Eileen Ambrose of the Baltimore Sun wrote an article recently about 50 year olds that haven’t started saving for retirement. I am not profiling the article just because I am quoted in it; rather, it brings up an interesting topic. Many boomers haven’t saved adequately for retirement. It is estimated the average boomer only has $54,000 saved for retirement. This isn’t going to do it.

Ambrose looked at late bloomers to see if they can make up for lost time. The answer is probably. It depends on how much the markets return and how much the boomers can muster to save. For a motivated boomer with low savings, they can still come out ok. The key is to get started. Too many folks look at saving for retirement as such a daunting task that they never begin. This is a natural instinct. If a task seems so big, we often feel to frustrated to begin. Remember, that a journey of a thousand miles begins with a single step.

The boomers have some wind at their backs. Many boomers have just finished off paying their childrens’ college costs so they have disposable income for the first time in their lives. Lots of boomers are coming close to paying off a mortgage as well, which only frees up more money. The boomers are also in their highest earning years as well now that they are at the top of the business food chain compared to years earlier when those grumpy old WWII and Korea Vets were. Heck, the past two Presidents are boomers so that shows you that they are top cheese today.  Even the recent unemployment mess hasn’t hit the boomers as hard as younger folks. The unemployment rate for folks over 55 years of age is 6.8% compared to 10% nationally. Of course, those boomers that were laid off are finding it harder to find a job.

Granted, boomers saving for retirement now have an uphill battle and won’t match the results of counterparts who began a couple decades ago, but boomers may not need as much as they think. I often find that once the mortgage is paid off many retirees only need between $4,000 to $6,000 per month to live. If the average social security is $2,300, then a married couple could expect between $3,450 and $4,600 per month from social security (depending if both spouses receive their own working benefit or if one spouse just receives the spousal benefit).  This means that a couple may only need $1,000 per month in cash flow from investments each month. This could be satisfied with a portfolio of $400,000. This may seem daunting if you don’t have anything saved, but if you have $50,000 or $100,000 saved along with $200,000 in home equity, this isn’t bad.

Even if you have nothing saved and don’t plan to move to a smaller home to access home equity, you would have to save $28,629 per year for ten years to get there assuming a 6% return. At 8%, this number drops to $25,566. This is really the size of a mortgage payment or annual tuition bill.  This analysis doesn’t include part-time work after retirement. Not only does part-time work help financially, it can help you physically and mentally as well. Staying engaged and active increases longevity and maintains health and mental capacity.

So if you are a boomer who feels you are behind, remember that it isn’t too late. You just need to do the toughest thing and take that first step.

Great article from Minyanville discussing the fiduciary standard, which I have been hyping for weeks now. Here is the meat from the article:

The distinction between a fiduciary and a broker is simple. The broker mainly owes his allegiance to the company and is generally compensated by selling you financial products. A fiduciary’s model is typically to place the client’s best interests before their own and they typically don’t charge a commission.

Current laws give you little guidance and protection. Chances are, your financial adviser is not a fiduciary. There are more than 630,000 registered representatives in the US, brokering everything from mutual funds to variable annuities. Among the biggest brokerage

houses in the US are Merrill Lynch (BAC), Wells Fargo (WFC), and Morgan Stanley Smith Barney, which is owned by Morgan Stanley (MS) and Citigroup (C). The vast majority of the folks at these firms are broker-dealers who are paid commissions on certain products they sell.

Registered investment advisers and certified financial planners, in contrast, are nearly all fiduciaries. Since there’s only about 60,000 authorized certified financial planners and about 11,000 registered investment advisers, you really have to search them out.

Will Washington protect Main Street or cave to Wall Street? The House version of the bill, which has already passed, delved into the fiduciary question in some detail. It laid out definitions as to who should be a fiduciary and attempted to bring many financial advisers under that umbrella.

But it’s less clear what the Senate will do. Senate Banking Committee Chairman Christopher Dodd’s original template for reform took up the fiduciary issue, but it has since withered as the financial services

lobbyists worked against it. Banks, brokers, and insurers are generally against making their representatives fiduciaries. Not only would it involve more training, it would create more liability for them if their customers are sold unsuitable products.

