7 stupid retirement myths exposed

By Liz Pulliam Weston

Half of American workers haven't tried to figure out how much they need to save for retirement.

Nearly one-third aren't currently saving for retirement, according to the Employee Benefit Research Institute's latest retirement confidence survey, and half of those who have saved have less than $25,000.

It's a pretty sorry state of affairs, especially if any of the following myths are what's preventing you from saving:


Myth No. 1: 'I've got plenty of time'

It's later than you think.

If you don't start saving by age 35, you'll have a tough time accumulating enough for a typical retirement. You'll have less time to accumulate cash before you quit work, and what you save has less time to earn compounding returns. The earlier you start, the better: Someone who begins at age 22 could have 30% more in her retirement kitty than someone who starts even five years later.

That doesn't mean you won't be able to retire if you start late, but either you'll need to save a prodigious amount of your current income (20% or more) or you're likely to have to live on less in retirement.

Myth No. 2: 'I won't live to see retirement'

If you're alive now, the chances are overwhelmingly good you'll make it to your 60s and beyond. Eight out of 10 males and nearly nine out of 10 females born in the U.S. make it to 65. Sixty percent of men and 73% of women are still alive at 75.

Death is unlikely to release you from your obligation to save for retirement, so you'd better get started. For more, read "Yes, you will live to be 80."

Myth No. 3: 'I won't ever want to retire'

You may not have a choice, honey. The typical retirement age hovers around 62, and nearly four in 10 retirees say they were forced out of work earlier than they'd planned because of layoffs, poor health or the need to take care of a loved one, according to the Employee Benefit Research Institute.

Social Security is experiencing a surge in applications for benefits as laid-off workers seek early retirement, even as others are trying to work as long as possible to restore depleted retirement accounts.

Even if you love what you do, it pays to accumulate a "Plan B" retirement fund.

Myth No. 4: 'I need to pay off my debt first'

It could take you years to pay off what you owe. In the meantime, you're missing out on valuable tax breaks, company matches and the power of compounded returns. Every $1,000 you fail to save this year could cost you $10,000 to $20,000 in lost future retirement income.

That's why saving for retirement needs to be the top priority for most people, and other goals should be made to fit around it. Yes, that means it will take you longer to pay off your credit cards, because the money that could pay down that debt faster is going into your 401k. But ultimately, you'll be richer for it.

Myth No. 5: 'I don't make enough money to save'

If you're living at or near the poverty line, this may be true -- but some people manage to save even on small incomes. How do they do it? By making savings a priority. The one factor that explains most of the variation in household savings isn't income, but the amount households choose to save.

Freeing up money for savings may require some lifestyle changes and serious spending adjustments, but your elderly self will thank you for making the effort. For more on constructing a budget that allows you to save, read "How much you should spend on . . ."

Myth No. 6: 'Investing in this market is too scary'

The stock market's a roller coaster, all right, but most of us will need the inflation-beating returns stocks offer if we want to retire comfortably one day. The good news is that the market will eventually recover and rise; in every 30-year period since 1928, stock market returns have averaged out to at least an 8% annual increase.

If you're new to investing, consider a "lifestyle" or "target date maturity" fund that distributes your money among stock, bond and cash options. (Bonds and cash help insulate your investments from stock market gyrations.) If you really can't handle the idea of investing in stocks at all right now, you should still be contributing to your retirement funds. Just choose one of the low-risk, low-return options such as money market funds or stable value funds, until you educate yourself enough about investing to try equities.

Myth No. 7: '401k's are a rip-off because of their high fees'

Some plans do have egregiously high fees, and investors pay the price: For every 1% increase in fees you pay, you can wind up with 17% less cash in retirement. If you work for a large company, however, your 401k plan often gives you access to institutional funds that actually charge less -- sometimes much less -- than similar funds offered to retail investors.

In any case, the solution to high fees is not to boycott your plan, because you'll miss out on tax breaks, matches and compounding. The solution is to contribute and agitate for change.

http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/weston-7-stupid-retirement-myths-exposed.aspx

401(k) Midyear Review

Now that 2010 is half over, review your 401(k) plan and be sure you're still investing wisely. Worth considering:

Rebalance if necessary. Is the stocks/bonds mix still the way you want it? If it's at least 10 points off (say you wanted to be 50/50 in stocks and bonds but it's now 60/40), reallocate money around to get back on track.

