Sushi Money

     As the Superbowl rolls around each year I know it’s tax time again, and I await breathlessly (not!) for each envelope to come in the mail and report dividends, interest and other taxable income.  Actually I’d love to get taxes done a lot earlier if I knew I would get a refund, or if these envelopes showed up faster.  But I try to balance the taxes paid during the year well enough so that we either get a very small refund, or need to write a small check in April.  I don’t enjoy surprises when it comes to taxes, or giving the IRS more of our money than necessary!  So it’s time to spread everything out on great big table for a week or two…

     How do you do your taxes?  Do you outsource it to a professional, or do it yourself?  I’ve been doing taxes at home for a very long time.  I started using those gigantic tax encyclopedias, wracking my brain trying to figure it all out.  Then along comes TurboTax and I was saved!  I’ve used TurboTax now for over 18 years (crazy!) with great success.  But I still have questions and do research to make sure I’m plugging in the right data.  Any software program is only as good as the information you give it.  TurboTax does a wonderful job asking the right questions to make completing your taxes simple and efficient. 

     But you also need to be aware of things you can do to reduce your tax burden throughout the year, and make sure to take advantage of every deduction and credit you are entitled to.  Regardless of the software or books I read, I always have questions and a little confusion somewhere.  Just the nature of the beast perhaps.  One day I’ll get tired of wrestling with the tax pig, and have someone else do it for us.  Or maybe the FairTax will change everything?  Lots of help out there if you do have questions though.

     Kiplinger, via Yahoo has written a great little article on the 13 Most Overlooked Tax Deductions.   Great information to be aware of when your ready to sit down and crunch the numbers.  State Sales Taxes are one of my favorite deductions in recent years because it’s not that hard to keep track of receipts and watch the money add up.  For many taxpayers in states with income taxes, the sales taxes will easily provide a greater deduction, especially if a large purchase such as a car or appliance has been made.  We’ve talked before about keeping track of those receipts to make sure to get a larger sales tax deduction.

Kiplinger also writes about “What’s New for Tax Savings?” for the 2007 filing year, and MSN Money has a lot of great information in their Tax Center.  Another really great site for tax questions, resources and a host of other information is TaxTopics.net.  Do you know of any other good sites or info?  Let us know!

Famed author Toni Morrison endorses Barack Obama in a letter to the Senator, citing “something not seen in other candiates.” She continues saying, “That something is a creative imagination which coupled with brilliance equals wisdom…”

“Wisdom is a gift; you can’t train for it, inherit it, learn it in a class, or earn it in the workplace ” that access can foster the acquisition of knowledge, but not wisdom.”

Did I understand that correctly? Wisdom is only a gift, and not something one can acquire through their lifetime? Only knowledge can be gained? If that is so, then I submit that most of the world’s human population is doomed to a life of knowledge without wisdom and its accompanying virtues.

Which of course I do not believe for a moment. Wisdom most certainly may be a gift to some, but it is also something borne of experience, learning, judgement and reflection. Of this I agree- Knowledge does not equal wisdom.

“Knowledge and wisdom, far from being one, Have oft-times no connection. Knowledge dwells In heads replete with thoughts of other men; Wisdom, in minds attentive to their own. Knowledge, a rude, unprofitable mass, The mere materials with which wisdom builds, Till smoothed, and squared, and fitted to its place, Does but encumber whom it seems to enrich. Knowledge is proud that he has learned so much; Wisdom is humble that he knows no more.” William Cowper, English Poet, 1731-1800.

I firmly believe knowledge, shaped and gained through experience may lead to wisdom. Hence wisdom is more than a gift to an individual. I think it is a gift obtainable by most, and recognized through the journey of life and time should one choose to abandon the limits of fear and ego, and to embrace humility while examining the limits of mere knowledge.