Hopefully, more mainstream press will pick up on this issue.

Finally, some regulations in the financial services world that actually benefit Americans. The Department of Labor (DOL) recently released proposed regulations that would limit the ability of financial advisers of providing advice to 401(k) participants if the adviser receives compensation from the product provider. What does this mean to you? Imagine you go to a lunch meeting with a financial adviser who runs your 401(k) plan. He or she stands up there and shows you some pretty graphs and uses technical jargon about investing and retirement. This adviser then sits down with you personally and recommends you invest in Fund A, B, and C. Well, the adviser can no longer do this if they get compensated by Fund A, B, or C. In other words, DOL wants you to get objective advice, not advice where you are pushed to funds that pay the adviser the most moolah.

This may seem like common sense to many Americans. An adviser shouldn’t be telling people how to invest their money if they can steer them into products that pay them more. It’s a no-duh, don’t you think? Except, this is exactly how Wall Street works. Wall Street or commission brokers and advisers attempt to build rapport with clients through likability or tossing around “sophisticated” financial terms and charts then drive them into a product that pays them the highest commission. There was talk of limiting this behavior in the non-401(k) market, but Senator Chris Dodd railroaded that one. The 401(k) market is a bit different though because it is guided by the Employee Retirement Income Security Act (ERISA), which is stricter on behavior since it was created to protect employees. The government wanted to be sure that an employer couldn’t touch employees retirement savings for their benefit or skew the plan in the employer’s favor at the expense of employees. ERISA protects employees by defining “prohibited transactions”. An example of a prohibited transaction is the employer or plan provider cannot borrow funds from the plan unless it is the employer’s personal account. This keeps the employer from taking employee money and possibly losing it due to bad business decisions, poor investment choices, or a crazy weekend in Vegas.

This new regulation will be seen as a prohibited transaction. Of course, the Security Industry and Financial Markets Association is disappointed with the proposed regulation.

“We are disappointed the Department of Labor decided to move in this direction after having withdrawn the previous final regulations and class exemption,” Elizabeth Varley, managing director of government affairs of the Securities Industry and Financial Markets Association, said in a statement. “The proposed regulation, if approved, will do little to expand American’s access to investment advice.”

What surprises me is this is the same organization that backed a fiduciary standard for all advisors and brokers . As mentioned previously, Chris Dodd railroaded that. So, this group believed it was good for all people giving financial advice to individuals to put their interests first, but when it comes to giving advice to retirement plans and the employees in those plans, the fiduciary standard shouldn’t apply. Hmmm, makes me think that they publicly promoted the fiduciary standard for individuals because they knew they could derail the legislation. I am sure they will do their best to hijack these regulations. But, I guess I am just a crusty old cynic.

Many believe that this move will open up 401(k) plans to index funds. To that, I say bravo. I have seen so many 401(k), 403(b), SEPs, Simple IRAs, and Money Purchase Plans that are loaded with expensive, under-performing funds. I have even seen these plans invested in annuities. The retirement plan market is a boon to the commission world and insurance industry. Most companies, and especially small companies, are inundated with fees that are hidden from the employers. With pensions a thing of the past and Social Security facing some sort of cut or alteration within the next 20 years, employees need to have solid retirement plans. It will be the core of their retirement. I applaud the DOL for taking this step. I just hope the lobbyists for the financial service industry doesn’t derail this regulation, but I am sure they will give it their best college try.

Here is a link to the a recent article in the Baltimore Sun where I discuss how the recent market downturn has affected people’s retirements.

http://www.baltimoresun.com/business/columnists/bal-bz.ambrose06jan06,0,3108163.column

Many people who recently retired or are rapidly approaching retirement feel that the recent market downturn will prevent them from retiring in the manner they dreamed and desire. What I have found is the market decline has impacted folks’ net worth, but in most cases it hasn’t derailed the retirement plans. The key is to run the numbers so you can see exactly where you stand. By running the numbers, you will know your situation. It will remove any doubts. If the projection shows that the downturn indeed affected your retirement success, then at least you will know what you need to do to get back on track. But, you may just find you are still ok. Either way, knowing your actual position is empowering. Not knowing leads to fear and frustration, which often leads to panic. And decisions made in panic are never good.