Max your match. Your company's match is as close to free money as you'll find. Take advantage of it.

Put your raise to work. If you were lucky enough to get a raise, pour some of your increase into your 401(k). You'll never miss the money, since you didn't have it before.

Watch your lineup. Your employer may have merged or replaced one of your 401(k) funds. You might be put into a money-market fund or a new fund. So be sure you're in the fund you want. Also check for new additions in the potential investment menu.

Research your holdings. Just because you may have three mutual funds does not mean you are diversified. Those mutual funds might all have the same stocks in their portfolio. Spread your money across different sectors and opportunities.

Review beneficiaries. If you remarried, divorced or had a child since January, double-check that your beneficiaries are up to date.

Take possession of it. If you are no longer working for that employer, it is always in your best interest to take the 401(k) with you and convert it into an Individual Retirement Account. That way you have control and not your former company.

Dividends And Buybacks Surge Higher

by Eric Fox

Although the "Chicken Little" attitude on the economy may be paramount in the minds of investors, corporate treasuries are brimming with record amounts of cash, and should be able to withstand a downturn much better than the last one. Many companies have used some of this cash to increase both dividends and buybacks.

The Data
The Federal Reserve reported that non-financial corporations held $1.84 trillion in cash and liquid assets as of March 30, 2010. This was up 26% year over year and was the largest increase ever recorded, according to the Wall Street Journal. Although data for the second quarter is not yet available, this amount almost certainly increased as companies continue to keep costs down and have not yet initiated major hiring or expansion plans.

Dividends
Dividends by companies in the S&P 500 were up by 2.4% over the same quarter in 2009. June 2010 dividend payments were up an even stronger 5.7% over June 2009. During the quarter ending June 30, 2010, only 34 companies reduced its dividend, while 335 S&P 500 companies increased dividend payments.

Stock Buybacks
Stock buybacks by companies in the S&P 500 totaled $55 billion in the quarter ending March 31, 2010. This was up sequentially from the $48 billion in the last quarter of 2009, and year over year from the $31 billion in the first quarter of 2009.

Data has not yet been released for the second quarter of 2010, but several major companies also announced buybacks during the quarter. Yahoo (Nasdaq:YHOO) was the latest company to find its own stock attractive for purchase, and will spend up to $3 billion to buy back its stock from "time to time" over the next three years.

The Bottom Line
Corporate America is hoarding cash as it continues to worry about a second economic contraction. Many companies are using some of this cash to increase dividends and stock buybacks rather than resume hiring and expand capacity.

http://stocks.investopedia.com/stock-analysis/2010/Dividends-And-Buybacks-Surge-Higher-BP-TGT-YHOO-PKW0708.aspx?printable=1

Learn The Stock Market Reality

by Sham Gad

Most investors know that the stock market is a not a living breathing thing and has no idea who any individual investor is. Yet many investors behave as if the stock market was alive and well, working to attack their investment ideas. In fact the stock market is neither friend nor foe - it exists to serve the buyer and seller of securities. Emotion is the greatest enemy the investor faces.

Have No Fear
The best way to overcome emotion is to combat it with data and research. Armed with your own analysis based on the company and industry data, you are less likely to fail victim to your emotion. Let's go back to the 1970s when an unknown investor named Warren Buffett began buying shares in the Washington Post. In 1973 Buffett began buying the Washington Post when the market cap was $80 million. Buffett's research and data led him to conclude that the assets of the Post - newspaper, cable, magazines - were worth over $400 million. So Buffett began buying loads of the Post. Shortly thereafter, the market value declined to under $50 million.

To the emotional investor, such a decline would have likely led to a sale of the position. Buffett, armed with his data and analysis, concluded that the Post was even cheaper and bought more. He did not care about the stock market, the stock price of the Post, or what other investors thought. He remained independent. The rest is history: that original $10 million investment is now worth nearly $1 billion.

