Search results matching tag 'boomers'

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

Building a better CD ladder online

The other costs of home ownership

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.

Related reading at Bad Money Advice:

Our personal-finance problem

Fuzzy retirement math

First post in a series: Dave Ramsey

Dodging the parental boomeranger

Karen Datko — Wed, 25 Mar 2009 15:17:00 GMT

This guest post comes from Mr. ToughMoneyLove at Tough Money Love.

What goes around, comes around. How many times have you heard that phrase used as a subtle threat or reminder of another's misbehavior?

Boomeranger. That's a word that baby boomers invented to label -- in a semi-demeaning sort of way -- adult children who return to their parents' home to escape the realities of their own financial problems. (I actually don't think that all boomerangers should be demeaned, but that's another topic for another day.)

I have a new phrase to talk about: the boomer boomeranger.

Now that the retirement nest eggs of many baby boomers have been crushed by falling markets, some of those boomers are a future threat to boomerang on their adult children. Retirement Plan A (or for some boomers, Plan Zero) has failed. Retirement Plan B may become "mooch off my kids."

Mr. ToughMoneyLove has some thoughts about how to dodge a boomeranger parent. First, a little background.

A reader recently sent me a message about her adult son and his father (her ex-husband). Briefly, it went something like this:

I raised my son to be a good fiscal manager and he is. I counseled him against getting one of those college credit cards and he listened! He got a real job with excellent benefits and saves about 20% of his pay (401(k)). The problem, his dad, my ex, is a mess. A "self-actualized" boomer self-employed all his life, no retirement! Hasn't paid Social Security on his sole proprietor business in years, if ever. No savings, no health care (but many chronic illnesses), massive credit card debt (boats, vacations, exotic cars), tapped his home for cash until deeply underwater. He recently remarried to tap his new wife's retirement and medical benefits and now is busily running through her money.

Can you write to tell young adults how to ward off their spendthrift boomer parents from coming home to roost? Our son is a kind, responsible and conscientious only child and he will be heartbroken to see his dad's pitiful state in a few years, even though his dad will have brought it on himself. Hence, I search for words of wisdom to my son and other young people like him who have charming but deadbeat family members.

You have to appreciate a mom like this. I have to agree with her that a deadbeat charming father and a financially responsible, loving son form a high-risk combination. I'm guessing that Pops is licking his chops already, eyeing the son as a future source of support.

So what do we say to the son and to others similarly situated, anticipating that day when broke Dad arrives with the first of his schemes or money sob stories?

The quick and easy advice is: "Just say no." That advice is too quick and too easy. The parent-child relationship often carries too much emotional baggage. Feelings of obligation and guilt in the moment can quickly overwhelm reason and logic.

The proper strategy: A pre-emptive verbal strike

What kind of pre-emptive strike would work? To answer that (as the father of three adult sons of my own), I must put myself in the shoes of a deadbeat baby boomer. What would work for me and still preserve the father-son relationship?

First, calling me a deadbeat, mooch, leech, slacker, boomer fool, or other financial pejorative as a form of "shock therapy" will not work. There are certain boundaries in the parent-child relationship that should not be crossed, even in adulthood. In my family playbook, insulting your parent crosses that boundary, no matter how well deserved. You may keep your money but lose a parent.

Second, lecturing a potential parental boomeranger is unlikely to be successful. Tough love or not, we don't like being lectured to by our children, even if they know more than we do on the topic of concern. Many of us think that we retain the exclusive lecturing right in the relationship until death. Heck, some kids even hear their parents speaking from the grave (or at least hear them turning over).

Having excluded the "just say no," "leave me alone you bum," and "Dad, you better listen to me" strategies, what options are left?

