Search results matching tag 'Retirement'

On the road to financial independence

Karen Datko — Mon, 14 Sep 2009 13:12:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

It's been a long time since I wrote about the general state of my financial affairs. A few readers have written to express concern that I've lost my way. I haven't. If anything, I'm more devoted to this stuff than ever.

But as I wrote earlier this year, I've entered a different stage of money management. During the first two stages of personal finance (debt elimination and establishing a foundation), things happened quickly. They did not seem quick at the time, but they were.

Now I'm in the third stage of personal finance. Progress is steady, but there's not a lot of scenery. Have no fear: I'm still on the road to financial freedom.

Starting with quick wins
When I started paying down debt, I achieved a lot of quick wins. I'd pay off one debt, and then nix another a few months later. Back then, time seemed to drag -- no question -- but in retrospect, my progress was constantly visible. Even if I wasn't writing the final check for my computer loan in a particular month, I could see that my debt snowball had reduced the balance by a significant amount.

When I made frugal changes to my life, I could see the results immediately. Cut my television bill? Fifty bucks a month in my pocket. Cancel the magazine subscriptions? More money for me. And as I gradually weaned myself from bookstores and comic shops, my positive cash flow grew faster than I imagined possible.

By giving up certain things I had thought were necessities, I was able to find more money to throw at my debt, which just accelerated the entire process. As I say, progress seemed slow when I started, but I was actually reaching new landmarks all of the time.

The third stage of personal finance
Today I'm in a different place. I no longer reach significant milestones every month. It's more difficult to find new ways to be frugal. That doesn't mean I'm not making smart choices, that I'm not making progress. I am. It just means that the landmarks are spaced farther apart. Here are some of the things I've done (or continue to do):

I've eliminated my debt.
I've amassed a $20,000 emergency fund.
I'm maxing out my retirement plans. (And I've begun to invest outside them.)
Kris and I have accelerated our mortgage payments.
I was able to purchase a used Mini Cooper with cash.
This year I will earn more than I've ever earned in my life.
And still, Kris and I continue our frugal ways.

All of these things are fantastic. I'm ecstatic to have turned my financial life around. Recently Kris said, "You're not even the same man you were five years ago. You're like the new and improved J.D. I like it."

She's right.

I feel like I've reached a sort of financial nirvana. I'm not financially independent -- but that doesn't matter. I'll get there. Meanwhile, I no longer experience the guilt of overspending. Though I do make the occasional financial mistake, I'm no longer in danger of overdrafting my bank account. I don't incur late fees. I have enough money to indulge myself.

This feels good. This is what it's like in the third stage of personal finance.

The road ahead
My journey isn't over. My financial engine is humming smoothly. I'm ripping down the highway of life on the road to financial independence. There aren't many landmarks to share right now, but I know there are many ahead.

More than that, there are new paths to explore. I'm eager to discover (and to share) tips for those who have mastered the basics of personal finance. How does one buy municipal bonds? Is real estate a practical investment for the average Joe? What's the best way for me to use my money to help others? What can we do to optimize our financial systems? How can we boost our incomes while remaining frugal? How can we keep our psychological weaknesses in check?

And at the end of it all, there's financial independence. Will I ever reach that goal? If you had asked me five years ago, I would have said "never." Now, though, I'm more optimistic. It may not happen this year. And it may not happen next. But I think I'll get there before traditional retirement age.

It's not my goal to gloat or to brag or to have you write "Great work!" My goal is to show what can be done through hard work and perseverance. It's true that we're all different and that we all start from different places. But I sincerely believe that given enough time, nearly everyone can get rich slowly.

I am doing it, and so can you. I'll be here to help you find the way.

Related reading at Get Rich Slowly:

Saying goodbye to 20 years of debt

Mortgage prepayment made easy: How to own your home in half the time

Financial independence: The final stage of money management

Preparing for the worst

Karen Datko — Wed, 26 Aug 2009 16:35:00 GMT

This guest post comes from "vh" at Funny about Money.

If you were killed or incapacitated in a car accident, if you had a stroke or heart attack that put you out of commission, would the people who had to take over your affairs know where to start?

Would they know where your bank accounts are? What insurance you have? Where your paycheck is deposited? What bills have to be paid? And if you have minor children, will friends, relatives, or the authorities know where you want the kids to stay?

If the answer to any or all of those questions is either "no" or "I dunno," now is as good a time as any to start writing down the answers.

I'm in the process of compiling a complete record of all the things my son will need to know if anything happens to me. It's a pretty big job, one that will take several days to complete. The product will be two three-ring binders, one to keep at his house and one to keep at mine.

Here's what's going into it:

My employer

Health care card (whereabouts, ID number, group number).

