• curiouscat.com
  • About
  • Books
  • Glossary
   
       

    Categories

    • All
    • carnival (40)
    • Cool (35)
    • Credit Cards (43)
    • economic data (33)
    • Economics (406)
    • economy (101)
    • Financial Literacy (265)
    • Investing (273)
    • Personal finance (320)
    • Popular (39)
    • quote (189)
    • Real Estate (109)
    • Retirement (60)
    • Saving (85)
    • Stocks (126)
    • Taxes (47)
    • Tips (122)
    • Travel (4)
  • Tags

    Asia banking bonds capitalism chart China commentary consumer debt Credit Cards credit crisis curiouscat debt economic data Economics economy employment energy entrepreneur Europe Financial Literacy government health care housing interest rates Investing Japan John Hunter manufacturing markets micro-finance mortgage Personal finance Popular quote Real Estate regulation Retirement save money Saving spending money Stocks Taxes Tips USA Warren Buffett
  • Recently Posts

    • 12 Stocks for 10 Years – May 2013 Update
    • Real Estate Tax Compared to Rental Income in Several Cities in the USA
    • Apple’s Outstanding Shares Increased a Great Deal the Last Few Years
    • USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011
    • Top Nations for Retirement Security of Their Citizens
    • How Much of Current Income to Save for Retirement
    • Curious Cat Investing, Economics and Personal Finance Carnival #41
    • Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany
    • 157,000 Jobs Added in January and Adjustments for the Prior Two Months add 127,000 More
    • Is it Time to Sell Apple?
  • Blogroll

    • Curious Cat Management Improvement Blog
    • Freakonomics
    • I Will Teach You to be Rich
    • Jubak Picks
  • Links

    • Articles on Investing
    • fool.com
    • Investing Books
    • Investment Dictionary
    • Leading Investors
    • Marketplace
    • Trickle Up
  • Subscribe

    • RSS Feed

    Curious Cat Kivans

    • Making a Difference

Investing and Economics Blog

Asia banking bonds capitalism chart China commentary consumer debt Credit Cards credit crisis curiouscat debt economic data Economics economy employment energy entrepreneur Europe Financial Literacy government health care housing interest rates Investing Japan John Hunter manufacturing markets micro-finance mortgage Personal finance Popular quote Real Estate regulation Retirement save money Saving spending money Stocks Taxes Tips USA Warren Buffett

Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually

Pitfalls in Retirement (pdf) is quite a good white paper from Meril Lynch, I strongly recommend it.

A survey asked investors at least 41 years of age how much of their retirement savings they can safely spend each year without running the risk of exhausting their assets. Forty percent had no idea; an additional 29% said they
could safely spend 10% or more of their savings each year.

But, as explained below, the respondents most on target were the one in 10 who estimated sustainable spending rates to be 5% or less. This is significantly impacted by life expectancy; if you have a much lower life expectancy due to retiring later or significant health issues perhaps you can spend more. But counting on this is very risky.

This is likely one of the top 5 most important things to know about saving for retirement (and just 10% of the population got the answer right). You need to know that you can safely spend 5%, or likely less, of your investment assets safely in retirement (without dramatically eating into your principle.

chart showing retirement assets over time based on various spending levels

Chart showing retirement assets over time based on various spending levels, from the Merill Lynch paper.

The chart is actually quite good, the paper also includes another good example (which is helpful in showing how much things can be affected by somewhat small changes*). One piece of good news is they assume much larger expense rates than you need to experience if you choose well. They assume 1.3% in fees. You can reduce that by 100 basis points using Vanguard. They also have the portfolio split 50% in stocks (S&P 500) and 50% in bonds.

Several interesting points can be drawn from this data. One the real investment returns matter a great deal. A 4% withdrawal rate worked until the global credit crisis killed investment returns at which time the sustainability of that rate disappeared. A 5% withdrawal rate lasted nearly 30 years (but you can’t count on that at all, it depends on what happens with you investment returns).

Related: What Investing Return Projections to Use In Planning for Retirement – How Much Will I Need to Save for Retirement? – Saving for Retirement

Read more

April 9th, 2012 by John Hunter | 1 Comment | Tags: Investing, Personal finance, Retirement, Saving, Stocks

Country Travel Ideas That Don’t Require Huge Amounts of Cash

Countries that can still be travelled on the cheap

Indonesia has had a bad run of terrible press over the past few years. Between bombings and other strife it’s fallen off the to-do lists of many tourists. Their loss is our gain: the pristine beaches are still the drawcard and you can experience the same dirt-cheap living that has always been on offer.