The anti-parental boomeranger script

I suggest that the child gently confront the problem (i.e., open up the can of worms) early (and maybe often) by asking the parent what his/her plans are for eventual retirement. This should be a casual, matter-of-fact conversation. By asking about "plans," I mean the when, where and, most important, the "how" of retiring. The segue into the topic is easy. Just say something like this:

Dad, I have already started to think about and plan for my eventual retirement. I'm curious, what are your retirement plans -- how soon and where are you thinking about living when you retire?

I know that this should work because our sons ask questions of me like this regularly. (Not that they are concerned about us mooching off them, I hope.) It doesn't bother me at all to talk about it with them. I love thinking and talking about retirement.

Where the conversation goes next will depend on Dad's response to the opening gambit. The child's goal is to ease into the next question, which is directed at the critical "how" part of Dad's retirement. That will require another segue, to wit:

You know, my plan for financial security and eventual retirement involves frugal living, avoidance of debt, and maximizing contributions to my retirement plans. I think that should work, don't you?

At some point in here the parent may start pushing back with comments like "you're dreaming, son, if you think that you can get away with that" or "come on, spend your money, you only live once."

That's when you bring out the big guns and lay the foundation for your boomer boomeranger firewall:

Dad, I'm sure you will agree that things have permanently changed in our economy. All the experts are saying that what the baby boomer generation did with its money will no longer work for us. Now more than ever, adults have to be responsible for themselves and for their spouses and children. So that's what I am doing and will continue to do with my money. That way, I won't ever have to depend on you, Mom, or anyone else for help.

This may bring the conversation to a screeching halt. But that's OK, because the child said what needed to be said, without crossing problematic boundaries. The hope is that Dad will remember this pre-emptive conversation and never come to the child for financial support. I know that I would remember it.

So what happens if Dad nevertheless comes around with his hand out? This is where the child must stick to and recite the party line:

Dad, remember when we talked about my plans for my money, to take care of my future and my family's future? Well, I am sorry but all of my money is committed to that plan. You taught me to be responsible. I hope you will understand that is what I am doing now.

If Dad says, "I understand," drop it there and move on to another topic. If Dad perseveres and transitions to guilt-trip mode, you can backfill a little bit:

You know, I have some very good books on financial planning that really helped me. Why I don't I lend them to you to read.

Or,

I know an excellent financial planner (or credit counselor) who may be able to give you some advice on how to solve your problem. How about I set up an appointment for you?

And that's about all you should do for Dad. (Maybe you can pay for the financial-planning session in advance.) You must stand firm -- polite but firm. Don't stammer, hesitate or fudge. Don't make up any stories about why you can't lend Dad money. Definitely do not blame it on your spouse. State the truth that originated from that very first pre-emptive conversation. You want Dad to get sick of hearing it. Deception will just add to the guilt that you undoubtedly will feel for not doing more.

Some final comments

This is not an easy issue to handle for anyone. I do not have any personal experience with it, other than that I am a baby boomer parent. I have read other stories of adult children confronted by parents who have been irresponsible with their money. (The online forums are filled with these stories.) Many have tried the "just this once -- don't ask again" strategy. That never seems to work, so I cannot recommend it.

The real difficulties arise if the parent is medically needy, has been responsible but unlucky in life, or is so poorly situated that he or she is about to become homeless. At that point, human decency and fundamental family obligations may take over. That can't be helped unless you can get the government to step in.

Just remember, if an adult child sacrifices the child's future now to aid a spendthrift parent, what goes around may come around. Don't put yourself in that situation. That is the wrong family legacy to sustain.

Now it's the readers' turn to offer words of wisdom (and maybe experience) on fending off parental boomerangers. What say you?

Related reading from Mr. ToughMoneyLove:

Money may satisfy but does not bring happiness

Can we have an economy without losers?

Paying the debts of family members

8 baby-boomer money mistakes to avoid

Karen Datko — Tue, 03 Feb 2009 22:52:00 GMT

This guest post comes from Mr. ToughMoneyLove at Tough Money Love.

Baby boomers have been receiving a lot of criticism in recent months for their collective contributions to our country's economic problems.