And wisdom, according to the Merriam-Webster dictionary, is defined in part as:

• 1 a: accumulated philosophic or scientific learning : knowledge b: ability to discern inner qualities and relationships : insight c: good sense : judgment d: generally accepted belief

• 2: a wise attitude, belief, or course of action

Perhaps I interpret too literally the prose of the author in speaking of wisdom as a gift. I would certainly not disparage Ms. Morrison’s letter to Senator Obama, or the wisdom with which he may be gifted. But I do believe that many, many others are equally gifted, and have the capacity to possess wisdom at some point. Someday, I hope that may include me… especially when it comes to financial matters.

    It strikes me that much of the market turmoil in recent weeks is based on fear… and maybe for reasons that have nothing to do with 99% of the investing and working public.  In large measure, so much of the credit, lending and hedge fund crises have been created, expanded and literally blown-up by the banks and investing institutions who designed and packaged their gourmet derivative specialties.  Yesterday we heard rumors of more hedge fund problems and that affected the financial markets as Wall Street finished a difficult week. This coming a couple days after rogue French trader “Mr. Average” causes billions in losses for one of France’s largest banks…. which may also have caused or exacerbated the European market turmoil last week.  How the heck does that happen anyway?!!!  

     Among all the stock market and investing challenges we have faced lately, I started thinking about The Recession.  The big scary word that everyone has been batting back and forth the past few months.  On an individual basis, do we really need to worry about a recession?  For many the answer might be… it depends.   It depends on if your job and income is something that may be affected by the recession of course. 

    There are many arguments for if or why we may be in a recession, and why the financial markets have been so volatile.  Housing, improper lending practices and wholesale repackaging of lousy loans has brought on a crisis of confidence throughout the financial services industry.  Many consumers are mystified by the degree of angst and financial losses that have occured to the largest of financial and investment institutions around the world.  Perhaps not since the savings and loan crisis of the 1980’s have we seen this degree of financial loss, confusion, negligence, fear, public reaction, and pending government legislation.  But this crisis is still unfolding… what the Financial Times calls The start of the great unwinding:

“If the US suffers a recession in 2008 or 2009 it will not be due to an industrial decline or an oil price shock. It will be a recession that began in the financial system. The response of the general public is confusion, tinged with horror, at how intangible finance can impinge on their daily lives. Even some bankers and traders must be struck by the chaos their business can unleash, and feel awe at just how powerful they have become.” 

      It is staggering to consider the losses that have occurred in the financial services industries.  And staggering to consider the ramifications for how it affects the consumer, consumer spending, and a slowdown in business nationally.  We may indeed be facing a long recession with difficult times ahead.  And the way out may hinge on the ability of the consumer to continue to spend.  But many people have jobs that are fairly well protected, or entrenched perhaps.  Government and civil service workers don’t need to worry about the recession per se because they normally won’t lose their jobs.  Workers such as teachers and professors with tenure don’t normally have to worry about their jobs either.  Highly skilled workers such as doctors, lawyers and other professional workers proably have less to worry about as well- and in some cases may do more business in difficult economic times.   Some service industries actually do better during recessions:

“Most of the service division’s 16 major industry groups decelerate in job growth or lose jobs during recessions. Five major groups are at least slightly countercyclical, however, gaining jobs faster in recessions than in normal times.”

Source: Bureau of Labor Statistics, Monthly Labor Review; Updated 2006

     So that shows that even during a recession there is opportunity.  But admittedly there are many workers with jobs that depend on the economic appetite of others, such as factory workers, sales personnel, mortgage and loan workers, etc, etc.  If you don’t have much education or skills, and you live in an economically depressed area… then the recession is something you feel first-hand.  But is it a national recession, or a global recession?   Are there really no jobs, or much fewer jobs?  Depending on the region you live in, maybe so.  But I know in the metro area that I live there are many, many jobs.  Maybe they’re not the same jobs that people either want or had before however, but there are jobs.  Service jobs are available everywhere of course.  We’ve written about the service economy before, and where the jobs of the future will be.

     News and information now travels in seconds and minutes compared to days, weeks and months over prior decades.  We hear every tidbit of news and quotable thoughts by leading economists throughout the world.  We analyze data much more quickly, and the markets react by the minute to news…. the world really is much smaller, and as Edward M. Gomez from SFGate.com writes yesterday, the impacts of a recession in the U.S. are far reaching.