User names and passwords*.
URL of page to access pay information*.

Amount of my salary.
Benefits.
COBRA and how to get it.

Community colleges

Salary for adjunct teaching.

User names and passwords*.
URL of page to access pay information*.

Insurance: vendors, policy numbers, and telephone numbers.

Health.
Life.

Including credit union and other groups with membership policies.

Homeowners.
Automobile.

Credit union

Accounts.
Direct deposits.

Automatic transfers.
Location of statements.
User name, password, and URL for online access*.

Automatic bill payments.
Hard-copy bill payment.
Credit card payments.

Credit cards

List of credit card issuers and customer service numbers.
Photocopies of cards, front and back.

Social Security

List of necessary documents, and where to find them.
Instructions for how to get SS started.
Phone number and address of local SS Administration office.

Medicare

Documents needed to start Medicare; location of originals.
Information on how it works.
Instructions for what is desired.

Investments

Whereabouts of statements.
Contact and phone number at management firm.
Usernames, passwords, and URLs for online access*.

Financial records

Personal.

Excel.
Quicken.

Corporate.

Excel.
Quicken.

How to generate tax reports in Quicken and Excel.

Lawyer/tax preparer

Name, phone number, e-mail, and address.

Taxes

Whereabouts of past income tax returns.
Taxes for S-corporation.
Property taxes; fund for paying.

Deed to house

Will

Living Will

Doctor

Name, phone number and address.

Dog

Feeding, care, eccentricities.
Veterinarian's name, phone number and address.

Downtown house

Loan documents.
Homeowners insurance policy.
Legal documents.

Blog

Username, password, and URL for dashboard*.
Adsense.

Username, password, URL*.
Arrangements for pay.

Bluehost

Username, password, URL*.
Name and contact of tech consultant.

Freelance clients

Names, phone numbers, e-mails.
Instructions to advise that deadlines will be missed.
Where to find work in progress.
Name and e-mail for subcontractor(s).

Final arrangements

How to dispose of the remains.

* Important: Don't save any pages with this information to a computer or a flashdrive. As soon as I finish typing a section, I print two copies for the two binders and then close the file without saving. Another strategy: Simply delete the sensitive information before saving to disk, but be sure you've erased every reference to a Social Security number, user name, password, or any other vulnerable data.

Kids

If you have minor children, you should make arrangements for someone to care for them should both parents be killed or incapacitated -- something that could easily happen in a car wreck. Decide who should be the caretakers and discuss it with them. Once they've agreed to take responsibility for your children in an emergency, put it in writing. Have them sign it and you sign it in front of a notary public. Give them a copy and keep a copy for your own records. If the person who will take charge of your affairs is different from the person or couple who will care for the kids, be sure that person also has a copy.

You should also name the desired child caretakers in your will. The person who is to take charge of your affairs should be named as your will's executor, unless your lawyer advises otherwise.

If you have sole custody of children from a divorce and you do not want the children's other parent to assume custody in an emergency, you should state the specific reason that this is undesirable (abusive? drug user? alcoholic?) in the document that designates the emergency caretaker.

Security

By the time you finish, this binder will contain some very sensitive information. You don't want it to fall into the wrong hands. My son is very responsible, and so I feel comfortable about giving him a binder full of printouts containing my Social Security number, usernames, and passwords. However, my name and address will not appear in the thing. If your adult children can't be trusted, consider hiring a lawyer to handle your personal affairs and storing the information at her or his office. Alternatively, choose a trustworthy friend or relative, ask him or her to take charge in an emergency, and give that person the information.

Surprising, isn't it, how much a person needs to know if she or he is to take over your personal affairs in a pinch? My life is quite simple: no minor children, no child custody decrees, no alimony or child support, uncomplicated investments, no special health care issues, no homeowners association, no mortgage or rent, no employees, no vacation home, or the like. The data of a young or middle-aged couple or a single parent would be considerably more involved.

As circumstances change, you'll need to remember to update certain pages. If you've saved those pages that contain no sensitive information, this task should be fairly easy. If not, you'll have to retype entire pages -- a hassle, but better than having them reside on a computer that could be hacked or stolen.

Plan to spend several days to a week thinking through and compiling the information another party would need to access important accounts; pay your bills; get your insurance to cover your costs, or collect life insurance; deal with doctors, lawyers, and your employer; care for your property; and find accommodations for your children and pets. With any luck, it won't be needed. But if it ever is needed, someone will thank you.

Related reading at Funny about Money:

Earth to GOP: Define health care ‘rationing' ... rationally, please

A$k ...

Car upkeep!