First, we are blamed for an extreme amount of debt-driven consumption that inflated highly leveraged real estate and credit bubbles. Second, we are now being blamed for an excess of saving when many so-called economic experts are calling for increased consumer spending. In general, boomers are probably guilty on both counts.

I have a suggestion.

Instead of wasting energy hurling insults at financially irresponsible baby boomers, why don't we make a list of all the money mistakes that were made by the boomer generation? The younger folks can read the list and then pledge "never again." I hereby volunteer to start the list of boomer mistakes. Here we go:

Assuming that what goes up will continue to go up. This seems like one of those "duh" lessons that should not need to be taught. Apparently not, because boomers bought homes -- upsized McMansions even -- during the go-go years, often using highly leveraged, unconventional loan products. The premise was that this was a low-risk activity because equity would be built from continued real estate appreciation. Not.

Using home equity as a primary retirement nest egg. For many boomers who used this plan -- Californians in particular -- that nest egg is now an egg shell, empty and cracked. Homes are not investments except to the extent they are paid for and providing you tax-free shelter services.

Failing to diversify. This is related to mistake No. 2 but further includes being inattentive to proper allocation of investments into non-correlated asset classes. This takes study and thought, two financial-planning characteristics in short supply among my fellow baby boomers. We have been oblivious to risk or were busy chasing yields from the hottest funds, or both.

Ignoring life expectancy. Yes, it's hard to believe that a generation of mostly overweight and out of shape Americans can be guilty of forgetting how long they will live, but it's true. Perhaps the best evidence is how abruptly and massively boomers pulled money out of the markets in response to negative conditions. "Sell low," we cried, forgetting that our investment horizon still spanned 20 to 30 years. A lot of us think those stable value funds and CDs will sustain us until the end. Maybe so, if we plan on living in a van down by the river.

Sacrificing retirement for our children. So often I have read about boomer parents maxing out a HELOC or borrowing from retirement accounts to pay college tuition or to send adult children extra living money. ("Gee, Mom and Dad, I just have to live in Manhattan. Don't make me move just because I have negative cash flow.") You didn't sign up for that obligation. If you can afford to help the spoiled little darlings, go ahead. Just don't get guilted into it. If you do, make sure you are prepared to turn the tables on your kids when you are old and broke.

Addiction to stuff. Take a poll of baby boomers you know. I will bet that most will tell you that one of their immediate goals is to simplify their lives, including shedding themselves of a lot of the "stuff" they accumulated over the years. Wouldn't it be nice if we could figure out that stuff is more trouble than it's worth before we acquire it all? Now that you know how you will feel about it later (because I told you), you can implement stuff-avoidance strategies now.

Working for money. Don't start making faces at me. I know we need money, and work is what generally provides it. But there is that old work-life balance thing that baby boomers still haven't figured out. The trick is to maintain control of the outgo ledger so that you have choices on the income ledger. Once you become accustomed to car payments and such, you are at risk of being stuck in a work life of quiet desperation, waiting for weekends and vacations that come and go but never satisfy.

Marriage recycling. I will be the first to acknowledge that Mr. ToughMoneyLove is not a relationship expert. In fact, just the opposite is probably true. I have to credit Mrs. ToughMoneyLove for keeping me around for 31 years. But money experts will tell you that one of the worst financial disasters a person can experience is a divorce. The older you are, the worse it is. So do what so many boomers have not. First, choose wisely. (As I used to tell our sons, when evaluating a woman as a life partner, be sure you are thinking with the correct body part.) Then work hard to maintain that marriage. Your spouse and your net worth will love you for it.

I think these eight baby-boomer money mistakes are a good start. What can you add to the list?

Related reading from Mr. ToughMoneyLove:

Benefits of a preretirement vacation home

I'm still counting on Social Security -- How about you?

