Tag Archives: retirement

Fees, Fees, Fees

My girl friends/family and I generally don’t talk about finances.  It’s not really about privacy; it’s just that we have so many other things to talk about! However, I wish that we did share financial insights once in a while, so I’m sharing it on this public space.

I touched on this topic before but there’s a new law going into effect that makes it easier to see fund fees in your 401k plans.   With non-401k mutual funds, you can compare fees but many people ignore the impact of fees on their returns.  Once a year or so, I use the free “Instant X-Ray” tool on Morningstar to analyze my funds and compare fees / returns with similar portfolios.

The bottom line is that the fees associated with mutual funds can decimate your savings.  Choosing no-load and index funds make a big difference in retirement.

This is my public service announcement for the week!

Useless Financial Advice

The June 2012 issue of Smartmoney magazine featured two popular types of finance articles – a how-to piece about saving money on health care and an interview with a policy expert about rethinking retirement.  Both of these are big topics in the world of finance; after all rising health care costs and inadequate retirement savings are two things that affect each and every one of us at some point.

I admit that the health care article was thoroughly researched.  In addition to standard advice about negotiating with your doctor and finding cheaper meds via mail-order or getting generics, it has some tips for questioning tests ordered by your doctor, going to physical therapy and timing your dental work in one calendar year to save on your federal tax bill (provided your medical bills exceed 7.5% of your adjusted gross income).

The interview with psychologist Laura Carstensen, an expert on aging, focuses on making the most of retirement.  She offers several “solutions” for overburdened social security system, from increasing the retirement age to creating a “phased retirement” based upon a moderately paced career path with more flexible schedules (assuming this will cause less burn-out and allow us to enjoy work longer).

In my opinion, these types of advice articles, and there are many similar ones that periodically crop up in print and online, are practically worthless because they ignore real solutions that would actually help the majority of people. 

I understand that there are times you can negotiate with your doctors and hospitals.  However, when you’re really, really sick or your loved one is truly sick and facing astronomical costs, are you in a frame of mind to negotiate care and bills?  Most people are not and should not have to. When my European friends have to undergo major surgery or treatments, all they have to focus on is getting better or caring for their loved ones.  When you’re scared and facing new and complex medical terminology, the last thing you want to think about is how you’re going to pay for care.   These types of articles ignore the human side of things, as if it’s negotiating for medical care is the same as a cable bill!  You can throw all the great advice about getting a detailed bill and scanning for medical overcharges but who the hell wants to deal with that during a time of crisis? (And while I’m ranting, who the hell has the time to figure out if their anesthesiologist is also “in network” like their doctor or hospital?)

A friend had a child in intensive care, racking up hundreds of thousands in bills.  Although she had insurance, she still had to pay quite a lot out of pocket.  The worse part is that she did not bring home a completely healthy child.  As she received mysterious bill after bill, she also had to focus on caring for her sick child.  I’ve read similar stories of parents desperately fundraising for their child’s care.  I can’t believe that anyone should have to worry about finances at a time like that.  It’s fine that some people pay more for cable or airplane tickets because they’re bad at negotiating or comparison shopping.  However, this should not be a consideration when it comes to essentials like health care.

In the retirement article, one key point is that we must work longer to make our finances last longer.  The interview states that 88% of people 65 to 74 are healthy enough to work.  Great advice, in theory.  The reality is that the majority of older people who want to work longer simply can’t.  While some climb high enough up the ladder to enjoy respect or can jump into consulting, many more people face age discrimination and are the first to be laid off.  It’s great that 88% of older people could work; however, how many companies are eager to hire these people? The expert also states that longer careers would be possible if we all didn’t work so hard in the “middle” years.   While  I do know people who have opted out to go back to school, which is not really a break, or to travel, most people who ramp down or opt out of work do so to care for kids or parents.   The majority of these people don’t find great jobs after their “break”.  I’m not saying that we can keep the current retirement age or benefits as is, but the typical solutions given in money magazines are not very realistic either.

The lack of reality is what bothers me most about discussions addressing health care in the U.S. and retirement.  They seem to be made by the upper echelons who have little or much less to worry about in terms of finances, with little regard for how the majority of people will be affected.

I’m even more bothered that many regular middle-income people I know seem to feel the same way, especially if they haven’t been personally affected by serious health issues or reached retirement age.  I want to know if they will feel the same if/when they face a serious illness or if they have a sick child.  And when they reach age 70, I wonder if they will re-think how great or easy it will be to work longer….maybe they’ll get lucky and Walmart needs a greeter.

