How much to save?

If the recent economic recession and stock market crash of 2008 has taught Americans anything, it's that you can't count on your house or your investment portfolio to make money for you all the time. The lesson? You need to save some money! In 1975, the personal savings rate for Americans hit a high of 14.6%. As recently as 2008, the savings rate dropped below 1%, but has since climbed to around 4%. Why have personal savings rates dropped? Two main reasons. Number one: easy credit. Before most Americans had credit cards, people had to save before they bought something. That's right, it was customary to pay cash for just about everything, even cars! Now that most people can qualify for a credit card, people have learned not to save because they can buy on credit and pay off over time. The second reason people stopped saving as much is due to something called the "wealth effect". When stock and mutual fund portfolios soared in the late 90's and home prices spiked in the period from 2000 to 2006, this created a lot of money for the people who were either shrewd enough or lucky enough to sell at the right time and realize their profits. People basically said to themselves why should I save 10% of my income when I can make 30% in the stock market or 100% in real estate over a 5 year period! But as home prices declined after 2006 and the stock market crashed 37% in 2008, suddenly this line of thinking was flawed. Prudent financial advisors will tell you that you need to put away at least 10% of your gross income into some kind of savings vehicle. For those that lost a lot or never got in the habit of saving, they might need to sock away 15-20% to make retirement feasible. Depending on your income level and desired lifestyle during your retirement years, coupled with the fact that people live longer nowadays, you might need $1-2 million in the bank by the time you retire. So stop buying those afternoon lattes and skip the sales at the shoe stores, you need to look at where you are spending your money and start saving more of that green!

Dow 11,000

The Dow Jones Industrial Average (DJIA), or The Dow, is now within 73 points of breaking through 11,000. What does this mean? It actually doesn't mean anything other than it's a nice round number and it's a psychological barrier for many. Of course it's not as exciting climbing back through 10,000 and now hopefully 11,000 because we've been there before. At least once again, we are moving in the right direction. I had a client call me the other day asking if we were due for a correction. Well, nobody knows. There is no formula that says if the Dow goes up this much, in this amount of time, then it must go down. No, the stock market does what the stock market wants to do. No one is in control of it. The market will confound, perplex, frustrate, excite, and fool you every time. But the market is efficient and an effective barometer on what is happening with the stocks of companies that are represented by the index. So go ahead, watch The Dow, map it, chart it, look at the trends, do whatever you want to do, but know this, you can not accurately predict what the market will do, anymore than you can tame a wild mustang horse and make it your pet.

Wordless Wednesday

$250,000 for health care

Shortly before the new Healthcare Reform Bill was signed into law by President Obama, a study was done to determine how much money retirees might need for health care expenses while in retirement. The answer: $250,000! That assumes an average couple in average health who live to be 82 for the male and 85 for the female.

Read the article here: Retired couples may need $250K for health care

That is just for medical expenses alone, you know, doctor visits, prescription drugs, lab expenses, etc. So what would this couple need for the rest of their expenses? Food, shelter, utilities, transportation, entertainment and so on. If might take somewhere between $1 million and $2 million depending on your lifestyle needs and wants. Consider this: if the couple above ate dinner at home 6 days a week at an average cost of just $7 per meal and went out for dinner one day a week at an average cost of $40, over 20 years that would cost them more than $187,000! That's just for food and that doesn't even take into account inflation. So take a look at your 401k balance and you might want to think about calling HR to increase your contributions!

Wordless Wednesday

Health Care Reform

Once President Obama signs the new Health Care Reform bill today, new rules governing health insurance will become law. As an insurance agent who sells health insurance, it will be interesting to me to see how the insurance companies will react to some of the mandated changes that will go into effect. Some go into effect right away, while others do not happen until 2014. Children with pre-existing health conditions are to be covered right away (or at least within 30 days). This would seem to me to have an effect on premiums. While it will be good for the children who do not have health insurance now, will their parents be able to afford the premiums? Erasing the lifetime maximums on health insurance benefits will also drive premiums higher in the long run. The only thing that would seem to help spread the risk is the fact that now (beginning in 2014) everyone will be required to have health insurance. This means that healthy people who choose not to carry health insurance (either because they feel they don't need it or because they can't afford it) will have to sign up for coverage or pay a penalty. Sure some families will get government subsidies to help pay for the cost of their health insurance, but with so many people without jobs or with low paying jobs, will they still be able to afford it? I think some will choose to pay the penalty instead. As President Obama said yesterday, "this is what change looks like".

NCAA Thursday

So today is the beginning of the NCAA tournament. Millions of people have completed their brackets to pick who they think (or hope) will make it to the Final Four. Millions of dollars will be bet on the outcome of these games. Millions of dollars will be distributed to the participating colleges. Millions of dollars will be spent on advertising. Millions of dollars will be spent on tickets, airfare, hotels, restaurants, and merchandise. Millions of dollars will be going into the local economies of the lucky cities that are hosting these games, especially the ones that get to host the regional finals, and the Final Four! College football officials should take a took at what happens every year during what everyone knows is March Madness. This is college sports at it's finest. No other college sport generates this kind of excitement, this kind of following, this kind of revenue. So bring it on CBS. I'm ready! I'm ready to win my $1 million that Yahoo Sports is giving away to the person that correctly picks all the winners. Heck, I'll just take the $10 grand for having the best bracket in the USA. OK, where's my remote?