reunion. We diligently tried to track down our classmates, but many had not lived long enough to RSVP to the party. The number of deaths from lung cancer and liver cancer were shocking. Many of those six feet under had been morbidly obese or simply never went to the doctor for checkups.

I know this sounds obvious, but your health choices really do affect how long and how well you live. Retiring only to become homebound because of health problems won’t be much fun.

Not keeping your retirement plan up to date. In the summer of 2013, the Employee Benefit Research Institute (EBRI) published a survey about low-interest-rate policies and their impact on both baby boomers and Generation Xers, who are following right behind. The bottom line (emphasis mine):

“Overall, 25-27 percent of baby boomers and Gen Xers who would have had adequate retirement income under return assumptions based on historical averages are simulated to end up running short of money in retirement if today’s historically low interest rates are assumed to be a permanent condition, assuming retirement income/wealth covers 100 percent of simulated retirement expense.”

It is a sad day when people who thought they’d saved enough realize they have not. Run your personal retirement projection annually to make sure you’re keeping up with the times. Otherwise you may have to work longer or step down your retirement lifestyle—drastically.

Thinking you can continue working as long as you wish. While age discrimination is illegal, you may not be able to work forever. If illness doesn’t push you out the door, your employer might downsize (we all know who goes first) or buy you out with a lucrative lump sum.

Many companies want older employees off the payroll because their healthcare costs are high; plus, they are often at the top of the salary scale. More than one employer has made the workplace so uncomfortable that an older employee felt he had to quit. Other employers will systematically build a case to terminate a senior employee with their legal team waiting in the wings to help.

Whatever the reason, you may have to stop working even if you enjoy your job, so plan for it.

Not increasing your rate of saving. A surefire way to end up short is to pay off a large-ticket item like your home mortgage and then continue spending that money every month. Start paying yourself instead! Don’t prioritize saving after it’s too late to benefit from years of compounded interest.

Continually taking equity out of your home. Too many of my friends have been duped into taking out additional equity when refinancing with a lower-interest mortgage. If you can secure a lower rate, use it to pay off your home off faster. When you have, start making those payments to your retirement account.

Retire with a substantial mortgage. The general rule of thumb is your mortgage payment should be no more than 20-25% of your income. If you retire and still have a mortgage, it might be tough to stay within those guidelines.

Taking out a reverse mortgage at a young age. Debt-laden baby boomers are taking out reverse mortgages at an increasingly younger age. Just read the HUD reports. Many have very little equity to begin with and use a reverse mortgage to stop their monthly bank payments for pennies in return.

Locking yourself into a fixed income at a young age is a great way to kiss your lifestyle goodbye. Many of these young boomers will find themselves wondering, “Why is there is so much life left at the end of my money?”

Putting your life savings into an annuity. While annuities have their place in a retirement portfolio, going all in is dangerous, particularly at a young age. After all, your monthly payment depends in part on your age.

I know folks who put their entire life savings into variable annuities. They thought they were buying a “pension plan” and would never have to worry again. The crash of 2008 slashed their monthly checks, and they have yet to recover. Retirement without worry is not that simple.

Thinking your employer’s retirement plan is all you need. The era of pensions is gasping its dying breath. We have many friends who retired from the airlines with sizable pensions. When those airlines filed for bankruptcy, their pensions shriveled. No industry is immune to this danger, so we all need a backup plan.

Government pensions are following suit. Just ask anyone who has worked for the city of Detroit! While the unions are fighting the city to preserve their pensions, an initial draft of the plan indicates underfunded pensions (estimated at $3.5 billion) may receive $0.25 on the dollar.

Don’t fall for the trap! If you work for the government, you still need to save for retirement. Contribute to your 457 plan or whatever breed of retirement account is available to you. The federal government has over $100 trillion in unfunded promises, and many state governments are woefully underfunded. That doesn’t mean your retirement has to be.

Reverse mortgages and annuities are often the undoing of many income investors and retirees. They can be used properly, however, if your situation or the opportunity fits with your needs. With all of the misinformation out there about these two products, we decided to pen two special reports to help you decide whether these are right for you. They are The Reverse Mortgage Guide and The Annuity Guide. Check out one – or both – today and learn where, if at all, these fit your needs.

The article 10 Ways to Screw up Your Retirement was originally published at Millers Money

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Six Traits of Successful Retirees

By Dennis Miller

When I coached baseball many years ago, a young ballplayer came to me asking for advice. I offered my opinion: he needed to get his act together. Then, like many young men might do, he griped about me to one of the other coaches. Our paths crossed again when he was 28 years old, at which point he said, "Now that I have a family of my own, I've thought back on your 'lectures' and realized you were just answering my questions honestly. Thank you."