Book In Progress: All The Money In The World

After finishing “Your Money Or Your Life” (YMOYL), I felt the need to continue my mental shift toward money and decided to read All The Money In The World by Laura Vanderkam.  The author herself was kind enough to email me a PDF of the book despite knowing that I jot down my ongoing thoughts rather than write a full review.  Note to self: I would like to write a wrap-up of my thoughts on YMOYL but that may not be happening soon, or ever!

Here are my random thoughts after reading the first few chapters.

I like her clear, concise writing style.  “Your Money or Your Life” felt more warm and fuzzy; the tone of this book is more like your most practical best friend.

Chapter 1 “What Else Can That Wedding Ring Buy?” — The author  uses the cost of a wedding ring as a springboard to discuss “opportunity costs”‘; in other words, what can you do with the same amount of money.  Is it more worth while to buy a $5,000 ring but can’t afford cleaning help or date nights when you have kids years later?  Obviously some people can do both, but as someone who is now carefully watching household expenses after kids,  I’m 100% sure that the wiser decision for us was to skip the diamond ring and have the money to get cleaning and nanny/babysitter help!

Chapter 2 “Don’t Scrimp More, Make More” — The main point of this chapter is to illustrate how you can make a bigger difference in your quality of life if you focus on making more money instead of scrimping every penny.  I generally agree, however with huge caveats.    I think go-getters and people who have “succeeded” often make the assumption that savers have less ambition; if they would only build up their skill set, they could make more money instead of clipping coupons and cutting cable, etc..  While I can see the reason for that assumption, I also think that it’s not the complete picture.  I have good friends in both camps — those who are more natural go-getters/entrepreneurial and those who are not.  While both can have similar educational backgrounds, go-getters are usually more skilled at two very socially-valuable skills: networking and selling themselves.  Time and time again, I see my go-getter friends succeed while the others lose out on jobs, deals, etc… Does this mean you shouldn’t try if you’re not a natural at these socially-valued skills? Of course not. It is very possible to greatly improve at these skills and it is possible to compete and “win” since a variety of factors also come into play in any given situation.

For those who succeeded or are more entrepreneurial, it’s hard to imagine why anyone would “waste time” and scrimp through life.  What I think gets forgotten is that it gets extremely disheartening to be second-choice or third-choice. After a certain number of years, it’s better (for some people) to focus on other things besides job/career/money success and focus on saving money, even it is doing something as mundane as coupon clipping (!) And while I still can’t imagine going to extremes for couponing, saving money is something within everyone’s control and hence more appealing to many.

I do have a tip to add for those who lean towards scrimping. Learn to negotiate!  Negotiate your salary is most important but you can also save when you shop, buy a house, buy a car, on cable bills, on medical expenses, etc.. Doing this often and doing this well will make a bigger difference than cutting coupons.

This book can be helpful to many but I think it’s most useful for those in their 20s/30s with entrepreneurial leanings.  If you find ways to make more money and be smarter with your financial resources, you’ll go a long way and the sooner you learn those lessons the better!

Back to reading…

Ultimate Fear: The Bag Lady Cat-Food Eating Old Woman

When I started jotting down my fears, I somehow forgot about one of the main fears in my life and one that holds me back: My fear of poverty, specifically of poverty in old age.  I know it’s not an unusual fear. After all, women tend to live longer and work less, earning less.  It’s easy to see how many women end up poor and alone.  Their spouse passes away and they may have used up most of their savings for the end of his life.  If she had kids, they are trying to make ends meet and start their own families, or they may just not be willing to support an aging parent.  Even if not starving on the street, the quality of life can go down quite drastically; the image of an old woman (me) eating cat food in a dimly lit, cold room comes to mind. 

All of this has made me less of a risk taker than many.  However, I am not allowing this fear to push aside my adolescent/current dream of living abroad and my current dream of spending more time with my kids.   I can’t let this fear make me stay at a job that I’ve outgrown or in a town that I no longer find that appealing.  I can’t let this fear keep me tied to a commute that is increasingly intolerable.  I just won’t.

As I read Your Money or Your Life, I am beginning to think that we can live on less and spend less.  However, I still can’t imagine cutting our income in half or even less and still be able to save for two retirements.  We could easily outlive our savings and the odds are that I will be the one left “holding the bag” so to speak.

Do you have a fear of old age and poverty?