“The news coming out of the World Economic Forum, which has gotten under way in Davos, Switzerland, is not good. At the international gathering of leading economists, high-level government policy-makers and captains of industry, the collective prediction is that a “full-blown, prolonged recession in [the United States] is now inescapable, with the rest of the world set to be dragged into a severe global slowdown despite [this week's] emergency U.S. interest-rate cut by the Federal Reserve….” (Times, U.K.) ”

     Those are pretty tough words- read the rest of Mr. Gomez’s thoughts and it’s downright scary.  Yet I think it’s important not to give into the fear and rhetoric that’s plastered across the headlines every day.  We can even read a list of 10 Reasons a Recession is Coming.   Uh… okay.

     But what does it mean to us?  Probably only something that each of us can answer.  At some point, in order to understand it, I need to make the economy more personal.  Rather than worry about it, or not understand it, I think we need to assess how it may affect us at home (and within our communities) and whether or not The Recession may really challenge our individual ability to have an income and support ourselves.  If the answer is “yes” then I think it’s time to take steps to protect ourselves.  I’m not talking about survivalist measures from a total doom and gloom perspective… or about panderers who would take advantage of consumer fear (Caution: That site is designed to take your money while providing common sense solutions that you already know!).  But in the same way that emergency fund of savings can help us bridge difficult financial times, I think there are practical measures we can take to improve our lives while the economy regains traction over the course of the business cycle.  Because it is a business cycle, and eventually the economic slowdown will turn around while productivity increases.  This time it may take longer, or it may not… we just don’t know yet. 

   But what practical measures can we take if we are really worried about The Recession?  I think there’s a lot we can do.  Simple things like cutting back on spending, increasing savings, and reducing the use of debt.  Maybe start carpooling or becoming more efficient with transportation, eating healthier and exercising more to stay healthy (and reducing medical bills now and in the future!).   And even becoming more sustainable at home through growing a garden, reducing utility costs, etc.  Those are all simple, yet important things we can do in our own lives that will make a difference.  More importantly, we can develop our own human capital through gaining education, skills and experience in certain areas can provide an emergency skillset or knowledge-base that allows us to transition more quickly and efficiently to a new job or career if necessary.   Job retraining has become a hot-button issue for politicians and economists lately, and rightly so.  I strongly believe we must support current and future workers because education and job retraining initiatives will provide strength to our nation from an economic and human capital perspective over the long-term.  If our nation is to remain strong economically from a global perspective, then we must make sure to support our workers’ education and training development.

    We can also focus on those service industries that actually do well during a recession as shown above.  Can you say healthcare?!   Maybe we need to stay in a career or industry longer than we want because it is a practical, secure solution for the time being.  And remember The Grapes of Wrath?  A story of social and economic desperation with a major theme involving the mass movement of people from one region in the U.S. to another simply because there was little work, income, or even food to support them.  A stark illustration perhaps, but I don’t think it’s out of the ordinary to consider moving from one geograhpic region to another if a downturn in employment and opportunity will really affect quality of life and income needs.  I have a succinct opinion on the matter:

If it takes change to make our lives better, then we better change!

   I think back some years ago to a time in the early 1980’s.  I was finishing college and totally engrossed in school and personal activities.  College has always been a time for being totally engrossed in yourself and those pursuits you find most- well, interesting at the time… certainly a time of self-indulgence as well as growth.  But in the late 1970’s and early 1980’s the U.S. economy was in really, really bad shape.  The worst unemployment since the Great Depression, and crazy high inflation (over 12%!) that had spiraled out of control. Many Americans had lost confidence in themselves and the government.  It’s no wonder Ronald Reagan was elected President in a landslide vote with his optimism and strength.  Here’s a look at the long-term U.S. unemployment rate from 1958 through 2008:

