Survey shows changing personal finance trends

NUMBERS: The percentage of people holding mutual funds increased from 32 percent to 41.4 percent, while those with stocks fell from 42.1 percent to 31.2 percent

By Angelica Oung

STAFF REPORTER
Wednesday, Jan 16, 2008, Page 4

A survey of 4,017 workers by the Council of Labor Affairs (CLA) found that workers have changed the way they manage their assets in the past five years.

Compared to a similar survey conducted in 2002, the percentage of those putting money into properties, savings accounts, individual stocks and through "mutual aid societies" (標會) are all down, according to data released at yesterday's CLA news conference. Meanwhile, there have been an increase in those investing in mutual funds and buying insurance.

The survey was conducted to gauge the readiness of workers in this country to face retirement, said Lin Lee-jen (林麗貞), the director of the statistics department of the CLA. However, the survey did not ask workers how much they are putting away in various forms of savings or investments.

"Our savings rate in this country is still quite high, in excess of 20 percent," Lin said. "However, whether or not those savings can give us a comfortable life depends on how they are managed."

The decrease in those using mutual aid societies is the most dramatic.

While 38.7 percent of surveyed workers participated in such societies in 2001, only 10.3 percent did so last year, a drop finance experts credit to the increasing number of firms offering financial planning services in this country.

Mutual aid societies are a traditional way for individuals to obtain credit from a group of peers. One member receives dues collected from the rest of the members every month.

The member who needs the money the most submits the highest bid for the pot. Those who are not in immediate need of the money do not bid and in return receive the pot when it comes to their turn to collect.

Investment in real estate is also down as property prices have risen out of reach for many. Those who saved through investing in real estate fell from 42.7 to 17.8 percent. Those investing in stocks fell from 42.1 percent to 31.2 percent.

In the face of low interest rates in savings accounts, those using them as an investment also fell from 72.2 to 56.6 percent.

The percentage of those investing in mutual funds increased from 32 percent to 41.4 percent while the percentage of those who bought insurance rose from 48.9 percent to 57.1 percent.

Hsin Ping-lung (辛柄龍), an associate professor the Graduate Institute of National Development at National Taiwan University said that the survey would yield more useful information if it included more detail.

"So we know a greater percentage of people are buying insurance, but we don't know what kind of insurance they are buying or how much," Hsin said.

The savvy or lack thereof of individual investors could determine to what extent labor retirement benefits could be privatized, Hsin said.

Personal Finance: Save for retirement first, then work on a down payment

I am 23 years old, and my husband and I are trying to save for a house. I know that if I start saving for retirement right now, I will be much better off than if I wait even a few years. I contribute the maximum my company will match to my Roth 401(k), but we are unsure about how to split saving between a house and retirement. Should I be contribut ing more toward retirement? You are so right that starting early is key. Many people in their 20s blow off saving for retirement, but the very best time to get started is when you have decades ahead of you for your money to grow.

Here's a simple illustration. If you start saving $4,000 a year for retirement at age 23, you'll have a little over $1 million in 40 years, assuming 8 percent average annual returns.

Wait just five years to start, and your future nest egg shrinks 33 percent, to about $690,000.

A good rule of thumb is to save at least 10 percent of your gross income for retirement. You'll probably want to save more if you plan on early retirement or extended breaks from work (if you want to stay at home for a few years with your kids, for example). People who start sav ing for retirement late -- say, after age 35 -- probably should bump up their contribution rate as well.

Once your retirement savings are on track, you can start sock ing money away for other goals, like your future house. If your ex penses are too high to allow you to save more, then you need to trim those costs. Books such as "Your Money or Your Life," by Joe Dominguez and Vicki Robin, and Amy Dacyczyn's "Tightwad Gazette" can put you on the right track. I just finished reading your column about how people who can't afford to tip should eat at home. I think you have a lot of nerve. I know people who are on a fixed income who would just like to get out of the house for a sandwich and maybe some company. So what if they don't have enough for a tip? If a manager ever approached me about my not tipping, I would take my business elsewhere and I would be sure to pass this information along to my friends, neighbors and relatives. Actually, taking your business elsewhere is exactly what the wait staff is hoping you will do.

Being thrifty, especially when money is tight, is a virtue. But ex pecting others to bear the cost of your frugality crosses the line into stinginess. And that's exactly what you're doing when you fail to tip at a full-service restaurant. As mentioned in the earlier column, these employees depend on tips for a livable wage, since many are paid way below minimum wage.

People who feel they can't afford to tip have other options be sides eating at home, including patronizing fast-food and self- serve restaurants. I am a generous tipper, diligently giving upward of 25 percent even when the order has a built-in service charge. Yet increasingly I encounter whiny servers who are slothful at best and less than enthusiastic about the service they are providing. What is the proper response to lackluster service? I frequently entertain clients and would ap preciate good meals accompa nied by good service. Some problems are beyond the control of the server, such as an understaffed restaurant or troubles in the kitchen that slow meal preparation. But if the problem really is the server, the proper course is to have a word with the manager about the issue after the meal. The response you get will tell you volumes about whether the bad service is an aberration or par for the course for that establishment.