If you’re keen to surf or lie on the beach you’re all set to have an adventure for peanuts. As long as you steer clear of tourist-trap resorts, you’ll struggle to spend more than $23.50 a day. Nourish your inner cheapskate and buy souvenirs away from the tourist areas; head to the central market in Denpasar or Ubud’s Pasar Sukowati.
…
Eastern Europe used to be dirt cheap back in the good old days of the Cold War. Now that peace has broken out, costs are on the up. Poland, though, is still at the inexpensive end: a daily budget of $29 will easily get you around the country.

Poland is a nation that’s been run over so many times by invading forces that it’s become bulletproof. Now this EU member is on the rise, so get in quick before the prices go up for good. Rural towns are picturesque and cheap to visit; tiny towns like Krasnystaw in the Lubelskie region are a miser’s wonderland.
…
If you’re looking for a scuba-diving destination where you can put your entire budget into going under, Honduras is the place to be. With sleeping budgets as low as $12 a night and meals available for even less you can really stretch out the funds.

Sitting pretty next door to the Caribbean Sea, you’ll have plenty of time to count your pennies as you sun yourself on the golden beaches. The developers haven’t invaded quite yet, but you’d better get in quick, before the good old days slip into the past.

After snorkelling and kayaking around Roatan’s West Beach, splurge on a visit to the Unesco-listed Archaeological Park of Copan; entry is $18.

Related: Great Time for a Vacation – Travel guide books – Traveling To Avoid USA Health Care Costs – Travel Photo blog

July 8th, 2010 by John Hunter | Leave a Comment | Tags: Personal finance, Tips, Travel

The 4% Rule is Overly Simplistic

Time to replace the 4% rule

Conventional wisdom suggests that you withdraw on average 4% adjusted for inflation. Now comes a paper co-authored by William Sharpe, the winner of the 1990 Nobel Prize in Economics, challenging the conventional wisdom.
…
According to Sharpe, who is also the founder of Financial Engines, the typical 4% rule recommends that a retiree annually spend a fixed, real amount equal to 4% of his initial wealth, and rebalance the remainder of his money in a 60%-40% mix of stocks and bonds throughout a 30-year retirement period.

What’s more, he shows the price paid for funding what he calls “unspent surpluses and the overpayments made to purchase its spending policy.” According to Sharpe, a typical rule allocates 10%-20% of a retiree’s initial wealth to surpluses and an additional 2%-4% to overpayments.
…
The only problem with what academia knows to be right and what’s practical in the field — even by Sharpe’s own admission — is this: “Many practical issues remain to be addressed before advisers can hope to create individualized retirement financial plans that maximize expected utility for investors with diverse circumstances, other sources of income, and preferences,” Sharpe wrote in his paper.
…
Meanwhile, Stephen P. Utkus, a principal with the Vanguard Center for Retirement Research, agrees that the 4% rule is flawed. But he also notes, as did Sharpe, that there’s no practical mechanism to replace it with and that further research is required.

I think this is exactly right. The proper personal financial actions in this case are not easy. The 4% rule is far from perfect but it does give a general idea that is a decent quick snapshot. But you can’t rely on such a quick, overly simplified method. At the same time there are simple ideas that do work, such as saving money for retirement is necessary. The majority of people continue to fail to take the most basis steps to save money each year for retirement.

Related: Spending Guidelines in Retirement – How Much Will I Need to Save for Retirement? – Bogle on the Retirement Crisis

April 23rd, 2010 by John Hunter | Leave a Comment | Tags: Financial Literacy, Personal finance, quote, Retirement, Saving, Tips

Protect Yourself from 11 Car Dealer Tricks

Top 11 dealer tricks

2. The single-transaction strategy: Many people view buying a car as one transaction. It’s not, and dealers know this. It’s really three transactions rolled into one — the new-car price, the trade-in value and the financing. The dealer sees all three as ways to make money. Treat each as a separate transaction, and negotiate each one. If you get a new car for $200 over invoice but receive only $1,000 for a trade-in car that’s worth $2,500, you haven’t done as well as you could.

3. The payment ploy: A dealer might say, “We can get you into this car for only $389 a month.” Probably true, but how? In some cases, the dealer may have factored in a large down payment or stretched the term of the loan to 60 or 72 months. Focus on the price of the car rather than the monthly payment. Never answer the question, “How much can you pay each month?” Stick to saying, “I can afford to pay X dollars for the car.”