Source: Burea of Labor Statistics, 2008

    But during that timeframe, honestly I was pretty clueless to the economic challenges the nation faced as a whole during those years.  Recession?  It really didn’t mean much to me.  I was a young college student with stars in my eyes.  Unemployment?  I didn’t really think about it… I found jobs waiting tables, being a lifeguard, working as an usher at sporting events, working in a chicken processing plant cleaning up chicken parts, and even working hard to get a scholarship.  Yes, I was a college student and didn’t have to worry about feeding a family and paying off much debt at the time.  But I think millions of other people do the same thing each day by scrambling to find work and opportunity.  Remember the recession of 1990-1991?  I don’t remember much about it.  I was working in a secure job and focused on getting things done.  I remember there was a housing downturn, and some challenges nationally, but we worked through it.  The booming 1990’s left those memories in the dust. 

Here’s another view of the long term unemployment rate (as a percent of the civilian labor force) compared to past recessions from 1970 to 2005.  It does show how unemployment usually increases before and during and even after recessions.  But often we don’t even know we’re in a recession until months afterwards.  If we’re in a recession today, we probably won’t even know until at least June, after two consecutive quarters of a decline of real GDP… here’s how the NBER dates a recession, with a lot of other info.

Source: BLS Issues in Labor Statistics, January 2006 (.pdf file)

     So back to our original question… does it really matter if we are in a recession?  I would really ask, “Does someone out of a job really care what you call it?“  I think the answer is self-evident.  People lose jobs, are out of jobs, are looking for jobs and are hired for jobs whether there’s a recession going on or not.  It happens all the time.  Politically and economically recessions matter because the nation’s economic engine slows down and it can have long-lasting effects nationally and globally.  There are real consequences to depressed economies and loss of the ability to pay for goods and services.   So yes, it potentially means people are going to be affected in greater ways by fewer opportunities to work, and business will be challenged to expand.  But on an individual level I submit that what you call it really doesn’t matter.  What matters is what we are doing individually and collectively to improve opportunity and economic well-being for ourselves and our families.   I think the government is moving in the right direction, and a family of five may even see a sizable amount of tax rebate in a few months.  Our national attention is focused on doing more, and improving the economy. Writers and financial sites continue to answer questions that matter to consumers.

     All things being equal, I think it is better to stay informed than not be informed about national and world events.  For that reason it’s important to pay attention to the leading themes we face.  Certainly you can make and lose money by the influences that shape our economy, and being better informed can help one make better decisions… hence, staying prepared or even finding a better job.  But I think our being informed should be framed in the context of the challenges that really can affect us.  I spoke of it the other day- there are a lot of problems we all have that we should pay a lot more attention to, and that we can do something about.

Petrarch once said, “Where you are is of no moment… only what you are doing there.”  That’s a tough statement for the homeless guy living in the street to swallow.  But I think it speaks to an eternal truth that what we are doing with our lives at any given moment in time really does matter.  We can influence and direct our future, we can improve opportunity, we can help others who need assistance, and we can find a job whether or not we are in a recession.

       Trying to balance the perspective of the words you read each day with what is really important in your life can be a challenge.  For example, just thinking about the 5.4 million people that have died in Africa over the past decade is staggering.  And over the past year there’s been a developing  crisis in Kenya where thousands more people face starvation and I can do little about that as well.  Bill Gates can however, and is pouring millions of dollars into helping small farmers in Africa.

“If we are serious about ending extreme hunger and poverty around the world, we must be serious about transforming agriculture for small farmers ” most of whom are women,” he said in a statement. The Bill & Melinda Gates Foundation on Friday unveiled a package of new grants worth more than $300 million, nearly doubling its spending on agriculture.

 There has always been strife and suffering throughout the world.  Usually we tune it out, right or wrong it’s hard to have an impact.  But we can have some impact, and make choices about where some of our money or time goes.  Places like Kiva and MicroPlace are providing wonderful opportunities to have a real economic impact on people’s lives in other nations.  Reading about the life challenges that people face each day around the world certainly provides context to the “challenge” that some of us face here at home.  And when I read the big, scary RECESSION headlines, it helps me to frame that context in a healthier manner, and think about what I can do in my local community.