Charting a path to renewed frugality

Advice for boomers: Pay off your house

Karen Datko — Tue, 16 Dec 2008 02:05:10 GMT

What's the best route as you near retirement: Use extra money to pay off the mortgage or pad your investments? That question deserves a new look in light of the economic events of 2008, argues Mr. GoTo, a baby boomer and blogger who comes down on the side of paying off the house.

The No. 1 reason: A guaranteed rate of return of 6% (or whatever your mortgage rate is) tax-free. "Compare that to what we have experienced in the markets recently," Mr. GoTo says.

No doubt the big debate has been revived in many baby boomer homes as nest eggs take a beating on the stock market. Mr. GoTo says it's a winning proposition to invest in your home sweet home. (This of course assumes you don't have any higher-interest debt.)

Here are a few more reasons from a post at Go To Retirement called "Striving for a mortgage-free life":

The tax benefit of mortgage interest is often overstated. You're getting a tax break only on the amount of interest that exceeds the standard deduction, he says.
If the home is paid for, a financial catastrophe such as an illness will be easier to bear.
You'll have peace of mind. "This is an intangible benefit but it may be one of the most important," he says.

Are we raising a generation of whiners?

Karen Datko — Mon, 14 Jul 2008 19:26:00 GMT

Jesse at You Need a Budget has a 4-month-old daughter, Lydia, and is concerned about how to raise her properly. He's deeply worried about what he sees as an American trend.

In a post that pulls no punches on a subject many others might dance around, he writes: "I'm sure it's partly my own biases, seeing things through my own lens, but it seems society is bent on making our kids the softest, weakest, most selfish, spoiled brats the world has ever known. Are we raising a Generation Y-Me?" His answer: Yes.

There's are risks associated with making this argument. You can sound like the old grandpa who claimed to have walked three miles to school each way in the snow -- barefoot, no less. You could end up stereotyping an entire generation -- which is unfair -- and turning people off to your message.

But isn't it still worth talking about, as we prepare our children for a world that's probably not going to be as predictable and prosperous as the one we've come from?

Jesse says our approach to personal finance has morphed over the last several decades. He writes: "The crowning achievement in personal finance for my grandfather and his generation was to 'own your home' (and it was likely 1,000 square feet -- not 2,000-plus). It seems the baby boomer changed that clarion call to something along the lines of 'leverage what equity you do have in your home to fit a lifestyle you can't afford.'"

In other words, he's identified the source of the problem -- and it is us. "If we screw up, we look for a bailout," he says. "If we're duped, we look for a regulator to prevent us from being duped again." Our kids are raised to be soft, and they're told they are all winners. The Wii has taken the place of "we are going outside to play," he says.

He plans to teach Lydia that life can be tough and prepare her for a struggle. He says: "If we always hold her hand, she'll never learn to walk. If we give her handouts, she'll never learn to work. Sacrifice. And win."

10 years from retirement, the market scares her to death

Karen Datko — Mon, 24 Mar 2008 19:29:00 GMT

Grace's post at GRACEful Retirement will sound familiar to many aging boomers watching the effect of Wall Street gyrations on their retirement accounts. Grace is 58 and playing catch-up after getting a late start on socking away money for her hopefully golden years.

"I started this blog last July with $176,000 in retirement savings. Now I'm down to $146,000, notwithstanding the money I keep putting in," writes Grace, who plans to retire in 10 years. That drop, "when I allow myself to think about it, scares me to death."

Yet she continues to invest $1,025 a month in index and growth funds. She tells herself she's right to keep buying when the market is down because it inevitably will come back up. She asks, "When do I find out if I passed the test?"

Readers had varying opinions about how to proceed (and you can find more at MSN Money, including here and here and here). Several told her to keep on keeping on. "You are buying so low now. Just wait until the market comes back. You will be fine. History says so," reader Sharon writes. However, Tracy Ho advised, "Be prepared -- keep some and invest some. Be cautious, as nobody can predict (the) future."