Given that you entertain fre quently for business, you might seek out restaurants that are known for their good service and reward the staff accordingly. This tipping business has got ten way out of hand. Never in my career of 30 years was I ever tipped. I hate tipping and don't, but I'm trumped by the wife, who does tip. I have business cards which I leave: "When you tip me for coming here, I'll tip you for being here." Here's a tip, then: If you actually do have such cards and leave them behind you, you should be careful about never eating in the same place twice.

Questions may be submitted to Liz Pulliam Weston via her Web site, www.asklizweston.com. She regrets she cannot respond personally to queries.

Don't rely on your home's equity to finance retirement

By HELEN HUNTLEY, Personal Finance Editor
Published September 9, २००७

Are you counting on the equity in your home to bankroll your retirement? If so, it may be time to reconsider.

The woes in the housing market won't last forever. However, they are a reminder that housing prices don't go straight up and that there are good and bad markets in real estate just as there are for any other investment. That's an important retirement planning consideration since a home is most workers' biggest asset.

"We're hoping our home will be able to help us out quite a bit, but it's up in the air," said Mike Mulligan of New Port Richey. Mulligan, 56, has a vending machine business and helps out at his wife's cabinet business. Although they have retirement savings, they haven't added to them every year. Now, he says, they expect they'll probably keep working "longer than we really want to."

Recent research shows that many workers are counting on the equity in their homes to finance their retirements. Here are four reasons why that's risky:

- You have to live somewhere. Unless you plan to move someplace significantly less expensive, downsizing may not free up much cash after transaction costs. And of course you'll face higher real estate taxes if you stay in Florida because you'll lose your "Save Our Homes" exemption.

- You may not get the price appreciation you're expecting. Real estate prices run in cycles and can be very volatile, but over the past 40 years the return has been only a little better than investing in T-bills, according to a Fidelity Investments study. The recent run-up in prices was an aberration, not the new normal.

- Your equity may be spent. In the past two years, Americans have cashed out $622-billion in home equity through refinancing, according to Freddie Mac data. The more you owe when you retire, the less equity you'll have available to tap in retirement.

- Your timing may be bad. When you're ready to sell, market conditions may not be favorable. "A lot of people in the Florida market are trapped in their homes," said Ron Drummonds, a builder in Valrico. "People who'd like a newer, smaller home and less maintenance can't get anybody to take the other one off their hands."

So what's a worker to do?

Be realistic. Don't expect your house to bail you out from failure to save. Instead, plow money into retirement savings plans with every paycheck. And while you're at it, hedge your bets. Use stock and bond funds as well as cash reserves to help you meet your long-term goals.

Your home might come to your rescue through a reverse mortgage, but it's best to keep that possibility in reserve as a backup strategy for your late 70s or older if you find expenses outpacing your income.

Reverse mortgages get their name from the fact that the bank makes payments to you - as a lump sum, a monthly payment or through a line of credit you tap when needed. You generally make no payments as long as you live in the house. The big incentive for waiting is that the older you are and the more equity you have in your home, the more money you can get. The chief disadvantages are that fees and interest rates are higher than for conventional mortgages.

Your questions

Question: I'd like to know my credit score but don't want to pay $15 or more to get it. How can I get one for free?

Answer: The credit-reporting agencies are obligated to supply you with your credit report once a year get it through www.annualcreditreport.com, but you have to pay to get your score through that avenue. Some financial institutions provide free credit scores to customers (Washington Mutual is one). In addition, some credit-monitoring services offer a free credit score if you sign up for a free trial. You just have to remember to cancel the service when the trial period ends.

Write Helen Huntley at hhuntley@sptimes.com or PO Box 1121, St. Petersburg, FL 33731. Go to her MoneyTalk blog (blogs.tampabay.com/money) to read more about investments and personal finance.

Rebalancing investments in your IRA

Tuesday August 14, 6:00 am ET
George Saenz
http://biz.yahoo.com/brn/070814/22772.html?.v=1&.pf='retirement'

Dear Tax Talk:
Can I roll over money from my traditional IRA to a money market account without tax consequences? I don't plan on touching the money. I just want to move it to a location less vulnerable than the stock market, like a money market fund because this will be more stable. I will turn 58 this year. Thank you in advance for your help.
--Larry

Dear Larry,
It is understandable that you would want to change your investment strategy. As we age, our investment time-frame changes, decreasing our tolerance for risk.

When you're in your 30s, your investment time frame for retirement savings is probably well over 20 years. This will allow you to recover from most downturns in the stock market. At 58 years of age, you may be thinking of early retirement and want to be assured your capital will remain intact. Hence, you'll move away from investments that put your capital at risk, such as equities, and move to safer investments, such as money markets.

This rebalancing of your portfolio doesn't mean you have to take your funds out of an IRA. This is especially true when you're under age 59-and-a-half, when most retirement fund withdrawals will result in a 10 percent penalty.

An IRA is an investment account designation. An IRA-designated account can be invested in most traditional investments, such as money markets, certificates of deposit and stocks. One IRA can be invested in more than one type of investment product. For example, you can have an IRA that is 50 percent CDs and 50 percent stocks.

When you rebalance, you may want to consider leaving some of the account that you may not need in the near future in an investment product that can yield better returns than a money market fund.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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