Burial plots for sale and other morbid trends

Karen Datko — Tue, 25 Aug 2009 16:46:00 GMT

Even death can't take a holiday from the great recession. Consider:

More people are selling family burial plots to cover living expenses (unlike the Beverly Hills woman who auctioned off a crypt above that of Marilyn Monroe -- see below).
More people are dying broke and are cremated or buried at potter's field -- because their families are too strapped to help out. "This problem used to be unique to just indigents who either had no family or were living on the street or homeless," P. Michael Murphy, the county coroner in Las Vegas, told Time. "We are now seeing folks expressing this concern who are recently unemployed or their house is in foreclosure ...."

No firm statistics are available on how many people are selling burial plots, but the number of for-sale-by-owner and plot brokerage Web sites is a good indication.

"Baron Chu, owner of California burial resale site Plot Brokers, says listings have grown at least tenfold in the past year," Las Vegas Sun reporter Abigail Goldman wrote.

(We even found a site that suggested you buy burial plots now and resell them later at a profit. That's cold.)

Often the people who are selling are desperate for cash. Debbie Jenkins, who'd lost two homes to foreclosure and was living in an unheated garage, advertised two plots -- for more than half off the $8,000 they were worth -- on Craigslist, according to The Washington Post. "Shoot, I'd probably sell them for $1,500 to be able to eat or fix my car," she said.

Meanwhile, hard evidence mounts that more people are being cremated or buried by their local county as indigents.

Las Vegas: The number of indigents buried or cremated by Clark County, Nev., grew by 22% in the last year, Abigail reported in another Las Vegas Sun story.
Detroit: "Across the board, I'm finding the numbers are on the rise of either families who are not coming forward to claim bodies or they're signing releases saying they can't afford to bury someone, which taxes the county resources because then the county is responsible for burying these people," Albert Samuels of the medical examiner's office in Wayne County, Mich., told Time.
LA: The Los Angeles Times reports, "The county morgue, which is responsible for the indigent and others who go unclaimed, saw a 25% increase in cremations in the first half of this year over the same period a year ago, rising to 680 from 545."
An Associated Press story noted an increase in Ohio, North Carolina and West Virginia.

What do you need to know in these situations?

Don't expect the cemetery to buy a burial plot back, and don't count on a quick sale. Abigail said the average time a gravesite spends on the market is 15 months.
Cremation generally costs $500-plus, and the median cost of a traditional funeral is $7,300, according to AP. The no-frills county service costs taxpayers about $150 for cremation and $1,400 for burial. For more information about your options, visit the Funeral Consumers Alliance Web site.
If you are planning a funeral, keep it simple if cost is a concern. Read "A funeral needn't be costly."

For levity's sake, we'll mention the story of Elsie Poncher, who auctioned her husband's crypt on eBay so she can retire the mortgage on her Beverly Hills home. The crypt, purchased from Joe DiMaggio years ago, is prime real estate, right above Marilyn Monroe's resting place.

The LA Times reports that the highest bidder, at $4.6 million, subsequently backed out. Other high bidders are being contacted. Poncher's husband will be moved to the crypt purchased for her. She's opting for cremation.

Related reading:

Plan a funeral for $800 or less

Steps you must take when someone dies

Plan -- and pay for -- your own funeral

A funeral needn’t be costly

Karen Datko — Fri, 07 Aug 2009 12:58:00 GMT

This post comes from partner blog The Dough Roller.

The memorial for Michael Jackson cost the city of Los Angeles $1.4 million, according to The Associated Press. While most of us won't be remembered at the Staples Center in front of 11,000 people, funerals are expensive.

According to the Federal Trade Commission, a traditional funeral costs about $6,000, and many funerals run well over $10,000. Costs include the casket, embalming, the service, cemetery site, and grave liner. In short, death is big business in the United States.

Bing: Find out more about funeral costs

And to make matters worse, most of us plan a funeral while dealing with the emotional trauma of the death of a loved one. We find ourselves making important financial decisions in the midst of an emotional crisis with very little time to consider our options. Our sadness for the loss of a loved one, moreover, sometimes expresses itself in high cost funeral decisions.

With a little effort, however, we can plan a respectful memorial without breaking the bank. What follows are a number of tips, resources and links to help you plan a low-cost funeral.

Know the Funeral Rule

The Funeral Rule, which is enforced by the FTC, requires funeral directors to provide you with certain information. For example, if you ask in person about funeral arrangements, the funeral home must give you a written price list of the goods and services offered by the home. The idea is to prevent a funeral director from showing you only the goods or services he or she wants you to purchase. And if you want to buy a casket, the funeral provider must show you descriptions of the available selections and the prices before actually showing you the caskets.