Not surprisingly, my lectures as a coach weren't so different from those I'd received from a WWII colonel turned coach and teacher at my high school. The only difference: I never asked for his opinion, it was offered as he held my shirt collar. Still, when I came home on leave from the Marine Corps a few years later, I showed up at my old high school, walked onto the practice field, and thanked him. He was a solid mentor when I needed one but was too young to know it.

Years later, as a retirement mentor, I've spent countless hours analyzing the habits shared by successful retirees. Six stand out, and I urge all of our readers to take these steps sooner rather than later. I'm not going to grab you by the shirt collar like my coach did, but I'm confident you'll find this "lecture" worth reading.

1. Cut the financial cord with your children. All parents have one basic responsibility: to equip their children to survive on their own, both emotionally and financially.
   
   Retirees are often the wealthier members of an extended family, or they are perceived as such. But having money does not make you a bank. If a family member needs money, let him or her borrow it elsewhere. The wealth you've accumulated has to last you the rest of your life. The best way to remind your family and yourself of this simple fact is to simply say "no."
   
   Of course, some accidents and disabilities cannot be prevented, and there are times to rally behind family members truly unable to put a roof over their heads or food in their bellies. But for every truly unavoidable catastrophe, there are dozens more instances of parents enabling a freeloader.
   
   You've worked too hard to sacrifice your financial independence and give up your golden years. Even if you have enough to support two generations indefinitely, being the "Bank of Parents" won't help anyone in the long run.
2. Be your own "pension fund" manager. Independence is the real goal of retirement. That means listening to experts, but also learning to make savvy financial decisions for yourself.
   
   Today, pensions are virtually nonexistent in the private sector. Soon they won't exist in the public sector either. So all of your retirement, including saving, investing, debt reduction, tax planning, estate planning, is up to you.
   
   There's a lot to learn, but the information is there for the taking. I've known too many people who retired with a large chunk of change only to panic because they had no clue how to manage it. These folks were afraid, rightly so, because their lack of financial know how made them vulnerable.
   
   Give yourself a financial education while you're accumulating wealth so you can enjoy that wealth once you retire. Otherwise, you might leave a high stress job for a high stress retirement.
3. Maximize your tax-preferred retirement savings. Only 10% of those eligible for employer-sponsored 401(k) programs maximize their contributions. There are real financial benefits to contributing to your 401(k), and it's a mistake to turn down that free money, especially if your employer will match all or part of your contributions.
   
   In that same vein, tapping into retirement accounts to pay off bills is almost always a mistake. Unless you absolutely need the money for basic survival, you're much better off leaving your retirement money alone. Like many things in life, once you tap those funds, it gets easier and easier to do it again.
   
   Before Congress passed the first Social Security Act in 1935, retirement was for a wealthy few. Since then, Social Security has fostered the illusion that we need not worry about money and that retirement doesn't require a large personal nest egg. Reality is far harsher.
   
   I know people who've tried to live on their Social Security alone; now they are all back at work. A happy retirement rarely comes for people who choose to worry about retirement later.
4.  Get out of debt. Many retirees are drowning in debt. It's a topic we touched on in The Reverse Mortgage Guide when discussing why seniors are turning to reverse mortgages at an increasingly younger age.
   
   Independence is pretty hard when you don't have any money. And don't fool yourself: if you have a million dollars in your brokerage account and a million dollar mortgage, you're broke. Forget all the fancy formulas. When you stop paying people to rent their money, that's when real wealth building can start.
5. Get some professional help. Even if you have a small nest egg, I strongly recommend going to a professional certified financial planner (CFP) for a regular checkup. I don't mean pay someone to manage your money, although that is an option. Much like an annual physical, however, we can all benefit from an independent, qualified professional assessing where we are and how to stay (or get) on course.
   
   The checkup might cost a few hundred dollars, but it's money well spent. Retirees cannot afford to be penny wise and pound foolish.
6. Get in synch with your spouse sooner rather than later. During your working years, you trade time and expertise for money. For most folks, the goal is to save enough so that they don't have to work full time to survive. Then, during retirement you trade money for time to pursue other interests. Sad to say, many people struggle to pinpoint what those interests are once they get there. One spouse might want to travel while the other is a homebody, etc.
   
   Retirement is no fun if only one spouse is living their dream. Happier couples talk and plan how they want to spend their time long before retirement day.

As someone in or approaching retirement age, you've lived long enough to be a mentor in some area of life. So you already know that mentoring is about telling people what they need to hear, whether it's on the baseball field, in the boardroom, or at the kitchen table (where most life lessons are learned).
I urge you to pass your own "secrets to success" on to the next generation; they will thank you for it… eventually.

In addition to our regular weekly and premium monthly issues, we've been hard at work producing a series of special reports on need to know retirement topics: financial advisors, reverse mortgages, income-producing stocks and low-fee ETFs, to name a few.

You can download each of these timely special reports individually; or, if you really want to kick start your financial education, you can begin your Money Forever premium subscription now and receive access to all of our special reports, our current issue, and the Money Forever archives.


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