    In large measure that is why I try to strike a chord of optimism in difficult times, and perhaps why the tenor of my writing is usually more hopeful.  I don’t ever mean to belittle or dismiss the challenges that so many people do face each day.  I know those challenges are real.  And I am thankful for what my family has personally in terms of a steady income. We’re not wealthy by any means, and the effects of economic challenges are very real here at home as well.  We’ve modified our spending based on fuel and grocery costs as well as trimmed back in other areas and increased savings where possible. We are fortunate to have decent income and be able to support our family.  And yet I think it’s vitally important to remember the strength we can find within no matter what our situation, and that we can find and create opportunity in both the present and future through setting goals, intentions, gaining education and continuing a daily effort to grow.

     And besides, when a cafe in San Francisco spends $20,000 on a machine to brew a cup of coffee, how bad can it be out there?  Well, never underestimate the passions of a coffee aficianado, recession or no recession.  Personally I prefer Bill Gates’ approach to helping African coffee farmers.  Instead of spending $4 or $5 bucks on my own cup of coffee, maybe I can find a cheaper cup and have some left over for savings or a good cause.   Those are things I can do something about.   I think we’ll be okay, and there are a lot of things we can do to ease the challenges we may face ahead. Take care of yourself! 

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  It’s hard to pay attention to a stock market that opens several hundred points down and keeps plunging, only to recover most of the drop on breaking news of a 3/4 point Fed Funds Rate cut.  But it does get one’s attention.  If you’re not out of the stock market right now it’s a little late to start.  I’m still riding the tumultuous volatility, and holding on with a firm look toward the distant horizon.  One that I won’t reach for 10-15 years or more.  Besides, this is a pretty darn good time to invest for the long-term.  The average P/E ratio for the S&P 500 is right around the historical average of 15.  That’s pretty fair valuation for a long-term investor.  Doesn’t mean there won’t be tough times ahead though- we face a lot of other challenges that a Fed Fund’s Rate cut may have little impact upon.

But lately the market reminds me of the Big Bad Wolf.  If you haven’t seen the 1933 Walt Disney short cartoon of the Three Little Pigs, it’s definitely worth it.  This 9 minute cartoon captured the nation’s attention during the Great Depression.   It’s a wonderful cartoon and musical combination that perhaps found resonance among the nation for the simple morals that hard work and planning ahead can protect you in the face of adversity. 

That’s something to consider as we save and invest.  The stock market’s recent volatility shows us that asset allocation and diversification provide a measure of strength over time.  When the market loses hundreds of points in a day however, it’s hard to find any shelter in the storm.  Yet these are, after all, moments in time.  Moments that can wreak havoc on a portfolio, no question. But for those who have time, hold on and keep investing steadily, these events will simply be a footnote. 

Am I afraid of the Big Bad Wolf?  Not in the form of the stock market.  Right now I feel like I’m missing out actually… I’d love to have a little more funds to invest.  And honestly- there’s little I can do about it anyway, so I try not to let it get to me.  I don’t mean to minimize the financial losses and stress that anyone faces, especially for those close to retirement.  But I think there are a lot of other “wolves” out there to be afraid of that I can actually do something about- namely building up an emergency fund of cash, my health, our family well-being and what goes on around us each day.   And as for saving and investing for retirement?  I think with committment and disciplined patience, we can slowly build a growing, diversified portfolio in the form of dividend paying stocks, bonds, mutual funds and tax-advantaged accounts.  And maybe that ‘ole stock market wolf won’t bother us as much.   He’ll be back to be sure, but like “Practical Pig” I’m building a strong financial house. 

Realistically, it’s hard to say how long or how severe the economic challenges we face will take to turn around. All the people that are supposed to be doing something are working on measures that can point us in a stronger direction.  As  many economists have noted, the Fed’s action today is “not an instant fix.”  But it’s a start, and they’ll probably lower rates again next week.  I’m curious to see what the President and Congress put together for a stimulus.  Whatever it is, they need to get it done. 