Here are some additional requirements of the Funeral Rule, as stated by the FTC:

You have the right to choose the funeral goods and services you want (with some exceptions).
The funeral provider must state this right in writing on the general price list.
If state or local law requires you to buy any particular item, the funeral provider must disclose it on the price list, with a reference to the specific law.
The funeral provider may not refuse, or charge a fee, to handle a casket you bought elsewhere.
A funeral provider that offers cremations must make alternative containers available.

The FTC offers additional information on the Funeral Rule.

Here are other things to consider:

Direct burial or cremation. With direct burial, the body is buried shortly after death. A direct burial avoids the cost of embalming, and a memorial service can still be held at the cemetery or after the burial.

Likewise, direct cremation occurs shortly after death. As with direct burial, direct cremation avoids the cost of embalming. It also avoids the cost of a casket.

Keep in mind that state laws vary on whether the deceased must be embalmed. In some instances, it depends on how quickly after death the body is buried. Here's one resource that lists the state laws on embalming.

Caskets. The cost of caskets can range from a few hundred dollars to several thousand dollars. The average casket costs about $2,000, although some mahogany, copper, and brass caskets can exceed $10,000. According to the FTC, "Industry studies show that the average casket shopper buys one of the first three models shown, generally the middle-priced of the three."

If you've opted for direct cremation, the only purpose of the casket is to transport the body to the crematory. Some funeral homes even rent caskets for this purpose. And if you've elected for direct burial, a simple casket can be purchased for about $1,000. In addition, you don't have to buy the casket from the funeral home. Shop around, and if the best deal is found somewhere else, the funeral home must be willing to use the casket without an additional fee.

Veterans. All veterans are entitled to a free burial at a national cemetery and a free grave market. This benefit also extends to spouses and dependent children, to some civilians who have provided military-related service, and to some Public Health Service personnel. You can find more information by visiting the Department of Veterans Affairs' Web site or calling (800) 827-1000.

Additional resources

Here are some additional resources that you may find helpful in planning a low-cost funeral:

Related reading at The Dough Roller:

Freecreditreport.com vs. myFICO.com: Do you know the difference?

Citi college student credit cards offer double rewards

Best Web hosting for blogs and small businesses

Should you borrow to repay a 401(k) loan?

Karen Datko — Fri, 31 Jul 2009 13:33:00 GMT

This post comes from partner blog The Dough Roller.

One of the features of many 401(k) retirement plans is that you can borrow money from your own account. While 401(k) plans are not required to permit plan participants to take out loans, many plans do.

Much has been written about the pros and cons of 401(k) loans. One of the potential drawbacks comes into play if you leave your job (voluntarily or otherwise) while you still have an outstanding loan from your 401(k) plan.

When this happens, you generally have two options: Pay back the loan in full within 60 days, or don't. If you follow the second option, the IRS will treat the loan as an early withdrawal from your 401(k) plan and, with some exceptions, smack you with a 10% penalty of the outstanding loan amount AND require you to pay taxes on the distribution.

Thus, you could easily end up paying 30% or 40% of the outstanding loan amount in penalties and taxes. It goes without saying that failing to pay back the loan can be a costly decision.

A problem that often arises, however, is that folks want to pay back the 401(k) loan, but can't afford to do so. Particularly in difficult economic times, many people are let go and lack the available funds to repay the loan. And that raises an important question: Should you borrow to repay a 401(k) loan?

The short answer, in my opinion, is absolutely yes. And to my surprise, it's also Dave Ramsey's advice, and we all know how much he preaches against nonmortgage debt. Between the taxes and penalties you'll owe if you don't repay the 401(k) loan, the cost will almost always be greater than a short-term loan at reasonable rates to repay the 401(k) loan. In addition, by not repaying the 401(k) loan, you forever remove that money from your retirement investments, thus losing the tax-deferred return on your 401(k) investments forever.

But the question still remains, where should you look to borrow money to repay a 401(k) loan? Here are a few alternatives:

Home equity line of credit. Perhaps the first option would be to tap a home equity line of credit. Equity lines generally come with reasonable interest rates and are easy to access.
0% balance-transfer cards. Another potential option is to take advantage of one or more 0% balance-transfer offers. Before going this route, however, make sure you can pay off a 401(k) loan with the balance-transfer card. Also keep in mind that the introductory rate periods are now generally just six months. After that, the interest rates adjust to whatever regular APR applies to the card.
LendingClub. LendingClub offers unsecured loans up to $25,000. Depending on your credit history, credit score, and other factors, you can obtain a loan at a reasonable interest rate. All loans must be repaid over three years, although you can choose to pay off the loan sooner.
Unsecured line of credit. You can obtain unsecured lines of credit from most banks and credit unions. Interest rates will vary significantly based on your credit history. I have an unsecured line at Citibank that I rarely use, but it does come in handy for short-term loan needs.