Some good advice. I bought my last car at CarMax which gave a good price and none of these tricks (I didn’t have a trade in – I donated it) and I paid cash. They offered a great deal on a Toyota Rav4 when I was looking. I believe, those that are interested in getting the very best deal and are skilled and able to defend themselves from the dealer can do better than CarMax. But I would bet most people would be much better off using CarMax.

Related: Manufacturing Cars in the USA – Avoiding Phone Fees – Actually Free Credit Report – How to Use Your Credit Card Properly

April 1st, 2010 by John Hunter | 1 Comment | Tags: Personal finance, Tips

Credit Card Issuers Still Seeking to Take Your Money

The government has stopped some of the worst abuses by credit card issuers however, those financial institutions are not without ways of continuing to take advantage of customers, Credit-Card Fees: the New Traps

Customers can only exceed their credit limit if they agree ahead of time to pay a penalty fee. And unless a cardholder misses payments for more than 60 days, interest-rate increases will affect only new purchases, not existing balances. Banning these and other profitable tactics is expected to cost the card industry at least $12 billion a year in lost revenue
…
Banks already are reaping more fees on overseas transactions. Not only are they raising foreign-exchange transaction fees—the cost customers pay for purchases made in foreign currencies—but they are expanding the definition of what qualifies as a foreign transaction.

In the past, people who made online purchases from foreign merchants, or who traveled to a country where the purchases are often in U.S. dollars such as the Bahamas, were generally immune from paying such fees. But Citi and Bank of America recently imposed their 3% foreign-transaction fees on all foreign transactions—even if that purchase is charged in U.S. dollars. Discover Financial Services also began charging a new 2% for foreign purchases last year.
…
And there are ways to avoid annual fees. Citigroup is alerting some customers that it is assessing a $60 annual fee on their cards. The cure for that is simple. If you spend $2,400 on the card in a 12-month period, the bank will refund the fee.

I’ll tell you a better way to avoid the abusive fees. Don’t deal with the large banks that the government bailed out. My credit union offers a credit card with no annual fee without any minimum spending requirements, and many others do as well.

Related: How to avoid getting ripped off by credit card companies – More Outrageous Credit Card Fees – Sneaky Credit Card Fees – USA Consumers Paying Down Debt –

February 25th, 2010 by John Hunter | Leave a Comment | Tags: Credit Cards, Personal finance, quote, Tips

Five Consumer Laws You Really Ought to Know (for the UK)

Five consumer laws you really ought to know if you live in the United Kingdom.

To mark National Consumer Week, here are five laws the canny shopper should be using in their battle to get stuff that actually works. There is a war being fought between customers and many of the firms they have to deal with. It is an asymmetric conflict – the little man versus the faceless, bad customer service monoliths.
…
Your iconic white MP3 player, the totemic centre of your life, breaks down precisely 366 days after you bought it. The large electronics firm that sold you the MP3 player says that because the one-year guarantee had elapsed, there’s nothing they can do to help you. You’ll just have to buy another one.
…
if the player has been lovingly treated and has still conked out that suggests something may have been wrong with it at the very beginning.

It works like this. For the first four-five weeks you have a “right of rejection” – if the item you’ve bought breaks down, you can demand a refund.

For the next six months, you are entitled to replacement or repair of the goods. It is up to the retailer to prove there was nothing wrong with it if they wish to get out of having to do the work. And then after six months, there is still a duty to replace or repair faulty goods, but the onus is on you, the consumer, to prove that there was something wrong.

And the key time span is six years. That’s how long goods may be covered by the Sale of Goods Act. It all depends on what “sufficiently durable” means. If a light bulb goes after 13 months, the consumer is not going to be overly gutted.

Extended warranties are general a very bad personal finance move. I never purchase them. Many companies push them on customers because of the large profit margin and because they don’t want to provide value to customers.

Related: 10 Things Your Bank Won’t Tell You – Ohio Acts to Protect Citizens from Payday Loan Practices – Save Money on Printing – Don’t Let the Credit Card Companies Play You for a Fool – Student Credit Cards

September 15th, 2009 by John Hunter | Leave a Comment | Tags: Personal finance, Tips

China May Take Car Sales Lead from USA in 2009

China’s economy continues to grow quickly. It looks as though that, along with the slump in US car sales, likely will lead to China taking the world sales lead for cars (I would imagine for the first time ever the USA has not held this title). China 2009 Vehicle Sales May Rise 28% on Stimulus:

Full-year sales may reach as high as 12 million vehicles, Chen Bin, chief director of the industry coordination department at the National Development and Reform Commission, said today at a conference in Tianjin. U.S. sales will likely be around 10.5 million, according to both General Motors Co. and Ford Motor Co.