    Among our many personal finance challenges, selling a home can be a daunting task even in the best of times.  And now isn’t the best of times for most of the nation.  Okay, an understatement to be sure- the housing “slump” has gone on for more than a year and most experts are not predicting a turn-around any time soon.  But depending on where you live, real estate may not be too bad, with some economists even seeing a turnaround in progress in places such as Denver, Colorado for example.  Many metropolitan niche markets across the nation are also doing fine… but most of us don’t live in those places.  So lets not get ahead of ourselves- in 2007 housing construction fell by the largest amount in almost three decades in an unprecedented national downturn.  And foreclosures may continue to rise over the first half of 2008 before finally stablizing later this year.

 ”Mark Zandi, chief economist at Moody’s Economy.com, is forecasting that median sales prices for existing homes will fall by 2.5 percent for all of 2007, which would be the first annual price decline on records that go back four decades.”

Yet even with the pessimism, there is reason to hope.  The National Association of Realtors (NAR) forecasts existing home sales for 2008 to stablize and gradually increase.  And for many people, it’s time to buy or sell a home regardless of what the market is doing.   For others the rental market looks pretty good right now as well.

Our lives are so often a tangle of priorities.  If you are selling a home because of a job change or family situation change, then your proverbial plate is pretty darn full.   And if you’re selling because home ownership (and mortgage debt) is not something you can or want to handle anymore, then you may feel a lot of stress based on finances and a need for change.  Heck- selling a home is never easy no matter what your situation.  But if you’ve got some time on your side it can make the process a lot easier.

On that note there is a wealth of information available, and it bears repeating a few key themes.  Bankrate.com has written about 8 Tips for Pricing Your Home.   Solid information that boils down to knowing your market, seeking professional help and working hard to understand valuation and price strategies.  But I think we can do a lot more.  We looked at some of those strategies in Get Ready to Sell That House.    Selling by owner is also a challenge, so think hard about the FSBO approach.  And if you’re facing financial challenge and struggling with mortgage payments, we examined what you can do to avoid foreclosure.

Among all the negative news and gloom out there I try not to give into the hype.  The day is a lot brighter when I simply focus on our personal goals and priorities while turning down the volume of pessimistic commentary from the media.  I won’t tune it out completely because it’s important to stay informed.  But as with so many things, finding a balance in life is important.  A few years from now our memories will fade as we face the challenges of a new day.  I prefer to envision a positive future… setting  intentions for what we plan to achieve over time.  We can create a new future…  I wish you well!

     Personal finance involves many considerations… especially during an election cycle when whomever is elected may have a great influence on our pocketbooks in terms of taxes and government spending.  But I was bothered by this news bit yesterday and wanted to comment.   Remember during the 1990’s when someone famously said, “That depends on what the meaning of the word is is…?”   Now we’re not talking about the same, well, life passions perhaps.  But when it comes to politics, few things stir the passions of voters as much as candidates who are funded and run by lobbyists (which many of them are on both sides of the aisle). Yesterday, in the middle of a speaking to reporters at an office supply store in South Carolina, Romney says “I don’t have lobbyists running my campaign…” and was shortly interrupted by an AP reporter who challenged that comment.  It seems Romney does have lobbyists riding around with  his campaign, on his jets and as an  advisor.  Oh, and maybe as a friend.  But not someone actually running his campaign. 

“Did you hear what I said? Did you hear what I said, Glen?” Romney asked. “I said I don’t have lobbyists running my campaign, and he’s not running my campaign.” 

Uh…. okay.  If you say so.  It’s hard to understand how someone can criticize so many others for having lobbyists running their campaigns, but it’s perfectly alright to be surrounded by them, and to have them as advisors?  And in this case, his advisor (not lobbyist mind you), is Chairman of a communications firm called Dutko Worldwide.  Which, among other things, has been reported as being a federal lobbying firm for Citgo… the U.S. based company from Venezuela?   How much money has Citgo paid to Dutko over the years?   Something else that bothered me… the way Romney challenged the AP reporter.  Easy to get defensive when you’re caught with your hand in the cookie jar.  And I guess it depends on what the meaning of the word lobbyist is?