What's your take? Should you borrow to repay a 401(k) loan if you don't have the funds available to repay the debt?

Related reading at The Dough Roller:

OptionsHouse review

The college student's guide to credit cards

Balance-transfer smackdown

For many, retirement comes too soon

Karen Datko — Wed, 22 Jul 2009 16:18:00 GMT

Grace of GRACEful Retirement is 60 years old, and she plans to work for nine more years. Otherwise, she won't have enough savings for even a modest retirement.

So a recent study was sobering news for her: Nearly half of retirees leave the workforce earlier than planned.

Here's how she summed it up: "Job loss, age discrimination, family duties (such as caring for a spouse or one's parents) or a personal health crisis make a mockery of well-laid plans."

The study, by the Employee Benefit Research Institute and Mathew Greenwald & Associates, found that 47% of retirees left work earlier than they had intended, wrote Emily Brandon at U.S. News & World Report. About 42% of those folks were forced to quit because of health-related issues, and about a third retired early because their job went away. Another 18% had to care for an ailing family member.

Only 10% of those surveyed mentioned only positive reasons when they explained why they retired earlier than planned.

The numbers look even worse for Grace. About 21% planned to work to age 70 or older, but only 5% actually reached that goal.

What's a person to do? Grace is pursuing frugality and reducing debt. Her blog is full of examples of her resourcefulness. In one recent post, she explained how she circumvented Bank of America's plan to add a monthly fee to her "senior" account. In another, she related how she's using a 0% balance-transfer credit card to slice $466 from her credit card debt.

But she admitted the study is somewhat depressing. "It gives me pause to contemplate all the things that can go wrong between now and age 69," she wrote.

7 steps to a successful ‘unretirement'

The hidden threats to your nest egg

Money doesn't buy happiness in retirement

Annuities and baby boomers

Karen Datko — Mon, 20 Jul 2009 20:45:00 GMT

This guest post comes from Frank Curmudgeon at Bad Money Advice.

I'd been hoping for a Brett Arends column I could say something nice about, and I got my wish in the form of "Baby boomers to kids: Kiss your inheritance goodbye." The theme of the article, or the first few paragraphs anyway, is the trend of dropping a nice inheritance for the kiddies from the retirement plan in reaction to the market swoon.

I myself am just a bit too young to be a baby boomer and my parents just a little too old, so I am merely an outside observer on this one. But I have to ask those kids of boomers out there: You were expecting to inherit something? From the Me Generation? Really?

A few paragraphs into Arends' column, he abruptly starts talking about annuities. This may seem like a non sequitur, but it follows nicely from the idea that retirees may be jettisoning the legacy for the children from their planning.

One of several big challenges in planning for retirement is what is known as longevity risk. You don't know how long you will be around to draw from your retirement kitty, so there is no way of knowing how much you can draw. Draw too quickly and you will run out of money, too slowly and you will miss opportunities to enjoy the material world.

This being a sophisticated capitalist society, there is a product specifically designed to solve this problem. It is called an annuity. To be more precise, you could buy a single-premium immediate lifetime fixed annuity on the day you retire. It will pay a set amount of money each month for the rest of your life, no matter how long that is.

An annuity is like a backwards life insurance policy. Instead of making periodic payments until your estate gets one large payment when you die, you make one large payment to begin with and receive periodic payments until you die.

Considering what a near perfect solution annuities are to a common and serious problem, it may be that the most remarkable thing about them is that they are not very popular. Most annuities sold in the U.S. today are an entirely different animal, something called a variable annuity, a complex beast invented in the 1950s which is really a tax-deferred savings scheme and offers no help with longevity risk. The centuries-old kind of annuity that pays out for a lifetime is a comparatively rare item.

There are several reasons annuities are not more popular, but a big one is that, when you get down to it, retirees do not want to die broke. They may not say that out loud. Most mainstream retirement advice politely assumes that the goal is to avoid running out of money, but says nothing of the obvious side effect, that if you do not run out of money you will leave some to your heirs.

Perhaps people find it embarrassing to say that they would like to leave money to others, presumably their children, when they go. They may think it sounds un-American or implies that there is something lacking in their offspring. But, recent events notwithstanding, most do want to do it and that is why the generally preferred solution to longevity risk is not purchasing an annuity but saving more money than is likely to be needed in retirement. Longevity risk for many is one-sided. There is the worry of outliving savings, but having money left over is a good thing, not a missed opportunity.

When the markets go down and amassing more than will probably be needed in retirement looks unlikely, annuities enjoy a vogue, at least in as much as they get talked about more. But those are exactly the times in which annuities are expensive, because those are periods in which long-term risk-free interest rates, which drive annuity prices, are low.