China has boosted auto sales this year through tax cuts and subsidies as a part of a wider 4 trillion yuan ($586 billion) stimulus that has shielded the country from the worst of the global recession. U.S. sales have slumped 28 percent, pushing the old GM and Chrysler LLC into bankruptcy. Last year’s total was 13.2 million, compared with 9.4 million in China.

Partially due to the strong internal Chinese demand (and partially due to Chinese regulation) India actually exports more cars than China. 5 times as many cars are purchased in China as are bought in India.

Indian Car Exports Beat China’s

[In India] Total exports, including vans, sport-utility vehicles and trucks, rose 18 percent to 229,809.
…
In contrast, China’s exports slumped 60 percent to 164,800 between January and July, according to government data. Vehicles produced in Thailand for export declined 43 percent to 263,768, according to the Thai Automotive Club.

South Korean exports dropped 31 percent to 1.12 million units, according to the Korea Automobile Manufacturers Association. Japan, the world’s largest automobile producer and exporter, shipped 1.77 million cars, trucks and buses.

Related: The Relative Economic Position of the USA is Likely to Decline – Manufacturing Cars in the USA – Rodgers on the US and Chinese Economies

September 7th, 2009 by John Hunter | 2 Comments | Tags: Economics

Saving Spurts as Spending Slashed

One factor you must understand when evaluating economic data is that the data is far from straight forward. Even theoretically it is often confusing what something like “savings rate” should represent. And even if that were completely clear the ability to get data that accurately measures what is desired is often difficult if not impossible. Therefore most often there is plenty of question about economic conditions even when examining the best available data. Learning about these realities is important if you wish to be financially literate.

Bigger U.S. Savings Than Official Stats Suggest

The official data from the Bureau of Economic Analysis say that in February personal spending was down 0.4%, or $40 billion, from the year before. Certainly any drop is bad news, since consumer spending rarely decreases – but $40 billion out of total spending of $10 trillion doesn’t seem like enough to wreak economic havoc.

A closer look, however, shows that Americans have tightened their belts more sharply than the numbers report. The reason? Official figures for personal spending include a lot of categories, such as Medicare outlays, that are not under the control of households. They also include items, such as education spending, that should be treated as investment in the future rather than current consumption.

After removing these spending categories from the data, let’s call what’s left “pocketbook” spending – the money that consumers actually lay out at retailers and other businesses. By this measure, Americans have cut consumption by $200 billion, or 3.1%, over the past year. This explains why the downturn has hit Main Street hard.
…
Finally, for technical reasons the BEA throws in some “spending” categories where no money actually changes hands. The biggest is “rent on owner-occupied housing,” the money that people supposedly pay themselves for living in their own homes. Despite the housing bust, this number rose by 2.6% over the past year, to $1.1 trillion.
…
A closer look at BEA numbers shows that Americans reduced spending by 3.1% in the past year, indicating that the savings rate has risen to 6.4%

He raises good issues to consider though I am not sure I agree 100% with his reasoning.

Related: The USA Should Reduce Personal and Government Debt – Financial Markets with Robert Shiller – Save Some of Each Raise – Over 500,000 Jobs Disappeared in November (2008)

June 8th, 2009 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy, Personal finance, Saving

Paying for Over-spending

Trading down

Americans are rediscovering thrift. Retail sales fell by 11% from their peak in late 2007 to April 2009. Personal consumption has fallen 2.5% since last summer.
…
A recent Pew poll found that 21% of Americans planned to grow their own vegetables, 16% had held a garage sale or sold things online and 10% had either taken in a friend or relative or moved in with one. Pundits are coining phrases such as “austerity chic” and “luxury shame”. Four-fifths of Americans told the BCG they would defer big purchases that can wait.
…
The beneficiaries of the new parsimony are, unsurprisingly, firms that offer low prices. The only two stocks on the Dow Jones Industrial Average that rose in 2008 were Wal-Mart and McDonald’s.
…
The hangover from this party will be long and painful. Households’ total outstanding borrowing fell in the fourth quarter of 2008, for the first time since the second world war. The personal-saving rate rose to 4.2% in the first quarter of 2009, from a nadir of minus 0.7% in 2005. “It is easy to see how consumer deleveraging could result in hundreds of billions of dollars-worth of forgone consumption in coming years,” say Martin Baily, Susan Lund and Charles Atkins of the McKinsey Global Institute.