Isn't that a fact, says an excellent Associated Press story that explains how the U.S. got into its current financial mess and what the outcome may be. It says: "Economists and market historians seem to agree that this is more than a typical, cyclical slump. And the X-factor that sets it apart -- determining how deep the wounds from the mortgage mess really are -- also makes it impossible to map the path of the downturn."

It also quotes Richard Sylla of New York University's Stern School of Business: "Financial crises happen, but they always do blow over. It's a question of how long." He also said, ""I think the current financial crisis looks to me like the worst one since we got into the Depression."

Gated communities: Are residents more secure?

Karen Datko — Wed, 09 Jan 2008 23:33:00 GMT

Plenty of people have paid big bucks to live in gated communities, thinking they've insulated themselves from some of life's problems. Author Barbara Ehrenreich, in a post at Barbara's Blog and AlterNet, said that isn't necessarily so. "There are studies indicating that there are no differences in the crime in gated communities and non-gated communities," she wrote. They also aren't immune to the recent wave of foreclosures. She correctly observes that "there's no fence high enough to keep out the repo man."

Ehrenreich's post provoked a reaction, much of it in agreement. MaryT at Answers to the Questions wrote that she would feel out of touch with reality within the confines of a gated community. "I don't want to live in a place where everyone is the same age: OLD. Where every house or condo is the same, and must remain so. Where are the kids? Where are the teenagers? Where's the noise? The signs of life?" John Whiteside at Blue Bayou wonders why people would want to live that way. "I have no great answer here," he said, "except to observe that we are stuck with our neighbors and fellow citizens, and perhaps a better idea is to figure out how to live next door to each other."

How easy is it for nonresidents to get into gated communities? A TV reporter in Florida tried it, and repeatedly was waved inside by the guards.

$325 cups of coffee, or why the ‘latte factor’ matters

Karen Datko — Thu, 04 Oct 2007 18:20:00 GMT

This post comes from partner blog Blueprint for Financial Prosperity.

The “latte factor” was a term coined by David Bach to represent the idea that the key to financial prosperity is to cut out the little things in life you're paying other people for, and spend that money on yourself and your future.

Mathematically, it involves taking a $5 cup of coffee each day, or other discretionary spending you'd like to substitute in its place, and calculating how much that $5 would be worth in 40 years if you had invested it.

It's not a particularly novel idea because everyone can appreciate that saving $5 each day and then compounding that at 11 percent each year for 40 years will result in a huge number. But its value is that it challenges you to examine the motivations behind your spending and how you could change those for the better.

It all adds up

When you make a large capital purchase, like a house, a car, or even a plasma television, you spend quite a bit of time researching in order to get the best deal. You do that because you can potentially save more because you're spending more. You're aware of the spending because of how much the single item is –- thousands of dollars, and because of how you'll be paying -- almost immediately. You will have less to spend on other things, even if you don't pay off the entire balance right away.

What does this have to do with a cup of coffee? It's a mere five bucks. Five bucks won't bust your budget, and five bucks will hardly register on the radar for those who drink it every single day. It's not a plasma television, it's not a car, and it's certainly not a house. It's a drink that will perk you up, make you feel awake in the morning, and, gosh darn it, you deserve it.

However, that $5 purchase is a capital purchase when you extrapolate it over 40 years.

That's quite a habit

If you compounded $5 over 40 years at 11 percent, that cup of coffee will cost you $325 minus taxes. Three hundred bucks for your cup of coffee. A $300-a-day coffee habit would probably qualify you for Coffeeaholics Anonymous. Even if you compounded it at 8 percent, that cup still costs you more than a hundred bucks.

See, you care about the plasma television purchase price because it's $1,000, and you don't care about the cup of coffee because it's a mere $5. But won't you in 40 years be wishing you hadn't had that cup of coffee?

I would think that you in 40 years deserve an extra $300 a day just for putting up with you for the last 40 years. Don't you? (Wrap your head around that little Philip K. Dick mess of confusion.)

I think so.