No Emotional Garbage
Even today, despite the economy, investors should all be thinking in a similar fashion. Let the data determine whether or not a business is an attractive investment at the current price. Consider a company like waste management business Republic Services which doesn't appear on many value radar screens. Depression, recession or expansion, waste management is a necessity. Landfill space is becoming very rare and company's like RSG and Waste Management, the two largest waste management businesses, own lots of them. In addition, in many locations, citizens only have one or two choices of which waste management company to use. So in essence both have certain monopolistic-like characteristics. Not surprisingly, the stable nature of these businesses appeals to Buffett as he continues to buy shares in Republic Services for Berkshire Hathaway.

Valuable Lessons
Few lessons in investing are more valuable than understanding the realities of the stock market. It a simple lesson to understand but far more difficult to execute.

http://stocks.investopedia.com/stock-analysis/2010/Learn-The-Stock-Market-Reality-WPO-RSG-WM-BRK-A0708.aspx?printable=1

The unstoppable chip revolution

By Louis Navellier

RENO, Nev. (MarketWatch) -- How many e-mails did you send yesterday? Did you use an ATM to deposit a check, undergo a digital medical test or use a GPS device to find a friend's house? If you did any of these things, you used those tiny pieces of silicon that have revolutionized the way we live.

Electronic devices keep getting smaller, faster and more versatile with each passing day. And this simply could not happen without continued innovations based on rapid advances in microprocessors and semiconductors.

With each passing day, the uses for these chips continue to grow. At the beginning of June, worldwide semiconductor sales have soared 67.1% after bottoming out in February 2009, led by an 89.7% surge in New World sales (a.k.a. the Asia-Pacific region). Semiconductor bookings are nearly six times above the level of a year ago, while shipments have more than tripled over the same period.

With Apple Inc.'s red-hot iPad spurring the next generation of personal electronics, along with other high-tech innovations such as 3-D televisions and electric cars, we are right in the middle of a semiconductor revolution.

http://www.marketwatch.com/story/three-semiconductor-stocks-for-july-2010-07-01

Investors Still Buying and Selling at Wrong Times

By Stan Luxenberg

In recent years, shareholders have become smarter fund shoppers, said speakers at the Morningstar Investment Conference, which was held in Chicago last week. Most investors favor low-cost funds with solid track records. But too many shareholders buy and sell at the wrong times, says Don Phillips, Morningstar’s managing director. “Many people are buying good funds, but they are using them badly,” he said.

Phillips said that in 1986, the 10 largest fund families included names such as Dean Witter and Kemper, which charged high expense ratios and delivered poor returns. Over the years, those companies faded away as investors became savvier and switched to low-cost companies, such as Vanguard and American Funds.

But despite their increasing sophistication, millions of investors persist in buying the latest hot funds. In the late 1990s, shareholders dumped bond funds and bought stocks funds. That proved an ill-timed choice, said Phillips. During the decade that began in 2000, bond funds returned 7 percent annually, while stock funds stayed about flat. Many stock investors suffered poor results because they bought at the top of the market. After suffering through a downturn, they sold near a trough.

During the past year, investors have been dumping stock funds and buying bond funds. As a result, some shareholders missed the rally that began in March 2009. Among the big beneficiaries of the trend toward bonds is PIMCO Total Return, the giant bond fund, which has had huge inflows in recent months. Phillips says PIMCO is an example of a good fund that is being used badly. “PIMCO Total Return is the poster child for the mistake that investors are making,” he said. “It is a great fund, but this money is going into bonds at a time when yields are low.”

To estimate the impact of poor timing, Morningstar calculates a figure that it calls investor returns. This represents how much the average dollar in a fund actually returns. If investors buy at the peak and sell at the trough, the investor return will be low. In contrast, total returns indicate how much you would have gotten if you invested at the beginning of a period and stayed put.

To appreciate the importance of investor returns, consider that CGM Mutual returned 4.1 percent annually during the decade ending in May. But individual shareholders did not fare so well. Because they bought at peaks and sold at troughs, the investor return for the fund was only 2.6 percent.