The news has been almost all negative lately, continuing to pressure markets toward Bear territory. It looks as if both consumers and investors are afraid… fear of potential recession, fear of credit market woes, fear of housing and mortgage problems, fear of… goodness you name it. But a lot of investment professionals are neutral either way. Where there is fear, there is money to be made- not only to the downside, but also with companies that are attractively priced for long term appreciation. Yet the markets head lower because investors aren’t buying, and in fact keep selling. More supply, less demand. And a lot of folks are concerned that things will get a lot worse before they get better, with some even concerned about global recession possibilities.

But there’s still a debate whether the market is consolidating or about to get worse. I’m in the consolidation camp… I think so much of the negative news is already out and that the markets will turn around sooner than later. And can we start looking at what’s right with the economy instead of how bad everything is? I’m up to my ears with the negative stuff. My opinion means little except to my personal approach to investing, and peace of mind. Markets go up, markets go down. It’s not fun, but most have us have little choice but to ride it out as we’ve done in the past. I think I’m more concerned about consumer perception and how that affects confidence, spending and ultimately the economy as a whole. The economy is still growing, albeit “at a slower pace” as the Fed has reported. It’s no surprise that we’ve been feeling pinched by higher prices for quite a while, and the Labor Department numbers finally show the inflation reality that energy and food prices rose in 2007 by the greatest amount since 1990. The highest gasoline and food prices in over 17 years? No kidding… Seems like I remember a recession around the 1990 timeframe too. But don’t worry- Mitt Romney is going to save the auto industry, textile industry, furniture industry and whatever other economic problems we have!

We may be in a recession, or see one soon. But somehow I think we’ll stay ahead of it nationally. Wall street is urging the Fed to take more aggressive action, and they’ll probably cut rates at the end of the month. Congress is supposedly putting together a stimulus package too, and that would boost the Fed’s efforts as well as consumer psychology. The economy may really be that bad, but combine all of that with a dynamic election year and I think the signposts to economic recovery will become a lot more clear in a few months.

    Over the past few years it has become apparent that most Americans need to save a lot more for their retirement than they think.  And that most Americans are not well prepared and not saving enough to ensure a financially secure retirement.  But we’ve also seen where some have questioned if the metrics and numbers that most financial planners say we need are too high- and unreachable for many of us.   Even still, it’s hard to argue with the viewpoint that saving too little may be far more damaging than saving too much.  But how much is enough?  That’s were a good financial planner comes in with a great deal of analysis. 

      So is there a right answer?  As far as a specific amount of retirement savings, probably not in general.  It’s an answer unique to every individual and family.   The statistics are somewhat amazing really, and some say we’ll need 10-12 times our pre-retirement salary put up to fund our retirement.  Historically, many planners have advocated that we anticipate an income replacement ratio in retirement of 60% to 80% of our pre-retirement income.  Those numbers assume a great deal…  empty-nesters with no children at home, mortgage paid off, spending patterns reduced, etc.  Are they right?  It all depends, and many people argue that we should plan for spending 100% of our pre-retirement income in retirement!  There’s a crucial consideration however…

What kind of lifestyle do you want to live in retirement!?  That, my friends, is the real question.

     Money magazine online has written about a couple in their fifties who are Investing in the Home Stretch to Retirement.  Based on the information provided, this couple has done a pretty solid job of preparing for their retirement.  They make over $100,000 per year with a house paid off, and have savings of over $500,000.  

If their money keeps growing at 7 percent a year for the next eight years, the Paines will have nearly $1 million. At a 4 percent withdrawal rate, the couple can safely tap $40,000 a year, says Cincinnati financial planner Erik Christman. Even with Social Security, their income would be only two-thirds what they’re making now. “They are going to be challenged to retire, even in eight years,” Christman says.