American consumers are burdened by far too much consumer debt. And spending on non-essentials with debt is un-wise and creates personal risks and a weak (fundamentally) economy. It is true the current economic data will look good when people spend money they don’t have. But it just creates a huge burden for the future economy to cope with.

Related: USA Consumers Paying Down Debt – Too Much Personal Debt – $2,540,000,000,000 in USA Consumer Debt

June 4th, 2009 by John Hunter | Leave a Comment | Tags: Economics, Personal finance

USA Consumers Paying Down Debt

Consumer borrowing falls in March at fastest pace in over 18 years, Americans saving more

Consumer borrowing plunged in March at the fastest pace in 18 years as Americans put away their credit cards and hoarded cash amid the worst recession in decades. The Federal Reserve said Thursday that consumer borrowing dropped 5.2 percent in March, the biggest decline since an 8.1 percent fall in December 1990.

In dollar terms, consumer borrowing plunged by $11.1 billion. That’s the largest dollar amount on records dating to 1943, and more than three times the $3.5 billion drop that economists expected. The borrowing category that includes credit cards dropped 6.8 percent in March after a 12.1 percent plunge in February. The category that includes auto loans fell 4.2 percent after rising by 1.2 percent in February.

The Commerce Department last week said that the personal savings rate edged up to 4.2 percent in March, marking the first time in a decade that the savings rate has been above 4 percent for three straight months.

Good. Consumer debt is far to large and should be paid down. This is a start but a small start, but a much larger reduction in outstanding consumer debt is needed before we have reached a healthy level of debt. The continued improvement in that debt level signifies a stronger economy. Far too many financial journalists instead of pointing out the benefits of such improvement note that this reduces current consumption (and thus, effectively, will lower current GDP – compared to what it would be if we continued to spend beyond our means). You cannot spend money your don’t have forever.

Having more stuff in your house (along with an increased outstanding credit card balance) does not make you economically more successful. And the same holds true for the economy. Having more stuff sitting in people’s house and an increasing debt load is not the sign of a stronger economy (even if it is a route to a higher current GDP). Increased saving and reducing debt will strengthen the economy and improve our economic success over the long term.

Related: Will Americans Actually Save and Worsen the Recession? – Proper credit card use – Personal Saving and Personal Debt in the USA – Americans are Drowning in Debt – Buying Stuff to Feel Powerful

May 8th, 2009 by John Hunter | 4 Comments | Tags: Credit Cards, Economics, Personal finance, quote
« Previous Posts
Next Page »

Comments

Copyright © Curious Cat Investing and Economics Blog

    Personal Finance

    • Credit Card Tips
    • IRAs
    • Investment Risks
    • Loan Terms
    • Saving for Retirement
  • Archives

      All Posts
    • May 2013
    • April 2013
    • March 2013
    • February 2013
    • January 2013
    • December 2012
    • November 2012
    • October 2012
    • September 2012
    • August 2012
    • July 2012
    • June 2012
    • May 2012
    • April 2012
    • March 2012
    • February 2012
    • January 2012
    • December 2011
    • November 2011
    • October 2011
    • September 2011
    • August 2011
    • July 2011
    • June 2011
    • May 2011
    • April 2011
    • March 2011
    • February 2011
    • January 2011
    • December 2010
    • November 2010
    • October 2010
    • September 2010
    • August 2010
    • July 2010
    • June 2010
    • May 2010
    • April 2010
    • March 2010
    • February 2010
    • January 2010
    • December 2009
    • November 2009
    • October 2009
    • September 2009
    • August 2009
    • July 2009
    • June 2009
    • May 2009
    • April 2009
    • March 2009
    • February 2009
    • January 2009
    • December 2008
    • November 2008
    • October 2008
    • September 2008
    • August 2008
    • July 2008
    • June 2008
    • May 2008
    • April 2008
    • March 2008
    • February 2008
    • January 2008
    • December 2007
    • November 2007
    • October 2007
    • September 2007
    • August 2007
    • July 2007
    • June 2007
    • May 2007
    • April 2007
    • March 2007
    • February 2007
    • January 2007
    • December 2006
    • November 2006
    • October 2006
    • April 2006
    • March 2006
    • January 2006
    • December 2005
    • October 2005
    • July 2005
    • May 2005
    • April 2005
    • April 2004