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5 Reasons Why Deflation Is Good for Retirees
Tweet Share on Facebook November 28, 2008 Comment (3)Living on a fixed income is looking downright sexy these days. Consumer and commodities prices are headed south, and inflationary pressures have gone way underground. Toss in the 5.8 percent cost of living rise in Social Security next year—the largest annual increase since 1982—and it may be party time in some circles.
There are no sure things, but if the recession is as steep as forecast, then prices are not rising anytime soon—short of natural or man-made catastrophes. Consumers, who generate 70 percent of consumption in the U.S., simply are not buying. So, we're looking at anywhere from six to 18 months of flat or falling price levels. Now, that's either deflation—prices actually fall—or disinflation—prices increase at a decreasing pace. Either way, it is not the kind of economic death spiral that would occur if deflationary forces took long-term hold. That picture is ugly—declining demand causes business layoffs, causes further shrinkage of income, causes even less consumption, etc.
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5 Positive Steps During Tough Times
Tweet Share on Facebook November 26, 2008 Comment (9)1) Read Studs Terkel's Hard Times. If you want to be reminded of what hard times were really like in America, read this classic chronicle of the Depression and also tip your fedora to Terkel, one of the nation's great storytellers, who passed away recently at the age of 96. He based his 1970 work on oral histories of people from all walks of life who lived through the 1930s. What stands out is the stark choices that people were forced to make to survive, and also the warmth and kindnesses of men and women who literally had only the clothes on their backs. We have a lot to be thankful for, and a lot of work ahead of us to keep it. In a 1986 updated preface to the book, Terkel concludes with this advice: "Ours, the richest country in the world, may be the poorest in memory. Perhaps the remembrances of survivors of a time past may serve as a reminder to others. Or to themselves."
2) Help someone else. Thanksgiving and the holiday season are here, and countless food pantries are struggling to meet record demand as they confront cold weather and the toughest part of their year. Charities are also seeing reduced contributions and soaring demands. If you have time or money, give them.
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5 Predatory Money Pitches
Tweet Share on Facebook November 21, 2008 Comment (7)The onset of recessionary times is bringing increased efforts by bottom-feeding merchants to take advantage of strapped consumers with offers of "help." You can already see them emerging on cable-TV ads, like so many cockroaches scurrying across a dirty kitchen floor.
Be vigilant and careful about responding to such offers. Do not give out personal information to vendors you do not know or trust. Make sure your computer is protected so that you don't inadvertently provide personal information you'll later regret.
Don't be silent if you've been targeted by a scam merchant. Get in touch with your local or state consumer protection agency. Find out if your local Better Business Bureau (BBB) knows anything about the company or the offer that's been pitched to you. Share your concerns with E-mail networks or blogs so the word gets out. Turning on the lights freezes cockroaches, and shedding light on bad business practices has the same effect.
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5 Ways to Benefit From New Medicare Drug Plans
Tweet Share on Facebook November 20, 2008 Comment (4)Is inflation yesterday's news? Not when it comes to prescription drug plans, where prices keep going up and up. With large 2009 premium increases from private insurers on the way, especially from Humana, subscribers to Medicare's stand-alone Part D plan for prescription drugs are being strongly urged to look carefully at whether there are better packages to meet their needs. The open enrollment period extends to December 31.
Now, Paul Krugman may have won a Nobel Prize for economics, but I bet even he would have a hard time figuring out the best Part D plans for his elderly relatives. This year, more than ever, though, it will pay to look carefully at Part D choices. Here is what seniors need to do to get the best deal:
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Top Medicare Drug Plan Premium Hikes
Tweet Share on Facebook November 20, 2008 Comment (12)Here are the 2009 premium increases for the 10 most popular Medicare Part D stand-alone drug plans. Open enrollment for 2009 coverage runs until December 31. Experts say this year's changes and big price increases make it worthwhile to carefully evaluate alternative plans.
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Many Target-Date Funds Miss Their Mark
Tweet Share on Facebook November 14, 2008 CommentTarget-date funds were heralded as the mutual fund industry's solution to retirement investors unable or unwilling to make prudent decisions. In theory, the funds are pegged to a future retirement date and then designed to make age-appropriate investments that automatically adjust investment risks to reflect people's window of vulnerability as they approach and enter retirement.
The goal here is to protect people from a big downturn that hits them at exactly the wrong time—when they have little time to allow their investments to recover and are forced to produce current income by selling holdings at depressed levels.
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Retirement Communities Respond to Housing, Market Drops
Tweet Share on Facebook November 10, 2008 Comment (4)The distressed housing market, this fall's precipitous drop in securities prices, and a deepening recession threaten to turn the storm hitting retirement housing into a hurricane. Across the spectrum of senior housing—life-care communities, assisted living facilities, and nursing homes—people at all levels of income are dealing with funding challenges.
Primary residences are the greatest source of wealth for most retirees, and the sale of those homes is the most common way to generate retirement-community entrance fees, which range from $100,000 at the low end, upwards of $500,000 and much more at the highest-end communities.
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It's Time to Review Retirement Path
Tweet Share on Facebook November 7, 2008 Comment (1)"Consumption smoothing" is an ungainly label to describe a different way of analyzing your lifetime spending needs. It is the centerpiece of a recent book called Spend 'Til the End, by Laurence Kotlikoff, an economist at Boston University, and Scott Burns, a syndicated personal-finance columnist.
By way of a disclaimer, I have known Larry for a few years and Scott for a few decades. I don't always agree with what they say, but I can vouch for the integrity they bring to the process. If Larry and Scott could gain Suze Orman popularity by changing their views or dumbing down their message, they would happily choose conscience-clear lives of obscurity.
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What if Free Choices Lead to Bad Choices?
Tweet Share on Facebook November 3, 2008 Comment (8)Presidential candidates John McCain and Barack Obama have proposed to let cash-strapped Americans forgo penalties for early withdrawals from their 401(k)'s and IRAs. For older participants, they've also proposed a temporary relaxation of the requirement that people must make annual withdrawals from their IRAs and 401(k)'s beginning at the age of 70½.
These are not break-the-budget proposals, but, hey, the budget's already broken, so that's not even much of an issue these days. No, the issue here boils down to whether giving individuals the right to make their own financial choices leads to good decisions. And if the answer is no, should the government step in?