Better wait a few years for things to return to normal. Of course, by then you will have enough optimism to believe that you can build up a nest egg too large to outlive, which will leave the little dears a little something after all.

Related reading at Bad Money Advice:

When to start collecting Social Security

Swoopo: Entertaining yes, shopping no

Roll your 401(k) over into an IRA

Retiring to a small town or rural area

Karen Datko — Mon, 06 Jul 2009 15:35:00 GMT

This guest post comes from Mr. GoTo at Go To Retirement.

Our vacation home is on a lake in a rural area. The nearest small town is a 20-minute drive. Although we do not live on a farm or have lots of land, it is a country lifestyle with a waterfront bonus. When we spend time here, I often think about the positive and negative aspects of retirement in a small town or rural community.

Benefits

Our neighbors across the street retired years ago and live at the lake full time. Our neighbors next door are retiring this summer and plan on living at the lake after they sell their city home and farm. That has caused me to think even more about the combination of small town country living and retirement for us.

Cost of living. Food is more expensive in our local grocery stores. If we were to drive another 30 minutes, we can find larger chain groceries with lower prices. When we start living here for longer periods, that might make sense.

Everything else that we buy in our rural community seems to be less expensive, including utilities, insurance, and maintenance services. I think that a lot of that is related to real estate. The land is cheaper, houses cost less, and property taxes are lower compared with city living. This flows into all other cost-of-living categories.

Peace and quiet. I can sum up this benefit this way: Without fail, I sleep much better at the lake than I do at our home in the suburbs. There, sleeping past 6:30 a.m. is a rarity, even on weekends. Up here, I routinely sleep until 8 a.m. or later.

It is quiet here -- less noise pollution from people and things around us. There is also less light pollution. At night, the biggest glow is from the moon and stars, sometimes reflecting off the lake. I don't think that we as city dwellers understand how sound and light distractions affect us physiologically. Being in the country calms our bodies.

The pace of life. Life slows down in rural areas, and generally not in a bad way. My thinking about this phenomenon is that it comes down to geography and practical living. For most country folks, it takes longer to get from one place to the other. This causes you to not go there as often. You stay around home more, resisting that large-city temptation to go shopping or go "somewhere." Out here in the country that "somewhere" is a lot farther away. Although it is sometimes inconvenient to drive 25 minutes to a hardware store or grocery, I like the overall slowness of rural living.

The people. To me, this is the biggie. The people up here in rural Kentucky are just plain nice. It's as simple as that. Our neighbors here are genuinely friendly and helpful. In the city, some neighbors are friendly, some are competitive, some we don't even know.

There were two examples of this recently. First, I saw a truck on our little street looking for a neighbor's house so the driver could provide an estimate for a gutter repair. I flagged him down, pointed out where the neighbor lived, and asked him to come by when he was finished there. I had a small section of gutter that was torn off in our ice storm earlier this year.

He came back later, saw what was needed and said it was so small, he would do it for free when he came back to fix my neighbor's gutter. And that's not the first time that has happened.

Later, I saw a pile of gravel in front of a nearby vacant lot. I asked my neighbor who owned the lot if I could buy some of the gravel to finish my retaining wall project. She said to just take what I needed, for free. Another neighbor heard me ask. A few minutes later, he drove over with his utility vehicle and some buckets and volunteered to help me transport the gravel.

I just appreciate the genuine reality and kindness of small town and country folk. I can overlook a lot of negatives in rural retirement based on the people alone.

Disadvantages

It is easy to identify two of the prominent drawbacks of retirement in the country, although they haven't really affected us.

Transportation and travel. Although it is easy to get to our lake house by car (we are only nine miles from an interstate), flying somewhere takes effort. The nearest major airport is 90 minutes away. This makes it more inconvenient for us and for long-distance visitors. I think this is something I can handle.

Medical care. Routine health care and a small county hospital are 25 minutes away. A 911 call would probably bring an ambulance in 20 minutes. The nearest major medical center is 90 minutes. Thus, if one of us had a serious health problem, we would be traveling quite a bit. That is something to worry about but not yet. If a problem like that develops, we will deal with it then. I cannot see making a retirement decision now based on something bad that might happen in the future.

Cultural amenities. If you are big on pro sports, museums, fine dining, and the like, then rural living is not for you. I like all of these things but not enough to keep me tied to a city. As long as I have the time and money to experience city culture now and then, that suits me fine.

Final thoughts

I will be the first to concede that I have a lot more to learn about this subject, for the simple reason that we haven't retired yet. But so far, I cannot see any real obstacles to my enjoyment of retirement in a small town or rural area.