Karen Dolan, Morningstar’s director of fund analysis, estimates that the average fund’s investor return is 1.63 percentage points lower than the total returns. “That is a big number,” said Dolan, speaking at the Morningstar conference. “We are losing more money because of poor timing than we are from expense ratios.”

Dolan suspected that load funds might have better investor returns because advisors would encourage clients to avoid selling at the wrong times. To check the hypothesis, she examined investor returns for all kinds of funds, including loads, no-loads, and institutional class shares that are only bought by large investors. She found no difference in the results. “This is a call for action for the entire financial community,” she said. “We need to find better ways to use funds.”

Phillips said that many companies encourage bad investor behavior by launching funds in hot sectors. This induces investors to buy near peaks. But some companies are working to reduce destructive trading. He cited the example of American Funds New World, an emerging markets fund. The company launched it in 1999, just after the Asian financial crisis decimated the sector. Investors who bought then did not arrive just as the fund was peaking. To further reduce risk, the fund has held bonds and cash. That has cushioned losses in downturns and helped investors stay aboard for the long term.

http://registeredrep.com/news/investors_buying_selling_good_funds_wrong_timing0628/

Will Your Money Last Through Retirement?

It’s the unanswerable question every investor eyeing retirement, and his financial advisor, seek an answer to—How many years do I have to live? The term of retirement is obviously a key factor in calculating how much money must be put away to ensure a nest egg can last. Now new genetic research from the Boston University Schools of Public Health and Medicine and the Boston Medical Center may narrow the variety of possible answers to that question significantly. Researchers say they’ve identified a group of genetic markers that can predict “exceptional longevity”—those who will live into their late 90s and older—with 77 percent accuracy.

The findings, based on a study of more than 1,000 centenarians and several control groups, were published in this week’s issue of the journal Science. The Wall Street Journal today also reports that the Boston researchers are working on a test that could indicate whether someone falls into that long-living group. In a statement on the research, Boston University cautioned that the predictive quality of the research was not perfect, and that environmental qualities such as lifestyle also contribute to one’s longevity. Before a test could be marketed, the college added, an understanding of the implications of the models’ use in a general population would be needed.

Some financial advisors say the information could be helpful in the often-nebulous effort to determine the length of a client’s retirement. “People are usually pretty confused about how long they have,” says William Baldwin, president of Pillar Financial Advisors in Waltham, Mass. and chairman of the National Association of Personal Financial Advisors. When Baldwin sits down with clients, he asks standard questions about their health, whether their parents are alive and, if so, how their health is doing. Actuarial tables can then be consulted, and Baldwin likes to run a Monte Carlo simulation to determine probability ranges for whether a client’s money will last until the estimated time of their death.

Planners probably never get the estimate right, says Robert Glovsky, president of Mintz Levin Financial Advisors in Boston and chair of the Certified Financial Planner Board of Standards. “You’re sitting here trying to project out somebody’s life expectancy, somebody’s asset base. There’s a lot of assumptions, mortality being just one of them. It’s modeling. You can’t look at it and say, ‘I know definitively what is going to happen.’”

The test that researchers are developing would be useful, Glovsky says, because it would help investors think about how long they need to plan for, perhaps stretching out the assets for a longer period of time. Conversations over long-term care insurance and annuities might play a bigger role in planning, he says. And test results that showed someone would not have the genetic markers for longevity would be useful as well, he adds. “It’s a conversation you have with your client. Are you comfortable planning for less, now that you know?”

The prospect of knowing how long you have could have other implications as well. Glovsky wonders if insurance companies would price products higher or reduce benefits if they understand their clients’ longevity prospects better. Over the last decade, the life expectancies have risen, and most financial planners have adjusted financial plans accordingly, says Anthea Penrose, spokeswoman for Raymond James Financial.

Baldwin suggests that some investors may prefer not knowing how long they have. “Most of our clients don’t really like this stuff,” he says. “They just want to feel comfortable and they want us to say to them, ‘You’re OK at this level,’ or ‘You’re not.’ And that’s why it’s our responsibility. We can’t assume they know they’re making a mistake when they’re overspending their money.”

http://registeredrep.com/news/will_your_clients_money_last_through_retirement_researchers_find_answers_in_genes_0702/