     So let me understand this… here’s a couple that may have over $1 million dollars saved and can work with a conservative 4% withdrawal rate, achieving at least $40,000 annual income, plus social security… and they’re going to be challenged to retire?   I think it means they’re going to be challenged to retire to the lifestyle they believe they want to maintain.   And I have to say it bothers me when journalists and planners put it that way because most Americans would be lucky, and very thankful, to be in that situation when they retire.  I’m not trying to be disrespectful to this couple either- they’ve worked very hard and should rightfully be proud of their accomplishments.   But being challenged to retire?    There’s a lot of folks in the country that will be challenged to retire, and it’s not this couple.  They’ll have income, choices and opportunity.  They may be limited  in their choices based on their retirement income… but they will  have choices, and money to use.

So in general, we may be challenged in retirement to fund certain goals based on our lifestyle choices.  For me it then boils down to two primary questions:

• What kind of retirement lifestyle do we want to have?

• How are we going to save enough money to fund that retirement lifestyle we want?

   Answering those questions can help establish a foundation that we work with throughout our career and lives.  If we have some idea or goal for where we are going, then we can move foward to get there.  We need to take some specific actions to do so… and keep working on them!   For many people, it means we need to take a realistic assessment of where we are, how much we can save, and how much we may accumulate to spend annually in retirement.  Sometimes that’s a sobering assessment.  An excellent article makes the point that this won’t be our parent’s retirement!  Most of us save, and have saved, far too little rather than too much. There’s a lot of unknowns out there, especially with healthcare costs and longevity.  But I’d rather have some idea of what the future’s going to look like so I’m better prepared to make resolutions along the way, and realistic choices when I get close to retirement. 

A positive statement by the Fed today lifted markets somewhat. But it may not be for long… some may interpret the Fed Chairman’s remarks as proof positive that we are in, or headed for, a recession and the economy may continue getting worse before it gets better.

“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” Ben Bernanke, Chairman, Federal Reserve

Maybe so. But for the long term I just think this is a great opportunity to firm up that portfolio. The market may continue swinging downward with great volatility over the next month or two. February can be a challenging time historically for the market. I like Ben Stein’s view when he says “Don’t Buy the Panic.” I see the current market dynamics as opportunity, and will continue making IRA contributions during this timeframe. But a lot of folks are still bearish, and advise keeping a good amount of cash on the sidelines. Nothing wrong with that, just remember to put that money back to work at some point!

But the big news is I’m working on dropping some weight (and keeping some food on the sidelines). More of a health resolution than anything, but so far so good. Ever go on a “juice fast“? Works really well… but for a “foodie” like me it’s harder than disciplined investing! Feels great but is strange to go without real food… while combining healthy fruit and vegetable juice and working out during the day I haven’t been that hungry. More desirous of food than anything perhaps. I’ve got a 25 pound goal to work off over the next three months. We’ll see how it goes!

  Ever wonder how political candidates receive funding from “big money” sources such as corporations?  Well Gerald Seib of the Capital Journal/Wall Street Journal has explored this focus in his article discussing the leading GOP candidates and how well they’re funded. The inset about the “Money Trail” is amazing- especially regarding former Gov Mike Huckabee.  No wonder he’s not a GOP darling- and he’s practically received nothing  from any establishment donors.

The Center for Responsible Politics (OpenSecrets.org) has a great website that shows all Presidential candidates fund-raising efforts to date.

The differences for the GOP candidates through September, 2007 are staggering.  For totals among Commercial banks, Hedge funds and Private Equity groups, Insurance companies, Pharmaceutical and Heath companies, Oil and Gas, and Securities and Investment firms:

 Total from the six industry groups:

Giuliani: $7,476,950
Romney: $6,308,613
McCain: $3,202,569
Huckabee: $146,727
Source: WSJ and Center for Responsive Politics.

The numbers may have changed of late, and I suspect both Sen McCain and Gov Huckabee are doing a little better these days. I really think some candidates have more credibility when it comes to saying who they’re taking money from.  What Gov Huckabee has accomplished to date is amazing.  I don’t have the same numbers for the Democratic side beyond total fundraising above.  But I’m sure the money flow is centered on Sen Obama and Sen Clinton.  I don’t know about you, but I’m ready for a little change as well!