Do any of you have any insight for me?

Related reading from Mr. GoTo:

Equity indexed annuities: Problems, risks and benefits

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Are 401(k)s a bad idea?

Karen Datko — Thu, 07 May 2009 17:48:00 GMT

This guest post comes from Frank Curmudgeon at Bad Money Advice.

A reader named Trent pointed me to a story that "60 Minutes" did recently, "Retirement dreams disappear with 401(k)s." It's not their best work, and I'm not one who thinks much of their best work.

Helpfully, the CBS Web site gives a near transcript of it, so I can easily quote the way over-the-top copy read by the reporter, Steve Kroft.

It was a gray, chilly morning in midtown Manhattan and a line of unemployed, mostly white-collar workers stretched for blocks around the Radisson Hotel. More than 1,000 middle managers, stockbrokers, consultants, secretaries and receptionists had come hoping to find a job.

It was called a career fair, but there was no merriment -- only a whiff of desperation.

Many of the people at the career fair have been out of work for months and burned through their liquid assets; their future, even bleaker than the present.

At the non-merry career fair Kroft interviews some late middle-age folks with bleak futures. (Something I can really sympathize with.) Kroft does get a few moments of moving video when an executive assistant with 30 years of experience pleads for somebody in the television audience to hire her. But that's not the fallout of the Wall Street implosion on which "60 Minutes" wants to report. This story is on 401(k)s.

Helpfully, these New Yorkers with bleak futures have brought their 401(k) statements with them to the career fair. And naturally, one of them has brought it unopened so CBS can share the drama of him opening it with America.

The poor guy is 60 years old, planned to retire at 62, and "nearly half of his life savings" has been lost. His 401(k) is off $140,000. Ouch. Was that all his savings? "60 Minutes" doesn't mention anything else. So he was three years from retirement and had only $280,000? In New York? I'm thinking (and hoping) there was more money in other accounts, but CBS is focused on 401(k)s and nothing will throw them off the scent.

For example, they pass up the story of how a guy in the final years before retirement could allocate his assets in a way that he could lose half his assets. It could be smugly assumed that he was foolishly aggressive in his choices, but I bet he didn't know any better. He didn't understand how aggressive he was being and how dangerous his situation was. How that could happen would have made a good story, but, alas, I digress.

This "60 Minutes" story is on how 401(k)s are a failure, and possibly a bad idea. According to them, 401(k)s "were never designed to be retirement plans in the first place." Or, to be more precise, it was just a part of a larger retirement plan, most of which was to be provided by government and paternal companies. "It was supposed to supplement the two traditional income streams for retirees -- Social Security and pensions."

This is hogwash. First, it was Social Security that was meant as a supplemental source of retirement income when it started. Second, corporate pensions were never as universal as nostalgia suggests. At their peak, which was a while ago now, less than half of American workers were covered by them. And third, although I don't know what was in the minds of lawmakers when the 401(k) law was enacted, in practice it is very explicitly thought of as a substitute for a pension plan and as far as I know this has always been the case in the corporate world.

People in the investment business call pensions defined benefit, or DB, plans and 401(k)s, IRAs and the like, defined contribution, or DC, plans. For decades now, there has been a movement away from DB to DC. It may have been under-reported by the media and under-debated as a policy issue, but it has been massive and almost universal.

Companies don't like running DB plans for two big reasons. First, they are hard and expensive to run. The company is forced into a sideline of being an insurance company and investment manager in addition to whatever it is that it does for a living. If the investments do poorly, or if retirees live longer than expected, then the company has to take more money out of the business to make up the shortfall.

But the other, and at least as significant, reason that companies don't like DB plans is that their employees don't like them very much either. Obviously, if given the choice between having a pension and not, everybody would choose to have one. But on a perceived-benefit-per-dollar basis, DB plans are a poor way to compensate your employees. From the workers' point of view, the pension benefit they accrue in a given year is often very abstract and uncertain. If they work some number of years, they will get some percentage of their (not yet known) final salary. If they leave the company after only a few years, which is statistically likely, they often get nothing.

In contrast, the benefits from a DC plan are immediately obvious to the worker. They get paid countable dollars that they can save in a tax-deferred vehicle. Often the company matches some of their contributions. Although those company matches sometimes have a vesting schedule, in general DC plans are completely portable, meaning that workers can take their savings with them when they leave the company.

The "60 Minutes" piece does all it can to portray the DB-to-DC conversion as another example of evil big business shortchanging the little guys. It may be that the little guy was indeed shortchanged by this, but what CBS is talking about is a huge demographic shift, not some small accounting trick. It would make as much sense to bemoan the decline in classified advertising in newspapers or the shrinking pay-phone industry.

And those little guys who are now worse off were willing accomplices in their own downfall. They were enthusiastic about having control of their own money, rather than trusting somebody else to take care of their retirement savings. But like a teenager desperate for a driver's license, craved freedom sometimes has tragic consequences. Many, out of ignorance, made foolish choices about how to invest their money. And many did not set aside enough money each year to begin with, choosing to convert what would have been their part of a DB plan not into a DC plan but into cool toys and fun vacations.

To me, what Americans did wrong managing their own retirement savings, and why, would have made a much better and more interesting story. Which is why I am not a television news producer.

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How to pick your first mutual fund

Karen Datko — Fri, 27 Mar 2009 13:37:00 GMT

This post comes from partner blog The Dough Roller.

Picking your first mutual fund is kind of like a first date -- scary at first, but later you wonder what all the fuss was about. And with the recent market volatility, investing in the stock market can be downright horrifying.

A couple years ago, a close relative spent some time with my family and me. We'll call her Susie (not her real name). Susie was 31, had one daughter (cute as can be), and had no retirement savings (not so cute). Her employer not only offered a 401(k), but also matched 100% of all contributions up to 6% of Susie's pay.

We got to talking about why she'd never starting saving for retirement, and her answer was illuminating -- she was intimidated.

Sure, there were times when money was tight, but one of the biggest hurdles for her was not knowing what to invest in. We spent about 30 minutes looking over her investment options, and I'm happy to report that she enrolled in her company's Fidelity 401(k) plan and began contributing 7% of her gross pay.

If you or somebody you know is in a situation similar to Susie's, this article is for you.

What's the biggest investing mistake you can make? As intimidating as picking your first mutual fund may be, the absolute biggest mistake you can make is not picking your first mutual fund. It's easy to put off retirement savings for another week, or another month, or another year while you think about your investing options. Susie's 401(k) had about 12 fund options, including stock and bond funds and a few lifestyle or fund-of-fund options (basically, a mutual fund that invests in other mutual funds rather than individual stocks). Picking any of those mutual funds would have been a better choice than not investing at all.

The point is, don't let fear or intimidation keep you from picking that first fund.

What should you look for in your first mutual fund? Assuming you have many, many years to retirement (which I hope, since this is your first mutual fund), at least two things will be important to consider in picking your first fund:

Diversification. A mutual fund that invests in a wide array of companies is a great choice for a first fund. Some mutual funds are limited to a specific industry, sector or geographic region. While these can be great funds as part of a larger asset-allocation plan (See my "Beginner's Guide to Asset Allocation" series), they would not be my choice for a first fund.
Cost. Cost is always important. For an S&P 500 index fund, look for costs to be less than 10 basis points (0.1%). For actively managed funds, I look for costs to be less than 100 basis points.

Two options

With these considerations in mind, here are two good choices I'd seriously consider today if I were starting out as a new investor:

An S&P 500 index fund is a great place to start. This was Susie's choice. Her plan offered a Fidelity S&P 500 index fund that costs just five basis points per year (0.05%). Remember that 100 basis points is equal to 1%. In other words, for every $100 Susie invests in this fund, the fund will charge her account 5 cents per year. And the fund provides instant diversification, as it invests in the 500 largest U.S. public companies. One thing to note is that the amount invested in each of the 500 companies is based on the market capitalization of the company, which I've written about before. What that means is that more will be invested in the larger companies in the fund than will be invested in the smaller companies.
Single-fund solutions. An index fund is not the only option. Another choice Susie had was to invest in a fund that owns other mutual funds. Fidelity calls them Freedom Funds while Vanguard has a similar set of funds it calls Target Retirement Funds. These funds provide a mix of domestic and foreign stock funds and bond funds all rolled into one. The mix is based on how many years you have left until retirement. The upside is simplicity: One fund and you're done. The downside is lack of control. You're basically limited to a few options. Again, not a bad choice, just not what Susie wanted.

Other options

There are other options, of course. Susie could have chosen the Fidelity Magellan Fund (FMAGX). The fund was closed to new investors at the time, although the option was available to her through her company's 401(k). Magellan is an actively managed large cap fund that may have seen its best days years ago under the management of Peter Lynch. My first mutual fund was Legg Mason Value Trust (LMVTX), another actively managed stock fund run by Bill Miller. Picking an actively managed fund, I believe, requires a lot more research than choosing an index fund or single-fund solution. So I think Susie made a great choice for her first fund.

If you are a beginner, I highly recommend the book, "The Bogleheads' Guide to Investing." I bought Susie a copy, which she promised to read. Along with the Fidelity S&P 500 index fund, she was off to a great start. If you're just beginning or know somebody who is, let us know how you picked your first fund.

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